UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

[   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

[ x ]X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year endedDecember 31, 20122015

or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

or

[   ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-339650-55139

Quaterra Resources Inc.QUATERRA RESOURCES INC.
(Exact name of Registrant as specified in its charter)

British Columbia, Canada
(Jurisdiction of incorporation or organization)

1100 – 1199 West Hastings Street, Vancouver, British Columbia, Canada V6E 3T5
(Address of principal executive offices)

Scott B. Hean,Lei Wang, Chief Financial Officer
1100 – 1199 West Hastings Street, Vancouver, British Columbia, Canada V6E 3T5
Phone (604) 681-9059 and Fax (604) 688-4670
(Name, telephone, e-mail and/or facsimile number and address of company contact person)

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

Securities registered or to be registered pursuant to Section 12(g) of the Act:NoneCommon Shares, no par value

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

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
162,990,836193,479,416 common shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[   ]  Yes      [ x ][X] No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
[   ] Yes     [ x ][X] No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[ x ]X] Yes     [   ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[   x ] Yes     [    ][X] No

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

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

U.S. GAAP [   ]
International Financial Reporting Standards as issued by the International Accounting Standards board [ x ][X]
Other [   ]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [   ]
Item 18 [   ]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[   ] Yes     [ x ][X] No

TABLE OF CONTENTS

References to the “Company”, “Quaterra”, “we”, “us”, “our” and words of similar meaning used in this annual report refer to Quaterra Resources Inc.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This annual report of Quaterra contains forward-looking statements about our operations and planned future activities within the meaning of applicable United States and Canadian securities legislations (“Forward-Looking Statements”). Forward-Looking Statements reflect the safe harbor for suchexpectations of management and consist of statements under the Private Securities Litigation Reform Act of 1995. Statements that are not only historical fact andbut also relate to predictions, expectations, belief, plans, projections, objectives, assumptions, future events, or future performance may be “forward-looking statements.”performance. Forward-looking statementsStatements may be identified by such terms as “believes”, “anticipates”, “expects”, “estimates”, “may”, “could”, “would”, “will”, “plan” or similar words. You are cautionedAlthough the Company believes that such information is reasonable, it can give no assurance that such expectations will prove to be correct. The Company cautions investors that any Forward-Looking Statements provided by the Company is not toa guarantee of future results or performance, and that actual results may differ materially from those in Forward-Looking Statements as a result of various estimates, risks, and uncertainties. Readers should not place undue reliance on forward-looking statements. Forward-lookingForward-Looking Statements.

Forward-Looking Statements in this annual report and in documents incorporated by reference herein include, but are not limited to, statements with regard to:

• planned exploration activity including both expected drilling and geological and geophysical related activities;
• future foreign exchange rates;
• future sources of liquidity, cash flows and their uses;
• realization of anticipated benefits of acquisitions and dispositions;
• expected levels of operating costs, general and administrative costs, costs of services and others;
• treatment under government regulation and taxation regimes.

Forward-Looking Statements are subject to a variety of known and unknown risks, uncertainties and uncertaintiesother factors which could cause actual events or results to differ from those reflected inexpressed or implied by the forward-looking statements,Forward-Looking Statements, including, without limitation:

• ourrisks related to exploration and development of natural resource properties;

• the Company’s ability to financecontinue the continued explorationMembership Interest Option Agreement with Freeport-McMoRan Nevada LLC;
• the uncertain nature of ourestimating mineral properties;
  resources and mineral reserves;

• our history of losses and expectation of future losses;

• ouruncertainty in the Company’s ability to obtain adequate financing for our planned development activities;

  funding;

• uncertainty of production at our mineral exploration properties;

  copper price fluctuations;

• recent market events and conditions;

• risks related to governmental regulations;
• risks related to the lack of Proven Mineral Reserves or Probable Mineral Reserves;
  Company’s business being subject to environmental laws and regulations;

• risks related to the impact governmental regulations, including environmental regulations;Company’s inability to meet its financial obligations under agreements to which it is a party;

• risks related to the Company’s ability to recruit and

• commodity price fluctuations.

  retain qualified personnel; and

These forward-looking statementsForward-Looking Statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time such statements were made. We undertake no obligation to update forward-looking statements should circumstances or estimates or opinions change.

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DIFFERENCES IN UNITED STATES AND CANADIAN REPORTING PRACTICES

Financial Information

All financial information in this annual report is prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by International Accounting Standards Board (“IASB”). IFRS differs in some respects from United Statesaccounting principles generally accepted accounting principles,in the United States, (“U.S. GAAP”), and thus our financial statements may not be comparable to financial statements of United States companies. The term Canadian generally accepted accounting principles (“Canadian GAAP”) refers to the accounting principles and standards before the adoption of IFRS.

Resource and Reserve Estimates

None of the Company’s properties have Mineral Reserves. Disclosure about the Company’s exploration properties in this Annual Report on Form 20-F uses the term “Mineral Resources”, “Measured Mineral Resources”, “Indicated Mineral Resources” and “Inferred Mineral Resources”, which are Canadian geological and mining terms as defined in accordance with National Instrument 43-101 (“NI 43-101”), standards of disclosure for mineral projects of the Canadian Securities Administrators, set out in the Canadian Institute of Mining (CIM)(“CIM”) Standards. These terms are not defined in the U.S. Securities and Exchange Commission (SEC)(“SEC”) Industry Guide 7,Description of Property by Issuers Engaged or to be engaged in Significant Mining Operations, and are normally not permitted to be used in reports and registration statements filed with the SEC. Accordingly, information contained in this Annual Report on Form 20-F contain descriptions of our mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

Cautionary Note to U.S. Readers concerning estimates of Measured Mineral Resources and Indicated Mineral Resources:This Annual Report on Form 20-F may use the terms “Mineral Resources,” “Measured Mineral Resource” and “Indicated Mineral Resource.” The Company advises U.S. investors that while such terms are recognized and permitted under Canadian regulations, the SEC does not recognize them. U.S. investors are cautioned not to assume that any part or all of the Mineral Resources in these categories will ever be converted into Mineral Reserves.

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Cautionary Note to U.S. Readers concerning estimates of Inferred Mineral Resources:This Annual Report on Form 20-F may use the term “Inferred Mineral Resource.” The Company advises U.S. investors that while such a term is recognized and permitted under Canadian regulations, the SEC does not recognize it. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. U.S. investors are cautioned not to assume that any part of all of the Inferred Mineral Resources exist, or is economically or legally mineable.

EMERGING GROWTH COMPANY STATUS

The Company is an “emerging growth company” as defined in section 3(a) of the U.S. Securities Exchange Act of 1934 (as amended by the U.S. Jumpstart Our Business Startups Act (the “JOBS Act”), enacted on April 5, 2012), and the Company will continue to qualify as an “emerging growth company” until the earliest to occur of: (a) the last day of the fiscal year during which the Company has total annual gross revenues of US$1,000,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement under the U.S. Securities Act of 1933, as amended; (c) the date on which the Company has, during the previous three-year period, issued more than US$1,000,000,000 in non-convertible debt; or (d) the date on which the Company is deemed to be a ‘large accelerated filer’, as defined in Rule 12b–2 of the U.S. Securities Exchange Act of 1934, as amended. The Company expects that it will continue to qualify as an emerging growth company for the foreseeable future.

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GLOSSARY OF GEOLOGIC AND MINING TERMS

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GLOSSARY OF ABBREVIATIONS

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CONVERSION TABLES

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

The following table sets forth our selected consolidated financial data for the five years ended December 31, 20122015 prepared in accordance with IFRS as issued by IASB for the years ended December 31, 2015, 2014, 2013, 2012, 2011 and 2010 and Canadian GAAP for the years ended December 31, 2009 and 2008.2011. This information should be read in conjunction with our consolidated financial statements included in Item 17 of this annual report.

(1) The adoption of IFRS by the Company did not require restatement of fiscal years prior to 2010.B.        Capitalization and Indebtedness

Exchange Rate DataNot applicable.

Unless otherwise indicated, all monetary references herein are denominated in Canadian Dollars. References to “$” or “Dollars” are to Canadian Dollars and references to “US$” or “U.S. Dollars” are to United States Dollars.

For the past five fiscal years ended December 31, 2012, the average rates calculated by using the average of the exchange rates on the last day of each month during the period) and for each of the previous six months, the high and low exchange rates for Canadian dollars expressed in terms of U.S. dollars (i.e., U.S. dollars required to purchase one Canadian dollar). The information was provided by the Bank of Canada:

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     On March 28 2013, the ending exchange rateC.        Reasons for the conversionOffer and Use of one U.S. dollar into one Canadian dollar was 1.0156.Proceeds

Not applicable.

Not applicable.

RISK FACTORS

Investing in common stock of Quaterra Resources Inc. (the “Company” or Quaterra”) involvesThe Company’s securities should be considered a high degree of risk. Before deciding to purchase, hold or sell the Company’s common stock, youhighly speculative investment and investors should carefully consider all of the risks described below in addition to the cautionary statements and risks described elsewhere and the other information contained in this 20-F anddisclosed in the Company’s Canadian and U.S. regulatory filings prior to making an investment in the Company.

Resource exploration and development is a speculative business, characterized by a number of significant risks including, among other filings with securities regulatory authorities. The risks and uncertainties described belowthings, unprofitable efforts resulting not only from the failure to discover mineral deposits but also from finding mineral deposits, which, though present, are notinsufficient in quantity and/or quality to return a profit from production. Without limiting the foregoing, the following risk factors should be given special consideration when evaluating an investment in the Company’s only ones.securities. Additional risks and uncertainties not presentlycurrently known to the QuaterraCompany, or that Quaterrathe Company currently deems immaterial, may also impair the Company’s business operations. If any of these known or unknown risks or uncertainties actually occurs with material adverse effects on Quaterra, the Company’s business, financial condition, results of operations and/or liquidity could be seriously harmed, which could cause the Company’s actual results to vary materially from recent results or from the Company’s anticipated future results. In addition, the trading price of the Company’s common stock could decline due to any of these known or unknown risks or uncertainties, and you could lose all or part of your investment.

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The Company may not have sufficient fundsrequire additional funding to complete further exploration programs.

The Company does not generate operating revenue and must finance exploration activity by other means, such as raising funds through the sale of equity,non-core assets, optioning certain property interests, such as the Yerington project copper assets (the “Yerington Assets”) to Freeport-McMoRan Nevada LLC, the outright sale of properties, and finally, the issuance of debt and/or property interests.equity. The Company cannot provide any assurance that additional funding will be available for further exploration of the Company’s projects or to fulfill anticipated obligations under existing property agreements. As

Failure to obtain necessary financing could result in delay or postponement of December 31, 2012,further exploration and development, and the property interests of the Company had working capitalwith the possible dilution or loss of $2,056,809,such interests. Further, financing will depend upon the success of exploration programs and as of March 27, 2013, thegeneral market conditions for nature resources.

The Company has cash on handa history of approximately $200,000.losses and anticipates to incur losses for the foreseeable future.

Although management is confident that it will be able to raise sufficient fundsThe Company has had a history of losses. None of the Company’s properties are currently in production, and there is no assurancecertainty that the Company will succeed in placing any of its properties into production in the near future, if at the date these consolidated financial statements were approved that these financing initiatives will be successful. The lack of sufficient committed fundingall.

Quaterra anticipates continued losses for the next 12 months indicates a material uncertainty, which casts substantial doubt overforeseeable future until one or more of the properties enters into commercial production and generates sufficient revenues to fund the Company’s ability to continue as a going concern. These consolidated financial statements do not include the adjustments that would result if the Company is unable to continue as a going concern.continuing operations.

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Management has planned levels of exploration spending on the Company’s properties with an expectation that future capital raises would provide the necessary funding, which includes equity financing, joint venture partners’ contributions, and/or realizing the carrying amount through the sale of mineral property interests.

Future equity transactions could cause dilution of present and prospective shareholders.

Historically, the Company has financed operations through private placements. Inthe sale of equity securities including convertible into equity securities or sale of its mineral interests. The Company may issue additional equity securities in order to finance future operations and development efforts, the Company may raise funds through the issuance of common shares or the securities convertible into common shares through private placements or public offerings. The common shares in these financings often are sold at a discount to market prices, and the exercise price of the warrants sometimes is at or may be lower than market prices.efforts. The Company cannot predict the size and terms of future issuesissuances of common sharesequity securities or the issue of securities convertible into common shares or the effect, if any, that issues and sales of the Company’s common shares will have on the market price of its common shares.debt instruments. Any transaction involving the issue of common shares,equity securities or securities or convertible into common shares, could result in dilution, possibly substantial, to present and prospective holders of common shares, either at the time of the financing or subsequently when restrictions if any expire and the common shares are resold into the public markets.

The Company has a history of losses and expects to incur losses for the foreseeable future.

The Company has incurred losses during each of the prior five years in the amounts of $32,710,358. As of December 31, 2012,security holders. Similarly, the Company had an accumulated deficitcannot predict the value of $62,981,604. Quaterra expects to continue to incur losses unless and until such time as one or moreany asset sale nor its effect on the market price of the properties enter into commercial production and generate sufficient revenues to fund the Company’s continuing operations.its common shares.

The Company’s exploration programs may not result in a commercial mining operation.

Mineral exploration involves significant risk because few properties that are explored contain bodies of ore that would be commercially economic to develop into producing mines. Quaterra’s mineral properties are without a known body of commercial ore and the proposed programs are an exploratory search for ore. The Company cannot provide any assurance that current exploration programs will result in any commercial mining operation. If the exploration programs do not result in the discovery of commercial ore, the Company will be required to acquire additional properties and write-off all investments in existing properties.

The Company does not have Proven Mineral Reserves or Probable Mineral Reserves.

The Company has not established the presence of any Proven Mineral Reserves or Probable Mineral Reserves (as such terms are defined in NI 43-101 of the Canadian Securities Administrators); please refer to “Disclosure of Mineral Resources” in the Preliminary Notes to this annual report)43-101) at any of Quaterra’s mineral properties. The Company cannot provide any assurance that future feasibility studies will establish Proven Mineral Reserves or Probable Mineral Reserves at Quaterra’s properties. The failure to establish Proven Mineral Reserves or Probable Mineral Reserves could restrict the Company’s ability to successfully implement its strategies for long-term growth.

Mineral resource estimates are subject to updates which may differ from prior estimates and adversely affect the value of the Company’s properties.

The estimating of mineralization is a subjective process and the accuracy of estimates is a function of the quantity and quality of available data, the accuracy of statistical computations, and the assumptions used and judgments made in interpreting engineering and geological information. There is significant uncertainty in any mineralization estimate,these Mineral Resource estimates, and the actual deposits encountered and the economic viability of mining a deposit may differ significantly from our estimates. From time to time, Quaterra obtains updated resource estimates and technical reports related to the Company’s mineral properties.

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The Company’s future business and financial condition are dependent upon resource prices.

Resource prices have fluctuated widely, particularly in recent years, and are affected by numerous factors beyond the Company’s control. These include international economic and political trends, inflation, currency exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities and increased production due to new and improved extraction and production methods. These factors may negatively affect the marketability of any ore or minerals discovered at, and extracted from, Quaterra’s properties. If, because of a sustained decline in prices, financing werewas not available to meet cash operating costs, the feasibility of continuing operations would be evaluated and if warranted, would be discontinued.

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The Company’s common share price has been and may continue to be subject to volatility.

U.S. and Canadian securities markets in recent years have experienced high levels of price and volume volatility, and the market price of securities of many companies have experienceexperienced wide fluctuationfluctuations in price which have not necessarily been related to the operating performance for underlying assets values or prospects of such companies. Factors unrelated to Quaterra’s financial performance or prospects include macroeconomic developments in North America and globally, and market perceptions of the attractiveness of particular industries. The Company’s share price, financial condition, and results of operations are all also likely to be significantly affected by short-term changes in uranium,copper, gold, silver and coppersilver prices. Continual fluctuations in metal prices may occur. As a result of any of these factors, the market price of the Company’s shares at any given point in time may be subject to wide swings unrelated to any direct action by Quaterra’s operations.

Some of the Company’s directors and officers may have conflicts of interest due to their involvement with other natural resource companies.

Some the Company’s directors and officers are directors or officers of other natural resource or mining-related companies and these associations may give rise to conflicts of interest from time to time. As a result of these conflicts of interest, Quaterra may miss the opportunity to participate in certain transactions, which may have a material, adverse effect on the Company’s financial position.

The Company may experience difficulty attracting and retaining qualified management to grow Quaterra’s business.

The Company is dependent on the services of key executives including the Chief Executive Officer and other highly skilled and experienced executives and personnel focused on advancing corporate objectives as well as the identification of new opportunities for growth and funding. Due to the Company’s relatively small size, the loss of these persons or the Quaterra’s inability to attract and retain additional highly skilled employees required for activities may have a material adverse effect on the Company’s business and financial condition.

The Company may be limited in its ability to manage growth.

Should the Company be successful in its efforts to develop mineral properties or to raise capital for such development or for the development of other mining ventures, it may experience significant growth in operations. Any expansion of the Company’s business would place demands on management, operational capacity, and financial resources. The Company anticipates that it will need to recruit qualified personnel in all areas of operations. There can be no assurance that Quaterra will be effective in retaining current personnel or attracting and retaining additional qualified personnel, expanding operational capacity or otherwise managing growth. The failure to manage growth effectively could have a material adverse effect on the Company’s business, financial condition and results of operations.

Environmental and other regulatory requirements may limit the Company’s operations and increase expenses.

The Company’s operations are subject to environmental regulations promulgated by various Canadian, U.S., and Mexican government agencies. Claims and current and future operations will be governed by laws and regulations governing mineral concession acquisition, prospecting, development, mining, production, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Companies such as ours that engage in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Issuance of permits for Quaterra’s exploration activities is subject to the discretion of government authorities, and the Company may be unable to obtain or maintain such permits. Permits required for future exploration or development may not be obtainable on reasonable terms or on a timely basis. Existing and possible future laws, regulations and permits governing operations and activities of exploration companies, or more stringent implementation thereof, could have a material adverse impact and cause increases in capital expenditures or require abandonment or delays in exploration.

The Company’s Arizona uranium claims are subject to a U.S. government order withdrawing new mining claims.

On January- 9 2012, the U.S. Department of the Interior announced a Public Land Order to withdraw approximately one million acres of federal land for a twenty year period. The stated effect of the withdrawal order is to withdraw the acreage from new mining claims and sites under the 1872 Mining Law, subject to “valid existing rights” and does not prohibit previously approved uranium mining, or development of new projects that could be approved on claims and sites with “valid existing rights.” The withdrawal order affects all of the Company’s unpatented Arizona uranium claims on federal lands but does not affect future exploration or development on the Company’s 5.9 square miles of state leases in Arizona. Some of the Company’s mineral claims on federal lands may be excluded from the withdrawal order depending on how the U.S. Bureau of Land Management interprets and applies “valid existing rights.” The Company believes that its exploration and development efforts have enhanced several of claims to the point where they could be developed based upon existing rights. The Company has filed lawsuits against the U.S. Department of Interior and Bureau of Land Management challenging the withdrawal order. The withdrawal order also is subject to various litigation by third parties. Unless it is revoked or overturned, the withdrawal may inhibit the Company’s ability to implement its strategy for and adversely affect the value of the Arizona uranium claims.

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Operating hazards associated with mining may expose the Company to liability.

Mining operations generally involve a high degree of risk, including hazards such as fire, explosion, floods, structural collapses, industry accidents, unusual or unexpected geological formations. Operationsconditions, power outages, cave-ins, inclement weather, and mechanical equipment failure in which the Company has an interest are subject to all the hazardsCompany’s operations. These and risks normally incidental to exploration, development and production of minerals, any of which couldothers may result in work stoppages, damage to or destruction of mines and other producing facilities, damage to or loss of life and property, environmental damage and possible legal liability for any or all damage or loss. The Company currently does not maintain standard insurance policies on Quaterra’s properties. The Company may become subject to liability for cave-ins and other hazards for which cannot be fully insured or against which

Safety measures implemented by the Company may elect not be able to insure where premium costs are disproportionateobtain insurance to cover these risks at economically feasible premiums or at all. Insurance against certain environmental risks is not generally available to the Company’s perception ofCompany or to other companies within the relevant risks. For example, the Company is not currently covered by any form of political risk insurance or any form of environmental liability insurance. The payment of such insurance premiums and the incurring of such liabilities would reduce the funds available for exploration activities.mining industry.

The Company’s properties may be subject to uncertain title.title

The acquisition of title to resource properties or interest therein is a very detailed and time consuming process. Title to and the area of resource concessions may be disputed. The Company has investigated title to all of its mineral properties and, to the best of the Company’s knowledge, title to all of Quaterra’s properties are in good standing.

The properties may be subject to prior, and in some cases, not fully ascertainable unregistered agreements or transfers, and title may be affected by undetected defects. Title may be based upon interpretation of a country’s laws, which laws may be ambiguous, inconsistently applied and subject to reinterpretation or change.

Enforcement of judgments or bringing actions outside the United States against the Company and its directors and officers may be difficult.

Quaterra is organized under the law of and headquartered in British Columbia, Canada, and the majorityseveral of the Company’s directors and officers are not citizens or residents of the U.S. In addition, a substantial part of the Company’s assets are located outside the U.S. and Canada. As a result, it may be difficult or impossible for youone to (a) enforce in courts outside the U.S. judgments against the Company and a majority of Quaterra’s directors and officers, obtained in U.S. courts based upon the civil liability provisions of U.S. federal securities laws or (b) bring in courts outside the U.S. an original action against the Company and its directors and officers to enforce liabilities based upon such U.S. securities laws.

Quaterra was incorporated under the Company Act (British Columbia) on May 11, 1993 originally under the name Acquaterre Mineral Development Ltd. On November 30, 1993, the Company changed its name to Aquaterre Mineral Development Ltd. and ultimately became Quaterra Resources Inc. on October 23, 1997. Quaterra’s domicile is British Columbia, Canada and the Company operates under the British Columbia Business Corporations Act SBC 2002 Chapter 57.

On March 4, 1997, the Company increased its authorized capital from 20,000,000 common shares without par value to 100,000,000 common shares without par value.

On October 23, 1997, the Company consolidated its issued and un-issued share capital on the basis of five pre-consolidation shares for one post-consolidation share, and increased its authorized capital to 100,000,000 common shares without par value.

On August 3, 1998, the Company cancelled its previous form of Articles and adopted a new form of Articles.

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On April 25, 2005, the Company completed the transition procedures in accordance with the Business Corporations Act (British Columbia), (the “New Act”).

On June 17, 2005, the Company increased the number of common shares which were authorized to issue to an unlimited number of common shares and, on June 13, 2005, cancelled its former Articles and adopted new Articles to take advantage of provisions of the New Act. The New Act was adopted in British Columbia on March 29, 2004 replacing the Company Act (the “Former Act”). The New Act requires the provisions formerly required in the Memorandum to be in the Company’s Articles. The New Act eliminates the requirement for a Memorandum.

The Company’s registered office is located at 17101200 – 1177750 West HastingsPender Street, Vancouver, B.C. V6E 2L3. TelephoneBritish Columbia, Canada, V6C 2T8, Telephone: (604) 641-2764.681-1194. The Company’s head office is located at 1100 – 1199 West Hastings Street, Vancouver, British Columbia, Canada V6E 3T5. Telephone: (604) 684-9384, Facsimile: (604) 641-2740. Our agent for service of process in the United States is CT Corporation System, 818 West Seventh Street, Los Angeles, California, 90017, (213) 627-8252. We confirm the annual fees have been paid. The Company��sCompany’s website is www.quaterraresources.com.www.quaterra.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 20-F.

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Since our incorporation, substantially all of our capital has been deployed to the development of our exploration stage business. We have not undertaken any material mergers or acquisitions other than in the ordinary course of business. There have been no public takeover offers by third parties with respect to our shares and we have made no public takeover offers with respect to another company’s shares.

QuaterraB.        Business Overview

The Company is a mineral exploration company engaged in the acquisition, exploration and development of copper projects in Nevada, United States. The Company considers itself to be an advanced exploration stage company focusedcompany. The amounts shown as mineral properties represent costs incurred to date, less amounts amortized and/or written off, and do not necessarily represent present or future values. The underlying value of mineral properties and related capitalized costs are dependent on the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, and obtaining necessary financing.

Three Year History

During the three year period under review, the Company decided to concentrate on exploration and development of mineralits Yerington, Nevada copper property and to discontinue operations at other properties in North America. Theother jurisdictions. Accordingly, a number of option agreements were terminated and properties were sold or returned to optionors as more particularly set out below. Details of relevant agreements and operations are set out hereunder as “Part A – Yerington” and “Part B – Other Properties”.

PART A - YERINGTON

Yerington Nevada Copper Project

Freeport Agreements

On June 16, 2014, the Company, is currently exploringthrough its subsidiary Singatse Peak Services (“SPS”), announced the entering into of a Membership Interest and Option Agreement (the “Option Agreement”) with Freeport-McMoRan Nevada LLC (“Freeport Nevada”) which set out the terms for gold, silver,due diligence and exploration of the Company’s Yerington Assets, including the MacArthur oxide and sulfide deposits (the “MacArthur Deposit”); the Yerington pit oxide-sulfide deposit previously mined by the Anaconda Company (the “Yerington Pit”); the Bear porphyry copper uranium, molybdenum,deposit (the “Bear Deposit”) and precious metalsall other properties that SPS and Quaterra control in the United StatesYerington District.

Details of the Option Agreement are summarized as follows:

• Under the Option Agreement, after conducting additional due diligence about SPS, Freeport Nevada has the right to earn an initial 55% interest in SPS by providing option payments to SPS to complete a three- stage investigation and Mexico. Quaterra’s exploration efforts are directed at properties thatwork program totalling $40.75 million in project funding. During these stages, Freeport Nevada provides option payments to SPS to be used for property maintenance, G&A, environmental compliance and, in later stages, exploration. Freeport Nevada can earn a further 20% interest in SPS (increasing its holding to 75%) should it elect to fund SPS with a further $97.85 million of spending, or complete a feasibility study, whichever comes first.
• On June 15, 2015, Freeport Nevada elected to enter into Stage 2 of the Company believes has potentialOption Agreement, involving option payments of $7.15 million to host large base metal, precious metal,SPS over the 12-month period for property maintenance costs; a drilling program; G&A; and uranium deposits. When identifying prospects,environmental compliance.
• During the Company’s consideration include24-month third stage of the following criteria: infrastructure; environment and location that is favorable for building a mine; large tonnage and/or high grade potential; and opportunityagreement Freeport Nevada may fund up to $31.1 million, earning it the right to acquire a 100%55% interest under reasonable terms.in SPS.
• If Freeport Nevada chooses to proceed beyond Stage 3, it can elect to fund a further $97.85 million, or fund the costs of completion of a feasibility study, to earn an additional 20% interest for a total 75% interest in SPS (the “Additional Sole Funding”). Alternatively, Freeport Nevada can choose to fund with Quaterra, proportional to their 55% and 45% respective working interests. If Freeport Nevada completes the Additional Sole Funding, Quaterra may elect to fund 25% of project expenditures or transfer an additional 5% interest to Freeport Nevada for up to $50 million additional spending in the projects.
• At any time when the parties are proportionally funding their share of costs, and before an affirmative decision to begin production, a non-funding party will suffer ordinary dilution. Should either party’s interest fall below 10%, it will be converted into a 1% NSR royalty. After a production decision, a non-funding party will dilute to a 1% NSR royalty.

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Yerington Ancillary Agreements

On January 6, 2010, Quaterra signedIn December 2013, the Company announced the signing of four exclusive exploration and option agreements totalling 1,305 acres of private land north and east of the Yerington Pit site that covers additional portions of the Bear Deposit. In May 2015, the Company entered into an option agreement with La Cuesta International Inc. for an option to acquire a 100% interest in four mineral concessions located in Durango, Mexico known as the Santo Domingo Prospect. Total consideration consistsfifth property covering approximately 1,050 acres of US$7.5million in cash payments, 100,000 sharesadditional private land covering a portion of the CompanyBear Deposit. Under the terms of the five option agreements, Quaterra (now SPS) has an exclusive right to acquire these properties with all mineral rights and $50,000 in work expenditure.certain water rights, and to explore these parcels.

PART B - OTHER PROPERTIES

Goldcorp Agreements – Mexico

On January 29, 2010, Quaterra entered into an Investment Framework Agreement (IFA)(the “IFA”) with Goldcorp Inc. (“Goldcorp”) of Vancouver, B.C. Under the IFA, Goldcorp received an option to acquire up to 65% in any the Company’s properties in the central Mexico Interest, with the exception of Nieves, by spending $2 million over a two-year period on advanced exploration and by completing a bankable feasibility. In return, to fund generative exploration by Quaterra, Goldcorp agreed to invest US$10 million in the Company over two years.

On February 4, 2010, Quaterra completed a private placement of 3,001,418 units for gross proceeds of US$4.0 million ($4,231,999) received from Goldcorp pursuant to the IFA. Each unit consisted of one common share and one-half of one share warrant with an exercise price of $1.76 per full warrant expiring February 4, 2012.

On June 17, 2010, Quaterra signed an option agreement with Grande Portage Resources for the Herbert Glacier property. In accordance with the terms of the agreement, Grand Portage earned a 51% interest by spending US$750,000 on or before June 15, 2011 and exercised an option to earn an additional 14% interest by spending US$500,000 on or before June 15, 2012.

In August 2010, Quaterra entered into a lease with an option to purchase certain mining claims, known as the Klondike and Reveille in Eureka and Nye County, Nevada. The total consideration is US$2,000,000 over 10 years. In 2011 Klondike was deemed to be impaired due to lack of exploration merits.

On October 27, 2010, Quaterra completed a brokered private placement of 11,724,200 units for gross proceeds of $17,000,090. Each unit consisted of one common share and one-half of one common share purchase warrant with an exercise price of $1.90 per full warrant expiring on October 27, 2012. The Company also issued 703,452 non-transferable compensation options to the agent at an exercise price of $1.45 per unit with the same terms.

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On January 1, 2011, the Company entered into an option agreement with North Exploration LLC to acquire 41 mining claims in White Pine County, Nevada, known as Butte Valley property. The Company can earn a 100% interest in the claims by making staged payments totaling US$1 million. The Company has an option at any time to purchase the property for the difference between US$1 million and the sum of amounts previously paid or if the full amounts have been paid under the above the sum of US$1. The property is subject to 2.5% NSR upon commencement of commercial production of which 1% can be bought down for US$1 million.

On February7, 2011 Quaterra completed a private placement of 3,293,407 units for gross proceeds of US$6.0M (C$5,994,000) received from Goldcorp pursuant to the IFA. Each unit consisted of one common share and one-half of one share warrant with an exercise price of $2.27 per full warrant expiring February 7, 2013.

On April 27, 2011, Quaterra completed the purchase of the Yerington property from Arimetco, Inc. Assets purchased include 4.2 square miles of patented claims and fee mineral properties centered on the former Anaconda open pit copper mine containing an historic resource estimate in excess of four billion pounds of copper, and 8,600 acre feet per year of water rights. This property, together with 9.3 and 13.2 square miles of unpatented claims at Yerington and nearby MacArthur respectively, provides the Company with a significant land position in the center of a copper camp. Quaterra has paid the remaining cash acquisition cost and has released 250,000 common shares of the Company stock previously issued and under escrow.

On May 12, 2011, pursuant to its January 1, 2011 option, Quaterra announced its acquisition of the Butte Valley porphyry copper prospect, located in White Pine County, Nevada. The property consists of approximately 45 square miles of mineral rights obtained by optioning and staking a total of 1,483 unpatented U.S. lode claims.

On May 26, 2011, the Company entered into a mining lease with an option to purchase agreement with Majuba Mining Ltd. to earn an interest in certain unpatented mining claims in Lyon County, Nevada, for US$1.61 million. The company is required to incur a total of US$300,000 exploration work on or before the third anniversary and any difference between the actual expenditures and US$300,000 is required to be paid in the event that less than US$300,000 is so expended. The project is subject to 3% NSR upon commencing commercial production of which 1% can be bought at US$1,500,000.

On June 15, 2011, the Company entered into an option agreement with Nevada Alaska Mining Co., Inc. to acquire a 100% interest in certain mining claims in Esmeralda County, Nevada for US$1 million over ten years. A 2% NSR is required upon commercial production.

On July 4, 2011, Quaterra announced that it has finalized an option agreement with La Cuesta International, Inc. (LCI) to acquire a 100% interest in the Microondas prospect located in Zacatecas State, Mexico, about 17 kilometers south-southeast of Rio Grande. Quaterra has the right to earn a 100% interest in the property by making semi-annual lease/pre-production payments and paying a 1% Net Smelter Return royalty (“NSR”) payment that is capped at US$5 million. A portion of the property carries an uncapped 2% NSR royalty. Quaterra, at its option, may issue to LCI 20,000 common shares or its cash equivalent on or before June 12, 2012.

On August 1, 2011, the Company entered into an option agreement with a private owner to acquire a 100% interest in certain mining claims situated in Lyon County, Nevada for US$500,000. The Company has an option at any time to purchase the property for the difference between US$500,000 and the sum of the amount previously paid.

On October 20, 2011, Quaterra added two properties to the Goldcorp IFA: El Calvo gold, located in the central Mexican state of San Luis Potosi, and Microondas gold-silver, located in Zacatecas State, Mexico.

On October 26, 2011, as contemplated by their June 17, 2010 agreement, Quaterra entered into a joint venture agreement with Grande Portage Resources Ltd. for the Herbert Glacier gold project located near Juneau, Alaska. Grande Portage has acquired a 65% interest and the Company retains a 35% interest in this project. Each party has agreed to bear its proportionate share of costs for the further exploration and development of the project.

On March 21, 2012,. Quaterra entered into an Amended and Restated Investment Framework Agreement (“ARIFA”) with Goldcorp Inc. (“Goldcorp”) of Vancouver, B.C. This agreement extends the IFA entered into with Goldcorp on January 29, 2010March 21, 2012 (the “Amended IFA”), in order to extend the IFA through the first quarter of 2013.

On April 12, 2012, Quaterra received $2.48 million from Goldcorp to fund additional exploration on certain properties in Mexico by issuing 4 million shares at the price of $0.62 per share.

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On October June 10, 2013, Quaterra and Goldcorp entered into a further amendment agreement with respect to the IFA. This amendment extended expiration for the designation of Advanced Properties (as defined in the IFA) from January 2014 to January 2016. The amended terms include:

• lowering the spending requirement to earn a 2% NSR royalty to CAD$1 million over first three years from CAD$2 2012,million over two years;
• lowering the minimum annual expenditure requirement after three years to CAD$250,000 from CAD$1.0 million; and
• allowing Goldcorp to pool expenditures from other projects to one project to meet the earn-in requirement described above. Goldcorp could earn a 70% interest in any Advanced Property by completing a feasibility study (increased from 65%). At the time a production decision was made, the Company could either participate at 30% or ask Goldcorp to underwrite loan guarantees in return for an additional 6% interest in the property.

In September 2013, Quaterra and Goldcorp agreed that it was to the mutual benefit of both parties to reduce the number and size of properties currently in the IFA in response to changes in Mexico’s property tax and assessment work requirements. On September 19, 2013, Quaterra sold three properties (Sabino, Marijo, and El Calvo) in central Mexico to Goldcorp for a total cash consideration of $375,000. Quaterra retained a 2% NSR on each of the three properties capped at $2,000,000 per property.

Quaterra and its Butte Valley copper projectsubsidiaries are no longer active in Mexico. The IFA expired on January 29, 2016.

Santo Domingo Property

On November 19, 2013, the Company entered into an amendment agreement with La Cuesta International, Inc. (“La Cuesta”) with respect to Freeport-McMoRan Exploration Corporationthe Santo Domingo property, pursuant to which the Company issued 347,150 common shares in satisfaction of Phoenix,two property payments. On the same date, the Company entered into an amendment agreement with La Cuesta with respect to the Microondas property, pursuant to which the Company issued 321,430 common shares in satisfaction of two property payments. Subsequently, both properties have been dropped by Quaterra with no further obligation.

Uranium Properties

On March 14, 2014, the Company closed a transaction to sell its uranium properties and assets located in the states of Arizona, Utah and Wyoming for gross proceeds of CAD$500,000. On April 30, 2014, the Company received an $85,000 reclamation bond refund related to the uranium properties sold.

Copper and Molybdenum Properties

On October 3, 2014, the Company completed a sale of its residual interests (including royalties in three non-core copper and molybdenum assets: Butte Valley, Nevada; SW Tintic, Utah; and Cave Peak, Texas) to Freeport-McMoRan Mineral Properties Inc. (“FMMP”) for $5.0 million (the “Purchase Price”). $1.0 million of the Purchase Price was paid at closing with the balance payable to the Company in $500,000 quarterly increments commencing January 1, 2015 for eight consecutive quarters. On October 3, 2014, the Company issued 19 million common share purchase warrants to FMMP. Each warrant entitles FMMP to purchase one common share of the Company at a price of $0.16 per share for five years, subject to vesting and termination provisions corresponding to the payment of the Purchase Price in tranches.

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Nieves, Mexico Silver Property

On December 29, 2014, the Company entered into an agreement respecting the sale of its 50% indirect interest in the Nieves silver property in Zacatecas State, Mexico (the “Nieves Property”) to its joint-venture partner Blackberry Ventures I, LLC (“Blackberry”), for US$2 million.4.0 million (the “Blackberry Agreement”). Under the terms of the Blackberry Agreement, the purchase price is payable in four payments of US$1 million each over 15 months, with each payment earning Blackberry an additional 12.5% interest in the project. All costs for maintaining and exploring the Nieves Property will be the sole responsibility of Blackberry, with no dilution to Quaterra, through the end of 2015 or until Blackberry completes the acquisition, whichever is earlier. Upon closing, Blackberry will become the operator of the Nieves Property. In the event that Blackberry subsequently sells the property, Quaterra will receive 5% of the future net sale price. In addition, Quaterra agreed to transfer its Americas claims in Durango State, Mexico, adjacent to Hecla Mining’s San Sebastian project, to Blackberry. The Blackberry Agreement was subsequently amended by agreements dated September 1, 2015, November 12, 2015 and February 26, 2016 to reduce the purchase price by $500,000, increase Quaterra’s portion of the future net sales price from 5% to 7.5% and to extend the final closing date to June 1, 2016.

Finance and Equity issuances

On December 28, 2012, Quaterrathe Company completed a private placement (the “2012 Private Placement”) of 6,541,571 units at the price of US$0.35 per unit for gross proceeds of US$2,289,550. Each unit consisted of one common share and one common share purchase warrant with an exercise price of US$0.53 per warrant expiringwarrant. On July 18, 2014, the Company decreased the exercise price of the warrants from CAD$0.53 to CAD$0.16 per warrant. The warrants expired unexercised on December 28, 2014.

On March 28, June 5 and July 4, 2013, the Company borrowed $800,000 as unsecured loans at an interest rate of 10% per annum from its Chairman of the board, Thomas Patton. As of December 31, 2013, $200,000 was repaid and the balance of US$600,000 was amended on March 18, 2014 to a demand basis with a 40-day notice period. As of December 29, 2014, the Company had repaid all loans and related interest owed to the Chairman.

On September 13, 2013, Quaterra completed a private placement of 29,810,000 units at the price of $0.10 per unit for gross proceeds of $2,981,000. Each unit consisted of one common share and one common share purchase warrant with an exercise price of $0.15 per warrant expiring September 13, 2016.

On July 2, 2014, the Company completed a non-brokered private placement of $500,000 of units. Each unit consisted of one non-transferable convertible redeemable US$1,000 principal amount promissory note (a “Note”) and 11,442 non-transferable common share purchase warrants. The Company issued $500,000 Notes and 5,721,000 warrants exercisable at $0.16 per share until January 2, 2016, subject to acceleration right of the Company. On December 30, 2015, the expiry date of the warrants was extended to January 2, 2017. Other terms remain unchanged.

For more information about our business, please refer to Item 4.D “Property,–“Property, Plants and Equipment” below.

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Inter-corporate Relationships

The flow chart below presents the Company’s legal corporate structure and the jurisdictions of the incorporation.

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GENERAL DEVELOPMENT OF THE BUSINESS

Quaterra’s Yerington Assets – located in the historic Yerington Copper District, about 70 miles southeast of Reno, Nevada – consist of the MacArthur Deposit, the Yerington Pit, the Bear Deposit and a number of untested exploration targets. Quaterra’s 51 square-mile land package is situated in a mining-friendly jurisdiction with a history of copper production and good infrastructure. It also owns valuable water rights in the district.

Since signing the Option Agreement with Freeport Nevada in June 2014, the Company has focused exclusively on the Bear Deposit because of its very large size, favorable historic drilling results and potential for higher copper grades than district averages. With exploration success, the Bear Deposit could become the catalyst to expedite development of the entire district.

MacArthur Deposit, Nevada, USA

Acquisition and Staking of Mineral Claims

The MacArthur Deposit consists of 897 unpatented lode claims totaling approximately 18,533 acres on lands administered by the US Bureau of Land Management (“BLM”). A significant number of the claims are held by means of a mineral lease with an option to purchase, executed with North Exploration LLC (“North”) on August 27, 2005, and subsequently amended. The final payment of $212,000 plus interest to North was made on February 10, 2015. Quaterra’s purchase is subject to a 2% NSR royalty, 1% of which may be purchased for $1,000,000, leaving a perpetual 1% NSR. The agreement with North is in good standing.

Expenditures to Date

Acquisition costs incurred by the Company for the MacArthur Deposit to December 31, 2015 were $3,501,065 (2014 - $3,132,901) and exploration expenditures were $16,907,070 (2014 - $16,945,752) for a total of $20,408,134 (2014 - $20,078,653) before the Option Agreement funding received from Freeport Nevada.

Location, Access and Infrastructure

The MacArthur Deposit is located near the geographic center of Lyon County, Nevada, USA along the northeastern flank of the Singatse Range approximately seven miles northwest of the town of Yerington, Nevada. The project is accessible from Yerington by approximately five miles of paved roads and two miles of maintained gravel road. A 100-foot wide gravel haul road that accessed the MacArthur Deposit open pit copper mine during the 1990s leads five miles south to the Yerington Pit. Beyond the MacArthur Deposit pit area are several existing historic two-track dirt roads that provide access throughout the property. Topographic coverage is on US Geological Survey “Mason Butte” and “Lincoln Flat” 7.5’ topographic quadrangles. The nearest major city is Reno, Nevada approximately 70 miles to the northwest.

History

Prior to 1989, the MacArthur Deposit was explored and drilled by several operators who have contributed to the current database of more than 740 holes totaling approximately 282,000 feet. During the early 1970s, The Anaconda Company (“Anaconda”) conducted an extensive trenching and rotary drilling program consisting of more than 280 rotary holes totaling approximately 56,000 feet over and adjacent to the present day MacArthur Deposit pit.

Arimetco, Inc. (“Arimetco”) purchased the property in 1989 and mined a total of six million tons at an estimated grade of 0.36 % total copper using open pit methods from the MacArthur Deposit in the period of 1995 to 1998. Due to financial difficulties resulting primarily from the low price of copper, Arimetco sought protection under Chapter 11 of the U.S. bankruptcy Code in January 1997 and suspended all operations in 2000. After Arimetco’s departure, the mining claims over the deposit were allowed to lapse.

Quaterra acquired the MacArthur Deposit in August 2005. The acquisition was motivated by Quaterra’s belief in the potential of the property to host an oxide copper deposit capable of sustaining a large run-of-mine heap leach operation using a solution extraction/electrowinning (SXEW) process for low cost production. The Company initiated exploration drilling in April 2007 and by November 2011, completed a total of 204,700 feet of drilling in 401 holes on the property. The drilling program has defined a widespread blanket of acid soluble copper oxide and chalcocite mineralization above primary copper mineralization that is believed to be the fringe or top of a major copper porphyry system.

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Geology

The MacArthur Deposit forms part of the Yerington mining district which includes at least three large, porphyry copper deposits (Yerington, Ann Mason, Bear), as well as two large iron-oxide copper gold (IOCG) deposits (Pumpkin Hollow, and Minnesota). Mineralization ranges from disseminated porphyry copper occurrences to skarn, limestone replacement, and vein type deposits.

The Yerington area is underlain by early Mesozoic volcanic and sedimentary rocks now exposed along uplands in the Singatse Range in the west and the Wassuk Range to the east. These Mesozoic rocks were intruded by two Middle Jurassic batholiths, an older granodiorite (Yerington Batholith) and younger quartz monzonite (Bear Quartz Monzonite) that comprise the majority of outcropping rocks in the district. The batholiths were themselves intruded by another Middle Jurassic quartz monzonite event moderately to steeply north dipping quartz-biotite-hornblende porphyry dike swarms, associated with copper mineralization, striking north-northwesterly across the entire mining district. The Mesozoic section is overlain by Early to Middle Tertiary volcanics deposited ash flow tuffs prior to the advent of normal faulting associated with Late Tertiary basin-and-range extension that displaced and tilted all of the above-mentioned rocks. These faults dip east and are curved, concave upward, so that the dip of the fault flattens eastward. Net displacements are in an east-west direction. The geologic section is completed by post-faulting conglomerates and alluvium.

At the MacArthur Deposit, the older granodiorite underlies most of the northern and western parts of the Company’s claim block. Along the east part of the claim, block quartz monzonite is dominant and underlies the MacArthur Deposit pit. In bench walls at the MacArthur Deposit pit, the quartz monzonite hosts conspicuous light brown limonite alteration banding (averaging 4 to 6 per foot) sub-parallel to the steeply north dipping, west-northwest trending quartz porphyry dikes.

Quartz porphyry dikes that host a large portion of the primary copper mineralization at Anaconda’s Yerington mine are associated with all copper occurrences in the district. The porphyry dikes at the MacArthur Deposit are classified by dominate mafic minerals into quartz biotite porphyry and quartz hornblende porphyry, each subdivided further based on composition and alteration. Dikes contain feldspar crystals and either hornblende or biotite crystals set in an aphanitic matrix. The structures are typically ridge-formers with widths to 50 feet, dip steeply to the north, and follow a penetrative north-northwest (S60°E to S80°E) structural fabric. Narrow (<10 feet) fine grained, post porphyry andesite dikes follow the same NNW structural fabric.

Mineralization

The MacArthur Deposit is part of a large, partially defined porphyry copper system that has been complicated by complex faulting and possible post-mineral tilting. Events leading to the current geometry and distribution of known mineralization include: 1) emplacement of primary porphyry copper mineralization; 2) supergene enrichment resulting in the formation of a widespread, tabular zone of secondary chalcocite mineralization below outcrops of totally oxidized rocks called a leached cap; and 3) oxidation of outcropping and near-surface parts of this chalcocite blanket, as well as oxidation of the primary porphyry sulfide system coupled with partial remobilization of copper to form the upper zone of oxide copper now exposed in the MacArthur Deposit pit and throughout the MacArthur Deposit. Oxide, chalcocite, and primary copper mineralization at the MacArthur Deposit is hosted in both granodiorite and quartz monzonite, and in lesser amounts within quartz biotite-hornblende (monzonite) porphyry dikes, all of middle Jurassic age. Oxide copper is also hosted in northwest striking andesite dikes less than one to ten feet wide with contacts forming favorable loci for mineralization. Andesite dikes make up less than approximately one to two percent of the host rocks on the property. Fracturing and ground preparation supplied the passage ways for the copper to migrate.

Copper oxide minerals are exposed throughout the MacArthur Deposit, particularly in the pit walls as primarily green and greenish-blue chrysocolla CuSiO3.2H20 along with black neotocite, aka copper wad (Cu, Fe, Mn) SiO2, azurite Cu3(OH2)(CO3) and malachite Cu2(OH2)CO3, while tenorite (CuO) was identified with the electron microprobe (Schmidt, 1996). Copper-enriched limonite was identified by Anaconda as the mineral delafossite (CuFeO2). Chalcocite has been identified in drill holes below the MacArthur Deposit pit and in drilling throughout the property. The sulfides digenite (Cu9S5) and covellite (CuS) have been identified petrographically in drill cuttings from the western part of the property. The oxide copper mineralization is strongly fracture controlled, coating joint and fracture surfaces and within shears and faults. Both green and black copper oxides are frequently found on 1 to 5 millimeter fractures, as coatings and selvages and may be mixed with limonite. The fractures trend overall N60°W to N80°W (bearing 300° to 280° azimuth) and generally dip to the north. Limited turquoise is found on the property, mainly in one- to five-millimeter veinlets. On a minor scale, oxide copper mineralization replaces feldspar phenocrysts in the igneous host units, favoring andesite.

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A significant amount of chalcocite has been intersected in drillholes. Chalcocite is seen on drill chips or drill core coating pyrite and chalcopyrite as weak to strong coatings and is strongest when occurring around the MacArthur Deposit fault. Chalcopyrite is present as disseminations and veinlets, with or without chalcocite. As much of the historic drilling was stopped at shallow (<400 foot) depths, the scope and extent of chalcopyrite mineralization have not been fully defined.

Both copper oxide and chalcocite mineralization occur over approximately 9,000 feet east-west by 4,500 feet north-south. Copper oxides are structurally controlled coating fractures, joint surfaces, and developed as green or black “streaks” within shears and faults over several feet. Chalcocite may similarly be seen as grayish “streaks” within shears. Oxide mineralization exhibits a generally flat-lying geometry extending with good continuity 150 feet below surface and less continuously up to 600 feet below surface. Chalcocite mineralization generally occurs as flat-lying zones 50 feet or more in thickness, mixed with or below oxide mineralization.

Primary chalcopyrite mineralization occurs irregularly with chalcocite and as porphyry style disseminations or as veinlets in quartz monzonite associated with potassic alteration below both the oxide and chalcocite mineralization. Quaterra’s drilling program in the Gallagher area has delineated a zone of chalcopyrite mineralization that extends over a north-south distance of 2,500 feet. The primary sulfide zone has a defined width of 500 feet and extends to a depth of approximately 650 feet.

Porphyry copper style sulfide mineralization below the low-angle MacArthur Deposit fault zone at the North Porphyry Target has been defined over a distance of 2,500 feet between holes QM-68 and QM-164. Veinlet and disseminated primary chalcopyrite mineralization intercepted at a depth of 485 feet in QM-68 assayed 1.19% copper over a thickness of 110 feet. The same zone in QM-70 averaged 0.82% copper over a thickness of 60 feet at a depth of 420 feet and correlates to a thickness of 15 feet averaging 1.20% at a depth of 770 feet in hole QM-72. QM-100 intersected the sulfide mineralization with 0.58% copper over 65 feet. Approximately 1,000 feet to the north, hole QM-164 intercepted 64 feet of disseminated chalcopyrite mineralization in sodic altered granodiorite averaging 1.31% copper at a depth of 1,673 feet. The intercept includes a high-grade zone of 29 feet averaging 2.21% . Mineralized zones within potassic halos in holes QM-165 to the west and in QM-163 to the east are consistent with those that could fringe a porphyry copper center.

Exploration and Drilling Results

Quaterra acquired the digitized Anaconda exploration and drilling data package in August 2006 and commenced a review of the deposit geology and mineralization model using Datamine software. The data was used to assess the required drilling and sampling to complete a technical report on the MacArthur Deposit with the objective of preparing a NI 43-101 compliant resource estimate.

The lateral zonation of supergene copper minerals visible at the surface, a possible chalcocite blanket to the north of the pit, and a large, pervasive phyllic alteration zone to the north and west of the mine workings, all suggested to Quaterra that the MacArthur Deposit could have a potential for growth; both in the form of copper oxides and as primary sulfides in a related porphyry system.

In April 2007, the Company commenced a drilling program to twin approximately 10% of the shallow holes that defined the previously explored copper oxide mineralization at the MacArthur Deposit and to identify extensions of copper oxide and chalcocite mineralization in the vicinity of the open pit. The 20-month drilling program totaled 80,100 feet in 173 holes including 23,900 feet of core in 49 holes and 56,200 feet of RC drilling in 124 holes. The drilling successfully targeted a deeper chalcocite zone in step-out holes from the pit, expanded the known oxide mineralization, and encountered a large, underlying tabular blanket of mixed oxide-chalcocite mineralization that overlies primary chalcopyrite mineralization verified by deeper drill holes in the western and northern margins of the drilled area.

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Drilling on the MacArthur Deposit was suspended through most of 2009 pending receipt of a Plan of Operations (“POO”) drilling permit. On October 28,2009,the Company received the approval of the MacArthur Deposit POO and the BLM Record of Decision with a Finding of No Significant Impact. The POO environmental assessment anticipates a total surface disturbance of 200 acres as a result of drilling activities throughout much of the project area.

Quaterra initiated a second phase of RC and deep core drilling in early December 2009. Completed in August 2010, the program tested the northern extension to higher grade acid soluble copper mineralization on 500 foot centers northwest of the pit in-filled on 500 ft centers an undrilled area west of the pit. In the southern Gallagher area, the program confirmed a band of continuous near surface oxide mineralization ranging in thickness from 15 to 60 feet over a distance of 1,900 feet between holes QM-155 and 156.

Three deep holes tested surface IP/resistivity (“IPR”) anomalies to the north and northwest of the MacArthur Deposit pit where earlier drill holes intersected ore grade porphyry copper style sulfide mineralization below the low-angle MacArthur Deposit fault zone over a strike length of 1,000 feet. Hole QM-100, located 1,400 feet north of QM-68, intercepted porphyry-style chalcopyrite/biotite-chlorite veining at a depth 1,203 feet that assayed 0.58% copper over a thickness of 65 feet below the shallow-dipping MacArthur fault zone. QM-109, spotted on an IPR anomaly, failed to reach projected depth due to fractured, caving ground while QM-99 intersected massive pyrite impregnated breccia and scattered zones of secondary biotite and chlorite alteration; common elements of a porphyry system.

A total of 81,650 feet were drilled in 153 holes including 69,890 feet in 147 RC holes and 11,760 feet in 6 core holes during the 2011 drilling program. The program had the twin goals of enlarging and upgrading the status of the inferred resources through step-out and infill drilling and exploring for primary sulfide mineralization related to a copper porphyry system at depth.

The infill program encountered high grades of continuous chalcocite and copper oxide mineralization in zones averaging 40 feet or more in thickness along the western and northern margins of the deposit in the area referred to as the “Ridge Zone”. To test the high-angle mineralized structures that form an important component of the acid-soluble copper deposit, the program was completed on 250-foot centers in areas with higher grade potential and encountered some of the highest grades and best intercepts of acid soluble copper mineralization ever drilled on the property. Hole QM-187, drilled 2,000 feet north of the MacArthur Deposit pit, intersected 90 feet of predominantly chalcocite mineralization averaging 1.66% total copper (TCu) starting at a depth of 310 feet. This intercept includes 40 feet assaying 3.49% TCu. Hole QM-180 along the northwestern margin of the zone intercepted 40 feet averaging 1.37% TCu at a depth of 360 feet.

Exploration for a deep porphyry system at the MacArthur Deposit intercepted one of the best primary copper intercepts yet identified on the project with 64 feet of disseminated chalcopyrite mineralization in sodic altered granodiorite averaging 1.31% TCu at a depth of 1,673 feet. The intercept includes a high-grade zone of 29 feet averaging 2.21% TCu. QM-164 also intercepted a shallower zone of both vein and disseminated chalcopyrite at a depth of 685 feet that averages 0.34% TCu over a thickness of 96.5 feet. QM-164 extended the mineralized zone identified in QM-100 a distance of 1,000 feet to the north where it remains open for extension.

Geophysics

Quaterra contracted three surveys at the MacArthur Deposit in 2011 and 2012. A borehole geophysical survey and an IPR survey was carried out by Zonge International (“Zonge”) in 2011. A detailed helicopter magnetic survey was flown by Geosolutions Pty. Ltd. (“Geosolutions”) in 2012. These surveys supplement previous geophysical work on the MacArthur Deposit that includes: a 2009 IPR survey carried out by Zonge; a 2007 helicopter magnetic survey carried out by EDCON-PRJ; a series of historic aeromagnetic surveys (1966 to 1975) available in analog form from Anaconda’s archives; and a series of historic IPR surveys (1963 – 1964) carried out by Kennecott Exploration Company (“Kennecott”), Bear Creek Mining Company and Superior Oil.

The mineralized system at the MacArthur Deposit has an anomalous IP and resistivity response first detected in the Kennecott and Superior Oil IPR surveys in the 1960’s. The Quaterra 2009 and 2011 IPR surveys confirmed the reliability of the earlier surveys and further defined the depth extent of the IP anomalies. The 2009 and 2011 Quaterra surveys confirmed that the 1963-64 Kennecott data is of good quality and is useful for mapping anomalous IP zones within the upper 1,000 to 1,200 feet from the surface. Below this depth, the older data cannot effectively resolve the bottom of the IP anomalies nor determine if any of the anomalies extend to great depths.

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The 2009 and 2011 data sets show this increased depth of exploration is important. Portions of the IP response are flat lying with limited depth extent. However both the 2009 and 2011 surveys have identified anomalous IP responses with depth extent in excess of 2000 feet and possibly feeder zones of the near surface zones. In 2011, two borehole IP surveys were run that demonstrate Quaterra’s ability to explore for deep sulfide responses below the depth of exploration of surface techniques. The modern data maps subtle low resistivity features which are interpreted to be porphyry alteration systems and have identified anomalous IP responses that extend under post-mineral volcanic cover to the north and west of the main MacArthur Deposit system. These buried anomalies are high priority drill targets.

Two high resolution helicopter magnetic surveys were flown over the MacArthur Deposit in 2007 (EDCON-PRJ) and 2012 (Geosolutions). The modern, high-resolution data has a broad frequency bandwidth and will be used for 3D modeling and exploring beneath the magnetic volcanic cover.

Sampling, Analysis and Security of Samples

Quaterra has explored the MacArthur Deposit with both RC and diamond core drilling methods. RC holes were drilled by Diversified Drilling LLC, Missoula, Montana, USA, DeLong Construction Inc., Winnemucca, Nevada, USA and by Leach Drilling Inc., Silver Springs, Nevada, USA. During 2007-2008 the core drilling was contracted to Kirkness Diamond Drilling of Dayton, Nevada, USA and Kirkness Brothers Diamond Drilling (aka KB Drilling Co, Inc) of Carson City, Nevada, USA. Major Drilling America, Inc., Salt Lake City, Utah, conducted core drilling during 2009-2010. Core drilling during 2011 was contracted to Ruen Drilling Inc, Clark Fork, Idaho, USA. The RC crews ran one 10 to 12 hour shift per day; the core drill crews operated 24 hours per day.

The MacArthur Deposit drilling program is supervised in the field by the project geologist for monitoring recovery, proper sample handling and accuracy in labeling. Drill core (HQ diameter) and RC samples are delivered from the drilling rigs to the core and sample storage facility in Yerington by the drillers at the end of each 12 hour shift for logging and sampling by the project geologists.

At the core storage/logging facility, core is photographed, measured, core recovery calculated, and the rock types, alteration minerals, textural features, structures, veining, and mineralized zones documented. Sample intervals on the first three holes were fixed at five feet. In subsequent drill holes the sample intervals are taken at each of the core runs marked by the driller’s blocks. Exceptions are where full recovery occurs in numerous, short core runs in intervals less than about 6 feet, or where the geologists visually selected sample intervals based on rock type or structure. Sample intervals are measured and marked with permanent marker, orange ribbon and aluminum tag that is stapled to the core tray showing the sample number. Where the core sample is coherent a line is drawn with permanent marker along the stick so that it is sawn in half perpendicular to the “grain” in order to get a representative split. The core is stored on pallets to be picked up by the analytical laboratory.

When core from the MacArthur Deposit arrives at the laboratory, it is split, using a core saw, into halves and one half of each interval is placed into a sample bag that is marked with the sample number. The sample is then dried, crushed to -10 mesh, rotary split to 1,000 grams, pulverized to -150 mesh, and split to 350 gram pulps. The pulps are assayed for total copper using a 2 gram-3 acid volumetric ore grade atomic-absorption (AA) spectroscopy analysis. The solution from the total Cu analysis is assayed by inductively coupled plasma (ICP) spectrometry for 34 elements. The acid soluble copper oxide (asCu) content of the sample is then analyzed by using a weak, sulfuric acid solution leach of a 1 gram pulp. The acid leachable copper sulfide content is analyzed by using ambient temperature concentrated sulfuric acid and hydrated ferric sulphate to determine Ferric Sulfate Soluble Copper (FSCu) content. Internal quality assurance and quality control procedures include the insertion of standards and duplicates into the sample sequences. Rejects from the previously analyzed samples are also sent to another accredited laboratory for check analyses. The remaining half core is placed back into the core box in its original position and the core boxes are returned to the Yerington core storage/logging facility by the laboratory truck, where it is then stacked and stored in order and by hole number. Reject and pulps are also returned with the core to the Yerington facility for archiving.

American Assay Laboratories located in Sparks, Nevada (“AAL”) prepared and assayed samples from the MacArthur Deposit drilling program in 2007. AAL is ISO/IEC 17025 certified and participates in CANMET, PTP MAL certification analyses twice a year and in GEOSTATS, SMA, and IOAG testing twice a year. Core samples from subsequent programs have been prepared and analyzed by ISO17025 compliant ALS Chemex Laboratories in Sparks, Nevada (“ALS Chemex”) and Skyline Assayers and Laboratories in Tucson, Arizona (“Skyline”).

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The MacArthur Deposit RC drilling program is supervised in the field by the project geologist for sample accuracy, proper handling and accuracy in labeling. Methods and procedures for splitting and packaging of samples are conducted such that the quality of the sample splitting meets or exceeds standards required under NI 43-101 and a chain of custody starts with the drillers collecting, splitting and bagging of RC drill cuttings.

For logging of drilled lithologies, a continuous chip sample is collected in a plastic chip tray over five foot intervals and stored for logging by the project geologists. A 5/16 continuous split of five-foot sample intervals is collected for assaying from 5.2 inch diameter drill holes through a wet splitter mounted on the rig. The samples are placed in sample bags and transported from the drilling rig to the Company’s storage facility in Yerington at the end of each 12-hour shift. The samples are then inventoried by Company personnel, dried, placed on pallets, wrapped in plastic and shipped via United Parcel Service to the Skyline laboratory in Tucson, Arizona for sample preparation and assaying. Rejects and pulps are returned to the Yerington facility for archiving.

Skyline is accredited by the American Association for Laboratory Accreditation (A2LA - certificate no. 2953.01) in the Chemical field of Testing. Skyline is a recognized industry leader for all types of base metal, ferrous and non-ferrous analysis including high quality ore-grade assays, sequential copper analyses of ores, and umpire assays of metallurgical products. The Tucson laboratory has provided analytical service to the copper mining industry for over 70 years.

At Skyline, the RC samples are crushed to plus 75% passing a -10 mesh, split and pulverized at the laboratories for assay using analytical techniques as described for the core drilling program. Internal quality assurance and quality control procedures include the insertion of standards into the sample sequences. Rejects from the previously analyzed samples are sent to ALS Chemex Laboratories in Sparks, Nevada for check assays.

Mineral Resources

Tetra Tech, Inc. of Golden, Colorado (“Tetra Tech”) completed an updated NI 43-101 compliant independent resource estimate for the MacArthur Deposit preliminary economic assessment (the “MacArthur Deposit Resource Estimate”) titled“MacArthur Copper Project – Amended NI 43-101 Technical Report Preliminary Economic Assessment, Lyon County, Nevada, USA” and dated January 17, 2014 (effective date May 23, 2012). At a 0.12% cutoff, the tonnage of the measured oxide and chalcocite resourcewas 71,829 million tons at 0.218% copper containing 313 million lbs. of copper, the indicated oxide and chalcocite resourcewas 87,264 million tons at 0.208% copper containing 362 million lbs. of copper, and the inferred oxide and chalcocite resource was 243.4 million tons at 0.201% copper containing 979.5 million lbs. of copper.

The MacArthur Deposit’s indicated sulfide resource at a 0.15% cutoff is 1.1 million tons averaging 0.292% copper containing 6.4 million pounds of copper and the inferred sulfideresource was 134.9 million tons averaging 0.283% copper containing 764 million lbs. of copper.

The Qualified Person for the updated MacArthur Deposit resource estimate is Dr. Rex Clair Bryan of Tetra Tech.

Metallurgy

The MacArthur Deposit has a long history of metallurgical testing from 1976 through 2011 including bottle roll and column leach testing and full-scale heap leach operations. Anaconda performed the first test work in 1976 and multiple subsequent owners continued test work through 2011. The most comprehensive test work was performed by Quaterra during 2010 and 2011. Quaterra contracted METCON Research of Tucson, Arizona to run a substantial number of bottle roll leach tests along with 32 column leach tests, on samples from 27 large diameter (PQ) size core drill holes. These drill holes are generally representative of the MacArthur Deposit mineral resources. The test work, both historic and that most recently performed, shows the mineralized material is amenable to standard heap leaching with good copper extraction.

The Qualified Person for the metallurgical portion of the MacArthur Deposit Resource Estimate is Dr. Richard Jolk of Tetra Tech.

Preliminary Economic Assessment

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M3 Engineering & Technology Corp. of Tucson, Arizona (“M3”) completed a preliminary economic assessment for the MacArthur Deposit on May 23, 2012 and titled“MacArthur Copper Project – Amended NI 43-101 Technical Report Preliminary Economic Assessment Lyon County, Nevada, USA” (the “MacArthur Deposit PEA”). The MacArthur Deposit PEA was amended and restated on January 27, 2014. The study concluded that the project has potential for development as a large-scale copper oxide heap leach operation that would provide long-term cash flows for a relatively modest capital outlay.

A PEA should not be considered to be a pre-feasibility or feasibility study as the economics and technical viability of the Project have not been demonstrated at this time. Mineral resources that are not mineral reserves do not have demonstrated economic viability. A PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too geologically speculative at this time to have economic considerations applied to them to be categorized as Mineral Reserves. Thus, there is no certainty that the production profile concluded in the MacArthur Deposit PEA will be realized. Actual results may vary, perhaps materially.

The MacArthur Deposit PEA set out the following key project parameters:

• An open pit mine based on an acid soluble measured and indicated copper resource model of 159 million tons at 0.212% copper and an inferred resource of 243 million tons at 0.201% copper.
• Recovery of 747 million pounds of copper over the 18-year mine life at an average mining rate of 15 million tons per year with a waste to ore stripping ratio averaging 0.90.
• Initial capital expenditure of $232.7 million.
• Average life-of-mine operating costs of $1.89 per pound.
• An after tax net present value (“NPV”) of $201.6 million at an 8% discount rate and a base case copper price of $3.48 per pound. (The project breaks even at a copper price of $2.56 per pound until the capital is paid off in 3.1 years. Thereafter, the breakeven is $2.23 per pound.)
• An after tax internal rate of return (“IRR”) of 24.2% with a 3.1-year pay back.

Mine operating costs were provided by Independent Mining Consultants Inc. of Tucson, Arizona (“IMC”), based on an average 41,000 ton per day mine plan.

The project financials were enhanced by including in the above cash flows a sulfuric acid plant at the site compared to purchasing and transporting acid to the site. An on-site acid plant provides more long term certainty for the highest operating cost item (sulfuric acid), reduces the requirement for purchased electric power, and would leverage future consolidation and development of other oxide deposits in the District.

The SX/EW capital cost estimate was prepared based on M3 in-house information of similar SX/EW facilities. It includes the heap leach pads, SX/EW facility and tank farm based on a design flow rate of 10,400 gal/min. Additional upfront capital costs were included for mining equipment and infrastructure improvements (power, water, roads) needed at the site. Capital costs are considered accurate to -20% to +25%.

The Qualified Person for the MacArthur Deposit PEA is Mr. Rex Henderson with M3. The Qualified Person for the mining portion of the MacArthur Deposit PEA is Herb Welhener of IMC. The 2012 PEA is available at www.sedar.com.

Future Plans

The results of the MacArthur Deposit PEA are being used to determine what additional drilling will be required to bring the project to a prefeasibility status and to evaluate the potential to integrate the MacArthur Deposit resource into a larger operation that includes the Yerington Pit copper resource. This stage of a project generally includes additional infill and condemnation drilling, metallurgical testing and geotechnical work as well as environmental studies, permitting and engineering.

In August 2014, as part of the Freeport Nevada Option Agreement, the MacArthur Deposit was transferred to SPS, a wholly owned subsidiary of Quaterra Alaska Inc.

Yerington Copper Project – Nevada, USA

Acquisition and Staking of Claims

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The Yerington Pit property totals approximately 11 square miles. The project mineral rights consist of 2,768 acres of fee mineral properties and patented mining claims as well as 201 unpatented lode and placer claims totaling 4,153 acres on lands administered by the BLM. The total reflects the transfer of 345 claims from SPS to Quaterra Alaska Inc.’s MacArthur Deposit in July 2012.

On May 1, 2007, SPS received the bankruptcy court approval for the acquisition of certain assets of Arimetco in the Yerington Mining District, subject to completion of due diligence. The purchase price comprised $500,000 cash, 250,000 of the Company’s common shares and a 2% net smelter return royalty capped at $7.5 million dollars on production from any claims owned by the Company in the Yerington Pit and MacArthur Deposit mine areas.

Private land, patented claims, and 23 unpatented mining claims related to the Yerington Pit project were acquired by SPS from the Arimetco bankruptcy court in April, 2011. The acquisition followed three years of due-diligence studies and negotiations with state and federal agencies and the receipt of Bona Fide Prospective Purchaser (“BFPP”) letters from the U.S. Environmental Protection Agency (“EPA”), the Nevada Division of Environmental Protection (“NDEP”) and the BLM to protect SPS from liability emanating from activities of the former mine owners and operations.

SPS purchased the Anaconda mine and MacArthur Deposit mine properties along with the appurtenant ground water rights in 2011. SPS owns a total of 8,621 acre-feet/yr of primary ground water rights which have senior priority standing. The purchased water rights are primary ground water rights specifically permitted for mining and milling. These water rights have significant value. Recent sales of primary ground water in Mason Valley Nevada have sold for over $3,000 per ac-ft.

Private properties related to the Arimetco acquisition are located in Township 13 North, Range 25 East in Sections 4, 5, 8, 9, 16, 17, and 21, and patented claims are located within Township 13 North, Range 25 East in Sections 16, 17, 19, 21, 31, and 32 and in Township 13 North, Range 24 East in Sections 22-25 and 36. An additional 434 unpatented claims in Sections 1, 2, 11-13, 22- 27, 35, and 36 Township 13 North, Range 24 East and in Sections 4- 9, 16- 21, and 30-32 Township 13 North, Range 25 East, Mount Diablo Base & Meridian were staked prior to or subsequent to the acquisition by SPS.

Expenditures to Date

Acquisition costs incurred by the Company for the Yerington Pit to December 31, 2015 were $3,564,687 (2014 - $3,361,701) and exploration expenditures were $6,367,358 (2014 - $6,339,702) for a total of $9,932,046 (2014 - $9,701,403) before the Option Agreement funding received from Freeport Nevada.

Location, Access and Infrastructure

The Yerington Pit property is located near the geographic center of Lyon County, Nevada, USA, along the eastern flank of the Singatse Range. The property centers on the historical Yerington open pit mine, flanked on the west by Weed Heights, Nevada (a small private community; the original company town of Anaconda) and on the east by the town of Yerington, Nevada. The property is easily accessed from Yerington by a network of paved roads that were used as principal transportation and access routes during the former operating period of the Yerington Pit. SPS controls approximately 8,600 acre feet of groundwater rights and the Yerington Pit contains an estimated 37,000 acre feet of water. Power is available on site at the Yerington Pit area. Nevada Energy operates a 30 million kW propane-fired, electrical generating power plant within ten miles of the site. The power infrastructure at the Yerington Pit site is expected to be readily available for a future mining operation due to the historical mine operations at the site. Topographic coverage is on US Geological Survey “Yerington” and “Mason Butte” 7.5’ topographic quadrangles. The nearest major city is Reno, Nevada, approximately 80 miles to the northwest.

History

Recorded production in the Yerington mining district dates back to 1883 (Moore, 1969) as prospectors were attracted to and investigated colorful oxidized copper staining throughout the Singatse Range. Knopf (1914) reported that oxidized copper cropped out at the historic Nevada-Empire mine located above the south center of the present-day Yerington open pit. Knopf does not show or reference other mines or prospects that are underlain by the Yerington open pit footprint, as gravel and alluvial cover obscure bedrock over an approximate 0.75 -mile radius around the Nevada-Empire Mine.

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During the 1940s, Anaconda, at that time one of world’s major copper producers, outlined a 60 million-ton resource over the Yerington Pit. During the early 1950s, the US government, citing the need for domestic copper production, offered “start-up” subsidies to Anaconda to open a copper mine in the Yerington district. Anaconda sank two approximately 400-foot-deep shafts in the present-day open pit and drove cross cuts to obtain bulk samples of oxidized rock for metallurgical study. Anaconda began operating the Yerington Pit in 1952 and mined continuously through 1979, producing approximately 1.744 billion pounds of copper from an ore body that contained 162 million tons averaging 0.54% Cu. Approximately 104 million tons of this total were oxidized copper ore that was “vat-leached” with sulfuric acid in 13,000-ton cement vats on a seven day leach cycle. Sulfide ores were concentrated on site in a facility that was dismantled and sold following termination of mining in 1979.

In 1976, all assets of Anaconda, including the Yerington Pit, were purchased by the Atlantic Richfield Company (ARCO) which in 1979 shut down dewatering pumps in the pit and closed the Yerington Pit due to low copper prices. In 1982, ARCO sold the entire Yerington Pit complex and Weed Heights town site to Mr. Don Tibbals of Yerington, Nevada, who scrapped the plant and equipment. At closure, before dewatering pumps were shut off, the Yerington Pit plan hosted a pre-stripped, non NI 43-101 compliant historic “reserve” of 98 million tons averaging 0.36% Cu containing approximately 696 million pounds of copper (K. L. Howard, Jr., Anaconda Internal Memo, 1979) within the ultimate pit design. The estimate was prepared from a geologic section calculation using a 0.2 %TCu cut-off grade. A qualified person has not done sufficient work to classify these historic estimates as a current mineral resource and Quaterra does not treat them as such. Although the 1979 estimate contained no classification for measured, indicated, or inferred resources as defined by NI 43-101, the total estimate compares favorably to a Tetra Tech NI 43-101 compliant independent resource estimate completed in February 2012. An additional 22.8 million tons of material containing 136.8 million pounds copper was identified adjacent to the pit in this historic estimate. The K. L. Howard, Jr., Anaconda Internal Memo (1979) addressing this material is considered reliable because it cites mine reconciliation calculations and geologic projections from drill holes using a 0.2% Cu grade cut-off in an internal Anaconda memo by T. Leigh to W.C. Norem (1979).

In 1989, Arimetco purchased the mine property from Tibbals, commissioned a 50,000-pound-per-day solvent extraction/electrowinning plant, and began heap leaching “sub-grade” dump rock stripped from the Yerington Pit by Anaconda. Arimetco also added an unknown tonnage of “vat leach tailings” (minus 3/8 inch oxidized tailings leached during Anaconda’s operation) to some heap leach pads (“HLP's”) as well as trucking oxidized ore from the MacArthur Deposit located approximately five miles north of the Yerington Pit site. Arimetco produced some 95 million pounds of copper from 1989 to 1999 before declaring bankruptcy due to low copper prices and abandoning the property.

Soil and groundwater contamination, alleged to stem from the former mining operations at Yerington, have been identified on the property. As a result, a portion of the property acquired by SPS in 2011 is now under the jurisdiction of the EPA. Liability for the contamination on site is the responsibility of a third party which is actively engaged in remedial investigation and remediation activities under the supervision of the EPA.

In order to establish SPS’s position and rights, the acquisition by SPS of the Arimetco properties required a series of rigorous environmental, legal, and technical due diligence studies. The Chambers Group Inc. and Golder Associates Inc. completed a Phase 1 Environmental Site Assessment Report to allow SPS to establish liability protection as a BFPP. Prior to closing on the property, SPS received letters from the NDEP, BLM and the USEPA indicating the post-closing requirements then applicable to the Yerington Pit site for SPS to maintain its defense to liability as a BFPP regarding the activities of the former mine owners and operators.

In September 2012, SPS entered into a voluntary agreement with the EPA to participate in upgrading the system which manages fluids from the historic mining operation at the Yerington Pit site (the “EPA Agreement”). In exchange for SPS's participation in this work, the Company obtained a site-wide 'Covenant Not to Sue' for the contamination left at the site by former owners and operators of the historic mine operations.

The agreement provides for immediate environmental improvements to the site and allows SPS to continue exploration at the site while working cooperatively with the EPA, the NDEP and the community. The EPA Agreement's 'Covenant Not to Sue' strengthens SPS's 'Bona Fide Prospective Purchaser Defense' against liability resulting from the contamination at the site prior to SPS's purchase.

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The first phase of the fluid management project was completed in Q4 of 2012. The Company co-funded the repairs to the on-site fluid management system (“FMS”) by the EPA as well as the relining of one of the system ponds. During Phase 2 of the project, the Company completed a study of the FMS to determine what additional repairs or other modifications are necessary to ensure that the system is capable of handling the fluids from the former mine operations for a period of five years. The study was completed by the Company’s contractor in June 2013. EPA decided not to implement the five-year capacity alternative recommended in the Study. Rather, EPA decided to build now ponds to address the FMS capacity issues. The Company decided not to fund construction of the additional ponds. Rather, the Company agreed to provide property at the site to construct the new ponds.

In September 2014, SPS submitted to EPA a Final Report that documented the work SPS performed under the EPA Agreement. SPS incurred costs of $93,254 during calendar year 2014 which included the final payment to the EPA for the Work to Be Performed and Payment of Response Costs as defined in the EPA Agreement. On January 7, 2015, the EPA issued a Notice of Completion to SPS confirming that the obligations of the Work to Be Performed and the Payment of Response Costs sections of the EPA Agreement had been met. With the issuance of the Notice of Completion, SPS believes it does not have further obligations under the Agreement, except for those as a landowner and as a BFPP.

In December 2015, the EPA sent a request to the Nevada Governor seeking the State’s support for listing the Anaconda-Yerington Mine Site on the EPA National Priorities List or “NPL”. EPA is considering an NPL listing at this time as a mechanism to provide federal funds for remediation of contamination of the site left by the former owners Arimetco. This portion of the Site is referred to as Operable Unit 8 (OU8) and is an unfunded liability due to Arimetco’s bankruptcy. The Governor has responded to the EPA noting that the State will not object to the initiation of the listing process.

SPS has the ‘Covenant Not to Sue’ with the EPA, and believes it qualifies for the ‘Bona Fide Prospective Purchaser Defense’ to CERCLA liability. The existing contamination at the site, other than that for which EPA seeks the listing is the responsibility of the Atlantic Richfield Company which has been working with EPA to study the contamination, design remedial activities and implement remediation at the Site.

SPS’s current work program at the Bear Deposit is not affected by the recent EPA letter to the Governor, nor his reply. SPS does not believe at this time that an NPL listing precludes advancing mineral exploration and development at the Site.

Geology and Mineralization

The Yerington Pit property includes both the Yerington deposit (the “Yerington Deposit”) and a portion of the Bear Deposit which represent two of three known porphyry copper deposits in the Yerington copper district. The porphyry systems are hosted in middle Jurassic intrusive rocks of the Yerington Batholith. Unless noted otherwise, the following discussions refer to the Yerington Deposit.

Mineralized porphyry dikes associated with three phases of intrusive activity related to the Yerington Batholith form an elongate body of mineralization that extends 6,600 feet along a strike of N118ºE. The mineralization has an average width of 2,000 feet and has been defined by drilling to an average depth of 250 feet below the Yerington Pit bottom at the 3,800-ft elevation. Because of the economic constraints of low copper prices at the time, many of the 792 historic Anaconda drill holes used in the SPS study were stopped in mineralization and very few were drilled below the 3,400-ft level where the porphyry system remains nearly unexplored.

Only four historic holes have actually explored the deep vertical projection of copper mineralization in the pit. Three of the holes were drilled along a single N-S oriented section through the center of the pit. According to M. T. Einaudi in an internal 1970 Anaconda report, the deep drilling program defined a series of nested, concave upward, grade shells that are elongated down the N 70º dip of the dikes with the 0.2% Cu zone extending to approximately the 2,600-ft level; an overall dip distance of 2,200 feet. Although the program encountered an increasing ratio of pyrite to chalcopyrite, there was no indication of a “barren core”, the porphyry dikes showed a “remarkable continuity” down dip and molybdenum mineralization became more abundant with increasing depth.

Secondary oxide copper formed much of the upper Yerington Deposit. Chrysocolla was the dominant copper oxide mineral, occurring as fracture coatings and fillings to a depth of approximately 400 feet below the surface. Below the 4,100-ft level, chalcopyrite is the dominant copper sulfide mineral with minor bornite primarily hosted in A-type quartz veins in the older porphyry dikes. The un-mined mineralized material below the current pit bottom is primarily of chalcopyrite mineralization.

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Exploration and Drilling Results

Exploration work on the Yerington Pit project commenced with a technical review of all available historical information relating to mineralization in and around the Yerington Pit. A huge inventory of Anaconda data was available at the Anaconda Collection – American Heritage Center, University of Wyoming at Laramie. Approximately 10,000 pages of drill hole records from the library were scanned. The records included drill hole lithology, assays, and/or survey coordinates for almost 800 drill holes. Although some holes contained only lithologic or assay summary information, 892 holes contained adequate detailed assay, hole location and orientation information to be used in a resource estimation. Core from historical drilling left on site by Anaconda was photographed, described and selected intervals from 45 Anaconda core holes were shipped to Skyline Labs for re-assay.

Information obtained from the review of historical information was used to guide a two-pronged program of drilling during the last half of 2011. A total of 21,887 feet were drilled in 42 holes. The core holes and four RC holes were drilled to twin Anaconda core holes, while the remaining RC holes were targeted for expansion of mineralization laterally and below historic drill intercepts along the perimeter of the Yerington Pit to support a NI 43-101 compliant resource estimate and technical report.

The data review and drilling results of the 2011 program clearly indicated that mineralization at Yerington is open to depth and along strike. Many of the historic holes in the pit were stopped in mineralization. Drill hole intercepts along the western edge of the pit are some of the best in the SPS database. Twin hole SP-04, drilled by SPS at the northwest end of the pit, intercepted 524.5 feet averaging 0.35%TCu starting at a depth of 228 feet including 88 feet of 0.69%TCu at a depth of 265 feet. Exploration hole SP-36, located along south central margin of the pit intercepted 95 feet averaging 0.28% TCu at a depth of 230 feet. Details of the 2011 drilling program are in the NI 43-101 compliant technical report for the Yerington Pit project completed by Tetra Tech in February 2012 (the “Yerington Technical Report”).

A drilling program to sample residuals (historic dumps and tailings) at the Yerington Pit site was completed in September 2012. A total of 9,585 feet of sonic drilling in 95 holes have provided material for the characterization of the vat leach tails, heap leach pads, and the W-3 sub-grade waste dump. Selected samples were sent to Metcon Labs in Tucson, Arizona for metallurgical testing. These residuals have been historically estimated to total 124 million tons of mineralized material. The residuals are referenced in the MacArthur Deposit PEA and the Yerington Technical Report, as “mineralized material” and therefore are neither an NI 43-101 compliant resource nor a historical resource. Additional details regarding the residuals are described in the Yerington Technical Report. The residuals are not included in the resource estimate at the Yerington Pit site or in the MacArthur Deposit PEA or resource estimate at the MacArthur Deposit site.

Sampling, Analysis and Security of Samples

Tetra Tech’s review of sample preparation, handling, analyses, and security procedures for the Yerington drilling and sampling program has determined that the Company’s current practices meet NI 43-101 and CIM defined requirements.

Samples taken during the period from 1952 to 1979, when Anaconda operated the Yerington Pit, including samples used for the determination of mine head grades, lithology, densities, and metallurgical performance were determined by Tetra Tech to be representative of the deposit. While no details are available regarding Anaconda’s exact assaying protocol and quality control during the period the Yerington Pit copper mine was operating, public records of profit and cost confirmed that the techniques and procedures implemented conformed to industry standards for that era.

SPS explored the Yerington Pit copper property with both RC and diamond core drilling methods. The drilling program was supervised in the field by the project geologist for monitoring recovery, proper sample handling and accuracy in labeling. Approximately 4,300 samples were collected during the 2011 program and shipped for sample analyses. The samples were analyzed for total copper (TCu), gold, and a 47-element trace element package. Samples representing oxide mineralization and acid soluble sulfide copper were also analyzed for acid soluble copper and for ferric sulfate soluble copper. Rock quality designations (“RQD”) and magnetic susceptibility measurements were taken on all core which was photographed following geologic logging.

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The RC samples are collected in a conventional manner via a cyclone and standard wet splitter, placed in cloth bags that are pre-marked by SPS personnel at five-foot intervals and include a numbered tag inserted into a plastic bag bearing the hole number and footage interval. Collected samples, weighing approximately 15 to 20 pounds each, are wire tied and then loaded onto a ten-foot trailer with wood bed allowing initial draining and drying. Each day SPS personnel or the drillers at the end of their shift, haul the samples to SPS’s secure sample preparation warehouse in Yerington, Nevada where the samples are dried, loaded on plastic lined pallets, weighed, and trucked by Skyline personnel to Skyline’s sample preparation facility in Battle Mountain, Nevada. A chain of custody form accompanies all shipments from Yerington to Battle Mountain. Once Skyline preps each sample in its Battle Mountain facility, approximately 50-gram sample pulps are air-freighted to Skyline’s analytical laboratory in Tucson, Arizona for analyses and assay.

Samples from the core drilling program are handled in a similar manner. Core samples with a diameter of approximately 2.75 -inches (HQ) are placed in wax-impregnated, ten-foot capacity cardboard boxes and delivered to SPS’s secure sample warehouse in Yerington, Nevada by the drill crew following each 12-hour shift. The core is logged by a SPS geologist who marks appropriate sample intervals (one to nominal five feet) with colored flagging tape. Lines are marked along the length of core with red wax crayons to indicate where the core piece should be sawed. Each core box, bearing a label tag showing drill hole number, box number, and box footage interval, is then photographed. RQD, magnetic susceptibility, and recovery measurements are taken. Core is then loaded on a pallet, shrink wrapped, and secured with wire bands for trucking by Skyline personnel to Skyline’s sample preparation facility in Battle Mountain, Nevada. The core is sawed in half by Skyline personnel, one half designated for sample preparation/assay, the second half placed in its core box for return to SPS. Chain of custody procedures for core shipments picked up by Skyline at the SPS core shed follow the format for RC samples.

Drilling samples from the Yerington Pit project were analyzed by Skyline in Tucson, Arizona, which is accredited by the American Association for Laboratory Accreditation (A2LA - certificate no. 2953.01) and by ISO17025-compliant ALS Minerals Laboratories in Sparks, Nevada. SPS implements a quality assurance and quality control assay protocol whereby either one blank or one standard is inserted with every ten samples into the assay stream. Rejects from the previously analyzed samples are sent to ALS Minerals in Reno, Nevada for check assays.

Mineral Resources

Tetra Tech completed a NI 43-101 compliant independent resource estimate and technical report update for the mineralization in and around the historic Yerington Pit titled“NI 43-101 Technical Report Mineral Resource Update Yerington Copper Project Lyon County, Nevada” and dated January 3, 2014 (effective November 20, 2013), which supersedes its previous report completed in February 2012 (the “Updated Yerington Technical Report”). The Updated Yerington Technical Report is based upon an additional 232 historic Anaconda holes unavailable when the previous report was completed. The current resource now includes over 800 boreholes.

These additional holes are well distributed throughout the deposit and provided infill and extensional information to the previously used data, allowing upgrades in classification, improved grade estimate and a new resource definition.

The increases to the February 2012 resource are as follows. Using a 0.12% TCu copper cutoff, measured and indicated oxide and chalcocite resources increased 28% in tons, 9% in grade, and 37% in pounds of contained copper while the inferred resource increased 5% in tons, 14% in grade, and 21% in contained copper. Using a 0.15% TCu copper cutoff, the primary measured and indicated resources increased 12% in tons, 12% in grade, and 25% in contained copper while the inferred resource increased 4% in tons, 11% in grade, and 13% in contained copper.

Using a cutoff grade of 0.12%, the Yerington Pit’s measured and indicated acid-soluble oxide/chalcocite mineralization includes a measured and indicated resource of 23.5 million tons averaging 0.25% TCu (118 million pounds of copper) and an inferred resource of 25.9 million tons of 0.23% TCu (118 million pounds of copper). Using a cutoff of 0.15% TCu, the measured and indicated primary copper resource contains 105 million tons averaging 0.30% TCu (633 million pounds of copper) and an inferred primary copper resource of 128 million tons of 0.23% TCu (600 million pounds of copper).

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The results of the 2013 NI 43-101 compliant resource estimate compare favorably to the estimates of copper remaining in and around the Yerington Pit after the mine shut down (K.L. Howard, Jr., Anaconda Internal Memo, 1979). The 1979 estimate contained no classification for measured, indicated, or inferred, so direct comparison can only be made when considering all classes of the current estimate, but was reported at 121 million tons with an average grade of 0.34% TCu.

The 1979 estimate cited approximately 84% of the total contained copper (696 million pounds of copper in 97.8 million tons with an average grade of 0.356% Cu) as being within the original Anaconda pit design, suggesting that a significant portion of the Yerington Pit resource may be mined without a pushback or major changes to the upper walls of the Anaconda pit.

The current Tetra Tech resource estimate is based upon SPS's 2011 drilling as well as 792 historic drill holes taken from approximately 10,000 scanned pages of assay and/or geologic data which were reviewed and digitally recorded by SPS personnel and from 57 Anaconda cross sections in use at the time of mine closure. The digital data entry was validated by Tetra Tech against historic sections and was considered to be compliant, based upon results of 18 twin holes and 5,446 feet of core from Anaconda holes which were assayed by SPS. The twinned drill intercepts statistically confirmed that the new compliant data support use of the historical data, as did the new core assays which were well within the expected norms for corroborating the old with new data.

The Tetra Tech resource estimate is included with a description of the project history, geology, mineralization, sampling procedures, and laboratory Quality Assurance/Quality Control procedures. The Updated Yerington Technical Report is available at www.sedar.com. The Qualified Person for the Yerington Pit project resource estimate and the Updated Yerington Technical Report is Rex Clair Bryan, Ph.D., Sr. Geostatistician for Tetra Tech.

Future Work Plans

Quaterra believes the Yerington Pit project has potential for significant additional copper resources. Historic and current drilling data indicate that horizontal and vertical limits to the mineralization at the Yerington Pit have not yet been found. Additional exploration and in-fill drilling is planned to both expand and upgrade the current NI 43-101 compliant copper resources of the project.

Bear Deposit

A portion of the Bear deposit lies on the northeast portion of the Yerington Pit property that was acquired with the SPS purchase of Arimetco’s assets from bankruptcy court. In December 2013, Quaterra announced the signing of four option agreements totaling 1,305 acres of private land north and east of the Yerington Pit site that covers additional portions of the Bear Deposit. In May 2015, the Company entered into an option agreement to acquire a fifth property covering approximately 1,050 acres of additional private land covering a portion of the Bear Deposit. Under the terms of the five option agreements, Quaterra (now SPS) has an exclusive right to acquire these properties with all mineral rights and certain water rights, and to explore these parcels.

The Bear Deposit was discovered in 1961 by Anaconda condemnation drilling in the sulfide tailings disposal area and was further delineated in the 1960s and 1970s. Currently the deposit is open in several directions and has never been consolidated under a single owner. A part of Quaterra’s recently acquired acreage was not previously accessible for exploration and is adjacent to the highest grade mineralization discovered during previous exploration of the area.

Historical information compiled for the Bear Deposit includes 126,400 feet of drilling in 49 drill holes that define a mineralized system covering an area of at least two square miles. The portion controlled by Anaconda in the 1960s covered approximately 25% of this area and includes an estimated 500 million tons of mineralized material averaging 0.40% copper (Dilles and Proffett, 1995). The Bear Deposit tonnage and grade estimate is historic in nature. A qualified person has not done sufficient work to classify this historic estimate as a current mineral resource and Quaterra does not treat it as such. In order to do so, this estimate will have to be confirmed by additional drilling.

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The Bear Deposit is a large porphyry copper system that occurs below 500 to 1,000 feet of valley fill and volcanic rocks of Tertiary age. Mineralization occurs predominantly in quartz monzonite, border phase quartz monzonite, and quartz monzonite porphyry dikes of Jurassic age. There does not seem to be any relation between the Jurassic rock type and the sulfide occurrence. Copper mineralization occurs most commonly as chalcopyrite with minor bornite within platings and veinlets of fresh feldspar and shreddy biotite. No copper oxide mineralization is present and only minor occurrences of chalcocite have been noted. Molybdenite is a common sulfide within the deposit, usually occurring with the best copper mineralization. However, only about 20% of the historic core samples have been analyzed for molybdenite and more studies are necessary to better understand its average grade and distribution.

The deposit is displaced by the gently east-dipping normal fault known as the Bear fault. The fault is defined by strongly sheared dark clay gouge with andesite and sulfide fragments. On the western part of the deposit the mineralization occurs within the foot wall of the fault while to the east the mineralization occurs deeper within the hanging wall.

The Bear Deposit is a high priority because of its very large size, historic drilling and potential for higher grades than district averages. Molybdenum could also represent a by-product credit. Exploration to expand and upgrade the historic Bear Desposit resource into a compliant NI 43-101 resource is a high priority.

Acquisition costs incurred by the Company for the Bear Deposit to December 31, 2015 were $1,177,869 (2014 - $427,752) and exploration expenditures were $2,617,697 (2014 - $15,402) for a total of $3,795,566 (2014 - $443,155) before the Option Agreement funding received from Freeport Nevada. There were no acquisition or exploration expenditures at the Bear Deposit prior to 2013.

Exploration and Drilling Results

On August 13, 2015, the Company commenced a five to seven-hole exploration drilling program at the Bear Deposit funded by the Freeport Nevada Stage 2 commitment. The drilling program is designed to assess historic assay results and determine geological controls for higher-grade mineralization. A magneto telluric (MT) geophysical survey was also carried out over the Bear Deposit target area to assist in the drill site selection. Results from the drill program are being released as they become available. Assays from the three holes completed in 2015 were released sequentially on November 17, December 23, 2015 and February 8, 2016. (Please see press releases at www.quaterra.com issued on those dates for details).

Highlights from Hole B-048 include an intercept of 1,157.5 feet of 0.42% copper containing 123.6 feet of higher grade mineralization beginning at 2,588.5 feet averaging 1.07% copper, 0.03% molybdenum, 0.036ppm gold, and 0.9ppm silver.

Hole B-049, drilled vertically to a depth of 3,635 feet, intercepted 1,138 feet (407.9 meters) of 0.26% copper beginning at a depth of 1,588 feet. Higher-grade mineralization, although present, is restricted to narrow zones varying from 3.0 to 5.5 feet in width. This hole extends an already large mineralized system an additional 770 feet to the north. Hole B-050, drilled vertically to a depth of 3,838 feet, intercepted 521.9 feet (159.1 meters) of 0.36% copper beginning at a depth of 2,429.2 feet. Included within this interval is 279.3 feet (85.1 meters) of 0.44% copper starting at 2,491.4 feet. A 6.1 -foot (1.9 -meter) interval of massive pyrite-magnetite-chalcopyrite skarn starting at 2,330.5 feet averages 1.91% copper, 0.22 ppm gold and 5.7 ppm silver. Hole B-051, located 1,150 feet east of Hole B-049, is in progress.

Quality assurance and control

Core samples were either sawed or split by SPS personnel in Yerington, Nevada, and shipped to Bureau Veritas Minerals NA – Inspectorate America Corporation (“Bureau Veritas”), an ISO certified assaying/geochemistry facility, in Reno, Nevada for sample preparation. Gold analyses are assayed in Bureau Veritas’ lab in Reno using their “FA430” procedure (fire assay with atomic absorption finish) with a 5 ppb Au detection limit. Prepared pulps are shipped to Bureau Veritas’ lab in Vancouver, B.C., Canada, for analysis using their “MA 300” procedure for 35 element ICP-ES analysis. Commercially prepared standards and blanks are inserted by SPS at 50-foot intervals to insure precision of results as a quality control measure. SPS has a chain of custody program to ensure sample security during all stages of sample collection, cutting, shipping, and storage.

Nieves Silver Project,Property, Mexico

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On December 29, 2014, the Company entered into the Blackberry Agreement respecting the sale of its 50% indirect interest in the Nieves Property, to its joint-venture partner Blackberry for US$4.0 million. Under the terms of the Blackberry Agreement, the purchase price is payable in four payments of US$1 million each over 15 months, with each payment earning Blackberry an additional 12.5% interest in the project. All costs for maintaining and exploring the Nieves Property will be the sole responsibility of Blackberry, with no dilution to Quaterra, through the end of 2015 or until Blackberry completes the acquisition, whichever is earlier. Upon closing, Blackberry will become the operator of the Nieves project. In the event that Blackberry subsequently sells the project, Quaterra will receive 5% of the future net sale price. In addition, Quaterra agreed to transfer its Americas claims in Durango State, Mexico, adjacent to Hecla Mining’s San Sebastian project, to Blackberry. The Blackberry Agreement was subsequently amended by agreements dated September 1, 2015, November 12, 2015 and February 26, 2016 to reduce the purchase price by $500,000, increase Quaterra’s portion of the future net sales price from 5% to 7.5% and to extend the final closing date to June 1, 2016.

As at December 31, 2016, the Company owned 25% of this project.

Property Description and Acquisition

The Nieves ProjectProperty is located in the Francisco R. Murguía Municipality of the Zacatecas Mining District near the southeasternsouth-eastern boundary of the Sierra Madre Occidental Physiographic Province in central Mexico. The Property is located approximately 150 km northwest of the state capital of Zacatecas and 90 km north of the mining community of Fresnillo. The property consists of 18 concessions covering approximately 12,064.1 ha. The concessions are registered in the name Minera Cerro Gregorio, as of August 5, 2011, a Mexican company wholly owned by Quaterra. The Nieves Property iswas jointly owned by Quaterra (50%) and Blackberry Ventures 1, LLC. (“Blackberry”(50%) (50%).until Blackberry Agreement concluded on December 29, 2014.

Kennecott Exploration Company (“Kennecott”) acquired the Nieves propertyProperty on January 16th, 1995, through an option agreement with Mexican concessionaires by making specified option payments over five years, and advance minimum royalty payments. On March 13th, 1998, Kennecott transferred its rights under the Nieves Property option to Western Copper Holdings Ltd. (“Western”Western Copper”) in consideration for an uncapped 2% NSR on certain core concessions and a 1% NSR on others. Western Copper assigned its rights to the Nieves ProjectProperty to Quaterra on March 26th26, 1999. The Nieves Property concessions are subject to a maximum 3% NSR to the original concession holders, which the Company may purchase at any time for US$2$2 million. Kennecott’s royalties on the propertyNieves Property were later sold to Royal Gold Inc. on January 24th,24, 2007.

On April 10th, 2003, Quaterra completed a limited partnership financing with Blackberry, JV, whereby Blackberry JV could earn a 50% interest in the Nieves Property by funding two exploration programs of US$750,000$750,000 each. The initial payment of US$750,000$750,000 received in the 2003 Fiscal Year was expended on a 5,300-meter drill program on the Nieves Property. During the 2004 Fiscal Year, Blackberry JV elected to continue by advancing a further US$750,000$750,000 towards a follow-up drill program completed in May 2005, thereby earning a 50% interest in the Nieves Property. The partners signed a joint venture agreement in 2006 and have jointly contributed to all exploration costs subsequently incurred.

There are no known significant environmental liabilities related to the current exploration of the Nieves Property. The areas of primary mineral exploration are generally flat-lying, sparsely populated with a few cultivated areas and the remaining land area used for the periodic grazing of livestock. Minimal rehabilitation measures such as stabilizing slopes and planting local flora in areas of disturbance is usually sufficient to satisfy the ecological authorities, the Instituto de Investigaciones Forestales, Agricolas y Pecuarias, (“INIFAP”), a government office based in Calera, Zacatecas.

There is little to no surface water for exploration or mining activities but an abundance of ground water exists and the ownership of mineral rights generally allows access to ground water as needed. There are no significant factors or risks that may affect access, title, or the right or ability to perform work on the property. Exploration drilling has been conducted under a permit issued by the Secretaria de Medio Ambiente y Recursos Naturales (SEMARNAT).Naturales. The permit expired on October 15, 2012, but may be extendedrenewed by request received prior to September 14, 2013.application.

Since inception to December 31, 2012,2015, the Company had incurred $1,623,310 (2011$636,181 (2014 - $1,535,959)$634,181) for acquisition costs and $4,692,483 (2011$1,751,669 (net of impairment) (2014 - $3,920,039)$1,730,946) for exploration expenditures giving a total of $6,315,793 (2011$2,387,850 before recovery (2014 - $5,455,998)$2,365,127) for its 25% interest in Nieves. The Company’s joint venture partner, Blackberry JV had spent, including the company’s administration fee, US$6,702,252 for its 50% interest in Nieves.Nieves Property as of December 31, 2015.

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Location, Access and Infrastructure

Quaterra/Blackberry JV explorationExploration activities are coordinated from the small town of Nieves (now re-named Francisco R. Murguia) where they maintain an office and a house.house is maintained. Subsequent to the of Quaterra’s 50% share of the Nieves Property to Blackberry as detailed above, Blackberry is responsible for all costs of the office and exploration activities, and is operator of the Nieves Property project. The town of Nieves is accessed via a 17 km17-kilometer paved road from Highway 49. The nearest major population and service centre to Nieves is the mining town of Fresnillo located 90 km to the south. Fresnillo has a population of approximately 75,000 and services the Fresnillo Mine operated by Peñoles. Fresnillo offers a professional work force experienced in mining and related activities in addition to most other supplies and services. International airports are located within approximately a three hour drive of the property in the city of Zacatecas to the south, and in Torreõn (Coahuila State) to the north. Road access is excellent with the main paved highway to Nieves running along the northern portion of the property. A network of dirt roads and trails provide access to the historical mining operations and extend southward to all areas of the property. Drill and access roads can be built easily as most of the Nieves Property is flat-lying with only a few dry creek beds.

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The Nieves propertyProperty lies within the Mexican Altiplano or Mesa Central region. This region is flanked to the west by the Sierra Madre Occidental and to the east by the Sierra Madre Oriental mountain ranges. The Altiplano is dominated by broad alluvium filled plains between rolling to rugged mountain ranges and hills reaching up to 3,000m above mean sea level and average elevations in valleys of approximately 1,700m. Elevations on the Nieves propertyProperty range from 1,900m.1,900m to 2,000m. The terrain is generally flat-lying with a prominent north-south trending ridge along the eastern portion of the property with moderate to vertical slopes. There is very little human habitation on the property, with only a few widely scattered farm houses, although the town of Nieves directly borders the property to the northeast.

The La Quinta field office, as well as core logging, cutting and storage facilities are located on the Nieves Property. Other infrastructure in the area includes: (1) a power line adequate to support a small mill (eg. 100 tonnes per day),; (2) a spur of the main Zacatecas rail line that connects the city of Rio Grande, located 18 km to the south,south; and (3) operating smelters in San Luis Potosi (copper and zinc, approximately 350 km to the south) and in Torreõn, Coahuila state (Peñoles lead-zinc smelter, approximately 200 km north).

History

The first discovery on the area covered by the Nieves Property was the Santa Rita Vein in 1560 by Spanish explorers. Soon after in 1574 the Concordia vein was discovered. The Santa Rita and Concordia-San Gregorio-Dolores veins were the focus of mining by the Spanish and Mexican miners until 1880 when an English company, the Mexican Rosario Mining Company, and two Californian companies, the Almaden Mining Company and the Concordia M. and M. Company, worked in the area. These companies worked primarily on the Concordia vein while a small independent miner Gonzáles Piñera worked concurrently on the San Gregorio vein. Prior to the 1910 revolution, which halted all production in the Nieves District, total ore production in the District was estimated at 50,000 tonnes. The only production reported is from the Concordia Mine where 5,414 tonnes at a grade of 4,065 g/t silver were produced.

Between 1910 and 1978 several companies attempted to de-water, sample, and re-open the historical workings in the Concordia and Santa Rita mines, and were largely unsuccessful. The Santa Rita vein and refurbished mill and flotation plant were purchased by Fomento Minero in 1978; they operated the mine until 1987. Fomento Minero also sank three shafts and deepened a historic shaft along the Concordia-San Gregorio vein system during the 1970’s. The flotation mill was capable of running 100 tonnes/day during this time and was fed 50% tailings and 50% ore with an average head grade of 130 g/t silver, 2% lead, 2.4% zinc and 2.5% antimony, according to Consejo Recursos Minerales. Today, all that remains on the site are the building foundations, abandoned shafts and power lines.

In the early 1990’s, a group of Mexican concessionaires assembled a land position that Kennecott optioned on January 16th, 1995. Exploration work completed by Kennecott included geologic mapping, surface sampling, geophysical surveying and reverse circulation (RC)RC drilling of the Gregorio North, California and Orion West veins. The drilling intersected several zones of significant silver mineralization hosted by two distinct styles of mineralization. Drill hole NV08 in the California area intercepted two separate 2m intervals of high gradehigh-grade silver vein mineralization that returned assay values of 367 g/t and 795 g/t silver at depths of 108m and 116m, respectively. In contrast, drill hole NV03 intersected a large low gradelow-grade zone of silver mineralization at a depth of 180m depth that averaged 82 g/t silver over 28m. Drill hole NV03 also encountered a high gradehigh-grade silver vein at 148m depth that returned 254 g/t silver over 2m. Drill hole NV06 also encountered a large zone of low-grade silver mineralization that returned 67 g/t silver over 68m.

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After acquiring the Nieves Property option from Kennecott in 1998, Western Copper drilled 5 RC holes testing the California vein system. The holes were drilled in the area around hole NV08. Western Copper also twinned hole NV08 and reproduced similar assay values for the intercepts reported by Kennecott including 890 g/t silver over 1.0m in drill hole WCNV01. Holes drilled to intercept mineralization below drill hole NV08 returned assay values of 841 g/t silver over 0.45m, 109 g/t silver over 0.8m, and 1,081 g/t silver over 0.35m in drill hole WCNV04.

Systematic drilling of the property began after Quaterra receivedbought the Nieves property rightsProperty from Western Copper in 1999. Since Kennecott imitated exploration drilling in 1995, a total of 61,608 meters have been drilled in 205 holes, on the Nieves property. Allall but tenthirteen of the holeswhich were completed during the Quaterra/Blackberry earn-in and JV.joint venture.

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Geology

The Nieves Property lies on the western flank of the Central Altiplano in Mexico, just east of the Sierra Madre Occidental ranges. Basement rocks underlying the western Altiplano are a Mesozoic assemblage of marine sedimentary and submarine volcanic rocks belonging to the Guerrero Terrane that sit unconformably on Precambrian continental rocks.

The late Cretaceous to early Tertiary Laramide Orogeny folded and thrust faulted the basement rocks throughout area and preceded the emplacement of mid-Tertiary plutons and related dykes and stocks. Unconformably overlying the Mesozoic basement rocks in the western Altiplano are units from the late Cretaceous to Tertiary, Sierra Madre Occidental magmatic arc. These rocks consist of a “lower volcanic complex” comprising an assemblage of late Cretaceous to Tertiary volcanic, volcaniclastic, conglomerate, and limestone rocks unconformably overlain by a Tertiary “upper volcanic supergroup” of caldera related, rhyolite ash-flow tuffs and flows. Eocene to Oligocene intrusions occur throughout the Altiplano and are related to the later felsic volcanic event. A final stage of NE-SW extensional tectonics accompanied by major strike-slip fault movement during the Miocene developed much of the basin and range topography currently exhibited in the area. Subsequent erosion of the ranges has covered most of the valleys.

The Mesozoic section on the Nieves propertyProperty is represented by a thick sequence of fine laminar grey to dark green argillite beds up to 1m thick belonging to the late Cretaceous Caracol Formation. The Caracol Formation which is host to silver mineralization on the property. The argillite beds are more abundant to the south in the Santa Rita area and to the west in the Concordia area. The Mesozoic section is isoclinally folded with an axial plane cleavage. Fold axes strike east-northeast to east and beds strike east-west and dip steeply south to near vertical.

Tertiary clastic rocks unconformably overlie the Caracol Formation on the east side of the Nieves Property. The shallow dipping Tertiary clastic section includes a 1 to 10m10 meter thick conglomerate composed of rounded to sub-rounded limestone boulders in a sandstone groundmass. Above the limestone conglomerate there is up to 130m of conglomeratic sandstone with thin bands of calcareous conglomerate. Overlying the conglomerate is 40m40 meter to 50m50 meter of Tertiary volcanic rocks composed of rhyodacitic to andesitic welded tuff. A thin 1.5 to 2m2 meter unit of grey to dark grey basalt occurs above the tuff and is in turn overlain by at least 56m of porphyritic rhyolite flows striking north-northwest and dipping northeast. These flows underlie a prominent north trending ridge on the east side of the Nieves property and are the host rock for manganese-calcite veins and breccia mineralization previously exploited by local miners.

The oldest structures on the Nieves Property are the folds which affect the Mesozoic argillite beds. These structures are likely related to compression during the Laramide Orogeny in the Cretaceous. Thrust faults are also common features of structures attributed to the Laramide Orogeny and several have been suspected to occur on the Nieves Property. Post-Laramide structures affected both the Mesozoic Caracol Formation sedimentary rocks and the Tertiary volcanic and sedimentary rocks. These structures include: (1) faults that strike 330o330° to 000o000° and dip moderately northeast to east with east plunging slicken-sides,slicken-sides; (2) faults that strike 170o170° to 180o180° and dip steeply to the west,west; and (3) major vein structures that strike 240o240° to 270o270° and dip 60o60° to 90o90° to the south.

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Mineralization

Silver mineralization on the Nieves Property is classified as low-sulphidation epithermal mineralization and is the primary exploration target. Epithermal silver veins are the dominant type of deposit within the Altiplano Region of Mexico that includes world-class examples such as Pachuca, Zacatecas, Fresnillo, and Guanajuato. The closest example is the Fresnillo deposit, located 90 km to the south of the Nieves Property. The Fresnillo deposit includes mantos and chimneys, stockworks, disseminated mineralization, and veins that show vertical mineralogical zonation. Typically in these veins, the high-grade silver (gold) zone is constrained in elevation within the vein structure to up to 500m500 meters vertically, or between 180 to 750mmeters and 750 meters depths below which the veins becomes dominated by base-metal sulfides and progressively lower in precious metal content.

The most economically significant mineralization at Nieves occurs in anastomosing carbonate-quartz-sulphide vein systems and stockworks that have been defined over a total strike length of 3.8 kilometers by 54,814 meters of drilling in 187 holes. The system develops to a maximum true width of in excess of 200 meters and has a proven down dip extent of approximately 525 meters.

The carbonate-quartz-sulphide veins contain the best grades of silver, gold, lead and zinc. They consist of calcite that is partially to totally replaced by grey to white, chalcedonic, fine-grained quartz veins and veinlets. Individual veins are from centimetres to 1.5 m wide with up to 50% sulphide minerals. Sulphides include pyrite, stibnite, sphalerite, galena, chalcopyrite and the silver sulphosalt, freibergite as well as minor proustite, pyrargyrite, and jamesonite.

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The central and most important of the three vein systems is the Concordia-San Gregorio-Dolores system which includes both the La Quinta and Gregorio North zones. Mineralization along the Concordia-San Gregorio-Dolores vein has a known total strike length of 1300 meters and a true width up to 100 meters. The mineralized zone in the Gregorio North area is approximately 1200 meters long and up to 200 meters wide. The La Quinta and Gregorio North zones are the subject of the August 9, 2012 Caracle Creek 43-101 compliant resource estimate but only the La Quinta zone has a designed open pit as shown in the October 31, 2012 preliminary economic assessment.

The attitude and size of the mineralized zones along the Santa Rita zone to the south and California vein system to the north are not well understood at this stage of exploration. Drilling along the Santa Rita system suggests that the mineralized zone is at least 750 meters long and may be up to 340 meters wide. The mineralized zone along the California vein system is at least 550 meters long and may be up to 130 meters wide.

Recent drilling has expanded the size of mineralized zones along all vein systems and additional drilling may significantly enhance the resources and economics of the project. Many of the vein systems are open along strike and all remain open to depth. Because some zones could be terminated along strike by late vertical fault structures, the discovery of strike extensions to the Nieves vein systems will only require continued drilling guided by the promising results of surface geophysical surveys.

Exploration and Drilling Results

Exploration between 2003 and 2010 by Quaterra and Blackberry included air photograph interpretation, surface sampling, field work,geologic mapping, two geophysical surveys, six drill programs and three NI 43-101 independent technical reports, two of which include NI 43-101 compliant resource estimations,estimates, all prepared for the Nieves project by Caracle Creek International Consulting Inc. of Toronto, Ontario (“Caracle Creek”).

In April 2011, Quaterra contracted Mira Geoscience to invert ground magnetic data from the Nieves Property. The results indicated that the geophysics model was poorly constrained due to insufficient data particularly along the western edge of the magnetic low anomaly. In December 2011, Zonge International (Zonge) was contracted to conduct additional ground magnetometer surveying along 14 N-S lines with a spacing of 200m between lines. The survey extended the magnetic low an additional 1200 meters west for a total E-W length of 2200m.

In June and July 2011, Zonge conducted IPR surveys along 9nine lines that indicated that several of the vein systems including the Santa Rita, Dolores, Nino and Orion veins extended to the western edge of the existing survey coverage. The coverage was extended in the first quarter of 2012, with a survey consisting of six lines totalling 28.4 line-kilometers, of vector CSAMT and CSIP and nine follow-up lines of pole-dipole IPR totalling 16.5 line-kilometers. The six lines of vector CSAMT/CSIP were spaced 400 meters apart and covered 1,000 hectares west of the main veins in the area of the enigmatic magnetic low.

The geophysical anomalies were followed up by surface mapping and sampling. The most interesting area identified to date is West Santa Rita, where the mapping identified two groups of narrow, sub-parallel 2two to 30 centimeters wide calcite-quartz veinlets, some of which contain strong gold and silver mineralization. Gold values are uprange from nil to 8.11 g/t over 0.2 mmeters and silver values arerange from nil up to 253 g/t over 0.4 m.meters. Outcrop in the area is sparse but at least one sample from a fault zone coinciding with the anomalous IP zone defining the Nino vein is anomalous in gold and silver.

Quaterra and Blackberry completed two more phases of drilling (VII and VIII) between March 2010 and October 2011, consisting of 73 drill holes and totalling 18,547 m.meters. Most of the drilling concentrated on the Concordia-Dolores-San Gregorio vein system, but significant amount of drilling is located in the California and Santa Rita vein systems as well.

The drill program was very successful at increasing the size of known mineralized zones along all the major vein systems. Mineralization along the Concordia vein system was extended an additional 400 m,meters, to a total of approximately 1,300 m.meters. The length of known mineralization along the California vein system was increased to a total of approximately 550 mmeters and it remains open to the east. Phase VII and VIII drill programs were successful in doubling the strike length of the Gregorio North mineralized zone located north of the San Gregorio vein, extending the strike length of the mineralized zone to approximately 1200 m.meters. A total of 15 drill holes systematically tested the Santa Rita vein system over 500 mmeters along strike, and the total length of mineralization was extended to approximately 750 m and remains open to the west.

The best intersections include 149 g/t Ag and 0.11 g/t Au over 31.25 m, which includes 6320 g/t Ag and 1.82 g/t Au over 0.25 mmeters in drill hole QTA123 along the Concordia West vein, 104 g/t Ag over 19 m,meteres, including 6410 g/t Ag over 0.1 mmeters and 5960 g/t over 0.1 mmeters in drill hole QTA137 along the California vein, and 152.2 g/t Ag and 0.12 g/t Au over 57 mmeters in drill hole QTA144 in the Concordia West area.

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The results of the program were the subject of a fourth technical report and the third NI 43-101 compliant independent resource estimate prepared for the Nieves projectProperty by Caracle Creek.Creektitled “Nieves Project From 43-101 Technical Report Preliminary Economic Assessment Zacatecas, Mexico”and dated October 31, 2012 (the “Nieves Property PEA”). The most recent estimate, dated August 9, 2012, was incorporated into the October 31, 2012 preliminary economic assessment (“PEA”) for the Nieves projectProperty PEA by M3 Engineering & Technology Corp. (“M3”) of Tucson, Arizona.M3.

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During preparation of the Nieves Property PEA, Quaterra tested the strike extension of mineralization at Nieves with 8eight core holes totaling 3,060 meters. Hole QTA 190 was collared to test an induced polarization (IP) anomaly on the Orion vein, a 2 kilometertwo-kilometer westward extension of the Gregorio vein. The hole intersected 0.8 meters of 1,865 grams per tonne (g/t) silver (54.5 oz/ton) which is part of a larger vein interval starting at 243.6 meters averaging 341 g/t silver (10.0 oz/ton). Holes QTA 191 and QTA 192, drilled 200 meters west and east of QTA 190, intersected 0.85 meters of 289 g/t silver and 1.1 meters of 284 g/t silver respectively. The new zone is open laterally and at depth.

Three holes (QTA 185-187) tested coincident IP and geochemical gold anomalies on the western extension of the Santa Rita vein. Holes QTA 186 and QTA 187 intersected 5.1 meter-meter intervals averaging 0.7 g/t gold and 0.55 g/t gold respectively. The gold anomalies may represent the upper levels of deeper and as yet undiscovered silver mineralization.

Wildcat holes QTA 188 and QTA 189, drilled 2two kilometers further west from holes QTA 185-187 to test anomalous vein occurrences, did not intersect significant mineralization. Additional drilling is being planned to investigate gold-silver anomalies

Since becoming the Nieves Property project operator, Blackberry staked an additional 1,878 hectares (7.2 square miles, title pending) on the West Santa Rita veinwest side of the property, completed an induced polarization survey over a new target area and several other high-priority geophysical anomalies detected by geophysical surveys duringcore-drilled two holes which were completed in September 2015. Blackberry has informed the first quarter of 2012.Company that the new drill holes did not intersect significant mineralization.

Sampling, Analysis and Security of Samples

Quaterra and Quaterra jointly with Blackberry have drilled 192194 holes on the Nieves property.Property. All but 10 holes completed by Quaterra in 1999-2000 were core holes. Major Drilling of Mexico S.A. de C.V. was the drill contractor for drill programs completed during 1999 to 2006 and B.D.W. International Drilling of Mexico S.A. de C.V. has been the drilling contractor since 2006.

Drill hole orientations are generally perpendicular to the strike of the overall structural trend of the vein(s) targeted. HQ (63.5 mm) was the standard drill core diameter. NQ (47.6 mm) was used locally as an extension (a tail) where drill conditions were difficult. Drill hole locations are surveyed using a RTK Trimble (model R8), double frequency GPS with precision to 1 cm. Down-hole survey readings were recorded on average approximately every 50 or 100m depending on the length of the hole using an Eastman Single Shot instrument. Survey results have been corrected for magnetic declination (+9º).

All drilling is conducted under the supervision of Quaterra personnel. The compound containing the core logging and core storage facility is contained withinprotected by a chain link fence with locked gate. The individual storage rooms are locked andto prevent access to the core logging and core cutting areas. The onsite geology office is a separate building within the compound and is also kept locked. The main working office is located in the town of Nieves within a locked house compound and also serves as a field house for the geologists. Paper and digital maps, cross-sections and long sections are stored in the Nieves field house office.

Core boxes were collected from the drill site and brought to the core storage facility on the Nieves Property for logging and sampling by the project or assistant geologists on a daily basis. The drill core wasis washed and core recovery estimated. Rock types, alteration minerals, textural and structural features, veining, and mineralized zones are documented. Sample intervals wereare measured, marked with permanent marker, and given a sample number and sample tag by the geologists. From this point, technicians were givencore saw the core to split, using a core saw, into halves where one half of each interval wasis placed with the sample tag into a sample bag and marked with the sample number. The other half wasis placed back into the core box in its original position and the core boxes wereare then stacked on racks and stored in order and by hole number in their core storage facility. Where the veins wereare coherent they wereare sawed in half perpendicular to the “grain” to get a representative split. Samples wereare placed into individual plastic bags marked with a unique sample identification number and with a sample tag placed into the bag. Sample ID numbers and meterages wereare also written on the core trays.

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Samples wereare then packaged into sealed sacks and taken by Quaterra employees to ALS Chemex Laboratorieslaboratories in Guadalajara for preparation. No employees, officers, directors or associates of Quaterra or Blackberry JV are involved in the preparation of the samples. After preparation, the samples were then packaged into sealed sacks and taken by Quaterra employees to ALS Chemex Laboratories in Guadalajara for analysis.

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Standard and blank samples wereare also included with the primary core samples for analysis. Standards wereare inserted directly into the sample sequence with a frequency of ~ 1 in 50. Blanks wereare inserted directly into the sample sequence with a frequency of ~ 1 in 25. The final prepared samples wereare shipped to the ALS Chemex laboratory in Vancouver, Canada for analysis. All samples were analyzed using a 41 element ICP method (ME-ICP41), in addition to analyzing gold and silver by standard fire assay (ME-GRA21). Lead and zinc values over 10,000 ppm and silver values over 100 ppm were re-assayed by atomic-absorption methods (ME-OG62). The Company is unaware of any known drilling, sampling or recovery factors that could materially impact the accuracy and reliability of the results. The Company believes the sampling procedure is appropriate for the type of mineralization being assayed such that samples are representative and there is no sampling bias.

ALS Chemex is an ISO 9001:2008, ISO 17025:2005 and Standard Council of Canada accredited laboratory with preparation and analytical laboratories operating in over 16 countries. Samples are sent to ALS Chemex in Guadalajara for preparation using their PREP-32 procedure. Upon receipt samples are dried, weighed and crushed. Two hundred and fifty grams of material is split and pulverized to at least 85% passing 75 microns. Reject material is retained at ALS Chemex in Guadalajara.

Samples were analyzed using fire assay – gravimetric finish method in addition to ICP. Silver was analyzed with two methods including aqua regia digest and a combination of ICP-AES (Inductively Coupled Plasma – Atomic Emission Spectroscopy) finish and fire assay and gravimetric finish. Gold was analyzed with fire assay and gravimetric finish. The rest of the elements were analyzed with aqua regia digestion and ICP-AES finish. In the aqua regia digest and ICP-AES finish, the samples are digested in aqua regia in a graphite heating block. After cooling, the solution is diluted to 12.5 ml with deionizedde-ionized water, mixed and analyzed by ICP-AES. The results are corrected for inter-element spectral interferences. In the fire assay and gravimetric finish, the samples are decomposed with fire assay fusion, during which the sample is fused with a mixture of lead oxide, sodium carbonate, borax, silica and other reagents to produce a lead button, which is cupelled to remove the lead. The remaining gold and silver bead is separated in dilute nitric acid, annealed and weighed as gold. Silver is determined by the difference in weights.

Internal quality assurance and quality control (QA/QC) procedures such as the insertion of blanks and standards into the sample sequences were not utilized by Quaterra and Blackberry JV during initial phases of exploration. Routine analysis of standard reference material (standards) began in 2007 with the insertion of a commercially prepared standard. Duplicate sampling began in 2008, and continued through the 2011 drill program. Duplicate samples were packaged and shipped using the same security protocols as the primary drill core samples and submitted to Skyline Assayers & Laboratories (“Skyline”) in Tucson, Arizona. Skyline is ISO 17025 accredited including analyses for Au and Ag by fire assay (including gravimetric methods), which is the method of analyses used for the submitted samples.

A review of the Nieves Property data in the October 16, 2012 M3 technical report concluded that the data quality is adequate at this stage of the project and can be used in 3D modelling for the purpose of resource estimation. The quality control review indicates that there were no major problems in the core shack such as sample mix ups or contamination. The slightly high failure rate of core duplicates is probably an indication of the nature of the ore that is characterized by narrow veinlets.

The failure rates of external standard (KM2653) are high for silver, but this is due to the different analytical method and not the poor quality of the data, which is suggested by the performance of the laboratory standards. Also, silver analyzed with the ME-ICP41 method is slightly biased high and silver analyzed with the ME-GRA21 method is slightly biased low, but these biases are not always consistent with the laboratory standard, suggesting that the problem is with the external standard. In the previous phases silver was analyzed with the same methods and a commercially available certified standard (CDN-SE-1) was used and performed well for silver. Recommendations for future programs include the use of an external standard with a similar certified value as the silver grades at the Nieves Property that is certified for the same analytical method and has similar matrix.

The average gold value in phases at the Nieves Property is 0.058 g/t including all data and 0.22 g/t including only data above the detection limit. The quality of the Au assay data is considered adequate to include Au in the resource calculation at this stage of the project, especially because the grade of Au is fairly low and it is not the main commodity at Nieves. Also, Au analyzed with ICP-OES and gravimetric method is comparable. Recommendations for future programs include using fire assay and instrument finish (AAS or ICP) for Au assays and that a certified standard with a low grade value, same analytical method and similar matrix is inserted and that the frequency of the quality control samples be increased to include one standard, one blank and one core duplicate with every twenty samples.

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Metallurgical Testing

Preliminary metallurgical testwork on the composite sample from the Nieves propertyProperty was completed in June 2010 by G & T Metallurgical Services Ltd. Approximately 100 kg of coarse crush material was composited from reject core material from selected intervals in 12 holes drilled through the La Quinta mineralization in 2009-2010. The sample was determined to contain ~ 79 g/t Ag (theoretical grade of 83 g/t Ag). Freibergite was the major silver phase present in the sample. Ore hardness tests indicated that the sample was moderately soft with a Bond work index of 10.8 kWh/tonne. Open circuit floatation tests showed that~that ~ 86% of the Ag can be recovered into a final concentrate with a grade of ~ 2.3 kg/tonnes Ag. Rougher tests suggested that Ag recovery was relatively independent of primary grind size between 67 and 104µm K80. Additional testworktest work was recommended to investigate coarser primary grind sizes. Rougher tests also indicated that silver recovery could also be increased by using a collector such as EROPHINE 3418A which would increase the selectivity of Ag over pyrite. Open circuit cleaner tests suggest that regrinding the rougher concentrate to 20µm K80 had no significant benefit on silver metallurgy. However, increasing the pH of the cleaner circuit to 10 significantly improved the Ag grade in the final concentrate. For the purposes of the preliminary economic assessment, design parameters of 86% silver recovery with a final concentrate grade of 2,300 g/t were used.

Mineral Resource Estimate

Caracle Creek completed an updated NI43-101NI 43-101 independent mineral resource estimate for the Nieves projectProperty in June 2012. A summary of the resource estimate within the Concordia and San Gregorio vein systems using a reporting cut-off grade of 15 g/t Ag is shown below:

¹ Reported at a cut-off grade of 15 g/t Ag. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
² Tonnes have been rounded to the nearest 10,000.
³ Ag grade has been rounded to one (1) significant digit.
⁴ Au grade has been rounded to two (2) significant digits.
⁵Ounces have been rounded to nearest 100. One (1) troy ounce = 31.103 grams.

The mineral resource is based on drilling information as of June 22nd,22, 2012. The database includes collars, assays, survey and lithology information from 8 drill holes from programs of previous operators between 1995 and 1996, 10 drill holes drilled by Quaterra between 1999 and 2000, as well as 174 drill holes drilled by Quaterra and Blackberry between 2004 and 2012. The estimation used geostatistical block modeling methods constrained by a mineralised wireframe. GEMCOM’s GEMS resource modeling software V.6.3 was used to generate the block model and perform the grade estimation. Grades for Ag & Au were estimated using the inverse distance method of interpolation. The mineral resources were classified according to the CIM Standard Definition for Mineral Resources and Mineral Reserves (December 2005)standard guidelines and reported in accordance with the Canadian Securities Administrators National InstrumentNI 43-101.

The mineralized domains were constructed primarily from the Ag grade assay data. The La Quinta mineralized domain was defined using 99 drill holes and 5072 samples. The Gregorio North mineralized domain was defined using 25 drill holes and 1729 samples. The drill holes were drilled in a sectional pattern with a drill hole spacing ranging from 20 - 100 meters, in the La Quinta area, and 20 - 175 meters in the Gregorio North area. The mineralized domain was projected 100 meters beyond the last drill hole. Due to the potential for bulk open pit mining, a grade cut-off was not used when constructing the mineralized domain. However, if the last assay in the interval was less than 0.1 g/t Au, then it was not included in the mineralized domain unless it had a significant Ag grade component of 10 g/t Ag. The estimation parameters set for the mineral resources were not allowed to interpolate through un-sampled intervals. An Ag value of 0.1 g/t (Half Detection Limit) was assigned to the missing intervals.

The Qualified Person responsible for the updated Nieves projectProperty resource estimate is Jason Baker, P. Eng., of Caracle Creek. Zsuzsanna Magyarosi Ph.D., also of Caracle Creek, is the Qualified Person responsible for the QA/QC evaluation. Doris M. Fox M.Sc., P. Geo.Geo,, also of Caracle Creek, is the Qualified Person responsible for the site visit and sampling procedures.

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Preliminary Economic Assessment

M3 Engineering & Technology Corp. (“M3”) of Tucson, Arizona used the Caracle Creek mineral resource estimate to complete a preliminary economic assessment (“PEA”) for the Nieves project October 31, 2012. Property PEA titled“Nieves Project Form 43-101 Technical Report Preliminary Economic Assessment Zacatecas, Mexico”. The Nieves Property PEA was amended and restated on January 7, 2014 in a document titled“Nieves Project Form 43-101 Technical Report Preliminary Economic Assessment Zacatecas, Mexico”.The study concluded that the projectNieves Property has potential for development as an open pit silver mine that would produce 55.5 million ounces of silver over 10-year mine life.

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A PEA should not be considered to be a pre-feasibility or feasibility study as the economics and technical viability of the Project have not been demonstrated at this time. Mineral resources that are not mineral reserves do not have demonstrated economic viability. A PEA is preliminary in nature and includes Inferred Mineral Resources that are considered too geologically speculative at this time to have economic considerations applied to them to be categorized as Mineral Reserves. Thus, there is no certainty that the production profile concluded in the Nieves Property PEA will be realized. Actual results may vary, perhaps materially.

The Nieves Property PEA was completed while silver prices were over $30.00 per ounce. The objective was to make the proposed pit as large as possible and so a 15 g/t cut-off was used, which lowered the average grade. The Nieves Property PEA has not been updated or optimized to reflect the effects of lower silver prices on project economics.

The Nieves Property PEA set out the following key project parameters:

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• An open pit mine centered on the Concordia vein that contains a total of 35.4 million tonnes of mineable ore.material. The pit includes 28.3 million tonnes of higher grade material averaging 65 g/t silver and 0.045 g/t gold (at a cutoff of 30.5 g/t silver); and 7.1 million tonnes of lower grade material averaging 24 g/t (at a cutoff of 21.3 g/t silver). The open pit mine plan was developed based on an indicated resource of 33.0 million tonnes at 50.1g/t silver and an inferred resource of 39.3 million tonnes at 32.0 g/t silver, using a cutoff of 15 g/t..

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• Recovery of 55.5 million ounces of silver and 41,000 ounces of gold over the 10-year mine life at an average mining rate of 3.5 million tonnes per year. Silver recoveries of 86% were based on testwork completed to date.

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• Initial capital expenditure of US$231.6 million with a sustaining capital cost of $64.1 million. Capital costs are considered accurate to +/- 35%.

• Average life-of-mine operating costs of $14.98 per ounce of payable silver.

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• An after tax net present value (NPV) of $77.1 million at an 8% discount rate and a base case silver price of $27 per ounce and a before tax NPV of $142.32 million. At a silver price of $32.40 the after tax NPV is $204 million. The project breaks even at a silver price of about $21.37 per ounce (about $15.25 after payback).

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• An after tax internal rate of return (IRR) of 15.7% with a 4.4 -year4.4-year pay back and a before tax IRR of 21.9% with a 3.4 -year3.4-year pay back.

The mine plan for the Nieves projectProperty is an open pit that straddles the Concordia vein and includes three pit phases. A 35.4 -million tonne mineralized zone would be mined at a rate of 10,000 tonnes per day resulting in a ten year10-year mine life and at a 5.4:1 (waste to ore) strip ratio. The pit includes 28.3 million tonnes of higher grade material averaging 65 g/t silver and 0.045 g/t gold (at a cutoff of 30.5 g/t silver); and 7.1 million tonnes of lower grade material averaging 24 g/t silver (at a cutoff of 21.3 g/t silver). The San Gregorio zone was not included in the mine plan but may become viable with additional drilling.

The financial analysis is based on a silver price of $27 per ounce and a gold price of $1,300 per ounce, rounded numbers which are both less than the SEC-recommended three-year historical price through the end of August. The analysis includes deductions for all royalty payments and a contingency of 20%. No credits are assumed for lead or zinc. Sensitivities were run for the price of silver, operating cost and initial capital cost.

The Qualified Person for the preliminary economic assessmentNieves Property PEA is Joshua Snider P.E. with M3 Engineering & Technology Corp., Tucson, Arizona. The Qualified Person for the mining portion of the Nieves Property PEA is Jeffery Choquette P.E. of Butte, Montana, and for metallurgy Thomas L. Drielick P.E. M3 Engineering & Technology Corp., Tucson, Arizona.of M3.

The Nieves Property PEA emphasizes that additional exploration and drilling could both expand the current pit and upgrade the San Gregorio inferred resource which was not included in this study. The San Gregorio inferred resource includes 16.3 million ounces of silver and 48,300 ounces of gold using a cutoff of 15 grams. Vein systems to the north and south of the pit also have potential for additional resources.

Future Work Plans

Quaterra plans to continue exploration at Nieves to investigate gold-silver anomalies on the West Santa Rita vein and several other high-priority geophysical anomalies detected by geophysical surveys during the first quarter of 2012. Most of the anomalies appear to be westward extensions of mineralized veins previously drilled, including the Dolores, Santa Rita, and Niño veins. The strike and depth extension of the high grade Orion vein presents a particularly attractive target for additional drilling on the property.

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MacArthur, Nevada, USA

Acquisition and Staking of Mineral Claims

The MacArthur property consists of 895 unpatented lode claims totaling approximately 18,492 acres on lands administered by the US Bureau of Land Management (“BLM”). A significant number of the claims are held by means of a mineral lease with option to purchase, executed on August 27, 2005 and subsequently amended. The agreement gives Quaterra the right to purchase the claims from North Exploration LLC (“North”) by making 3 annual payments of $524,000 (option balance) plus interest at the rate of 6% per annum by January 15, 2013. The second of these three annual payments was paid January 11, 2012. The third payment was renegotiated on December 14, 2012 to defray the final option balance by making a $100,000 payment plus $31,440 in interest prior to January 15, 2013 to extend the lease and option to January 15, 2014. Quaterra’s purchase is subject to a two percent Net Smelter Return (NSR) royalty with a royalty buy down option of $1,000,000 to purchase one percent of the NSR, leaving a perpetual one percent NSR. The agreement with North is in good standing.

Expenditures to Date

Acquisition costs incurred by the Company to December 31, 2012 were $3,077,838 (2011 - $2,358,534) and exploration expenditures were $18,783,675 (2011 - $17,144,368) for a total of $21,861,513 (2011 - $19,502,902).

Location, Access and Infrastructure

The MacArthur Copper Project is located near the geographic center of Lyon County, Nevada, USA along the northeastern flank of the Singatse Range approximately seven miles northwest of the town of Yerington, Nevada. The project is accessible from Yerington by approximately five miles of paved roads and two miles of maintained gravel road. A 100-foot wide gravel haul road that accessed the MacArthur open pit copper mine during the 1990s leads 5 miles south to the Yerington Mine. Beyond the MacArthur pit area are several existing historic two-track dirt roads that provide access throughout the property. Topographic coverage is on US Geological Survey “Mason Butte” and “Lincoln Flat” 7.5’ topographic quadrangles. The nearest major city is Reno, Nevada approximately 75 miles to the northwest.

History

The MacArthur project has been the subject of exploration and drilling by several operators who have contributed to the current database of more than 740 holes totaling approximately 282,000 feet. During the late 1940s, Consolidated Copper Mines attracted the interest of the US Bureau of Mines to conduct 7,680 feet of trenching in 1948 and followed up with the completion eight core holes for 3,414 feet in 1950. The Anaconda Company (“Anaconda”) began investigations at MacArthur including 33 shallow drill holes during 1955, 1956, and 1957. In 1963, Bear Creek Mining Company (“Bear Creek”) optioned claims and drilled at least fourteen air rotary holes, the deepest to 663 feet. At least four holes for 1,237 feet were drilled to satisfy claim staking location work. During 1967 to 1968, The Superior Oil Company optioned the claims formerly held by Bear Creek and drilled eleven holes as rotary pre-collar, core finish, for 13,116 feet testing the concept that a deep primary sulfide-bearing porphyry copper ore shell might underlie the MacArthur oxide mineralization heretofore tested no deeper than 663 feet. During the early 1970s, Anaconda conducted an extensive trenching and rotary drilling program consisting of more than 280 rotary holes totaling approximately 56,000 feet over and adjacent to the present day MacArthur pit.

Metech Pty. Ltd., of Perth, Australia was commissioned to prepare an ore reserve and mining planning study of the MacArthur deposit in 1989 The Metech study initiated the purchase of the Anaconda Yerington district properties by Arimetco International (“Arimetco”). Arimetco mined a total of six million tons at an estimated grade of 0.36 % total copper using open pit methods from the MacArthur deposit in the period of 1995 to 1998. Due to financial difficulties resulting primarily from the low price of copper, Arimetco sought protection under Chapter 11 of the U. S. bankruptcy Code in January 1997 and suspended all operations in 2000. After Arimetco’s departure, the mining claims over the deposit were allowed to expire. No consistent, large-scale mining has occurred on the site.

Quaterra acquired the MacArthur property in August, 2005. The acquisition was motivated by Quaterra’s belief in the potential of the property to host a copper deposit capable of sustaining a large run-of-mine heap leach operation using a solution extraction/electrowinning (SXEW) process for low cost production. The Company initiated exploration drilling in April 2007 and by November 2011, completed a total of 203,775 feet of drilling in 402 holes on the property. The drilling program has defined a widespread blanket of acid soluble copper oxide and chalcocite mineralization above primary copper mineralization that is believed to be the fringes of a major copper porphyry system.

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Geology

The MacArthur copper deposit forms part of the Yerington mining district which includes at least three, large, porphyry copper deposits (Yerington, Ann Mason, Bear), as well as two large IOCG deposits (Pumpkin Hollow, and Minnesota). Mineralization ranges from disseminated porphyry copper occurrences to skarn, limestone replacement, and vein type deposits.

The Yerington area is underlain by early Mesozoic volcanic and sedimentary rocks now exposed along uplands in the Singatse Range in the west and the Wassuk Range to the east. These Mesozoic rocks were intruded by two Middle Jurassic batholiths, an older granodiorite (Yerington Batholith) and younger quartz monzonite (Bear Quartz Monzonite) that comprise the majority of outcropping rocks in the district. The batholiths were themselves intruded by another Middle Jurassic quartz monzonite event moderately to steeply north dipping quartz-biotite-hornblende porphyry dike swarms, associated with copper mineralization, striking north-northwesterly across the entire mining district. The Mesozoic section is overlain by Early to Middle Tertiary volcanics deposited ash flow tuffs prior to the advent of normal, faulting associated with Late Tertiary basin-and-range extension that displaced and tilted all of the above-mentioned rocks. These faults dip east and are curved, concave upward, so that the dip of the fault flattens eastward. Net displacements are in an east-west direction. The geologic section is completed by post-faulting conglomerates and alluvium.

At MacArthur, the older granodiorite underlies most of the northern and western parts of the Company’s claim block. Along the east part of the claim block quartz monzonite is dominant and underlies the MacArthur pit. In bench walls at the MacArthur Pit, the quartz monzonite hosts conspicuous light brown limonite alteration banding (averaging 4 to 6 per foot) sub-parallel to the steeply north dipping, west-northwest trending quartz porphyry dikes. Along the eastern portions of the property, including the eastern third of the MacArthur pit, quartz monzonite assumes a light gray color due to widespread sodic-calcic alteration. A “border-phase quartz monzonite” commonly lies at the contact between the granodiorite and the quartz monzonite. The border-phase quartz monzonite is finer-grained than the quartz monzonite and has more abundant potassium feldspar.

Quartz porphyry dikes that host a large portion of the primary copper mineralization at Anaconda’s Yerington mine are associated with all copper occurrences in the district. The porphyry dikes at MacArthur are classified by dominate mafic minerals into quartz biotite porphyry and quartz hornblende porphyry, each subdivided further based on composition and alteration. Dikes contain feldspar crystals and either hornblende or biotite crystals set in an aphanitic matrix. The structures are typically ridge-formers with widths to 50 feet, dip steeply to the north, and follow a penetrative north-northwest (S60°E to S80°E) structural fabric. Narrow (<10 feet) fine grained, post porphyry andesite dikes follow the same NNW structural fabric.

Both Jurassic and Tertiary age andesite dikes in the walls of the MacArthur Pit can be traced from bench to bench and projected across the pit floors. The Jurassic dikes are commonly very fine grained, dactylitic plagioclase-bearing porphyries that pinch and swell as they fill fractures and intrude the hornblende and biotite quartz porphyry dikes. Tertiary hornblende andesite dikes are similar, but coarser grained than the Jurassic andesite dikes, containing abundant, acicular, black hornblende phenocrysts and occasionally plagioclase phenocrysts. Mid-Tertiary ash flow tuff units unconformably overlay the Mesozoic intrusive rocks in the southeast and western margins of the property.

Mineralization

The MacArthur deposit is part of a large, partially defined porphyry copper system that has been complicated by complex faulting and possible post-mineral tilting. Events leading to the current geometry and distribution of known mineralization include 1) emplacement of primary porphyry copper mineralization; 2) supergene enrichment resulting in the formation of a widespread, tabular zone of secondary chalcocite mineralization below outcrops of totally oxidized rocks called a leached cap; 3) oxidation of outcropping and near-surface parts of this chalcocite blanket, as well as oxidation of the primary porphyry sulfide system coupled with partial remobilization of copper to form the upper zone of oxide copper now exposed in the MacArthur pit and throughout the MacArthur property. Oxide, chalcocite, and primary copper mineralization on the MacArthur property is hosted in both granodiorite and quartz monzonite, and in lesser amounts within quartz biotite-hornblende (monzonite) porphyry dikes, all of middle Jurassic age. Oxide copper is also hosted in northwest striking andesite dikes less than one to ten feet wide with contacts forming favorable loci for mineralization. Andesite dikes make up less than approximately one to two percent of the host rocks on the property. Fracturing and ground preparation supplied the passage ways for the copper to migrate.

Copper oxide minerals are exposed throughout Quaterra’s MacArthur property, particularly in MacArthur pit walls as primarily green and greenish-blue chrysocolla CuSiO3.2H20 along with black neotocite, aka copper wad (Cu, Fe, Mn) SiO2, azurite Cu3(OH2)(CO3) and malachite Cu2(OH2)CO3, while tenorite (CuO) was identified with the electron microprobe (Schmidt, 1996). Copper-enriched limonite was identified by Anaconda as the mineral delafossite (CuFeO2). Chalcocite has been identified in drill holes below the MacArthur pit and in drilling throughout the property. The sulfides digenite (Cu9S5) and covellite (CuS) have been identified petrographically in drill cuttings from the western part of the property. The oxide copper mineralization is strongly fracture controlled, coating joint and fracture surfaces and within shears and faults. Both green and black copper oxides are frequently found on 1-5 millimeter fractures, as coatings and selvages and may be mixed with limonite. The fractures trend overall N60°W to N80°W (bearing 300° to 280° azimuth) and generally dip to the north. Limited turquoise is found on the property, mainly in one- to five-millimeter veinlets. On a minor scale, oxide copper mineralization replaces feldspar phenocrysts in the igneous host units, favoring andesite.

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A significant amount of chalcocite has been intersected in drillholes. Chalcocite is seen on drill chips or drill core coating pyrite and chalcopyrite as weak to strong coatings and is strongest when occurring around the MacArthur fault. Chalcopyrite is present as disseminations and veinlets, with or without chalcocite. As much of the historic drilling was stopped at shallow (<400 foot) depths, the scope and extent of chalcopyrite mineralization have not been fully defined.

Both copper oxide and chalcocite mineralization occur over approximately 9,000 feet east-west by 4,500 feet north-south. Copper oxides are structurally controlled coating fractures, joint surfaces, and developed as green or black “streaks” within shears and faults over several feet. Chalcocite may similarly be seen as grayish “streaks” within shears. Oxide mineralization exhibits a generally flat-lying geometry extending with good continuity 150 feet below surface and less continuously up to 600 feet below surface. Chalcocite mineralization generally occurs as flat-lying zones 50 feet or more in thickness, mixed with or below oxide mineralization.

Primary chalcopyrite mineralization occurs irregularly with chalcocite and as porphyry style disseminations or as veinlets in quartz monzonite associated with potassic alteration below both the oxide and chalcocite mineralization. Quaterra’s drilling program in the Gallagher area has delineated a zone of chalcopyrite mineralization that extends over a north-south distance of 2,500 feet. The primary sulfide zone has a defined width of 500 feet and extends to a depth of approximately 650 feet.

Porphyry copper style sulfide mineralization below the low-angle MacArthur fault zone at the North Porphyry Target has been defined over a distance of 2,500 feet between holes QM-68 and QM-164. Veinlet and disseminated primary chalcopyrite mineralization intercepted at a depth of 485 feet in QM-68 assayed 1.19% copper over a thickness of 110 feet. The same zone in QM-70 averaged 0.82% copper over a thickness of 60 feet at a depth of 420 feet and correlates to a thickness of 15 feet averaging 1.20% at a depth of 770 feet in hole QM-72. QM-100 intersected the sulfide mineralization with 0.58% copper over 65 feet. Approximately 1,000 feet to the north, hole QM-164 intercepted 64 feet of disseminated chalcopyrite mineralization in sodic altered granodiorite averaging 1.31% copper at a depth of 1,673 feet. The intercept includes a high grade zone of 29 feet averaging 2.21%. Mineralized zones within potassic halos in holes QM-165 to the west and in QM-163 to the east are consistent with those that could fringe a porphyry copper center.

Exploration and Drilling Results

Quaterra acquired the digitized Anaconda exploration and drilling data package in August 2006 and commenced a review of the deposit geology and mineralization model using Datamine software. The data was used to assess the required drilling and sampling to complete a technical report on the MacArthur Project with the objective of preparing a NI 43-101 compliant resource estimate.

The lateral zonation of supergene copper minerals visible at the surface, a possible chalcocite blanket to the north of the pit, and a large, pervasive phyllic alteration zone to the north and west of the mine workings, all suggested to Quaterra that the MacArthur deposit could have a potential for growth; both in the form of copper oxides and as primary sulfides in a related porphyry system.

In April 2007, the Company commenced a drilling program to twin approximately 10% of the shallow holes that defined the previously explored copper oxide mineralization at MacArthur and to identify extensions of copper oxide and chalcocite mineralization in the vicinity of the open pit. The 20-month drilling program totaled 80,100 feet in 173 holes including 23,900 feet of core in 49 holes and 56,200 feet of reverse circulation drilling in 124 holes. The drilling successfully targeted a deeper chalcocite zone in step-out holes from the pit, expanded the known oxide mineralization, and encountered a large, underlying tabular blanket of mixed oxide-chalcocite mineralization that overlies primary chalcopyrite mineralization verified by deeper drillholes in the western and northern margins of the drilled area.

Drilling on the MacArthur project was suspended through most of 2009 pending receipt of a Plan of Operations (POO) drilling permit. On October 28th the Company received the approval of the MacArthur POO and the BLM Record of Decision with a Finding of No Significant Impact (FONSI). The POO environmental assessment anticipates a total surface disturbance of 200 acres as a result of drilling activities throughout much of the project area.

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Quaterra initiated a second phase of reverse circulation and deep core drilling in early December 2009. Completed in August 2010, the program tested the northern extension to higher grade acid soluble copper mineralization on 500 foot centers northwest of the pit in-filled on 500 ft centers an undrilled area west of the pit In the southern Gallagher area, the program confirmed a band of continuous near surface oxide mineralization ranging in thickness from 15 to 60 feet over a distance of 1,900 feet between holes QM-155 and 156.

Three deep holes tested IPR anomalies to the north and northwest of the MacArthur pit where earlier drill holes intersected ore grade porphyry copper style sulfide mineralization below the low-angle MacArthur fault zone over a strike length of 1,000 feet. Hole QM-100, located 1,400 feet north of QM-68, intercepted porphyry-style chalcopyrite/biotite-chlorite veining at a depth 1,203 feet that assayed 0.58% copper over a thickness of 65 feet below the shallow-dipping MacArthur fault zone. QM-109, spotted on an IPR anomaly, failed to reach projected depth due to fractured, caving ground while QM-99 intersected massive pyrite impregnated breccia and scattered zones of secondary biotite and chlorite alteration; common elements of a porphyry system.

A total of 81,560 feet were drilled in 153 holes including 69,890 feet in 147 RC holes and 11,760 feet in 6 core holes during the 2011 drilling program. The program had the twin goals of enlarging and upgrading the status of the inferred resources through step-out and infill drilling and exploring for primary sulfide mineralization related to a copper porphyry system at depth.

The infill program encountered high grades of continuous chalcocite and copper oxide mineralization in zones averaging 40 feet or more in thickness along the western and northern margins of the deposit in the area referred to as the “Ridge Zone”. To test the high-angle mineralized structures that form an important component of the acid-soluble copper deposit, the program was completed on 250-foot centers in areas with higher grade potential and encountered some of the highest grades and best intercepts of acid soluble copper mineralization ever drilled on the property. Hole QM-187, drilled 2,000 feet north of the MacArthur pit, intersected 90 feet of predominantly chalcocite mineralization averaging 1.66% total copper (TCu) starting at a depth of 310 feet. This intercept includes 40 feet assaying 3.49% TCu. Hole QM-180 along the northwestern margin of the zone intercepted 40 feet averaging 1.37% TCu at a depth of 360 feet.

Exploration for a deep porphyry system at MacArthur intercepted one of the best primary copper intercepts yet identified on the project with 64 feet of disseminated chalcopyrite mineralization in sodic altered granodiorite averaging 1.31% TCu at a depth of 1,673 feet. The intercept includes a high grade zone of 29 feet averaging 2.21% TCu. QM-164 also intercepted a shallower zone of both vein and disseminated chalcopyrite at a depth of 685 feet that averages 0.34% TCu over a thickness of 96.5 feet. QM-164 extended the mineralized zone identified in QM-100 a distance of 1,000 feet to the north where it remains open for extension.

Geophysics

Quaterra Resources contracted three surveys at the MacArthur project in 2011 and 2012. A borehole geophysical survey and a surface IP/resistivity (IPR) survey were carried out by Zonge International in 2011. A detailed helicopter magnetic survey was flown by Geosolutions Pty. Ltd. in 2012. These surveys supplement previous geophysical work on the property that includes: a 2009 IPR survey carried out by Zonge; a 2007 helicopter magnetic survey carried out by EDCON-PRJ; a series of historic aeromagnetic surveys (1966 to 1975) available in analog form from the Anaconda Archives; and a series of historic IPR surveys (1963 – 1964) carried out by Kennecott Exploration Services/Bear Creek Mining Company and Superior Oil.

The mineralized system at MacArthur has an anomalous IP and resistivity response first detected in the Kennecott and Superior Oil IPR surveys in the 1960’s. The Quaterra 2009 and 2011 IPR surveys confirmed the reliability of the earlier surveys and further defined the depth extent of the IP anomalies. The 2009 and 2011 Quaterra surveys confirmed that the 1963-64 Kennecott data is of good quality and is useful for mapping anomalous IP zones within the upper 1,000-1,200 feet from the surface. Below this depth, the older data cannot effectively resolve the bottom of the IP anomalies nor determine if any of the anomalies extend to great depths.

The 2009 and 2011 data sets show this increased depth of exploration is important. Portions of the IP response are flat lying with limited depth extent. However both the 2009 and 2011 surveys have identified anomalous IP responses with depth extent in excess of 2000 feet and possibly feeder zones of the near surface zones. In 2011 two borehole IP surveys were run that demonstrate Quaterra’s ability to explore for deep sulfide responses below the depth of exploration of surface techniques.

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The modern data maps subtle low resistivity features which are interpreted to be porphyry alteration systems and have identified anomalous IP responses that extend under post-mineral volcanic cover to the north and west of the main MacArthur system. These buried anomalies are high priority drill targets.

Two high resolution helicopter magnetic surveys were flown over the MacArthur project in 2007 (EDCON-PRJ) and 2012 (Geosolutions). The modern, high resolution data has a broad frequency bandwidth and will be used for 3D modeling and exploring beneath the magnetic volcanic cover.

Sampling, Analysis and Security of Samples

Quaterra has explored the MacArthur property with both reverse circulation (RC) and diamond core drilling methods. Reverse circulation holes were drilled by Diversified Drilling LLC, Missoula, Montana, USA, DeLong Construction Inc., Winnemucca, Nevada, USA and by Leach Drilling Inc., Silver Springs, Nevada, USA. During 2007-2008 the core drilling was contracted to Kirkness Diamond Drilling of Dayton, Nevada, USA and Kirkness Brothers Diamond Drilling (aka KB Drilling Co, Inc) of Carson City, Nevada, USA. Major Drilling America, Inc., Salt Lake City, Utah, conducted core drilling during 2009-2010. Core drilling during 2011 was contracted to Ruen Drilling Inc, Clark Fork, Idaho, USA. The RC crews ran one 10-12 hour shift per day; the core drill crews operated 24 hours per day.

The MacArthur drilling program is supervised in the field by the project geologist for monitoring recovery, proper sample handling and accuracy in labeling. Drill core (HQ diameter) and reverse circulation samples are delivered from the drilling rigs to the core and sample storage facility in Yerington by the drillers at the end of each 12 hour shift for logging and sampling by the project geologists.

At the core storage/logging facility, core is photographed, measured, core recovery calculated, and the rock types, alteration minerals, textural features, structures, veining, and mineralized zones documented. Sample intervals on the first three holes were fixed at 5 feet. In subsequent drill holes the sample intervals are taken at each of the core runs marked by the driller’s blocks. Exceptions are where full recovery occurs in numerous, short core runs in intervals less than about 6 feet, or where the geologists visually selected sample intervals based on rock type or structure. Sample intervals are measured and marked with permanent marker, orange ribbon and aluminum tag that is stapled to the core tray showing the sample number. Where the core sample is coherent a line is drawn with permanent marker along the stick so that it is sawn in half perpendicular to the “grain” in order to get a representative split. The core is stored on pallets to be picked up by the analytical laboratory.

When core from the project arrives at the laboratory, it is split, using a core saw, into halves and one half of each interval is placed into a sample bag that is marked with the sample number. The sample is then dried, crushed to –10 mesh, rotary split to 1,000 grams, pulverized to –150 mesh, and split to 350 gram pulps. The pulps are assayed for total copper using a 2 gram-3 acid volumetric ore grade atomic-absorption (AA) spectroscopy analysis. The solution from the total Cu analysis is assayed by inductively coupled plasma (ICP) spectrometry for 34 elements. The acid soluble copper oxide (asCu) content of the sample is then analyzed by using a weak, sulfuric acid solution leach of a 1 gram pulp. The acid leachable copper sulfide content is analyzed by using ambient temperature concentrated sulfuric acid and hydrated ferric sulphate to determine Ferric Sulfate Soluble Copper (FSCu) content. Internal quality assurance and quality control procedures include the insertion of standards and duplicates into the sample sequences. Rejects from the previously analyzed samples are also sent to another accredited laboratory for check analyses. The remaining half core is placed back into the core box in its original position and the core boxes are returned to the Yerington core storage/logging facility by the laboratory truck, where it is then stacked and stored in order and by hole number. Reject and pulps are also returned with the core to the Yerington facility for archiving.

American Assay Laboratories (AAL) located in Sparks, Nevada prepared and assayed samples from the MacArthur drilling program in 2007. AAL is ISO/IEC 17025 certified and participates in CANMET, PTP MAL certification analyses twice a year and in GEOSTATS, SMA, and IOAG testing twice a year. Core samples from subsequent programs have been prepared and analyzed by ISO17025 compliant ALS Chemex Laboratories in Sparks, Nevada and Skyline Assayers and Laboratories (Skyline) in Tucson, Arizona.

The MacArthur reverse circulation drilling program is supervised in the field by the project geologist for sample accuracy, proper handling and accuracy in labeling. Methods and procedures for splitting and packaging of samples are conducted such that the quality of the sample splitting meets or exceeds standards required under NI 43-101 and a chain of custody starts with the drillers collecting, splitting and bagging of RC drill cuttings.

For logging of drilled lithologies, a continuous chip sample is collected in a plastic chip tray over five foot intervals and stored for logging by the project geologists. A 5/16 continuous split of five foot sample intervals is collected for assaying from 5.2 inch diameter drill holes through a wet splitter mounted on the rig. The samples are placed in sample bags and transported from the drilling rig to the Company’s storage facility in Yerington at the end of each 12 hour shift. The samples are then inventoried by Company personnel, dried, placed on pallets, wrapped in plastic and shipped via United Parcel Service to the Skyline laboratory in Tucson, Arizona for sample preparation and assaying. Rejects and pulps are returned to the Yerington facility for archiving.

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Skyline Assayers & Laboratories is accredited by the American Association for Laboratory Accreditation (A2LA - certificate no. 2953.01) in the Chemical field of Testing. Skyline is a recognized industry leader for all types of base metal, ferrous and non-ferrous analysis including high quality ore-grade assays, sequential copper analyses of ores, and umpire assays of metallurgical products. The Tucson laboratory has provided analytical service to the copper mining industry for over 70 years.

At Skyline, the RC samples are crushed to plus 75% passing a -10 mesh, split and pulverized at the Skyline laboratories for assay using analytical techniques as described for the core drilling program. Internal quality assurance and quality control procedures include the insertion of standards into the sample sequences. Rejects from the previously analyzed samples are sent to ALS Chemex Laboratories in Sparks, Nevada for check assays.

Mineral Resources

Tetra Tech, Inc. (“Tetra Tech”) of Golden, Colorado completed an updated NI 43-101 compliant independent resource estimate for the May 23, 2012 MacArthur Copper Project Preliminary Economic Analysis (PEA). The Tetra Tech estimate concludes that the MacArthur project contains a measured and indicated oxide/chalcocite resource of 159.1 million tons averaging 0.212% total copper (TCu) that contains 675.5 million pounds of copper using a cut-off 0.12% TCu; an inferred oxide/chalcocite resource of 243.4 million tons averaging 0.201% TCu that contains 979.5 million pounds of copper at a cutoff of 0.12% TCu; and an inferred primary sulfide resource of 134.9 million tons averaging 0.283% TCu that contains 764.0 million pounds of copper at a cut-off of 0.15% TCu.

A summary of Tetra Tech’s updated resource estimate is shown below:

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Tetra Tech used 0.12% Cu (or TCu) as the base case cutoff grade for the leachable resource while applying a base case a 0.15% Cu cutoff grade for the primary sulfide resources. Both of these values are believed representative of actual operating cutoff grades in use as of the date of this report. It is the conclusion of Tetra Tech that the MacArthur Mineral Resources meet current CIM definitions for classified resources.

The updated mineral resource estimate was generated using drill hole sample assays results and the interpretation of a geologic model which relates to the spatial distribution of copper in the MacArthur deposit. Interpolation characteristics have been defined based on geology, drill hole spacing and geostatistical analysis of the data. A block size of 25 feet by 25 feet by 20 feet and an assay composite length of 10 feet were defined to best reflect both the drill hole spacing and current geologic model.

The database provided by Quaterra contained the pertinent drill hole and assay information for the MacArthur Copper deposit. The database contained 737 drill holes of which 676 drill holes from Quaterra and Anaconda (sometimes referred to as the Metech holes) were used. The 61 holes removed included holes with limited or no information on the assays (Pangea Gold 1991, Superior, USBM 1952, Anaconda 1955-57), and six Quaterra holes outside the model limits. Of the 676 holes used, there are 280 Anaconda (Metech) RC holes and 396 Quaterra holes (58 core and 338 RC holes). These drill holes traversed 257,895 feet, producing 51,258 total copper sample assay values at a nominal five feet in length. The variables available in the database are for total copper from Quaterra and Anaconda intervals, and acid-soluble copper, a limited number of ferric sulfate soluble (QLT) copper assays and a very limited number of cyanide leach copper assays from Quaterra holes.

A total of twenty-two (21 directional and a omni-directional) variograms were calculated using MicroModel® for each MinZone within each area. The program searches along each direction for data pairs within a 12.5 -degree window angle and 5-feet tolerance band. All experimental variograms are inspected so that spatial continuity along a primary, secondary and tertiary direction can be modeled. Each variogram model was then validated using the “jackknifing” method. This method sequentially removes values and then uses the remaining composites to krige the missing value using the proposed variogram.

To classify the total copper resources Tetra Tech used an approach that takes into account the spatial distribution of the drilling, the distance to the nearest data points used to estimate a block, and finally the relative kriging error generated by the estimate. Tetra Tech has found this approach to be very robust and provide highly reproducible results.

The Qualified Person for the updated MacArthur resource estimate is Dr. Rex Clair Bryan with Tetra Tech.

Metallurgy

The MacArthur Project has a long history of metallurgical testing from 1976 through 2011 including bottle roll and column leach testing and full scale heap leach operations. Anaconda performed the first test work in 1976 and multiple subsequent owners continued test work through 2011. The most comprehensive test work was performed by Quaterra during 2010 and 2011. Quaterra contracted METCON Research of Tucson, Arizona to run a substantial number of bottle roll leach tests along with 32 column leach tests, on samples from 27 large diameter (PQ) size core drill holes. These drill holes provided reasonable representivity of the MacArthur Project mineral resources. The testwork, both historic and that most recently performed, shows the mineralized material is amenable to standard heap leaching with good copper extraction.

Considering both recent and historical test work, along with information from previous mining operations at the MacArthur site, the design basis for the M3 MacArthur Copper Project May 23, 2012 Preliminary Economic Assessment (PEA) considers a ROM heap leach operation with processing of the pregnant leach solution (PLS) through traditional solvent extraction / electrowinning (SX/EW). Copper extraction is predicted to range between 60 and 70 percent depending on material type. Acid consumption projections range between 30 and 35 pounds of acid per ton of material. The historic MacArthur Pit contains 133 million tons of oxide material which is predicted to yield 70% copper extraction with acid consumption of 30 pounds of acid per ton of material leached. Material from the MacArthur pit is predominately mined and processed over the first 7 years of operation.

The leach pad will be constructed using an HDPE liner system meeting Nevada requirements (NR 455). Conventional solvent extraction will be used. Electrowinning will include permanent mother blank stainless steel technology and harvesting of Grade A copper cathode on a 7 day pull schedule. All process facilities will incorporate proven industry standard designs and equipment.

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The Qualified Person for the metallurgical portion of the MacArthur Copper Project PEA is Dr. Richard Jolk of Tetra Tech.

Preliminary Economic Assessment

M3 Engineering & Technology Corp. (“M3”) of Tucson, Arizona completed a preliminary economic assessment (“PEA”) for the MacArthur project on May 23, 2012. The study concluded that the project has potential for development as a large-scale copper oxide heap leach operation that would provide long-term cash flows for a relatively modest capital outlay. The PEA set out the following key project parameters:

• An open pit mine based on an acid soluble measured and indicated copper resource model of 159 million tons at 0.212% copper and an inferred resource of 243 million tons at 0.201% copper.
• Recovery of 747 million pounds of copper over the 18-year mine life at an average mining rate of 15 million tons per year with a waste to ore stripping ratio averaging 0.90.
• Initial capital expenditure of US$232.7 million.
• Average life-of-mine operating costs of US$1.89 per pound.
• An after tax net present value (“NPV”) of US$201.6 million at an 8% discount rate and a base case copper price of US$3.48 per pound. (The project breaks even at a copper price of $2.56 per pound until the capital is paid off in 3.1 years. Thereafter, the breakeven is US$2.23 per pound.)
• An after tax internal rate of return (“IRR”) of 24.2% with a 3.1-year pay back.

Mine operating costs were provided by Independent Mining Consultants Inc. (“IMC”) of Tucson, Arizona, based on an average 41,000 ton per day mine plan.

The project financials were enhanced by including in the above cash flows a sulfuric acid plant at the site compared to purchasing and transporting acid to the site. An on-site acid plant provides more long term certainty for the highest operating cost item (sulfuric acid), reduces the requirement for purchased electric power, and would leverage future consolidation and development of other oxide deposits in the District.

The SX/EW capital cost estimate was prepared based on recent M3 in-house information of similar SX/EW facilities. It includes the heap leach pads, SX/EW facility and tank farm based on a design flow rate of 10,400 gal/min. Additional upfront capital costs were included for mining equipment and infrastructure improvements (power, water, roads) needed at the site. Capital costs are considered accurate to -20% to +25%.

The Qualified Person for the preliminary economic assessment is Mr. Rex Henderson with M3. The Qualified Person for the mining portion of the report is Herb Welhener of IMC. The NI43-101 MacArthur Copper Project may 23, 2013 PEA is available at www.sedar.com.

Future Plans

The results of the PEA are being used to determine what additional drilling will be required to bring the project to a prefeasibility status and to evaluate the potential to integrate the MacArthur resource into a larger operation that includes the Yerington Copper resource. This stage of a project generally includes additional infill and condemnation drilling, metallurgical testing and geotechnical work as well as environmental studies, permitting and engineering.

Some of the options being considered to add additional value to the project include:

• Processing the Yerington site oxide residuals as part of a District-wide oxide project.
• Additional drilling particularly at the north end of the MacArthur site to investigate integrating both deeper acid- soluble and primary sulfide copper into an expanded MacArthur mine plan.
• Pit studies to raise grades, lower the strip ratio and optimize production rates.
• Inclusion of other smaller oxide deposits on the Company’s land position in the Yerington Copper District.

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Yerington Copper Project – Nevada, USA

Acquisition and Staking of Claims

The Yerington Copper project property totals approximately 11 square miles. The project mineral rights consist of 2,768 acres of fee mineral properties and patented mining claims as well as 201 unpatented lode claims totaling 4,153 acres on lands administered by the US Department of Interior, Bureau of Land Management (BLM).

On May 1, 2007, Quaterra’s wholly owned subsidiary, Singatse Peak Services LLC (SPS) received the bankruptcy court approval for the acquisition all assets of Arimetco, Inc. (Arimetco) in the Yerington Mining District, subject to completion of due diligence. The purchase price comprised US$500,000 cash, 250,000 of the Company’s common shares and a 2% net smelter return royalty capped at US$7.5 million dollars on production from any claims owned by the Company in the Yerington and MacArthur mine areas.

Private land, patented claims, and 23 unpatented mining claims related to the Yerington Copper project were acquired by SPS from the Arimetco bankruptcy court in April, 2011. The acquisition followed three years of due-diligence studies and negotiations with state and federal agencies and the receipt of Bona Fide Prospective Purchaser (BFPP) letters from the US Environmental Agency (EPA), the Nevada Division of Environmental Protection (NDEP) and the BLM to protect SPS from liability emanating from activities of the former mine owners and operations.

Private properties related to the Arimetco acquisition are located in Township 13 North, Range 25 East in Sections 4, 5, 8, 9, 16, 17, and 21, and patented claims are located within Township 13 North, Range 25 East in Sections 16, 17, 19, 21, 31, and 32 and in Township 13 North, Range 24 East in Sections 22-25 and 36. An additional 434 unpatented claims in Sections 1, 2, 11-13, 22- 27, 35, and 36 Township 13 North, Range 24 East and in Sections 4- 9, 16- 21, and 30-32 Township 13 North, Range 25 East, Mount Diablo Base & Meridian were staked prior to or subsequent to the acquisition by SPS.

Expenditures to Date

Acquisition costs incurred by the Company to December 31, 2012 were $3,193,862 (2011 - $2,803,906) and exploration expenditures were $6,521,961 (2011 - $3,623,164) for a total of $9,715,823 (2011 - $6,427,070).

Location, Access and Infrastructure

The Yerington Copper Property is located near the geographic center of Lyon County, Nevada, US, along the eastern flank of the Singatse Range. The property centers on the historical Yerington open pit mine, flanked on the west by Weed Heights, Nevada (a small private community; the original company town of The Anaconda Company) and on the east by the town of Yerington, Nevada. The property is easily accessed from Yerington by a network of paved roads that were used as principal transportation and access routes during the former operating period of the Yerington Mine. SPS controls approximately 8,600 acre feet of groundwater rights and the Yerington pit contains an estimated 37,000 acre feet of water. Power is available on site at the Yerington Mine area. Nevada Energy operates a 30 million kW propane-fired, electrical generating power plant within ten miles of the site. The power infrastructure at the Yerington Mine site is expected to be readily available for a future mining operation due to the historical mine operations at the site. Topographic coverage is on US Geological Survey “Yerington” and “Mason Butte” 7.5’ topographic quadrangles. The nearest major city is Reno, Nevada, approximately 80 miles to the northwest.

History

Recorded production in the Yerington mining district dates back to 1883 (Moore, 1969) as prospectors were attracted to and investigated colorful oxidized copper staining throughout the Singatse Range. Knopf (1914) reported that oxidized copper cropped out at the historic Nevada-Empire mine located above the south center of the present-day Yerington open pit. Knopf does not show or reference other mines or prospects that are underlain by the Yerington open pit footprint, as gravel and alluvial cover obscure bedrock over an approximate 0.75 mile radius around the Nevada-Empire Mine.

Information is sparse for the period from Knopf’s reporting in 1914 until World War II, although it is likely that lessees worked the Nevada-Empire during spikes in the copper price. Private reports (Hart, 1915 and Sales, 1915) describe ore shipments and planned underground exploration from a northwest striking, southwest dipping structure at the historic Montana-Yerington Mine area located approximately one mile west of the present-day Yerington pit.

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During the 1940s, The Anaconda Company (Anaconda), at that time one of world’s major copper producers, outlined a 60-million-ton resource over the Yerington pit. During the early 1950s, the US government, citing the need for domestic copper production, offered “start-up” subsidies to Anaconda to open a copper mine in the Yerington district. Anaconda sank two approximately 400-foot-deep shafts in the present-day open pit and drove cross cuts to obtain bulk samples of oxidized rock for metallurgical study. Anaconda began operating the Yerington Mine in 1952 and mined continuously through 1979, producing approximately 1.744 billion pounds of copper from an ore body that contained 162 million tons averaging 0.54% Cu. Approximately 104 million tons of this total were oxidized copper ore that was “vat-leached” with sulfuric acid in 13,000-ton cement vats on a seven day leach cycle. Sulfide ores were concentrated on site in a facility that was dismantled and sold following termination of mining in 1979.

In 1976, all assets of The Anaconda Company, including the Yerington Mine, were purchased by the Atlantic Richfield Company (ARCO) who in 1979 shut down dewatering pumps in the pit and closed the Yerington Mine due to low copper prices. In 1982, ARCO sold the entire Yerington Mine complex and Weed Heights town site to Mr. Don Tibbals of Yerington, Nevada, who scrapped the plant and equipment. At closure, before dewatering pumps were shut off, the Yerington mine plan hosted a pre-stripped, non NI 43-101 compliant historic “reserve” of 98 million tons averaging 0.36% Cu containing approximately 696 million pounds of copper (K. L. Howard, Jr., Anaconda Internal Memo, 1979) within the ultimate pit design. The (Howard, 1979) historic estimate was prepared from a geologic section calculation using a 0.2 %TCu cut-off grade. Although the 1979 estimate contained no classification for measured, indicated, or inferred resources as defined by NI 43-101, the total estimate compares favorably to Tetra Tech NI43-101 compliant independent resource estimate completed in February 2012. An additional 22.8 million tons of material containing 136.8 million pounds copper was identified adjacent to the pit in this historic estimate. The (Howard, 1975) memo addressing this material is considered a reliable historic estimate because it cites mine reconciliation calculations and geologic projections from drill holes using a 0.2% Cu grade cut-off in an internal Anaconda memo by T. Leigh to W.C. Norem (1979).

In 1989, Arimetco Inc. (Arimetco) purchased the mine property from Tibbals, commissioned a 50,000-pound-per-day solvent extraction/electrowinning plant, and began heap leaching “sub-grade” dump rock stripped from the Yerington pit by Anaconda. Arimetco also added an unknown tonnage of “vat leach tailings” (minus 3/8 inch oxidized tailings leached during Anaconda’s operation) to some heap leach pads (HLP's) as well as trucking oxidized ore from the MacArthur property located approximately five miles north of the Yerington mine site. Arimetco produced some 95 million pounds of copper from 1989 to 1999 before declaring bankruptcy due to low copper prices and abandoning the property.

Soil and groundwater contamination, alleged to stem from the former mining operations at Yerington, have been identified on the property. As a result, a portion of the property acquired by SPS in 2011 is now under the jurisdiction of the EPA. Liability for the contamination on site is the responsibility of a third party which is actively engaged in remedial investigation and remediation activities under the supervision of the EPA.

In order to establish SPS’s position and rights, the acquisition by SPS of the Arimetco properties required a series of rigorous environmental, legal, and technical due diligence studies. The Chambers Group Inc. and Golder Associates Inc. completed a Phase 1 Environmental Site Assessment Report to allow SPS to establish liability protection as a bona fide prospective purchaser (BFPP). Prior to closing on the property, SPS received letters from the Nevada Department of Environmental Protection (NDEP), US Bureau of Land Management (BLM) and the USEPA indicating the post-closing requirements then applicable to the Site for SPS to maintain its defense to liability as a BFPP regarding the activities of the former mine owners and operators.

Geology and Mineralization

The Yerington property includes both the Yerington Deposit (Yerington Mine) and a portion of the Bear Deposit which represent two of three known porphyry copper deposits in the Yerington copper district. The porphyry systems are hosted in middle Jurassic intrusive rocks of the Yerington Batholith. Unless noted otherwise, the following discussions refer to the Yerington Deposit

Mineralized porphyry dikes associated with three phases of intrusive activity related to the Yerington Batholith form an elongate body of mineralization that extends 6,600 feet along a strike of N118ºE. The mineralization has an average width of 2,000 feet and has been defined by drilling to an average depth of 250 feet below the Yerington Mine pit bottom at the 3,800-ft elevation. Because of the economic constraints of low copper prices at the time, many of the 558 historic Anaconda drill holes used in the SPS study were stopped in mineralization and very few were drilled below the 3,400-ft level where the porphyry system remains nearly unexplored.

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Only four historic holes have actually explored the deep vertical projection of copper mineralization in the pit. Three of the holes were drilled along a single N-S oriented section through the center of the pit. According to M. T. Einaudi in an internal 1970 Anaconda report. the deep drilling program defined a series of nested, concave upward, grade shells that are elongated down the N 70º dip of the dikes with the 0.2% Cu zone extending to approximately the 2,600-ft level; an overall dip distance of 2,200 feet. Although the program encountered an increasing ratio of pyrite to chalcopyrite, there was no indication of a “barren core”, the porphyry dikes showed a “remarkable continuity” down dip and molybdenum mineralization became more abundant with increasing depth.

The orientation of the Yerington Deposit is due to mid-Tertiary extensional faulting that rotated the near vertically-emplaced batholith 60° to 90° westerly. The west to east dilation-displacement positioned the porphyry copper deposit on its side, resulting in a cross section of the of the porphyry system visible in the pit with its top toward the west end. Mining has revealed an alteration geometry displaying the original pyrite-rich cap (present-day leached sericite-limonite on the west end of the Yerington pit, grading downward easterly to quartz-sericite-pyrite alteration and potassic alteration in the central portion of the pit, continuing to a soda-flooded root zone at the eastern end).

Secondary oxide copper formed much of the upper Yerington Deposit. Chrysocolla was the dominant copper oxide mineral, occurring as fracture coatings and fillings to a depth of approximately 400 feet below the surface. Below the 4,100-ft level, chalcopyrite is the dominant copper sulfide mineral with minor bornite primarily hosted in A-type quartz veins in the older porphyry dikes. The un-mined mineralized material below the current pit bottom is primarily of chalcopyrite mineralization.

The Bear Deposit, located partially in the northeast corner of the Yerington Mine property, was discovered in 1961 by Anaconda during condemnation drilling in the sulfide tailings disposal area. The program identified chalcopyrite mineralization hosted in a porphyry system below 500 to 1,000 feet of valley fill and unmineralized bedrock. The mineralization is related to micaeous veining rather than A-type quartz veining common in the Yerington Mine porphyry system. Historic (not NI 43-101-compliant) resources estimated for the Bear Deposit are more than 500 million tons of material averaging 0.4% copper (Dilles and Proffett, 1995). The reference for this estimate does not include information regarding cut-off grade or methods used for the calculation and does not delineate categories for the resource. The estimate is considered reliable as it was calculated by the author who was the principal geologist with Anaconda (one of the world’s premier copper companies of the time) responsible for the Bear drilling program in 1967. The Bear deposit is known to extend beyond the boundaries of SPS properties and the percentage of the estimated resource controlled by SPS is unknown.

Exploration and Drilling Results

Exploration work on the Yerington Copper project commenced with a technical review of all available historical information relating to mineralization in and around the Yerington pit. A huge inventory of Anaconda data was available at the Anaconda Collection – American Heritage Center, University of Wyoming at Laramie. Approximately 10,000 pages of drill hole records from the library were scanned. The records included drill hole lithology, assays, and/or survey coordinates for almost 800 drill holes. Although some holes contained only lithologic or assay summary information, 558 holes contained adequate detailed assay, hole location and orientation information to be used in a resource estimation. Core from historical drilling left on site by Anaconda was photographed, described and selected intervals from 45 Anaconda core holes were shipped to Skyline Labs for re-assay.

Information obtained from the review of historical information was used to guide a two-pronged program of drilling during the last half of 2011. A total of 21,856 feet were drilled in 42 holes. The core holes and four RC holes were drilled to twin Anaconda core holes, while the remaining RC holes were targeted for expansion of mineralization laterally and below historic drill intercepts along the perimeter of the Yerington pit to support a NI 43-101 compliant resource estimate and technical report.

The data review and drilling results of the 2011 program clearly indicated that mineralization at Yerington is open to depth and along strike. Many of the historic holes in the pit were stopped in mineralization. Drill hole intercepts along the western edge of the pit are some of the best in the SPS database. Twin hole SP-04, drilled by SPS at the northwest end of the pit, intercepted 524.5 feet averaging 0.35%TCu starting at a depth of 228 feet including 88 feet of 0.69%TCu at a depth of 265 feet. Exploration hole SP-36, located along south central margin of the pit intercepted 95 feet averaging 0.28% TCu at a depth of 230 feet. Details of the 2011 drilling program are in the NI 43-101 compliant technical report for the Yerington Copper Project completed by Tetra Tech, Inc. of Golden, Colorado in February 2012.

A drilling program to sample residuals (historic dumps and tailings) at the Yerington site was completed in September 2012. A total of 9,585 feet of sonic drilling in 95 holes have provided material for the characterization of the vat leach tails, heap leach pads, and the W-3 sub-grade waste dump. The samples have been sent to Metcon Labs in Tucson, Arizona for metallurgical testing. These residual resources, historically estimated to total 124 million tons of mineralized material, reflect a notable potential to enhance the MacArthur project once they become NI 43-101 compliant.

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In September 2012, SPS reached a voluntary agreement with the U.S. Environmental Protection Agency (EPA) to participate in upgrading the system which manages fluids from the historic mining operation at the Yerington mine site. In exchange for SPS's participation in this work, the Company obtained a site-wide 'Covenant Not to Sue' for the contamination left at the site by former owners and operators of the historic mine operations. The agreement provides for improvements to the site and allows SPS to continue exploration at the site while working cooperatively with the EPA, Nevada Department of Environmental Protection and the community. The Agreement's 'Covenant Not to Sue' strengthens SPS's 'Bona Fide Prospective Purchaser Defense' against liability resulting from the contamination at the site prior to SPS's purchase. It is understood that by privately funding the project EPA can continue to manage the site in an appropriate manner without the immediate necessity to list the site on the National Priorities List (often referred to as the Superfund). SPS sees this as a positive step toward our goal of developing the Yerington mine site as well as our other assets in the Yerington Copper District.

The first phase of the fluid management project was completed in Q4. SPS co-funded the repairs to the on-site fluid management system by the EPA as well as the relining of one of the system ponds. Phase 2 requires SPS to complete a study of the entire fluid management system to determine what additional repairs or other modifications are necessary to ensure that the system is capable of handling the fluids from the former mine operations for a period of five years. In Phase 3, SPS will work with the EPA to determine which, if any, of the conclusions of the study should be implemented. SPS may elect to fund half of those repairs. All phases of the work are co-funded by the Atlantic Richfield Company, the predecessor owner and operator of the Yerington mine site and which company the EPA has identified as a potentially responsible party for a portion of the site.

Sampling, Analysis and Security of Samples

Tetra Tech’s review of sample preparation, handling, analyses, and security procedures for the Yerington drilling and sampling program has determined that the Company’s current practices meet NI 43-101 and CIM defined requirements.

Samples taken during the period from 1952 to 1979, when Anaconda operated the Yerington Mine, including samples used for the determination of mine head grades, lithology, densities, and metallurgical performance were determined by Tetra Tech to be representative of the deposit. While no details are available regarding Anaconda’s exact assaying protocol and quality control during the period the Yerington copper mine was operating, public records of profit and cost confirmed that the techniques and procedures implemented conformed to industry standards for that era.

SPS explored the Yerington Mine Copper property with both RC and diamond core drilling methods. The drilling program was supervised in the field by the project geologist for monitoring recovery, proper sample handling and accuracy in labeling. Approximately 4,300 samples were collected during the 2011 program and shipped for sample analyses. The samples were analyzed for total copper (TCu), gold, and a 47 element trace element package. Samples representing oxide mineralization and acid soluble sulfide copper were also analyzed for acid soluble copper and for ferric sulfate soluble copper. Rock quality designations (RQD) and magnetic susceptibility measurements were taken on all core which was photographed following geologic logging.

The RC samples are collected in a conventional manner via a cyclone and standard wet splitter, placed in cloth bags that are pre-marked by SPS personnel at five-foot intervals and include a numbered tag inserted into a plastic bag bearing the hole number and footage interval. Collected samples, weighing approximately 15 to 20 pounds each, are wire tied and then loaded onto a ten-foot trailer with wood bed allowing initial draining and drying. Each day SPS personnel or the drillers at the end of their shift, haul the samples to SPS’s secure sample preparation warehouse in Yerington, Nevada where the samples are dried, loaded on plastic lined pallets, weighed, and trucked by Skyline Assayers & Laboratories (Skyline) personnel to Skyline’s sample preparation facility in Battle Mountain, Nevada. A chain of custody form accompanies all shipments from Yerington to Battle Mountain. Once Skyline preps each sample in its Battle Mountain facility, approximately 50 gram sample pulps are air-freighted to Skyline’s analytical laboratory in Tucson, Arizona for analyses and assay.

Samples from the core drilling program are handled in a similar manner. Core samples with a diameter of approximately 2.75 -inches (HQ) are placed in wax-impregnated, ten-foot capacity cardboard boxes and delivered to SPS's secure sample warehouse in Yerington, Nevada by the drill crew following each 12-hour shift. The core is logged by a SPS geologist who marks appropriate sample intervals (one to nominal five feet) with colored flagging tape. Lines are marked along the length of core with red wax crayons to indicate where the core piece should be sawed. Each core box, bearing a label tag showing drill hole number, box number, and box footage interval, is then photographed. Rock quality designations (RQD), magnetic susceptibility, and recovery measurements are taken. Core is then loaded on a pallet, shrink wrapped, and secured with wire bands for trucking by Skyline personnel to Skyline’s sample preparation facility in Battle Mountain, Nevada. The core is sawed in half by Skyline personnel, one half designated for sample preparation/assay, the second half placed in its core box for return to SPS. Chain of custody procedures for core shipments picked up by Skyline at the SPS core shed follow the format for RC samples.

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Drilling samples from the Yerington Copper Project were analyzed by Skyline in Tucson, Arizona, which is accredited by the American Association for Laboratory Accreditation (A2LA - certificate no. 2953.01) and by ISO17025-compliant ALS Minerals Laboratories in Sparks, Nevada. SPS implements a quality assurance and quality control assay protocol whereby either one blank or one standard is inserted with every ten samples into the assay stream. Rejects from the previously analyzed samples are sent to ALS Minerals in Reno, Nevada for check assays.

Mineral Resources

Tetra Tech, Inc. of Golden, Colorado completed a NI43-101 compliant independent resource estimate and technical report for mineralization in and around the historic Yerington Mine in February 2012. Using a cutoff of 0.2% TCu, the Yerington Mine's measured and indicated primary copper resource totals 71.8 million tons averaging 0.30% TCu and contains 430 million pounds of copper. An inferred primary copper resource of 63.9 million tons averaging 0.25% TCu contains 323 million pounds of copper. Acid-soluble oxide/chalcocite mineralization includes a measured and indicated resource of 9.4 million tons averaging 0.30% TCu (57 million pounds of copper) and an inferred resource of 8.6 million tons averaging 0.28% TCu (47 million pounds of copper).

A summary of the February 2012 resource estimate is shown below:

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Based on benchmarking of the Yerington Deposit to similar deposits, Tetra Tech has determined that reasonable base case cutoff grades for the leachable (oxide/chalcocite) SX/EW recoverable copper and for flotation recoverable primary sulfide resources are 0.12% and 0.15% TCu, respectively.

The data show that the possibility exists to expand the resource as mineralization extends beyond the limit of current drilling, particularly below the pit and on its western end.

The results of the NI 43-101-compliant resource estimate compare favorably to the noncompliant estimates of copper remaining in and around the Yerington pit after the mine shut down (K. L. Howard, Jr., Anaconda Internal Memo, 1979). The 1979 estimate contained no classification for measured, indicated, or inferred, so direct comparison can only be made when considering all classes of the current estimate.

Using the same 0.2% TCu cutoff, the Tetra Tech estimate is 127% of the total tonnage, 81% of the average grade, and 104% of the total pounds of contained copper in the 1979 Anaconda estimate of 121 million tons with an average grade of 0.34% Cu containing approximately 831 million pounds of copper. The lower grade and higher tonnage of the Tetra Tech estimate are attributed to the effects of the kriging estimation method used for modern resource estimates. A nearest neighbor model run by Tetra Tech to test the results raised the average grade of the deposit to 0.32% TCu.

The 1979 estimate cited approximately 84% of the total contained copper (696 million pounds of copper in 97.8 million tons with an average grade of 0.356% Cu) as being within the original Anaconda pit design, suggesting that a significant portion of the Yerington resource may be mined without a pushback or major changes to the upper walls of the Anaconda pit.

The current Tetra Tech resource estimate is based upon SPS's 2011 drilling as well as historic drill holes taken from scanned pages of assay and/or geologic data which were reviewed and digitally recorded by SPS personnel. The digital data entry was validated by Tetra Tech against historic sections and was considered to be compliant, based upon results of 18 twin holes and 5,446 feet of core from Anaconda holes which were assayed by SPS. The twinned drill intercepts statistically confirmed that the new compliant data support use of the historical data, as did the new core assays which were well within the expected norms for corroborating the old with new data.

The Tetra Tech resource estimate is included with a description of the project history, geology, mineralization, sampling procedures, and laboratory Quality Assurance/Quality Control procedures. The NI 43-101 Technical Report is available at www.sedar.com. The Qualified Person for the Yerington Copper Project resource estimate and the technical report is Rex Clair Bryan, Ph.D., Sr. Geostatistician for Tetra Tech, Golden Colorado.

Future Work Plans

Quaterra believes the Yerington Copper Project has potential for significant additional copper resources. Historic and current drilling data indicate that limits to the mineralization at the Yerington Mine have not yet been found, both horizontally and vertically. The Company is planning additional exploration and in-fill drilling to both expand and upgrade the current NI 43-101 compliant copper resources of the project. Future drilling will target the pit area below the 3,000 feet level where only four deep historic holes (D158, D152, D174, and V2-28-33) have actually explored the deep vertical projection of mineralization. Three of five holes drilled along a N-S oriented section through the pit during the period of 1969 -1970 defined a series of nested, concave upward, grade shells that are elongated down the N 70º dip of the dikes with the 0.2% Cu zone extending to approximately the 2,600 level; an overall dip distance of 2,200 feet. Although the program encountered an increasing ratio of pyrite to chalcopyrite, there was no indication of a “barren core”, and the porphyry dikes showed a “remarkable continuity” down dip. The drilling data also established a 250 to 500 foot thick zone of fracture hosted and disseminated molybdenum mineralization that wraps around the sulfide zone near the chalcopyrite/ chalcopyrite-pyrite transition.

Additional metallurgical testing is planned for both the residuals and core from sulfide mineralized zones below the pit and oxide copper mineralization in the vicinity of the mine. The test results will be used in an economic assessment of the property and an assessment of the merits of a possible integration of the MacArthur and Yerington operations.

The Bear porphyry deposit also remains unconstrained by drilling beneath the Yerington Mine site. Although it does not contain NI 43-101 compliant resources at this time, historical drilling has indicated a large area of copper mineralization that will require systematic drilling and evaluation. Exploration of the Bear Deposit is planned in 2013 to validate and potentially expand the historic resource into a 43-101 compliant resource.

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Herbert Gold Project, Alaska

Property Description and Acquisition

The Herbert gold project (the “Herbert Gold projectProject”) is an early stage, partially drill-tested, high-grade, gold mineralized mesothermal quartz vein system in the historic Juneau Gold Belt of southeast Alaska. The project consists of 91 unpatented lode claims located 32 km30 kilometers north of Juneau along the eastern shoreand 42 kilometers south of the Lynn Canal on Federal lands administered by the U.S. Forest Service.Coeur Alaska's Kensington gold mine. The area has a land use designation on current land use plans as semi-remote recreation with a minerals overlay. Forest lands within this designation are open to mineral exploration and development, and guidelines allow reasonable access in accordance with the provisions of an approved Plan of Operations. Explorationproperty covers at least six parallel vein structures exposed at the project has proceeded under approved Plan of Operations from the U.S. Forest Service. A City/Borough of Juneau exploration permit has been granted effective through February 2013.

The Herbert Gold claim block consists of three claim groups. A core group of 17 claims was acquired by Juneau Exploration and Development Inc. (JEDI) from Echo Bay Exploration Inc. in 1997. Quaterra and JEDI signed a mining lease agreement in April 2007, with an effective date of November 1, 2007, at which time 67 additional claims were staked and an area of interest around the core claims agreed upon. A final set of 7 claims was added by Quaterra in February 2008 bringing the current total to 91 active claims. There is no distinction between the claims within the agreements and all claims lie within the proscribed area of interest. The lease includes a sliding scale NSR on production, up to five percent (5%) where the price of gold exceeds $601 per troy ounce, and a minimum annual advance production royalty of up to a maximum of $30,000 after the tenth anniversary of the effective date payable to JEDI.

On June 16, 2010 Quaterra optioned the Herbert Gold property to Grande Portage Resources (GPR). The option agreement granted the right to earn 65% in the Herbert Gold project if: a) GPR spent at least $750,000 before June 15, 2011 to earn 51% b) GPR spent an additional $500,000 before June 15, 2012 to earn the full 65%. GPR has fulfilled both of these obligations and is fully vested at 65%. On October 24, 2011 GPR and Quaterra signed a Joint Venture Agreement outlining the collective responsibilities between the JV participants. Funding is on a pro-rata basis, with standard dilution applying in the event either party declines to participate.

Expenditures to Date

Acquisition costs incurred to December 31, 2012 were $136,492 and exploration expenditures were $1,512,046 for a total of $1,648,538. Acquisition costs incurred to December 31, 2011 were $120,357 and exploration expenditures were $554,119 for a total of $674,476.

Location, Access and Infrastructure

The Herbert project area lies on the western flanks of the Coast Range Mountains. Terrain is generally rugged within the project area, with elevations extending from 40 m to 1200 m above sea level. Topographic relief ranges from moderate to rugged. Vegetation ranges from dense alder brush to bare rock. Herbert Glacier terminates at the eastern edge of the claim block and the glacier's rapid retreat in the past 30 years is responsible for recent exposure of uncommonly large areas of bare rock at low elevations.

Exploration field work is currently limited to summer and fall months, but no seasonal restrictions are anticipated for future operations. Access to the project area is currently by helicopter from Juneau but the main public paved highway (Route 7) from Juneau passes 5.5 km west of the project area where it crosses the Herbert River. Topographically there is no obvious impediment for road access from the highway to the project area along a route parallel to the Herbert River.

Juneau is a regional mining center supporting active mining operations at Greens Creek and Kensington. As such it is well supplied with qualified support personnel for any future mining operation at the project site. Other nearby communities including Haines and Skagway add to the potential employment base. The Alaska Marine Highway and commercial aviation are the primary forms of transportation between the three communities.

Electric power lines along Route 7 terminate just north of Dotson's Landing approximately 3 km south of the highway/ Herbert River junction. Tidewater access is likely at Dotson's Landing approximately 10 km from the project, of which the first 4.5 km would be on public paved roads.

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History

The Juneau area hosts multiple high-grade gold deposits that were active from 1883 through to 1943 and so it is likely the Herbert Gold area was originally prospected during this time. Houston Oil and Minerals found gold mineralization in outcrops recently exposed by retreating ice and drilled the prospect in 1986. The program consisted of 9 BQ diameter core holes totalling 502 meters. Echo Bay Mines drilled an additional 1,100 m in 10 holes in 1988. Historic data is a little vague as to whether there was some additional shallow "winkie" drilling also completed in 1988, with possibly as much as 230 m completed in 12 holes. Although encouraging results were returned, for unknown reasons Echo Bay abandoned the project.

In 1997 as part of Echo Bay's divestiture of its Alaskan properties, a group of three local prospectors (JEDI) successfully purchased the core claims of the Herbert Gold project. The property was brought to the attention of Quaterra in 2006 who signed a Mining Lease with JEDI effective November 1, 2007. A field program in the summer of 2007, managed by the Hawley Resource Group (HRG) resulted in the collection of 299 rock chip, soil, and stream silt samples and the initiationtoe of a property wide geology map. In 2010 the property was optioned to GPR.retreating glacier.

After acquiring an option in 2010, Grand Portage initiated work with detailed geologic mapping and analysis of aerial photographs over the southern two-thirds of the most intensely mineralized part of the Herbert Gold property. The work investigated three high angle east-west trending vein-faults identified as the Floyd, Deep Trench, and Main structures. The Deep Trench and Main structures were mapped over strike-lengths of about 2,100 meters and vertical distances of several hundred meters. The work also identified attractive targets in subsidiary structures such as the Ridge vein and more master vein-faults, tentatively named Goat Creek and North.

The 2010 field work was followed up with an exploration drilling program that totaled 15 holes as an initial test of the Main, Ridge, and Deep Trench Veins from 5 platforms. Hole 10C-1 intercepted 1.14 meters that averaged 17.1 g/t Au in the Main Vein and 6.17 g/t Au over a thickness of 0.86 meters in a newly discovered vein. Drill hole 10D-2 intercepted a quartz-sulfide vein of about 4 meters true thickness with an intercept of 6.55 g/t Au over 1.15 m. Other significant intercepts were reported in the Ridge Vein (.85 m averaging 6.85 g/t Au in hole 10A-4) and in the Deep Trench Vein (.52 meters averaging 9.4 g/t Au in hole 10B-1). The drilling program tracked Herbert's Main Vein for about 750 meters and tested the vein at three general locations.

GPR drilled a total of 5,181 meters at the Herbert Glacier project in 30 holes during the 2011 field season. The program intersected high grade gold mineralization in 5 separate zones, four of which are new discoveries. The Deep Trench Vein was tested by 16 holes from the E, F, and G platforms. Hole 11E-2, drilled at an angle of minus 62 degrees, intersected the vein with a true width of 8.76 meters averaging 33.8 g/t gold at a downhole depth of 137.1 meters. The western most platform on Deep Trench vein, the F platform, also showed impressive values in drill hole 11F-3. At a depth of 40.0 meters, 11F-3 intercepted a brecciated quartz vein that assayed 11.53 g/t Au of gold over 3.52 meters. Significant values were seen in all of the holes testing the vein from the G platform. Trench samples taken from the vein near the E platform encountered gold values with screened assays up to 40.1g/t Au. The drilling results together with surface exposures give the known mineralization in the Deep Trench Vein a vertical extent of at least 400 meters, a known strike length of almost 1000 meters and the mineralization remains open at depth.

Thirteen holes drilled in 2011 tested the Main and Ridge Vein systems. Hole 11I-4, drilled at an angle of -64 degrees to a total depth of 171.3 meters intersected the Main Vein with a true thickness of 0.95 meters averaging 73.9 g/t gold and 93.1 g/t silver at a downhole depth of 141.2 meters. This intercept occurs near the western limit of exploration on the Main Vein immediately beneath the major contact between the normal host and low-grade meta-sediments and volcanics. The mineralization appears to represent a new target type defined by bonanza grade mineralization produced by the sudden changes in geochemistry, and possibly pressure and temperature at the quartz diorite intrusive contact. Grande Portage completed its 2011 fieldwork by identifying several deep targets to be drilled in the 2012 season.

The first NI 43-101 Technical Report ever prepared for the Herbert Gold project was completed May 28, 2012 by Nicholas Van Wyck and William Burnett of Yukuskokon Professional Services, LLC. The report uses all exploration and drilling data compiled through the 2011 field season to describe the geology and mineralization of the project and outlines the sampling, assaying and analysis used for the preparation of the database.

Geology and Mineralization

Through 1989, the Juneau gold belt has produced approximately 6.7 million ounces of gold. The production totalled nearly 75% of Alaska's lode gold until this percentage was reduced by production from the Fort Knox and Pogo mines in the Alaska interior. Historic production from the Juneau mining district was mainly from mesothermal quartz veins and stringer lodes localized in greenschist to amphibolite-facies metasedimentary and intrusive rocks. As are typical of these types of deposits worldwide, mineralized veins in the Juneau district are known to extend significant distances along strike and down-dip.

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Mineralization at the Herbert Glacier project consists of mesothermal quartz-carbonate-gold-base metal veining andveins similar to that seen throughoutthose in other historic mines in the district. Gold-quartzFour principal veins are hosted in weakly foliated, NW trending quartz diorite caught between two NW-trending faults separating the quartz diorite from gneiss and tonalite to NE and phyllites and metagraywackes to the SW. The four principal veinshave been identified, which from south to north and areinclude the Floyd, Deep Trench, Main, and Goat veins. Minor veins include the North, Ridge and Lake.Lake veins. The principal veins strike N80E and dip steeply to the north, with a minor subsidiary NE orientation. On the surface, veins and their hydrothermally altered walls erode easily to form prominent linear zones with strike lengths of over 900 meters.north. The cumulative strike length of all mapped veins at present is over 3,700 m. Current drillingmeters.

Quaterra (35%) and exposures in creek bottoms indicate thatGrande Portage Resources Ltd. (“Grand Portage”) (65%) formed a joint venture for the structural zones hosting the veins are as much as 20 meters wide, while the veins themselves have drill intercepts with corrected true thicknesses of at least 8 meters in places, although most are on the order of 1-2 meters thick. Somefurther exploration and development of the veins contain visible gold and exhibit local high grade gold values.

Exploration and Drilling Resultsproperty with each party bearing its proportionate share of costs (the “Herbert Gold JV”). Grande Portage is the operator of the Herbert Gold Project.

A total of 127 diamond drill holes and four trenches have investigated the Herbert Gold PropertyProject since drilling began on the projectits discovery in August 2010.1986. The 2012 drilling campaign was designed to upgrade the previously identified inferred resources to indicated resources and to test extensions of mineralization in the Main and Deep Trench veins as well as new targets in the Goat and Ridge veins.

Grande Portage initiated the 2012 drilling campaign with a two rig program in June. Spring Valley Drilling Inc. and Core One Enterprises LLC. completed 8,900 meters of core drilling in 62 holes. The program in-filled the drill hole spacing of the Main and Deep Trench Veins to a nominal 25 meters and tested the open strike extents of both structures while completing a successful test of the Goat Creek Vein.

Seven holes were drilled from pad J on the Goat Creek structure in 2012. Hole 12J-3 intersected visible gold in a sheared quartz vein with a 2.05 meter intercept of 79.4 g/t gold which includes 0.8 meters of 192.5 g/t gold. Hole 12J-4 encountered an average of 12.66 g/t gold over 1.10 meters in the structure. The Goat Creek vein was discovered in 2011 by a single wildcat hole collared on a linear feature which paralleled the other well-mineralized east-west veins. The feature can be traced on surface for nearly 1,000 meters.

The results from the 2012 infill drilling campaign were used for the updated NI43-101-compliant resource estimate by D.R. Webb of DRW Geological Consultants Ltd. (see “Mineral Resource Estimate” section). When compared to the April 2012 resource estimate, the recent campaign resulted in the conversion of 52.3% of the tonnes and 74.4% of the ounces from the inferred to indicated resource category. At the same time the grade increased by 42.2% compared to last April’s resource estimate. At a 3.0 g/t cut off, 56.0% of the tonnes and 81.7% of the ounces were converted to the indicated resource category, with an increase in grade of 46.2%. The program also delineated a higher grade shoot within the Deep Trench vein which contains the highest grade resource discovered to date of 407,100 tonnes averaging 8.12 g/t Au (at a 2 g/t Au cut-off), and 232,300 tonnes averaging 12.42 g/t Au (at a 3 g/t Au cut-off). This high-grade mineralization is open to the east and at depth.

Sampling, Analysis and Security of Samples

All core samples from the Herbert Gold drilling program are removed via helicopter from the drill pad to a secure hanger area and from there by truck to the project core logging and sample prep facility in Juneau. This facility consists of two lockable 40-foot shipping containers situated behind a residence in a graded parking area. The surrounding area is residential with multifamily housing units and business in the immediate area. The area is not fenced and is easily accessible to the public. The containers are owned by one of the underlying claim owners and so steps have been taken to maintain a clear custody of core samples by the operator including storage of the core in a locked container.

Core is first logged and selected intervals marked for sampling. A rock saw outside the core facility is used to saw the core in half. One half is bagged and stored prior to shipping to the assay lab, while the remainder of the core is archived on the core storage site. Samples are locked before being shipped to the assay lab in Fairbanks by air shipment. The samples are shipped to the lab quickly and are not stockpiled on site for any length of time. Future program will include security seals on sample bags and a designated storage area for split samples prior to shipping.

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Core samples from 2010 and 2011 were air shipped to the ALS facilities in Fairbanks, AK for sample preparation. Incompetent, friable, clay-rich or crumbly samples were bagged in plastic bags and then placed in the standard canvas bags so there would be no possible loss of free gold in the cloth. Core samples were weighed, coarse crushed, split and pulverized. Pulps were then shipped to ALS in Reno, NV for analyses. For both 2010 and 2011, base metals and trace elements were analysed by ICP - AES (ALS prep code: ME-ICP61). This method uses a four acid dissolution method and is primarily designed as an exploration geochemistry analytical package. Initially, 2010 gold assays were by conventional fire assay techniques (ALS prep code: Au-ICP21), consisting of fire assay of a 30 g sample of the pulp with the pellet then dissolved in acid and "finished" by AES. This analytical method is typically used for exploration projects. Later in the 2010 season, 34 samples with anomalous gold values were check assayed using the metallic screen method (ALS prep code: Au-SCR21). In 2011 metallic screen assays were used for all submitted samples in addition to conventional fire assays.

There is no relationship between the assay lab (ALS) and either GPR or Quaterra. ALS Minerals laboratories are registered or are pending registration to ISO 9001:2008, and a number of their analytical facilities have received ISO 17025 accreditations for specific laboratory procedures.

After the completion of two seasons of exploration on the project, deficiencies were identified in the May 28, 2012 technical report concerning methods used for quality control and quality assurance. There were no external standards being used nor was there a program of duplicate analyses. Although analytical blanks were submitted into the sample stream, the source of the blank material was problematical. The authors of the technical report do consider however, that the data from the 2010-2011 field season is still valid based largely on the good agreement between the original data and the later check assays. Recommendations for correcting deficiencies in the adequacy of sample preparation, security, and analytical procedures were implemented prior to commencement of the 2012 drilling program.

Metallurgical Testing

Metallurgical testingprogram were included in the database used by D.G. DuPre & Associates for an NI 43-101-compliant resource estimate released in a document titled“Technical Report on mineralized material from the Herbert Gold project confirms that the gold in this system returns recoveries up to 91 % AuProperty Juneau District, Southeast Alaska” and 78% Ag using a combination of gravity concentration and cyanide leach of the gravity tailings. The ores also contain variable percentages of sulfides such as arsenopyrite, galena and sphalerite, and sodium cyanide consumption was high.

The U.S. Bureau of Mines collected a 240-pound metallurgical sample of gold mineralized vein material from the project for analysis and beneficiation tests in 1988. A gravity separation test recovered 88.8 % of the gold and 80.7 % of the silver. In 2010 a sample prepared from cannibalized drill core was tested for "Bond Ball Grindability" and gold recoveries. The results cite a calculated value of 15.7 kw-hr/tonne for work index (WI) and combined gold and silver recoveries of 91 and 78 % respectively using gravity concentration followed by cyanidization of the concentrates and tails (G&T Metallurgical Services, Ltd., 2011)dated April 10, 2013 (the “Herbert Gold Technical Report”). The report recommends further metallurgical testing to understand the large consumption of sodium cyanide in the process. Though the metallurgical study consisted of representative material from core, the material collected was uniformly from relatively low-grade material recovered during the 2010 drilling campaign and did not include the high-grade with visible gold drilled during the 2011 season. As testing of the project continues, increased knowledge will allow a better consideration of the range and size of the sampling program required for additional metallurgical sampling. A bulk sample between 10 and 100 tonnes will permit a far more comprehensive mill design and a gravity only recovery test by Falcon (or equivalent) would provide better parameters for designing of the mill.

The regional characteristics of ores from past mining operations in the Juneau district are quite consistent, containing a very high percentage of free milling gold with the remainder of the gold reporting with the base metal sulphides. It is reasonable to expect, based on these regional characteristics and the character of the core samples obtained to date, that potential ore from the Herbert Gold project will behave similarly.

Mineral Resource Estimate

GPR and Quaterra released an updated NI 43-101 complaint resource estimate for the Herbert Gold Project on February 28, 2013. The updated estimate by D.R. Webb P. Geol. of DRW Geological Consultants Ltd. used the digital database derived from a total of 127 diamond drill holes and four trenches that includes the results from the 2012 infill drilling campaign. At a base case cut-off of 2 g/t Au, the February 28, 2013 estimate contains an indicated resource of 821,100 tonnes grading 6.91 grams per tonne gold (g/t)(gpt) containing 182,400 ounces of gold in the Deep Trench and Main veins. At the sameThe resource was calculated using a base case cutoff of 2 g/t Au cutoff, thegpt. The Deep Trench and five veins that have had limited drill testing contain an inferred resource of 51,600 tonnes grading 7.73 g/tgpt gold for a total of 12,800 ounces of gold. The mineralization is open at depth and along strike.

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A summary of the February 28, 2012 resource estimate is shown below:

The resources are classified according to their proximity to the sample locations and are reported, as required by NI 43-101, according to the CIM Definition Standards for Mineral Resources and Mineral Reserves. Indicated resources comprise blocks that are situated within 60 meters of assays derived from drill holes or trenches. Resource blocks located between 60 and 200 meters of assays are considered inferred. Metallic or screened assays were used in all instances where they were available (921 samples). All other assays are standard one assay ton results reported using ICP finish or where over limit (>10 g/t) are reported using gravimetric finish.

MapInfo’s 3D solid generation routine was used to construct three dimensional models from a series of cross sections for each of eight different zones where correlations in apparent gold assays, alteration zones, and multi-element data appear down-dip on section and between sections. Some areas of the Main vein provided multiple options for correlations that were permissive by geology and sample geochemistry. The Deep Trench vein was remarkable in the simplicity and consistency of a very planar orientation of the correlations.

An Inverse Distance Squared (ID2) method using a block model approximately 8m x 1.5m x 6m was applied to the Main and Deep Trench veins. Smaller solids (such as the Deep Trench Vein Hanging Wall) were modeled using smaller block sizes down to 2m x 2m x 2m. Blocks required a minimum of three and a maximum of 12 composites within a 180m x 180m x 180m search ellipsoid, oriented parallel to the vein. The raw and composited assay data for the veins display a mixture of three populations on the lognormal probability plots. These can be modeled smoothly without any obvious outliers that can over-influence the estimation and to account for the nugget effect. Statistical studies showed that capping or averaging was not indicated. The resource remains open in multiple directions along these defined veins.

D.R. Webb P. Geol. is the Qualified Person responsible for the reserve and resource calculations while D.G. Dupre P. Geo. is the Qualified Person responsible for all other aspects of the Herbert Gold Technical Report whichReport.

No drilling was performed during 2013. All wooden drilling platforms were dismantled and flown to an offsite location as specified in the operating permit. The third year of baseline environmental water studies was completed. Although the 2014 Operating Plan was approved by the US Forest Service on February 27, 2014, the joint venture elected not to drill due to a lack of funds. The Herbert Gold JV’s 2015 Operating Plan was approved by the US Forest Service on April 7, 2015. However, no drilling took place in 2015 because of continued depressed gold prices and lack of funds. The Company is being prepared and will be filed within 45 dayscurrently in the process of the February 28, 2013 release. Quality-control data, generated during the various drill programs conducted at the Herbert Property, are being independently verified by Mr. Dupre and Dr. Webb as part of the project review.

Future Work Plans

GPR and Quaterra are planning an aggressive program of diamond drilling for 2013 to extend the known mineralization down dip and along strike atmonetizing non-core assets, including its 35% interest in the Herbert Gold project. Preliminary resource estimates are strongly influenced by high-grade shoots alongProject, but to date no buyers have been identified. In the veins and there is no geological evidenceevent that the grades of the shoots could not have continuityGrande Portage elects to great depths. The resource remains open in multiple directions along these defined veins in addition to there being several highly prospective structures spread over the property. With 4 (or possibly five) high grade mineral shoots now identified in 3 of 6 vein systems on the property and only 10% of the known property yet investigated by drilling, the Herbert Gold project retains an attractive untested potential for significant resource growth.

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Arizona Uranium Claims, USA

Acquisition and Staking of Uranium Claims

drill before Quaterra commenced uranium exploration in Arizona in June 2005 with the acquisition of 99 unpatented lode mining claims from North Exploration LLC (“North”) that cover several uranium breccia pipe targets in the Arizona Strip district. Under the terms of the North agreement,has monetized its interest, the Company acquired a 100% interest in all of the North claims by making staged payments over a five-year period totaling US$500,000 and issuing 600,000 common shares. The North Properties arewill be subject to a 2% production royalty on each Property, 1% of which may be purchased by Quaterra for US$1 million. The North acquisition also included other properties in Utah and Wyoming that are prospective for both uranium and vanadium.

In mid-2006, Quaterra signed a letter agreement with Nu Star Exploration LLC (Nustar)dilution if it elects not to lease 18 Claims covering 4 additional breccia pipe targets in the district. The terms of the Nustar lease are an upfront payment of US$20,000, a first anniversary payment of US$30,000, a second anniversary payment of US$40,000 and a final anniversary payment of US$100,000. The final payment date has been amended so that the payment is deferred until such time when the withdrawal by the Department of the Interior be lifted and exploration and mining activities be allowed to continue. The Nustar Claims are subject to a 4% Yellowcake royalty, 75% of which the Company can buy back for US$500,000 per Claim group (thereby reducing the royalty from 4% to 1%).

Quaterra staked an additional 550 mining Claims on the Arizona Strip in 2006 and another 1,450 claims were perfected in early 2007 to cover more than 200 high and moderate priority anomalies identified by an airborne VTEM geophysical survey.

A subsequent review of all the Company’s assets was conducted in response to a July 20, 2009 decision by the US Department of the Interior (“DOI”) to segregate 1 million acres of federal lands in the Arizona Strip for two years pending a review for a possible 20 year withdrawal of the district from mineral entry. Unpatented claims held in the area of segregation were prioritized and selectively reduced to establish a land position consisting of 1,000 claims and one state lease. The optimized land position controlled 195 VTEM anomalies that include Quaterra’s best breccia pipe targets with a maintenance cost that could be supported while the withdrawal is contested in Federal District Court.

In early 2010, Arizona state Mineral Exploration Permits (MEPs) totaling approximately 3,200 acres were acquired through an option agreement with Eagle Hill Exploration, Eagle Hill Arizona Uranium LLC, and Snowden Resources Corp. Additional MEPs were acquired by the Company in 2011 and some were abandoned in 2012 making a current total of 1,880 acres of Arizona state land now under lease by Quaterra. When combined with 32.3 square miles covered by 1000 unpatented federal claims, the Company’s land position covers approximately 35.2 square miles in the heart of the Arizona Strip uranium district. The properties consist of many individual and scattered claim blocks that have been selectively staked over targets with some surface expression of a possible collapse structure, with favorable VTEM geophysical signatures and within areas of known mineralized occurrences.

On January 9, 2012, the DOI announced a Public Land Order to withdraw approximately one million acres of Federal land for a twenty year period. The stated effect of the withdrawal order is to withdraw the acreage from new mining claims and sites under the 1872 Mining Law, subject to valid existing rights and does not prohibit previously approved uranium mining, or development of new projects that could be approved on claims and sites with valid existing rights. The withdrawal order affects all 1,000 of Quaterra’s unpatented claims on federal lands but does not affect future exploration or development on the Company’s 1,880 acres of State leases in Arizona.

Expenditures to Dateparticipate.

Acquisition costs incurred to December 31, 20122015, were $4,962,589 (2011 - $4,761,909)$153,425 (2014 -$141,313) and exploration expenditures were $7,867,075 (2011$1,374,146 (2014 - $7,728,123)$1,374,146) for a total of $12,829,664 (2011$1,527,571 (2014 - $12,490,032).

Location, Access and Infrastructure

Quaterra’s Arizona Uranium property is located$1,515,459) for its 35% interest in the northern Arizona Strip uranium district in Coconino and Mohave Counties. The property occupies the southwest corner of the Colorado Plateau physiographic province in northwestern Arizona just south of the Utah state line. It is bounded to the west by the Grand Wash Cliffs and to the east by the Echo Cliffs. The area is characterized by a broad and featureless expanse of range land that becomes deeply incised by canyons of four major drainages.

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Access to the property is provided by maintained county roads, mine access roads and a network of BLM recognized dirt roads and jeep trails used by ranchers and prospectors as well as State and Federal authorities for land management. Nearly all of the surface and mineral rights with the exception of the Arizona state lands are Federal and managed by the Bureau of Land Management with a field office in St. George, Utah.

History

Uranium mineralization was first discovered on the Arizona strip in a mineralized breccia pipe in 1947. The uranium occurred in association with copper mineralization at the Orphan mine two miles west of the visitor’s center on the south rim of the Grand Canyon. The first uranium ore was shipped by the Golden Crown Mining Company in 1956 to a buying station in Tuba City. Before closing in 1969, the Orphan operation produced a reported total of 4.4 million lbs of uranium in material averaging 0.42% U3O8 and 6.7 million lbs of copper. (Baillieul, T.A. and Zollinger, R.C. (1980) NURE Grand Canyon Quadrangle, Arizona PGJ-020, 41p.).

The relationship of uranium to copper mineralization initiated an investigation of several small copper deposits in the region. Uranium was identified in the Hack Canyon copper mine on the northern Arizona strip in the 1950s but it was not until 1974 when Western Nuclear discovered uranium ore bodies in the Hack 1 and Hack 2 breccia pipes that industry began to focus attention on the emerging district. Energy Fuels Nuclear Inc. (Energy Fuels) acquired the Hack Canyon ore bodies in 1980 and initiated an intense campaign of land acquisition and exploration that over the next ten years discovered seven ore bodies. With the entrance of Pathfinder Mines and Union Pacific Resources, at least three additional mineralized breccia pipes were added to the district. Several more were in earlier stages of discovery when in the early 1990s the price of uranium dropped below the cost of production.

Energy Fuels breccia pipe uranium mines were some of last hard rock uranium producers in the US prior to the price decline of the 1990s. Since 1980, the Arizona Strip has produced in excess of 19 million pounds of uranium, averaging 0.65% U3O8 from seven breccia pipes. Of these, Hack Canyon I, II, and III, Pigeon and Hermit are mined out and have been reclaimed, Arizona 1 (owned by Dennison Mines) resumed production in January 2010, Pinenut (Dennison Mines) is in the final phases of development and pending permitting to commence production and Kanab North has been placed on a standby with reserves remaining.

Geology and Mineralization

The canyon walls of northern Arizona expose numerous breccia pipes that are characteristic of the collapse structures that host uranium mineralization in the Arizona strip. The collapse of cavern roofs in the Mississippian Redwall Limestone forms a pipe of breccia through the subsequent collapse of overlying sediments through mechanical and chemical processes to form a vertical column of breccia. Breccia pipes in the region average 200 to 400 feet in width and can extend upward over 3,000 feet from the Redwall Limestone to the upper Triassic sequence.

Many northern Arizona Breccia pipes exhibit several common morphological features that are used to identify the structures at the surface and to position drill holes at depth. The cylindrical area of vertically displaced breccia in the center of the pipe is generally referred to as the “pipe throat.” The amount of vertical displacement in the throat ranges from 50 to several hundred feet and often decreases up section. The internal geometry of the throat can be complicated by the later formation of “pipe in pipe” structures. These internal features are the result of late stage (often post-mineral) collapse due to continued dissolution of carbonates in the lower reaches of the pipe throat. They may result in the dispersal and elimination of economic accumulations of uranium mineralization in the pipe.

The throat of a breccia pipe is seldom visible at the surface when not exposed in canyon walls. Where covered by the Triassic Moenkopi siltstone or recent alluvium, the only evidence of a pipe structure may be a large circular structure of gently inward dipping beds or even more subtle circular anomalies formed by ring fractures and vegetation. These features are caused by the dissolution of evaporites in the Permian Toroweap and Kaibab Formations (PKfm) along the margins of the throat during the formation of the pipe. As the evaporites are removed, a pronounced structural depression or “collapse cone” develops in the overlying strata above the Coconino sandstone. Many of the collapse cones are characterized by a thick section of Moenkopi siltstone that fills the cone near the upper Kaibab horizon. Although breccia pipes often have some structural symmetry at different levels, the throat of a pipe is not always in the center of a collapse cone and circular depressions are not always related to pipes.

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Uranium mineralization in breccia pipes of the northern district occurs predominantly within the pipe throat and below the upper Hermit contact. Mineralization is also present in ring fractures along the margins of the throat, and in the underlying Supai Group, but significant accumulations at this level is less common on the north rim than in the southern district. Economic concentrations of mineralization often occur over a vertical distance of more than 600 feet in the pipe throat. Scattered mineralization can extend well below the upper contact of the Esplanade Sandstone.

Uranium occurs primarily as pitchblende in voids between sand grains and replacing rock fragments of a reduced sandstone dominant breccia derived from the Coconino Sandstone. Calcite and gypsum are common cementing minerals. Associated trace elements include copper, arsenic, nickel, lead, zinc and silver. The mineralized breccia often contains abundant bitumen that is considered an important reducing agent for the geochemical system. Uranium is generally thought to have been transported to the pipe by oxidizing ground waters in the Coconino Sandstone and deposited in a “trap” of porous sandstone breccia within the non porous pipe walls of Hermit siltstone and above a relatively tight base of siltstone dominant breccia. Finely disseminated pyrite is common in the mineralized zone and may contribute to the reducing environment necessary for the deposition of uranium. Immediately above the mineralization, pyrite becomes massive and forms a “cap” of pyrite after marcasite that can exceed 50 feet in thickness.

The USGS Open File Report (OFR-89-550) shows the mapped locations of 1,296 pipes in northern Arizona. More than 90% of mapped pipes are shown within the deeper canyons of the region where they are exposed by erosion of the younger strata. Because of their scenic value, these canyons have been withdrawn from exploration and mining. However, the same density of pipes is probable at depth in the surrounding district where the number of known pipes decreases dramatically below the cover of successive layers of younger sediments until fewer than 2 pipes are evident over a surface area of 500 square miles in the upper Triassic sequence. The upper level of stoping by collapse varies and many pipes may occur at depth within the district and remain hidden with no surface evidence of a pipe throat. If these structures penetrate the Coconino Sandstone, an ore body may exist with no pipe feature at the surface.

Hidden or “blind” pipes may be the most numerous types of mineralized structures. Until the discovery of A-1, the Hack 2 mine was the only blind pipe ever discovered in the district. Hack 2 was also the largest deposit ever mined in the district with approximately 7 million pounds of U3O8 produced. The number of pipes identified to date may represent only a small fraction of the number of mineralized hidden pipes that lie waiting to be discovered at depth.

Recent Exploration and Drilling Results

The discovery of new deposits in a mature district requires a determined and innovative approach combined with the latest exploration technology. Quaterra initiated uranium exploration on the Arizona Strip in 2006 with methods based upon past experience of Energy Fuels. Geologic mapping, aerial photography and satellite imagery have been and continue to be used extensively to identify breccia pipe targets. When a target was located, surface time-domain electromagnetic geophysical surveys had significant success in defining areas of thickened (conductive) siltstone within the surface structure. Shallow drill holes are used define a collapse cone and to target deep holes to test for mineralization in the pipe throat. Most of the obvious targets identified by these methods have been located and drill tested by companies exploring the northern district in the 1980s. However, extensive areas remained unexplored because of the time and expense required by the surface geophysical surveys.

Since commencing on the Arizona Strip, Quaterra has drilled 98,403 feet in 105 shallow and 41 deep holes that investigated 25 targets. The program had limited success until Quaterra contracted Geotech Ltd. to conduct the first extensive test of an airborne time-domain electromagnetic system (VTEM) in the district in early 2007. The VTEM system identified most of the known breccia pipes and more than 200 moderate to high priority targets on the Company’s property with similar geophysical signatures but with little or no outcropping evidence of a collapse feature. The similarities to known structures and the sheer number of targets suggested that many of the anomalies could be bind pipes.

The first VTEM target tested resulted in the discovery of the first new mineralized breccia pipe found on the Arizona Strip in 18 years. Discovery Hole A-01-31 intercepted a thickness of 57 feet averaging 0.33% U3O8 at a depth of 1,034 feet. The intercept includes a higher grade interval of 28 feet averaging 0.58% U3O8. The drill-hole data indicate that the A-1 structure is a hidden breccia pipe. Upward collapse of the A-1 pipe stopped more than 400 feet below the surface.

Quaterra followed up on the discovery of the A-1 mineralized pipe with a drilling program in 2008 dedicated to testing several more of the many airborne geophysical anomalies on Quaterra’s properties. The first hole to test the second geophysical anomaly identified a new breccia pipe with high-grade uranium mineralization at A-20. Discovery Hole A-20-01 intercepted a thickness of 34.5 feet averaging 0.37% U3O8 at a depth of 1,442 feet, including a high-grade zone of 6.5 feet averaging 0.63% U3O8 at a depth of 1,443 feet. The hole also intercepted a deeper zone of 13.0 feet averaging 0.46% at a depth of 1,567 feet that includes a higher grade interval of 10.0 feet averaging 0.58%.

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The relative size of the A-20 pipe cannot yet be determined, but it may be comparable to the larger breccia pipes in the district. Only three holes have been completed in the structure, one exited the pipe above the favorable mineralized horizon and two have penetrated pipe breccia.

Since commencing the drilling program to target VTEM anomalies Quaterra has achieved a 70% success ratio in its exploration results. Near surface structures were identified in all but three of seven additional VTEM targets tested during the year.

The A-18 target, located midway between and about half a mile from the Company’s mineralized Ollie and A20 pipes, is in a suitable position for a single development to access all three targets. To date, five deep and two shallow holes have been completed that define a 40-foot-deep structural depression at the upper Fossil Mountain horizon. The deep holes have encountered up to eight feet of altered Hermit shale and a strongly altered section of Coconino sandstone that are indicative of close proximity to a pipe throat.

Drilling at the A51 target, located 1.5 miles west of the A1 discovery provided similar encouragement. Three shallow holes and four deep holes defined a 60-foot-deep structure at the upper Fossil Mountain horizon and more than 20 feet of alteration in the Hermit shale. A gamma log of one deep hole showed a radiometric anomaly over a thickness of 15 feet in the Toroweap Formation. The holes are believed to have encountered the outer margins of a breccia pipe structure.

While waiting to complete a down-hole survey, one rig was moved to the Ollie prospect to re-enter and probe an old hole drilled by Energy Fuels Nuclear in 1990. The probe identified an intercept in hole JH2618-04 of 52.5 feet averaging 0.24% eU3O8 at a depth of 1,342.5 feet, including 27.0 feet averaging 0.36% eU3O8 at a depth of 1,359.5 feet. A down-hole TEM survey (using technology that was nonexistent during the EFN program) identified a significant anomaly to the south of the drilled area which suggests that a large section of the Ollie pipe may remain untested. The down-hole TEM proved valuable in locating the pyrite cap and providing information to target additional drill holes.

The A-21 VTEM target may also be a pipe, but deep drilling has failed to encounter the throat below the upper Coconino horizon. Three shallow and two deep holes have defined approximately 30 feet of structural closure in the Kaibab Formation and up to five feet of altered Hermit Shale below the lower Coconino contact indicating the proximity of a pipe structure. Additional shallow drilling will be required to target the pipe throat at depth.

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Sampling, Analysis and Security of Samples

The Company uses the industry standard gamma logging method for grade determinations of uranium mineralization in drill holes. The process requires systematic calibration of the logging tools for precision and accuracy. Grades are reported as equivalent “U3O8” based on an assumed direct correlation between gamma-ray intensity, as measured by the gamma logging tools, and uranium content. The techniques for gamma log interpretation has been found to represent in-situ grades for uranium mineralization in the district as established by Energy Fuels Nuclear Inc. during their exploration and mining operations conducted on the Arizona Strip.

Down hole logging for the drill holes is contracted to Strata Data, Casper, Wyoming and Century Geophysical Corp. with verification by Geophysical Logging Service of Prescott, Arizona. The down-hole gamma logging tools are routinely calibrated by probing standardized test pits in Grand Junction, Colorado. Mr. Ken Sweet, Geophysical Consultant, of Denver Colorado provides QA/QC and final interpretation of the process.

Geophysical Logging Service uses a borehole NaI detector manufactured by Mt. Sopris in Golden, Colorado for initial grade calculations. It is of the type 2PGA1000 which is a standard for uranium logging. It uses a large crystal, 22.22 mm in diameter and 76.2 mm long. As a back up an HLP-2375 tool is used, also manufactured by Mt. Sopris. The HLP tool is a smaller diameter and can be used small drill holes.

The tools are calibrated in Grand Junction Colorado, nominally every 3-6 months. When ore grade mineralization is encountered the tool will be calibrated more often. In general, variation with this tool is insignificant within a year and requiring less than a 1% calibration change. There are 4 calibration pits in Grand Junction; 0.231%, 0.452%, 1.22%, and 2.63% U3O8. The calibration pits are constructed of natural uranium ore. Corrections are made for hole diameter, the type of drilling pipe, and fluid in the hole. Because the grades and thicknesses of the mineralized section are determined by down hole logging tools, the Company uses rotary drilling for exploration on the project. Drill cuttings from the program are often limited to the upper 400 feet of the hole. Circulation of the samples to the surface is often lost in the deeper evaporite dominant sections. Samples of the cuttings are collected in plastic boxes and archived in locked storage facilities.

When mineralization is intersected, spot core is collected when possible to compare to the interpreted gamma response. In some cases corrections need to be made for disequilibrium as established by closed-can analysis or direct neutron activation that compares the chemical values of core vs. the interpreted gamma grades. The gamma response has the advantage of sampling a large volume, on the order of 60 cm. Data is sampled at 0.5 foot or closer spacing. All core from the program is placed in boxes marked for depths, logged by the Company geologist and kept in the Company’s storage facilities in Kanab, Utah.

For hole deviation a Mt. Sopris 2DVA-1000 borehole deviation probe is used. It consists of a 3 axis flux gate magnetometer and a 3 axis accelerometer. The tool is calibrated on the surface using a “Jig” to hold it in a known orientation. The data is recorded continually along the hole.

Induction logs are used in conjunction with the gamma probe to provide additional lithologic information. Correlation of the interpreted lithologies between drill holes in a target area can reveal structural deformation related to a possible breccia pipe.

Mineral Resources

There are no resources or reserves on the Company’s Arizona Strip properties that comply with the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines as adopted by CIM Council on August 20, 2000.

Future Work Plans

On January 9, 2012, the U.S. Department of the Interior (“DOI”) announced a Public Land Order to withdraw approximately one million acres of Federal land for a twenty year period. The stated effect of the order is to withdraw the acreage from new mining claims and sites under the 1872 Mining Law, subject to valid existing rights and does not prohibit previously approved uranium mining, or development of new projects that could be approved on claims and sites with valid existing rights. The withdrawal order affects all 1,000 of Quaterra’s unpatented claims on Federal lands but does not affect future exploration or development on the Company’s 1,880 acres of State leases within the district.

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On April 18, 2012, Quaterra, together with co-Plaintiff the Board of Supervisors, Mohave County, Arizona, (Arizona Coalition) filed a lawsuit in the United States District Court for the State of Arizona naming as Defendants the United States Department of the Interior and the Bureau of Land Management.

The basis of the lawsuit is that the United States Government, through the Secretary of the Interior and the Bureau of Land Management, did not adhere to mandated statutory procedures when it issued a decision to close more than one million acres of Federal land to all mining in Northern Arizona. Specifically, the suit alleges that the facts and science demonstrated that mining would not harm the Grand Canyon watershed and that the withdrawal of Federal lands regardless of this evidence was arbitrary and capricious; the decision arbitrarily withdraws over one million acres to address subjective sensibilities which enjoy no legal protection; the Secretary did not comply with the procedural requirements of the National Environmental Policy Act; and, the Secretary did not address scientific controversies and failed to coordinate with Local Governments in making his decision.

The remedy sought is a judicial declaration that the withdrawal Order is unlawful and setting it aside together with issuance of a permanent injunction enjoining the Defendants from implementing any aspects of the Withdrawal. A decision finding that the Secretary failed to follow the criteria and procedures for a withdrawal and setting the withdrawal aside would allow Quaterra to proceed to develop the mineral deposits that it has lawfully claimed and worked.

Pursuant to an order of the United States District Court for the State of Arizona dated July 19, 2012, the case filed by Quaterra Alaska against Secretary Salazar was assigned to be heard by Judge Campbell of this Court. The DOI filed a motion to dismiss the Plaintiff’s claim in September and the motion was heard in October. On January 8, 2013, the court denied the government’s effort to dismiss Quaterra, except for the NEPA claims and also denied the government’s motion to dismiss the Arizona Coalition on the NEPA claims. The district court held that the Coalition had standing to pursue its NEPA claims against BLM.

Since the commencement of the withdrawal process, the Company has not expended significant amounts on the Arizona uranium claims pending the court decision and has suspended plans to continue to develop uranium claims on Federal land while the issues are resolved politically or judicially.

The uranium in this district represents significant potential domestic supply of energy and many jobs at a time when both are critical to the needs of the U.S.

Other Properties

The Company’s other properties, listed by commodity, include:

Copper +/- gold: Yerington District (Wassuk, Missouri Flats, Copper Canyon), Reveille and Goldfield East in Nevada; SW Tintic in Utah.

Herbert Gold +/- silver: Central Mexico (Americas/Mirasol, Sierra Sabino, Santo Domingo, Marijo, Onix, Azafran, Tian, Lupita, Microondas, El Calvo);Project.

Molybdenum: Cave Peak, Texas;

Uranium: Tidwell, Sinbad, and Shootaring, Utah and Basin, Wyoming;

Data from prior activities is limited or in the process of being acquired and studied. The Company’s total expenditures to date with respect to these other properties have been minimal.

ITEM 4A.            UNRESOLVED STAFF COMMENTS

None.

ITEM 5.               OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The information in this section is presented in accordance with International Financial Reporting Standards, (“IFRS”) as issued by International Accounting Standards Board. The following is a discussion of our financial condition and results of operations for the fiscal years ended December 31 and should be read in conjunction with our consolidated financial statements included in Item 17 of this annual report.

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Critical Accounting Estimates

The accounting estimates believed to require the most difficult, subjective or complex judgments, and which are the most critical to our reporting of results of operations and financial position, are as follows:

Mineral PropertiesResource estimates

We capitalize all costs relatedThe Company relies on appropriately qualified persons to estimate mineral resources. The information relating to the acquisitiongeological data on the size, depth and exploration of mineral properties on a property by property basis, net of recoveries until such time as these mineral properties are placed into commercial production, sold or abandoned. If commercial production is achieved from a mineral property, the related deferred costs will be amortized prospectively on a unit-of-production basis over the estimated lifeshape of the ore reserves. If abody requires complex geological judgments to interpret the data. Changes in the indicated and inferred mineral property is abandoned,resources estimates may impact the related deferred costs are written down and expensed. From time to time, we may acquire or dispose of all or partcarrying value of the mineral property interests under the termsproperties.

Impairment of property option agreements. As such options are exercisable entirely at the discretionmineral properties

The assessment of the optionee, option payments are recorded as property costs or recoveries when paid or received.

Long-lived assets, such as equipmentimpairment indicators involves the application of a number of significant judgments and deferred exploration, are reviewedestimates to certain variables including metal price trends, plans for impairment at each reporting period or more frequently as economic events indicate thatproperties, and the carrying amount of an asset may not be recoverable.

On an ongoing basis, we evaluate each mineral property for potential impairment based on results obtained to date to determine the nature of exploration other assessment and development work, if any, that is warranted in the future and the potential for recovery of the deferred costs. If there is little prospect of future work on a property being carried out within a three-year period from completion of previous activities, the deferred costs relatedevaluation to that property are written down to the estimated amount recoverable unless there is persuasive evidence that an impairment allowance is not required.date.

Stock-based Compensation Expense

From time to time, we may grant share purchase options to directors, officers, employeesShare-based payments and consultants. We use the Black-Scholes option pricing model to estimate the fair value for these options. This model, and other models which are used to value options, require inputs such as expected volatility, expected life to exercise and interest rates. Changes to any of these inputs could cause a significant change in the stock-based compensation expense charged in a period.

Fair value of derivative liabilities

The Company follows accounting guidelines in determining the fair value of share-based compensations. The computed amount is not based on historical costs, but is derived based on subjective assumptions input into a pricing model.

Fair value of derivative liabilities that are not traded in an active market is determined by using a valuation technique. Management makes estimates and utilizes assumptions in determining the fair value for share-based payments, warrants and the (gain) loss on the revaluation of the derivative liability;liability in determining inputs to be used for the Black-Scholes option pricing model.

Income TaxesDeferred tax assets

IncomeThe assessment of availability of future taxable profits involves judgment. A deferred tax comprises current and deferred tax. Income taxasset is recognized in net income (loss), except to the extent related to items recognized directly in equity or in other comprehensive loss.

Deferred taxthat it is recognized in respect ofprobable that taxable profits will be available against which deductible temporary differences arising betweenand the carry-forward of unused tax basescredits and unused tax losses can be utilized.

Recoverability of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assetsreceivable

The assessment of recoverability of amounts receivable involves judgment. Amounts receivable are recognized to the extent that it is probable that the assets canamounts will be recovered.received by the Company.

For the year ended December 31, 2012, we2015, the Company incurred a net loss of $3.1 million (2014 – $2.14 million). Both years are significantly affected by the non-cash fair value calculations on derivative liability in addition to the write-down and disposals of mineral properties in 2014.

The Company has continued to reduce its general administration costs where possible. During the year 2015, total G&A costs were reduced by $432,218 mainly due to the reduction in professional fees and personnel.

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Professional fees decreased as a result of decreased legal fees related to the Option Agreement with Freeport Nevada during 2014. Personnel costs were lower in 2015 due to retrenchment in the Quaterra Alaska Inc. and Mexican subsidiaries. The reduction was partially offset by higher consulting costs which were incurred for corporate development and strategies implementation. Directors’ fees were reinstated starting the third quarter of 2015 at a monthly rate of CAD$3,959 for the Company’s three independent directors.

Warrants denominated in a currency other than the Company’s functional currency are deemed to be a derivative liability and must be valued at fair value on each reporting date. Any fair value changes are recorded in profit and loss. Due to the fluctuation of the Company’s share price, a $1,207,198 loss was recorded in 2015 (2014 - $597,124 gain).

The Company evaluates the carrying value of each of its assets at the end of each reporting period or upon a triggering event that may identify an impairment of a property’s value. During the year ended December 31, 2014, the Company recorded a $3 million written-down mainly related to the sale of its Nieves Property in December 2014. The Company has focused its activities on its Yerington Assets under the Option Agreement with Freeport Nevada and not impaired any mineral properties during the year 2015.

General exploration costs represent expenditures to undertake and support exploration activities on the Company’s properties, including costs incurred after impairment or costs the Company may incur prior to acquisition of a mineral property. In addition, if the expenditures are deemed not to be specifically related to individual properties or not recoverable, they are expensed as incurred.

2014 versus 2013

For the year ended December 31, 2014, the Company reported a net loss of $4,853,976$2,140,583 compared to a net loss of $11,264,539$24,826,635for prior year, the differences are mainly due to the impairments for mineral properties in the previous year. The decreased lossUnited States and central Mexico plus unrealized non cash fair value gain on derivative liabilities and gain on disposal of mineral properties. To preserve cash, the Company has reduced its general administration and corporate activities, and focused on supporting its exploration and development activities in 2012 was mainly attributable to $4,183,224 impairments and $2,846,707 stock-based compensation recorded in 2011.its Nevada copper assets. Other general fluctuations are discussed below:

Exploration Costs

Exploration costs represent expenditures to undertake and support exploration activities on our properties. If they do not have characteristics of property, plant and equipment, they are expensed as incurred. Exploration costs charged to operations during 20122014 were $182,852 compared$366,030compared to $506,297 for$58,106for the prior year resulting from an increase in the considerationimpairment of potentialMexico properties in Mexico.prior years resulting in current year costs being expensed.

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General Administrative Expenses

General administrative expenses include overheads associated with administering the Company’s regulatory requirements and financing oursupporting the exploration activities.

General administrative expenses were $3,371,294 (excluding stock-based compensation and amortization), an increase of $329,884 compared to $3,701,178 in 2011. The higher costs in 2011 resulted from the increased support required for advancing the MacArthur and Uranium mineral properties including the retention of additional personnel, the rising regulatory costs associated with increased regulatory requirements in Canada and the United States, and general and administration expenditures to support our expanded operations.- 39 -

• Administration and general increased by $24,443 from $701,670 in 2011 to $726,113 in 2012 reflecting the new rates in the Manex service agreement renewed in February 2012.
• Consulting decreased by $278,393 from $644,757 in 2011 to $366,364 in 2012 due to a onetime consulting agreement accrual made in 2011 and the termination of the financial advisory service agreement on April 15, 2012.
• Investor relations and communications decreased by $84,701 from $309,110 in 2011 to $224,409 in 2012 due to the new website design of the Company in 2011.
• Personnel costs decreased by $16,806 from $1,152,792 in 2011 to $1,135,986 in 2012 reflecting the gradual slow-down of the exploration activities of the Company.
• Professional fees increased by $165,864 from $429,889 in 2011 to $595,753 in 2012 reflecting the increased legal fees for the Arizona Uranium law suit starting January 2012.
• Share-based payments: share-based payments decreased by $1,800,190 from $2,846,707 in 2011 to $1,046,517 in 2012.
• Travel and promotion reduced by $149,949 from $203,086 in 2011 to $53,137 in 2012 reflecting a reversal of travel expenses provision accrued in the prior years and no longer required.

Other and Non-Cash Items

• Exploration partner administration income: The Company charges a 10% administration fee on its Nieves joint venture partner’s shared exploration costs and 5% fee on expenditures on its central Mexico properties under the Goldcorp IFA agreement.
• Foreign exchange: The Company recognized a foreign exchange loss of $189,877 in 2011 compared to $166,914 in 2012 due to the fluctuation of the Canadian dollar against the US dollar.

  •

  Foreign exchange: The Company recognized a foreign exchange loss due to the strengthening of the US dollar over the year in 2014. Volatility in the foreign exchange rate could continue to result in significant foreign exchange gains or losses. The Company does not hedge its exposure to changes in the value of the Canadian dollar. The Company sold its Butte Valley copper project to Freeport for gross proceeds of US$2 million, of which net $1,737,692 was received on October 2, 2012. As of December 31, 2012, the Company recorded $820,712 gain after its accumulated acquisition and exploration costs of $1,159,669 incurred. General exploration costs: These costs represent expenditures to undertake and support exploration activities on the Company’s properties, including costs incurred prior to the Company obtaining the rights to the mineral properties. In addition, if the expenditures are deemed not to be specifically related to individual properties or not recoverable, they are expensed as incurred. During the year ended in 2012, 3,695,000 stock options were granted at a weighted average exercise price of $0.47 versus 3,690,000 granted in 2011 at a weighted average exercise price of $1.26. The values of share- based payments were determined by the Black-Scholes option pricing model recognized over the vesting period of options. See Note 8(a) in the audited consolidated financial statements for Black Scholes assumptions used and the resulting estimate of fair value. Impairments: in 2011 the carrying value of five properties in the United States totaling $4,183,224 was written down due to lack of exploration merit. The Company conducted impairment test and concluded no impairment write-down was required as of December 31, 2012. Interest income: interest earned varies based on the timing, type and amount of equity placements and resultant fluctuations in cash. (Recovery) write-off of equipment: $39,954 insurance proceeds were received for the losses of two vehicle s in Mexico in 2011. $38,525 was written off in 2011 due to one of the losses - 51 - For the year ended December 31, 2011 (“2011”), the Company reported a net loss of $11,264,539 compared to a net loss of $2,769,248 in the previous year (“2010”). General administrative expenses increased by $765,748, or 26%, (excluding non-cash items), reflecting the Company’s increased activities in 2011. An analysis of the changes is outlined below: Administration and general office general expenses increased by $122,638 from $579,032 in 2010 to $701,670 in 2011 reflecting the expanded office operations in Yerington, Nevada. Consulting increased by $274,978 from $369,779 in 2010 to $644,757 in 2011 reflecting the Company’s engagement with a local community service provider in Yerington, Nevada regarding the exploration of mining opportunities at its Yerington property. The increases in investor relations and travel & promotion reflect the Company’s communications with investors through web/telephone conferences, implementing a new website and advertising in industry newspapers and magazines. Personnel costs increased by $319,420 from $833,372 in 2010 to $1,152,792 in 2011 resulting from the expanded operations noted above. Professional fees reduced by $43,643 from $473,532 in 2010 to $429,889 in 2011 reflecting the reduced legal fees in the current year. Share-based payments increased by $595,449 from $2,251,258 in 2010 to $2,846,707 in 2011. The values of share-based payments were determined by the Black-Scholes option pricing model recognized over the vesting period of options. See Note 8 in the consolidated financial statements for Black Scholes assumptions. Transfer agent and regulatory fees decreased by $7,625 from $157,205 in 2010 to $149,580 in 2011 due to the timing difference in expensing annual regulatory listing fees. Other and Non-Cash Items Exploration partner administration income: The Company charges a 10% administration fee on its Nieves joint venture partner’s shared exploration costs and 5% fee on expenditures on its central Mexico properties under the Goldcorp IFA agreement. Foreign exchange: The Company recognized a foreign exchange loss of $189,877 in 2011 compared to $324,828 in 2010 due to the fluctuation of the Canadian dollar against the US dollar. Volatility in the foreign exchange rate could continue to result in significant foreign exchange gains or losses. The Company does not actively hedge its exposure to changes in the value of the Canadian dollar. General exploration costs: These costs represent expenditures to undertake and support exploration activities on the Company’s properties. If the expenditures are deemed not to be specifically related to individual properties or not recoverable, they are expensed as incurred. Impairment: during the year ended December 31, 2011, the Company wrote down the carrying value of the following properties totaling $4,183,224: i. $2,441,592 related to Duke Island property   ii.• $257,533 relatedFair value gain on derivative liability: Warrants denominated in a currency other than the Company’s functional currency are deemed to Peg Leg propertybe a derivative and valued at fair value. On each reporting date, the derivative liability is adjusted for fair value changes with the difference being recorded in profit and loss. Due to the decline in the Company’s share price and also through the passage of time, the Company realized a non-cash gain of $597,124 in 2014 compared to $2,036,493in 2013 subsequent to the initial fair value recognition.   iii.• $49,809 relatedGain (loss) on sale of mineral property: On October 3, 2014, the Company sold three properties to FMMP for $5,000,000. At the Klondike propertydate of disposal the total capitalized exploration expenditures for these three properties were $1,193,417 which was written off resulting in a gain on disposal of $2,917,162. On September 19, 2013, the Company sold three properties in central Mexico to Goldcorp for $375,000 plus applicable taxes. In July 2013, the Company received an additional $1,000,000 from FMMP as a contingent bonus from the sale of Butte Valley.   iv.• $1,109,446General exploration costs: These costs represent expenditures to undertake and support exploration activities on the Company’s properties, including costs incurred prior to the Company obtaining the rights to the mineral properties. In addition, if the expenditures are deemed not to be specifically related to Willow Creek propertyindividual properties or not recoverable, they are expensed as incurred.   v.• $324,844Impairments: due to the current market condition, the Company has entered into an agreement to sell or has abandoned inactive non-core mineral properties so as to focus its effort and resources in its copper properties in the Yerington District. As a result, $3,022,543 impairments were recorded in the year ended December 31, 2014. Comparatively, $22,582,486 impairments were recorded in the year ended December 31, 2013. In 2014, management assessed the Company’s ability to continue exploration activities on all of its mineral properties and made a decision to focus exploration efforts only on certain key properties and allow other claims to lapse. Accordingly, the following mineral properties were impaired to net loss during 2014: (i) Other US properties – $549,219 (ii) Nieves – $2,509,860. • Interest income (expenses): interest earned varies based on the timing, type and amount of equity placements and resultant fluctuations in cash. The interest expense in 2013 was related to GrayHills property. Interest earned varies based on the timing, type and amount of equity placements and resultant fluctuations in cash. Fair value gain on derivative liability is related to the U.S. dollar denominated warrants issued on November 27, 2008, December 19, 2008 and January 15, 2009 with respect to the convertible debt financings. B. Liquidity and Capital Reservesthe unsecured loans from the Company’s Chairman. As of December 31, 2013, $600,000 remained unpaid. On March 18, 2014, the loans were converted to a demand basis with a 40-day notice period. B.        Liquidity and Capital Reserves To date, Quaterra has been dependent on equity, joint venture partners’ contributions and proceeds from disposal of certain mineral properties for funding. As atof March 27, 2013, the Company has24, 2016, cash on hand of appproximately $200,000. Thewas $5.2 million and the Company will need to rely on the raising of equity in the capital markets or on the sale and/or the optioning of its mineral property interests via joint venture agreements with third parties to providehad working capital and to finance its mineral property acquisition and exploration activities. Since the Company does not generate any revenue from operations, its long-term profitability will be directly related to the success of its mineral property acquisition, divestment and exploration activities. - 52 - On December 28, 2012, the Company closed a non-brokered private placement with the issuance of 6,541,571 units for gross proceeds of US$2.289$4.9 million. Each unit is comprised of one common share and one non-transferable common share purchase at an exercise price of US$0.53 expiring December 28, 2014. The proceeds were used to pay the outstanding bills, and the Company’s ongoing exploration operations in Nevada, US and Mexico. The Company is currently exploring various avenues to monetize its interest in the Nieves project in order to fund its 100% owned copper assets in Nevada, US. On October 2, 2012, the Company received the net proceeds of $1,737,692 for the sale of its Butte Valley property, representing one of the first transactions that to monetize the Company’s non-core assets. On April 12, 2012, the Company received $2.48 million from Goldcorp to fund additional exploration on certain properties in Mexico by issuing 4 million shares at a price of $0.62 per share. During the year ended December 31, 2012, the Company used cash in operating activities of $3,517,730 (2011 - $4,377,036) and had $13,397,677 (2011 - $17,345,625) in mineral property acquisition and exploration costs. As of March 27, 2013,2015, the Company received US$189,994the proceeds, and in 2016 expects to receive the proceeds, set forth in the following table: Transactions From Received in 2015 To be received in 2016(1) Option Agreement, Stage 2commenced in June 2015 Freeport-McMoRan Nevada LLC $4.575 million $2.575 million Non-core asset sale closedin October 2014 Freeport-McMoRan Mineral Properties Inc. $2.0 million $2.0 million Nieves silver sale closed inDecember 2014 Blackberry Ventures I, LLC $1.5 million $1.0 million Total $8.075 million $5.575 million - 40 - (1)Assumes receipt of payments due under Stage 2 of the Option Agreement, non-core asset sale agreement, and the Nieves Property silver sale agreement as amended. The funds received under the Option Agreement have been primarily used in the Bear Deposit drilling program, Yerington Assets mineral rights acquisitions and claim maintenance, and general administrative support. Funds received from FMMP and Blackberry have been used in working capital for the corporate activities and expenses. With the cash on hand, anticipated funding commitment from Freeport Nevada, and the proceeds from the sale of non-core assets, the Company believes it has sufficient cash to maintain its operations in the next 12 months. The Company has a reimbursement$500,000 convertible note due on January 2, 2017. The outstanding principal may be converted by the note holder at rate of sharedCAD$0.10 per share at any time until maturity. The Company borrowed $500,000 from Freeport Nevada bearing an interest rate of 5%. In the event Freeport Nevada terminates the Option Agreement, the $500,000 along with interest is due 180 days after such a termination notice from Freeport Nevada. Accounts payable and other accrued liabilities were incurred at market rates with arm’s length third party suppliers, primarily for goods and services related to the Company’s exploration costsof its Yerington Assets, and also for professional fees and other overhead expenses incurred in 2012 from Blackberry.the normal course of operations. The abilityCompany is not aware of the Company to continue its exploration program is dependent on the continuing success of its programsany contingencies as at December 31, 2015. C.        Research and on generating sufficient additional funding from Investors.Development, Patents and Licenses, etc. C. Research and Development, Patents and Licenses, etc. We do not have a research and development policy, nor do we hold any patents, licenses, or other intellectual property. D. D.        Trend Information Mineral property expenditures can vary from quarter to quarter depending when option payments are due and the stage of the exploration program. For example, drilling may slow down for a period of time when results are analyzed, resulting in lower costs during that period. We have had no revenue from mining operations since our inception. Income was generated through management fees on certain properties and interest earned on banker’s acceptance investments. E. E.        Off- Balance Sheet Arrangements Off- Balance Sheet Arrangements None. F. F.        Tabular Disclosure of Contractual Obligations Tabular Disclosure of Contractual Obligations The following table outlines our contractual and optional obligations at December 31, 2012:2015 and the period such payments are due by:     Total     1 Year     2-3 Years     4-5 Years     > 5 Years   Mineral properties(a) $  8,459,017   $  908,781   $  2,122,559   $  2,083,321   $  3,344,356   Office lease(b)   1,144,857     277,561     482,296     385,000     -     $  9,603,874   $  1,186,342   $  2,604,855   $  2,468,321   $  3,344,356       Total     1 Year     2–3 Years     4–5 Years     >5 Years   Mineral properties (a) $ 5,808,274   $  1,470,258   $  2,288,016   $ 2,005,000   $  45,000   Office lease (b)   115,607     69,364     46,243     –     –   Loan payable (C)   500,000     500,000     –     –     –   Convertibel notes (d)   500,000     –     500,000     –     –     $ 6,923,881   $ 2,039,622   $ 2,834,259   $ 2,005,000   $ 45,000   (a) We are required to make option payments and other expenditure commitments to maintain the properties and earn interest.control of these properties. (b) DuringManex is a private company controlled by the Corporate Secretary of the Company. It provides furnished office space, selected administration, and corporate secretarial services to the Company. These services are provided in the normal course of operations for consideration established and accepted by the Company and Manex. On February 9, 2012, wethe Company renewed theits service agreement with Manex Resource Group (“Manex”)at a current monthly rate of CAD$8,000 for its Vancouver office space administration, andplus CAD$5,000 of corporate development. The agreement can be cancelled upon two- year notice. The current expiry date isservices till August 31, 2017. The Company may terminate the services portion of the agreement upon 30 days’ notice, and the office lease Yerington, Nevada United States expires on July 15, 2014. G. Safe Harbourportion of the agreement by paying Manex the lesser of CAD$96,000 or a total fee owing for the remainder of the lease term (through August 31, 2017). As of December 31, 2015, the Company had a total of CAD$160,000 in commitments related to its Vancouver office premises. - 41 - (c) The Company borrowed $500,000 loan from Freeport Nevada bearing an interest rate of 5% on May 8, 2015. In the event Freeport Nevada terminates the Option Agreement, the $500,000 along with interest is due 180 days after such a termination notice from Freeport Nevada. (d) The Company has a $500,000 convertible notes due January 2, 2017. The outstanding principal may be converted by the note holders at rate of CAD$0.10 per share at any time until maturity. The Company may redeem the principal amount of the convertible notes outstanding by paying to the holders the principal amount together with interest in cash at the rate of 15% per annum calculated to the date of such redemption. G.        Safe Harbour The safe harbor provided in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, shall apply to forward-looking information provided pursuant to this Item 5.F. Please see “Cautionary“Cautionary Statement Regarding Forward-Looking Information” at the outset of this annual report. - 53 - ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A.        Directors and senior management Directors and senior management The following tables and biographies set forth information about our directors and executive officers: Name Age Positions Held Period as Director or Officer Jurisdiction of Residence Tracy Stevenson 62 Director & Chairman of the Board Since 2007 Utah, U.S. Thomas C. Patton 69 72 Director & Chairman President & Chief Executive Officer Since 1998 Washington, U.S. U.S.A. Anthony Walsh Lei Wang 61 48 Director Chief Financial Officer Since 2012 2016 British Columbia, Canada John Kerr 72 Director Since 1993 British Columbia, Canada Lawrence Page, Q.C 73 76 Director &Corporate Secretary Since 1995 British Columbia, Canada Eugene Spiering John Kerr 59 75 Vice President of ExplorationDirector Since 2006 1993 British Columbia, Canada LeRoy Wilkes 7073 Director Since 2006 Colorado, U.S. Scott Hean 65 Chief Financial Officer Terrence Eyton 69 Director Since 2006 2015 British Columbia, Canada Charles Hawley 83 Vice President, Exploration, Alaska Since 2001 Alaska, U.S. Todd Hilditch 45 Director Since 2012 British Columbia, Canada Steve Dischler 54 Vice-President- Yerington District Since 2012 Yerington, Nevada Tracy Stevenson      Mr. Stevenson received a B.S. Accounting Magna Cum Laude from the University of Utah. He has international experience in finance, mergers and acquisitions, strategic planning, corporate governance, auditing, administration and information systems and technology. He worked for Rio Tinto plc, the world’s second largest mining company, and related companies for 26 years, where he held a number of senior leadership positions. Mr. Stevenson was the global head of information systems and shared services for Rio Tinto. He also served for four years as Executive Vice President, Chief Financial Officer and a director of Comalco Ltd., an Australia-based international aluminum company partially owned by Rio Tinto, and a further four years as Chief Financial Officer and a director of Kennecott Corporation, a diversified North American mining company owned by Rio Tinto. He also has public accounting experience with Coopers & Lybrand (now Price Waterhouse Coopers). Mr. Stevenson also serves as a director of Vista Gold Corp. Mr. Stevenson is also a founding member of Bedrock Resources, LLC, a private resources financial advisory firm and SOS Investors, a private resources investment firm. Dr. Thomas Patton, Director, Chairman, President & Chief Executive Officer Dr. Patton graduated from the University of Washington in 1971 (Ph.D.) and has worked with both junior and senior mining companies. He served as the President and Chief Operating Officer for Western Silver Corporation (“Western Silver”) from January 1998 to May 2006. Among his accomplishments at Western Silver were the discovery and delineation of the classworld-class Peñasquito silver-gold-lead zinc deposit in Zacatecas, Mexico, and the subsequent sale of the company to Glamis Gold Ltd. Prior to joining Western Silver, Dr. Patton held senior positions with Rio Tinto PLC and Kennecott Corporation, where he served as Senior Vice President, Exploration and Business Development. Dr. Patton is a member of the Society of Economic Geologists and the American Institute of Mining & Metallurgical Engineers. - 5442 - Lei Wang, Chief Financial Officer Ms. Wang, CPA, CGA, has worked in the mineral resource sector for more than 20 years, and has experience in financial reporting, regulatory compliance, internal control and corporate finance activities. She is currently CFO of Pacific Ridge Exploration Ltd., and GoviEx Uranium Inc. Prior to coming to Canada, Ms. Wang worked at Schlumberger in Aberdeen, Scotland, and Glencore International in Beijing, China. Ms. Wang holds a Bachelor of Science in Engineering from Qingdao University, China. Lawrence Page, Q.C., Corporate Secretary Lawrence Page, Q.C. obtained his law degree from the University of British Columbia in 1964 and was called to the Bar of British Columbia in 1965. He has been admitted to the Bar of Ontario for the purpose of acting as counsel in specified litigation. Mr. Page was awarded the distinction of Queen’s Counsel in 1988. Mr. Page practices on his own in Vancouver in the areas of natural resource law and corporate and securities law. He is the principal of Manex Resource Group, which provides administrative, financial, corporate and geological services to a number of public companies in the mineral resource sector, including Quaterra. Mr. Page also serves as a director of the following public companies: Valterra Resource Corporation, Southern Silver Exploration Corp., Bravada Gold Corporation and Homestake Resource Corporation. John R Kerr, Director John R. Kerr graduated from the University of British Columbia in 1964 with a Bachelor of Applied Science (B. ASc)(B.ASc) degree in Geological Engineering. He has participated in the mining industry continuously since graduation as an exploration geologist. Mr. Kerr has gained experience in recognition and identification of mineral potential in a diversified field of geological environments. Mr. Kerr also serves as director of Bravada Gold Corporation. He currently operates a geological consulting practice out of Vancouver, B.C., with projects located in all areas of North America. Lawrence Page, Q.C.LeRoy Wilkes, Director      Lawrence Page, Q.C. obtained his law degree from the University of British Columbia in 1964 and was called to the Bar of British Columbia in 1965. He has been admitted to the Bar of Ontario for the purpose of acting as counsel in specified litigation. Mr. Page was awarded the distinction of Queen’s Counsel in 1988. Mr. Page practices on his own in Vancouver in the areas of commercial litigation, native law, natural resource law and securities law. He is the principal of the Manex Resource Group, which provides administrative, financial, corporate and geological services to a number of public companies in the mineral resource sector, including Quaterra. Mr. Page also serves as a director of five public companies: Duncastle Gold Corp.; Valterra Resource Corporation; Southern Silver Exploration Corp.; Bravada Gold Corp. and Homestake Resource Corporation. Eugene Spiering      Mr. Spiering has a Bachelor of Science-Geology degree from the University of Utah. He has over 30 years of experience in the mining exploration industry. Mr. Spiering previously held the position of Vice President, Exploration at Rio Narcea Mines Ltd., where he managed a team that discovered the El Valle and Corcoesto gold deposits and completed the final definition of the Carles and Salave gold deposits and the Aguablanca nickel deposit in Spain. Prior to his tenure at Rio Narcea, Mr. Spiering held the position of senior geologist with Energy Fuels Nuclear, Inc. where he participated in the discovery of the Arizona 1 and Hermit uranium deposits. His responsibilities with Energy Fuels included drilling supervision, geologic mapping, and ore reserve calculations related to uranium exploration in northern Arizona and gold exploration in the western US and Venezuela. Mr. Spiering is a member of the Society of Economic Geologists, the Society for Mining, Metallurgy & Exploration, the American Association of Petroleum Geologists, and is a Fellow member of the Australasian Institute of Mining and Metallurgy. LeRoy Wilkes      Mr. Wilkes was President of Washington Group International’s mining business unit where he was responsible for the operating and financial performance of the unit’s international operations in the coal, metals and industrial minerals markets. He has 3738 years of mining experience in the precious metals, coal industrial metals, and base metals mining and processing. Prior to joining the Washington Group International, Mr. Wilkes served as executive vice-president and chief operating officer of Santa Fe Pacific Gold Corporation of Albuquerque, New Mexico from 1988 to 1995. Mr. Wilkes also previously served as executive vice-president of Washington Corporation of Missoula, Montana, responsible for merger and acquisition activities. He earlier served as vice-president and general manager of Kennecott Ridgeway Mining Company of Ridgeway, South Carolina, and director of business development of Anaconda Minerals Co. of Denver, Colorado. He has held management and supervisory positions at surface and underground mines producing molybdenum, copper, limestone, lead silver and zinc. Mr. Wilkes has a degree in mining engineering from the Montana School of Mines. Mr. Wilkes also serves as a director and chairman of the Board of Sabina Gold & Silver Corporation.Corp. Scott B. HeanTerrence (Terry) Eyton, FCA, ICD.D, Director Mr. HeanEyton graduated from Simon FraserLakehead University in 19731967 in Business Administration. He obtained his Chartered Accountant designation in 1971 and fromwas elected to Fellowship of the Ivey SchoolInstitute of Business, London, Ontario,Chartered Accountants in 1975.1983. He completed the Institute of Corporate Directors Director Education program in May 2006.2008 and obtained the designation of ICD.D. Mr. Eyton practiced the profession of accounting in both public practice and corporate entities. Currently Mr. HeanEyton is directora Director and past chairChair of the audit committeeAudit Committee for Sabina Gold Corp. and a director of Southern Silver Exploration Corp. HeQuaterra Resources Inc. Mr. Eyton has been CFO of the Company since 2006. Previously he held senior management and executive positions with Bank of Montreal as Senior Vice President and Managing Director responsible for financing in the natural resources sectors in North America and with J.P. Morgan of New York, where he was involved in financing oil and gas companies. In the non-profit sector, he servesalso served as a director and chair of the Bill Reid Trust, a notaudit committees for profit organization concerning the work of the internationally renowned Haida artist, Bill Reid. He has served on numerous not-for-profit Boards,other reporting issuers including, Outward Bound Canada and B.C. Children’s Hospital - 55 - Dr. Charles Hawley      Dr. Hawley graduated with a Bachelor of Arts degree from Hanover College, Indiana in 1951 and earned a Ph.D in geology from the University of Colorado in 1963. He worked for the U.S. Geological Survey from 1952-1968. Dr. Hawley has been working within the exploration and mine development field in Alaska’s private sector since 1969. Anthony Walsh      Mr. Walsh graduated from Queen’s University (Canada) in 1973 and became a member of The Canadian Institute of Chartered Accountants in 1976. Mr. Walsh has over 20 years’ experience in the field of exploration, mining and development. From 2008 to 2011, Mr. Walsh was President and CEO and a Director of Sabina Gold & Silver Corp. From 1995 to 2007, Mr. Walsh was President and Chief Executive Officer of Miramar, from 1993 to 1995 was the Senior Vice-President and Chief Financial Officer of a computer leasing company and from 1989 to 1992 was Chief Financial Officer and Senior Vice-President, Finance of International Corona Resources Ltd., a gold producer Mr. Walsh is currently Chairman of Stornoway Diamonds Ltd. and serves as a director of several other public companies, namely: Sabina Gold and Silver Ltd., Dundee Precious Metals Ltd., Avala Resources Ltd., NovaCorp; Southern Silver Exploration Corp; Homestake Resource Corp; Bravada Gold Ltd.,Corp and TMX Group Ltd.Potash North Resource Corp. Todd HilditchMr. Eyton is currently retired from active employment.      Mr. Hilditch is President, Chief Executive Officer and a Director of Terraco Gold Corp., a TSXV-listed gold exploration company focussed in the western United States. He is a Director of Sama Resources Inc., a TSXV-listed base metals company focussed in West Africa, and was its President and Chief Executive Officer until 2010. Until 2010, Mr. Hilditch was President, Chief Executive Officer and a Director of Salares Lithium Inc., which was acquired by Australia-based Talison Lithium Limited, the world's largest lithium producer and a TSE-listed company. He is also a Director of Bryant Resources Inc. Mr. Hilditch is the President and owner of Rock Management Consulting Ltd., a private mining management services and consulting company.- 43 - Steven Dischler      Mr. Dischler graduated from the University of Wisconsin in 1981 (BS) and from the University of Arizona in 1984 (MS). Both of his degrees are in Mining Engineering. From 2007 through 2011, Mr. Dischler was a Project General Manager and Strategy Manager for a global oil company, BP. In his roles at BP he was responsible for managing major capital projects up to $250MM (US) and for managing a portfolio of legacy mining sites across the western US for the company. In prior roles Mr. Dischler was a consultant for 25 years which included permitting and development of major mining sites at numerous locations in the US. Mr. Dischler is a registered Professional Engineer in 8 states and has been a member of the Society of Mining Engineers since 1978 B. B.        Compensation Executive Officers     The following table sets forth the compensation paid to executive officers for the fiscal year ended December 31, 2012.2015. - 56 - Name Salary ($) Bonus ($) Securities Under Options Granted (#) Share-Bsed Payment Under Options ($) All other Compensation Total ($) Thomas C. Patton President & CEO 137,500 nil 160,000 44,800 nil 182,300 Eugene Spiering VP of Exploration 200,000 nil 160,000 44,800 nil 244,800 Scott Hean(1) CFO nil nil 160,000 44,800 157,880 202,680 Gerald Prosalendis(2) former VP, Corporate Development 106,250 nil 80,000 22,400 29,750 158,400 Steve Dischler VP - General Manager Yerington District 249,850 nil 160,000 44,800 nil 294,650 Name Salary ($) Bonus ($) Securities Under Options Granted (#) Share- Based Payment Under Options ($)(4) All other Compensa tion Total ($) Thomas C. Patton(1) President & CEO 150,000 nil 400,000 $31,867 nil 181,867 Scott Hean(2) Chief Financial Officer 117,519 nil 200,000 $15,934 nil 133,452 Steve Dischler(3) Former President and Chief Executive Officer 237,180 nil 400,000 $39,096 nil 276,276   (1) Consulting fees paid to Atherton Enterprises,Mr. Patton received a company owned by Mr. Scott Heansalary payment of $150,000 per year, and has assumed role of President and CEO of the Company in consideration of Mr. Hean’s services as Chief Financial Officer.September 2015.   (2) Consulting feesMr. Hean resigned as Chief Financial Officer effective December 31, 2015. (3) Mr. Dischler resigned as President and CEO effective October 31, 2015. Mr. Dischler received a payment $28,846 for accrued vacation paid to Swordfern Strategic Counsel Inc., a company owned by Mr. Gerald Prosalendis in considerationas part of his servicesseparation. Share-based payment under options for Mr. Dischler reflected the 300,000 options vested during 2014 as part of Mr. Dischler’s appointment to President and CEO in investor relations subsequentSeptember 2013. (4) The assumptions used to his resignation as VP, Corporate Development effective August 31, 2012.calculate share-based payment for July 2015 options were risk-free interest rate 0.80%, expected share price volatility 113,90%, expected option life 5 years, forfeiture rate 0%, and expected dividend yield 0%. (5) We granted stock options on July 16, 2015 under our Incentive Stock Option Plan at an exercise price of $0.13 per share for a five year term to the executive officers named above in the following amounts: Thomas C. Patton was granted 400,000 options; Steven Dischler was granted 400,000 options and Scott Hean was granted 200,000 options.      WeBoard of Directors The Company reinstated from July 2015the Directors’ annual fees to non-executive directors as follows: Independent Directors CAD$10,000 Chairman of the Audit Committee CAD$7,500 Chairman of any other committee CAD$5,000 - 44 - The following table sets forth the compensation paid to directors for the fiscal year ended December 31, 2015. Name Fees ($) Bonus ($) Securities Under Options Granted (#) Share-Based Payment Under Options ($) All other Compensation Total ($) John Kerr SHSE Chair 5,679 nil 200,000 $15,934 nil $21,613 Terry Eyton Audit Chair 6,626 nil 300,000 $23,900 nil $30,526 Roy Wilkes CGNC Chair 5,679 nil 200,000 $15,934 nil $21,613 The Company granted stock options on June 28, 2012December 31, 2014, March 26, 2015 and July 16, 2015 under our Incentive Stock Option Plan at an exercise priceprices of $0.45CAD$0.05 and CAD$0.13 per share for a five year term to the executive officers named abovecertain directors in the following amounts: Dr. ThomasJohn Kerr received 200,000 options; Tom Patton received 160,000 options; Mr. Spiering received 160,000 options; Mr. Hean received 160,000800,000 options, Mr. Dischler received 160,000 options and Mr. Prosalendis received 80,000 options Board of Directors      In the fiscal year ended December 31, 2012, each of our non-executive directors, other than the Chairman of the Board of Directors, received an annual fee of $12,000 for their service as well as a $500 fee per Board of Directors or committee meeting attended and $500 per day for each day of travel. On June 28, 2012, John Kerr, Anthony Walsh, Lawrence Page, and Roy Wilkes each received 80,000 options, at an exercise price of $0.45 per share. Mr. Hilditch received 100,000 options on June 28, 2012 at the price of $0.45 per share. The Chairman of the Board, Mr. Stevenson received an annual fee of $24,000 and $3,500 meeting fees and $4,000 for days traveled. Mr. Stevenson also received 100,000 options on June 28, 2012 at an exercise price of $0.45 per share.      In addition, Robert Gayton, Chairman of the Audit Committee, who resigned from the Board and the Audit Committee on September 30, 2012, received an annual fee of $11,250 and $5,500 meeting fees. Mr. Gayton also received 80,000 options on June 28, 2012. Mr. Anthony Walsh who was appointed the Chairman of the Audit Committee on October 1, 2012 received an annual fee of $9,750 and $5,500 meeting fees. The Chairman of the Corporate Governance Nomination and Compensation Committee, LeRoy Wilkes received an annual fee of $13,500 as well as $6,000 meeting fees200,000 options and $5,000 travel allowance. The Chairman of the Safety, Health, Security and Environment Committee, John Kerr,Terry Eyton received an annual fee of $13,500 and $8,000 meeting fees.300,000 options.      All stock options issued expire after five years and were issued under our Incentive Stock Option Plan. C. C.        Board Practices Term of Office Our directors are elected annually at our annual general meeting and each officer holds such office for one year, until the next annual general meeting of shareholders, or until replaced by his or her predecessor.successor. - 57 - Employment and Service Contracts During the most recently completed financial year, twofour of our executive directorsofficers had service contracts in place which provide for benefits upon termination of employment. Thomas PattonPatton:– In January, 2010, Dr. Thomas2016 Mr. Patton entered into an employment agreement with the Company and its subsidiary, Quaterra Alaska Inc. for a period of five years, which replaced a prior employment agreement dated January 1, 2009.2015. Under the employment agreement, Dr.Mr. Patton is entitled to receive an annual base salary of $150,000.US$150,000. Upon the expiration of one year following the date of the employment agreement and each year thereafter, the Company will review Dr.Mr. Patton’s salary with a view to its increase, giving consideration to the Company’s financial position and the scope of its activities. Dr.Mr. Patton may be eligible to participate in future stock option grants. The Company may terminate the employment of Dr.Mr. Patton only for breach of the employment agreement or for cause. Dr.Mr. Patton is entitled to two months’ notice of such discharge. If Dr.Mr. Patton becomes disabled and unable to perform his regular duties, he shall be entitled to receive his full salary for two months. Upon a change of control, as defined in the employment agreement, Dr.Mr. Patton has the right to terminate the employment agreement and receive an amount of money equal to his annual salary for two (2) years,the amount that amount being $300,000.would have been paid to him during the unexpired term of the Agreement. Lawrence Page:On July 15, 2011, LawrenceMr. Page, Q.C. entered into a Service Agreementconsulting agreement with the Company for a period of five years, whereby Mr. Page provides Corporate Secretarialcorporate secretarial services to the Company and is entitled to receive an annual fee of $50,000.CAD$50,000. Mr. Page may be eligible to participate in future stock option grants..grants. Upon a change of control, as defined in the agreement, Mr. Page has the right to terminate the agreement and receive an amount of money equal to his annual salary for two (2) years, that amount being $100,000.CAD$100,000. Mr. Page resigned as a director on July 31, 2013 but continues to serve the Company as Corporate Secretary. Steven Dischler:On January 1, 2015 Mr. Dischler entered into an amended employment agreement with the Company that amended his previous agreement dated October 24, 2011. The amended agreement extends through until October 24, 2016 and amends his position from Vice President, General Manager, Yerington Project to President and CEO of the Company. Pursuant to the agreement, Mr. Dischler earned an annual salary of $250,000, was entitled to participate in future stock option grants, and may only have his employment terminated by the Company for breach of the employment agreement or for cause. Upon a change of control, as defined in the employment agreement, Mr. Dischler had the right to terminate the employment agreement and receive an amount of money equal to his annual salary for two (2) years, that amount being $500,000. Mr. Dischler resigned his positions with the Company on September 2, 2015. - 45 - Scott Hean:Mr. Hean became a full time employee of the Company on December 1, 2013. Mr. Hean and his wholly-owned company re-entered into an employment agreement with the Company effective January 1, 2015 for a term of one year. Pursuant to the agreement, Mr. Hean earned an annual salary of CAD$150,000, was entitled to participate in future stock option grants, and may only have his employment terminated by the Company in the event of default. Upon a change of control, as defined in the agreement, Mr. Hean had the right to terminate the services agreement and receive an amount of money equal to his annual salary for two (2) years, that amount being CAD$300,000. Mr. Hean resigned from his position on December 31, 2015. Committees Our Board of Directors has established an Audit Committee and a Corporate, Governance, Nomination and Compensation Committee. Audit Committee–The –The Company’s Board of Directors has a separately-designated standing audit committee (the “Audit Committee”) established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The members of the Audit Committee are Anthony Walsh, Todd HilditchTerrence Eyton, John Kerr and John Kerr.LeRoy Wilkes. The Company’s Board of Directors has determined that each of Messrs. Walsh, Hilditch,Eyton, Kerr and KerrWilkes are independent (as provided for under Rule 10A-3 of the Securities Exchange Act and Section 803 of the NYSE MKT LLC Company Guide)1934, as amended) and are financially literate. The Audit Committee is responsible for assisting directors to meet their responsibilities, providing better communication between directors and external auditors;auditors, enhancing the independence of the external auditor, increasing the credibility and objectivity of financial reports, and strengthening the role of the directors, facilitating in-depth discussions among directors, management, and the external auditor. The Audit Committee meets at least four times during a year. A copy of the Audit Committee Charter is available through our website at www.quaterraresources.com. Corporate Governance, Nomination and Compensation Committee– The members of the Corporate Governance Nomination Compensation Committee (the “CGNCC”) are LeRoy Wilkes, Anthony Walsh,Terrence Eyton and Todd HilditchJohn Kerr all of whom are independent under NYSE MKT rules.independent. The Board of Directors has determined that the composition of the CGNCC ensures an objective process for determining compensation of executive officers. The CGNCC meets regularly and considers matters of governance and compensation. The CGNCC may seek the advice of third party independent consultants as may be required in particular circumstances and submits reports to the full Board of Directors on a regular basis. D. D.        EMPLOYEES      During the fiscal years ended December 31, 2012, 20112015, 2014, 2013 and 2010,2012, we had direct employees as outlined below. Prior to 2010, the majority of our workforce were independent contractors rendering services to the different subsidiaries. Company   2012     2011     2010     2015     2014     2013     2012   Quaterra Resources Inc.   2     3     4     2     2     4     4   Quaterra Alaska Inc.   11     12     4   Minera Agua Tierr S.A. de C.V.   Nil     Nil     Nil   Quaterra Alaska Inc./Singatse Peak Services LLC   5     6     9     10   Minera Agua Tierra S.A. de C.V.   Nil     Nil     Nil     Nil   Quaterra International Limited   Nil     Nil     Nil     Nil     Nil     Nil     Nil   Total   13     15     8     7     8     13     14   - 58 -E.        SHARE OWNERSHIP      We renewed the service agreement with related party Manex Resource Corp. (“Manex”) in February, 2012 whereby Manex provides administrative, accounting, and secretarial services to us. The basic fee for office space and office infrastructure is $19,250 per month and other services rendered are based on hourly rates specified in the agreement. We also reimburse Manex for office supplies including paper, courier, postage, parking, filing fees and other out-of-pocket expenses. During the three years ended December 31, 2012, we paid Manex the following:     Fiscal year ended December 31       2012     2011     2010   Office space and administration$   267,124   $  241,552   $  216,950   Accounting   164,088     163,799     179,102   Corporate Secretray   100,454     103,387     99,173   15% charges on recovery   3,683     5,839     6,125                                                               $  535,349   $  514,577   $  501,350        Manex is located at the same address as our company at suite 1100, 1199 West Hastings Street, Vancouver, British Columbia. Manex is a private company controlled by Lawrence Page, one of our directors. E. SHARE OWNERSHIP All persons listed in subsection 6.B above beneficially own an aggregate of 4,587,9348,185,318 Common shares or 2.81%4.23% of our common shares outstanding. Dr. Thomas Patton beneficially owns 3,348,1625,214,762 or 2.05%2.70% of our common shares and he has the right to exercise or redeem various stock options that if fully exercised he will beneficially own 4,608,1626,974,762 common shares of the Company or 2.82%3.57% of our outstanding shares. No other director or officer beneficially owns greater than 1% of our common shares. - 46 - We grant stock options to directors, officers, employees and consultants who provide services to us, including our subsidiaries, pursuant to our Incentive Stock Option Plan. The purpose of the Incentive Stock Option Plan is to provide increased incentive to contribute to our future success and prosperity, thus enhancing the value of our shares for the benefit of all the shareholders and increasing our ability to attract and retain skilled and motivated individuals in the service of us. Our Incentive Stock Option Plan is a “rolling” plan through which the maximum number of issuable shares underlying options is equal to 10% of our outstanding shares. As of December 31, 2012,2015, there were 14,010,00015,400,000 options outstanding and 13,635,000 exercisable under the Incentive Stock Option Plan. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A.        Major Shareholders Major Shareholders We are not aware of any beneficial shareholder holding greater than 5% of our common shares as of the date of this annual report or during the prior three years, other than: Goldcorp Inc. 10,294,825 common shares 6.31%.5.32% Goldcorp’s ownership of the Company has not changed in three years. The Company’s major shareholder does not have different voting rights. As of December 31, 2012,2015, approximately 61%56% of our common shares were held in Canada and approximately 35%43.9% of our common shares were held in the U.S., with the balance held in various other countries. There are no arrangements known to us that may, at a subsequent date, result in a change in control. B. B.        Related Party Transactions Related Party Transactions During fiscal 2012, we paid consulting fees of $157,880 paid to Atherton Enterprises, a company owned by Scott Hean and, and we also2014, the Company paid legal fees of $4,115$7,873 to a law firm of which Lawrence Page, our Corporate Secretary, is the principal. There were no fees paid in 2015.      TheAdditionally, the Company renewedamended the service agreement (the “Manex Agreement”) with related party Manex Resource Corp.Group (“Manex”). These services are provided in the normal course of operations for consideration established and accepted by the Company and Manex. On February 9, 2012, the Company renewed the Manex Agreement with Manex at agreed market rates for a five-year term expiring August 31, 2017. The Manex Agreement amended further on February 2, 2012 which replaces a prior service agreement dated June, 2008, whereby Manex provides administrative, accounting,September 1, 2013, March 1, 2014 and secretarialJanuary 1, 2015 to reduce the fee for services to a monthly rate of CAD$5,000 with the Company. Manex is a private company controlled by Lawrence Page, a director and officermonthly office lease remaining at CAD$8,000. The Company may terminate the services portion of the Company. The basicManex Agreement upon 30 day notice without penalty, and the office lease portion of the Manex Agreement by paying Manex the lesser of CAD$96,000 or a total fee owing for office space and office infrastructure is $19,250 per month and other services rendered are based on hourly rates specified in the agreement. The Company also reimburses Manex for office supplies including paper, courier, postage, parking, filing fees and other out-of-pocket expenses.remainder of the lease term (through August 31, 2017). During the year ended December 31, 20122015 the Company paid $535,349$130,705 to Manex. Manex is located at the same address as the Company at suiteSuite 1100, 1199 West Hastings Street, Vancouver, British Columbia, V6E 3T5. We believe the terms of the Manex agreementAgreement are similar to that which would be obtainable from an unrelated party. On March 28, June 5 and July 4 of 2013, the Company borrowed a total of US$800,000 unsecured loans at an interest rate of 10% per annum from our Chairman of the board, Dr. Thomas Patton. As of December 31, 2013, US$200,000 was repaid and the balance of US$600,000 was amended on March 18, 2014 to a demand basis with a 40-day notice period. On December 29, 2014, the Company repaid the balance of the Chairman’s loan and related interest. C.        Interests of Experts and Counsel Not applicable. - 5947 - C. Interests of Experts and Counsel      Not applicable. ITEM 8. FINANCIAL INFORMATION ITEM 8. FINANCIAL INFORMATION Financial Statements The consolidated statements of financial position of Quaterra Resources Inc. as of December 31, 20122015 and 20112014 and January 1, 2014 and the consolidated statements of comprehensive loss, changes in equity and cash flows of Quaterra Resources Inc. for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, as well as the auditors’ report thereon, are presented at Item 17 of this annual report. Legal Proceedings      As described in “Future Work Plans” as part of the Arizona Uranium Claims, USA discussion under Item 4D above, the Company is has initiated a lawsuit against the U.S. Department of the Interior and Bureau of Land Management. From time to time, we may be a party to pending or threatened legal proceedings and arbitrations that are routine and incidental to our business. Based upon information presently available, and in light of legal and other defenses available to us, our management doesis not consider the liability fromaware of any threatened or pending litigation to be material.litigation. Dividends We have never declared or paid any cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. Significant Changes Except as otherwise disclosed in this annual report, including under Item 5. “Operating“Operating and Financial Review and Prospects”, there has been no significant change in our financial position since December 31, 2012.2015. ITEM 9. THE OFFER AND LISTING A. ITEM 9. THE OFFER AND LISTING A.        Offer and listing details Offer and listing details Our common shares have traded on the TSX Venture Exchange since November 14, 1997 under the symbol QTA.“QTA”. Our common shares also have traded on the NYSE MKT (previously known as the NYSE AMEX) sincefrom March 4, 2008 until February 6, 2014 under the symbol QMM.“QMM”. On February 7, 2014, our shares began trading on the OTCQX under the symbol “QTRRF”. The following table set forth the price history of our common shares for the periods indicated. TSX Venture Exchange (C$) NYSE MKT (US$) TSX Venture Exchange (C$)    NYSE MKT (US$) OTCQX (US$) High Low High Low Annual Periods High Low High Low High Low Fiscal Year Ended December 31, 2015 0.145 0.035 - 0.10 0.03 Fiscal Year Ended December 31, 2014 0.11 0.035 - 0.089 0.03 Fiscal Year Ended December 31, 2013 0.36 0.065 0.37 0.07 - Fiscal Year Ended December 31, 2012 0.74 0.32 0.71 0.32 0.74 0.32 0.71 0.32 - Fiscal Year Ended December 31, 2011 2.08 0.54 2.21 0.50 2.08 0.54 2.21 0.50 - Fiscal Year Ended December 31, 2010 2.50 1.05 2.42 1.01 2.50 1.05 2.42 1.01 - Fiscal Year Ended December 31, 2009 2.05 0.41 2.28 0.30 Fiscal Year Ended December 31, 2008 4.18 0.47 3.97 0.36     Fiscal Year Ended December 31, 2012   Fiscal Year Ended December 31, 2015    First Quarter 0.74 0.46 0.71 0.45 0.05 0.035 - 0.05 0.03 Second Quarter 0.115 0.035 - 0.10 0.03 - 6048 - Second Quarter 0.60 0.34 0.55 0.35 Third Quarter 0.40 0.32 0.46 0.32 0.145 0.065 - 0.10 0.04 Fourth Quarter 0.54 0.32 0.60 0.33 0.095 0.065 - 0.08 0.04     -   Fiscal Year Ended December 31, 2011   Quarterly Periods   Fiscal Year Ended December 31, 2014    First Quarter 2.08 1.52 2.21 1.50 0.10 0.06 - 0.085 0.035 Second Quarter 1.75 1.10 1.84 1.10 0.095 0.055 - 0.089 0.041 Third Quarter 1.61 0.84 1.70 0.80 0.06 0.04 - 0.079 0.03 Fourth Quarter 1.25 0.54 0.95 0.50 0.06 0.035 - 0.055 0.029     February 2013 0.32 0.23 0.36 0.20 January 2013 0.38 0.30 0.38 0.30 December 2012 0.40 0.32 0.42 0.33 November 2012 0.45 0.35 0.46 0.34 October 2012 0.54 0.35 0.60 0.34 September 2012 0.40 0.32 0.41 0.32 Fiscal Year Ended December 31, 2013    First Quarter 0.36 0.20 0.37 0.19 - Second Quarter 0.23 0.09 0.22 0.09 - Third Quarter 0.17 0.09 0.17 0.09 - Fourth Quarter 0.15 0.065 0.15 0.07 -   Monthly Periods     February 2016 0.06 0.055 - 0.04 January 2016 0.07 0.06 - 0.05 0.04 December 2015 0.085 0.075 - 0.06 0.05 November 2015 0.08 0.075 - 0.07 0.06 October 2015 0.08 - 0.07 September 2015 0.08 0.07 - 0.06 0.05 B. B.        Plan of Distribution Plan of Distribution Not applicable. C. C.        Markets Markets See subsection 9.A. “Offer and Listing Details” above. D. D.        Selling Shareholders Selling Shareholders Not applicable. E. E.        Dilution Dilution Not applicable. F. F.        Expenses of the Issue Expenses of the Issue Not applicable. ITEM 10. ADDITIONAL INFORMATION A. ITEM 10. ADDITIONAL INFORMATION A.        Share Capital Share Capital Not applicable. B. - 49 - B.        Memorandum and Articles of Association Incorporation We are governed by Articlesnotice of articles dated September 14, 2015 and articles of association dated June 13, 2005, andas amended on December 11, 2007.2007 (the “Articles”). Our Articles are on file with the Office of the British Columbia Registrar of Companies under Certificate of Incorporation No. BC0446713. Under the provisions of theBusiness Corporations Act(BC), we have the capacity and the rights, powers, and privileges of an individual of full capacity. There are no restrictions in our Articles on the business that we can carry on or the powers we can exercise. Powers and Functions of the Directors Under Article 17, a director is obligated to disclose a potential interest in a contract or transaction being considered by us, and may not vote on a contract or transaction with a disclosabledisclosurable interest, but the director shall be counted in the quorum at the meeting of the Board of Directors at which the contract or transaction is approved. - 61 - Under Article 13, the Board of Directors may, in the absence of an independent quorum, vote compensation to themselves. Under Article 8, there are no limitations on borrowing powers exercisable by our Board of Directors. There are no provisions in our Articles for the retirement or non-retirement of a director under an age limit. There is no requirement in our Articles for a director to hold any of our common shares. Rights and Restrictions Attached to the Common Shares Our common shares rank equally as to dividend rights, voting rights, profits, and liquidation rights. The common shares are not subject to redemption or sinking fund provisions, liability to further capital calls, nor any provisions discriminating against any existing or prospective holder of such shares as a result of such shareholder owning a substantial number of shares. Alteration of Share Rights In accordance with theBusiness Corporations Act(BC) and our Articles, a special resolution is required to change the rights of common shares, and must be (a) passed at a general meeting by a majority of not less than 2/3 of the voting common shareholders; or (b) consented to in writing by all common shareholders. Annual General Meetings Articles 10 and 11 of our Articles, together with applicable corporate and securities laws, contain the conditions governing the manner in which annual and extraordinary general meetings of shareholders are called, including notice, proxy solicitation, and quorum requirements. Annual general meetings are called and scheduled upon decision by the Board of Directors. The Board of Directors may convene an extraordinary general meeting of the shareholders. Holders of common shares may not requisition an extraordinary meeting of the shareholders. All meetings may be attended by registered shareholders or persons who hold powers of attorney or proxies given to them by registered shareholders. Foreign Ownership Limitation Our Articles do not contain limitations on the rights of non-residents, foreigners, or other groups to own common shares. Change of Control There are no provisions in our Articles that would have the effect of delaying, deferring or preventing a change in control, or that operate only with respect to a merger, acquisition or corporate restructuring involving us or any of our subsidiaries. - 50 - Share Ownership Reporting Obligation Our Articles do not contains provisions governing the threshold above which shareholder ownership must be disclosed. Differences between Canadian and U.S. Law The securities laws of the Province of British Columbia require disclosure of shareholdings by (i) persons who are our directors or senior officers; and (ii) a person who has direct or indirect beneficial ownership of, control or direction over, or a combination of direct or indirect beneficial ownership of and control or direction over our securities carrying more than 10% of the voting rights attached to all of our outstanding voting securities. The threshold of share ownership percentage requiring disclosure of ownership is higher in the home jurisdiction of British Columbia than the U.S. where U.S. securities law prescribes a 5% threshold for ownership disclosure. Capital Changes - 62 - There are no conditions imposed by our Articles governing changes in our share capital that are more stringent than is required by law. C. C.        Material Contracts Material Contracts We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4. “Information– “Information on the Company”Company” or elsewhere in this annual report. D. D.        Exchange Controls Exchange Controls There currently are no laws, decrees, regulations, or other legislation in Canada that restrict the export or import of capital, or impose foreign exchange controls or affect the remittance of interest, dividends, or other payments to non-resident holders of our common shares, other than the withholding tax requirements described under subsection E. “Taxation”Subsection E –“Taxation” below. Canada has no system of exchange controlscontrols. There are no limitations imposed by Canadian lawlaws or our Articles on the right of non-resident to hold our common shares, other than as provided by theInvestment Canada Act, as amended (the “Act”“Act”), as amended by theNorth American Free Trade Agreement Implementation Act(Canada), and theWorld Trade Organization (WTO) Agreement Implementation Act. The Act requires notification and, in certain cases, advance review and approval by the Government of Canada of the acquisition by a “non-Canadian” of “control of a Canadian business”, all as defined in the Act. Generally, the threshold for review will be higher in monetary terms for a member of the WTO or NAFTA. E. E.        Taxation We encourage you to consult with your own tax advisors about the Canadian and U.S. federal, state, provincial, local, and foreign tax consequences of purchasing, owning, and disposing of our common shares. - 51 - Certain Canadian Federal Income Tax Consequences The discussion under this heading summarizes the principal Canadian federal income tax consequences of acquiring, holding and disposing of shares of common shares for a shareholder who is not a resident of Canada but is a resident of the United States and who will acquire and hold a corporation’s common shares as capital property for the purposes of the Income Tax Act (Canada) (the “Canadian“Canadian Tax Act”Act”). This summary does not apply to a shareholder who carries on business in Canada through a “permanent establishment” situated in Canada or performs independent personal services in Canada through a fixed base in Canada if the shareholder’s holding is effectively connected with such permanent establishment or fixed base. This summary is based on the provisions of the Canadian Tax Act and the regulations thereunder and on an understanding of the administrative practices of Canada Customs & Revenue Agency, and takes into account all specific proposals to amend the Canadian Tax Act or regulations made by the Minister of Finance of Canada as of the date hereof. This discussion is general only and is not, nor is it intended to provide a detailed analysis of the income tax implications of any particular shareholder’s interest. Investors are advised to obtain independent advice from a shareholder’s own Canadian and U.S. tax advisors with respect to income tax implications pertinent to their particular circumstances.The provisions of the Canadian Tax Act are subject to income tax treaties to which Canada is a party, including the Canada-United States Income Tax Convention (1980), as amended (the “Convention”). Dividends on Common Shares and Other Income Under the Canadian Tax Act, a non-resident of Canada is generally subject to Canadian withholding tax at the rate of 25 percent on dividends paid or deemed to have been paid to him or her by a corporation resident in Canada. The corporation is responsible for the withholding of tax at the source. The Convention limits the rate to 15 percent if the shareholder is a resident of the United States and the dividends are beneficially owned by and paid to such shareholder and to 5 percent if the shareholder is also a corporation that beneficially owns at least 10 percent of the voting stock of the payor corporation. The amount of a stock dividend (for tax purposes) would generally be equal to the amount by which the paid up or stated capital of the corporation had increased by reason of the payment of such dividend. The corporation will furnish additional tax information to shareholders in the event of such a dividend. Interest paid or deemed to be paid on the corporation’s debt securities held by non-Canadian residents may also be subject to Canadian withholding tax, depending upon the terms and provisions of such securities and any applicable tax treaty. - 63 - The Convention generally exempts from Canadian income tax dividends paid to a religious, scientific, literary, educational or charitable organization or to an organization constituted and operated exclusively to administer a pension, retirement or employee benefit fund or plan, if the organization is a resident of the United States and is exempt from income tax under the laws of the United States. Dispositions of Common Shares Under the Canadian Tax Act, a taxpayer’s capital gain or capital loss from a disposition of a common share is the amount, if any, by which his or her proceeds of disposition exceed (or are exceeded by, respectively) the aggregate of his or her adjusted cost base of the share and reasonable expenses of disposition. The capital gain or loss must be computed in Canadian currency using a weighted average adjusted cost base for identical properties. The capital gains net of losses included in income since October 17, 2000 is 50%. The amount by which a shareholder’s capital loss exceeds the capital gain in a year may be deducted from a capital gain realized by the shareholder in the three previous years or any subsequent year, subject to certain restrictions in the case of a corporate shareholder. Under the Canadian Tax Act, a non-resident of Canada is subject to Canadian tax on taxable capital gains, and may deduct allowable capital losses realized on a disposition of “taxable Canadian property.” Common shares of a corporation will constitute the taxable Canadian property of a shareholder at a particular time if the shareholder used the shares in carrying on business in Canada, or if at any time in the five years immediately preceding the disposition, 25% or more of the issued shares of any class or series in the capital stock of the corporation belonged to one or more persons in a group comprising the shareholder and persons with whom the shareholder and persons with whom the shareholder did not deal at arm’s length and in certain other circumstances. - 52 - The Convention relieves United States residents from liability for Canadian tax on capital gains derived on a disposition of shares, unless: (i) the value of the shares is derived principally from “real property” in Canada, including the right to explore for or exploit natural resources and rights to amounts computed by reference to production; (ii) the shareholder was resident in Canada for 120 months during any period of 20 consecutive years preceding, and at any time during the 10 years immediately preceding, the disposition and the shares were owned by him when he ceased to be resident in Canada; or (iii) the shares formed part of the business property of a “permanent establishment” that the holder has or had in Canada within the 12 months preceding the disposition. Certain United States Federal Income Tax Consequences The following is a discussion of material United States federal income tax consequences generally applicable to a U.S. Holder (as defined below) of our common shares. This discussion does not cover any state, local or foreign tax consequences. This discussion is based upon the sections of the Internal Revenue Code of 1986, as amended (“the Code”), Treasury Regulations, published Internal Revenue Service (“IRS”) rulings, published administrative positions of the IRS and court decisions that are currently applicable, any or all of which could be materially and adversely changed, possibly on a retroactive basis, at any time. In addition, the discussion does not consider the potential effects, both adverse and beneficial, or recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time. U.S. Holders As used herein, a U.S. Holder includes a holder of common shares who is a citizen or resident of the United States, a corporation (or an entity which has elected to be treated as a corporation under Treasury Regulations created or organized in or under the laws of the United States or of any political subdivision thereof, any estate other than a foreign estate (as defined in the Code) or, a trust subject to the primary supervision of a court within the United States and control of a United States fiduciary as described in the Code. This summary does not address the tax consequences to, and U.S. Holder does not include, persons subject to special provisions of federal income tax law, such as tax-exempt organizations, qualified retirement plans, financial institutions, insurance companies, real estate investment trusts, regulated investment companies, broker-dealers, non-residentnonresident alien individuals, persons or entities that have a “functional currency” other than the U.S. dollar, shareholders who hold common shares as part of a straddle, hedging or conversion transaction, and shareholders who acquired their common shares through the exercise of employee stock options or otherwise as compensation for services. This summary is limited to U.S. Holders who own common shares as capital assets. This summary does not address the consequences to a person or entity holding an interest in a shareholder or the consequences to a person of the ownership, exercise or disposition of any options, warrants or other rights to acquire common shares. Distribution on Common Shares - 64 - U.S. Holders receiving dividend distributions (including constructive dividends) with respect to common shares are required to include in gross income for United States federal income tax purposes the gross amount of such distributions equal to the U.S. dollar value of such distributions on the date of receipt (based on the exchange rate on such date), to the extent that the corporation has current or accumulated earnings and profits, without reduction for any Canadian income tax withheld from such distributions. Such Canadian tax withheld may be credited, subject to certain limitations, against the U.S. Holder’s United States federal income tax liability or, alternatively, may be deducted in computing the U.S. Holder’s United States federal taxable income (see more detailed discussion at “Foreign Tax Credit” below). To the extent that distributions exceed current or accumulated earnings and profits of the corporation, they will be treated first as a return of capital up to the U.S. Holder’s adjusted basis in the common shares and thereafter as gain from the sale or exchange of the common shares. Dividend income will be taxed at marginal tax rates applicable to ordinary income while preferential tax rates for long-term capital gains are applicable to a U.S. Holder which is an individual, estate or trust. There are currently no preferential tax rates for long-term capital gains for a U.S. Holder which is a corporation. In the case of foreign currency received as a dividend that is not converted by the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Gain or loss may be recognized upon a subsequent sale of other disposition of the foreign currency, including the exchange for U.S. dollars. - 53 - Dividends paid on the common shares of a corporation will not generally be eligible for the dividends received deduction provided to corporations receiving dividends from certain United States corporations. A U.S. Holder which is a corporation may, under certain circumstances, be entitled to a 70% deduction of the United States source portion of dividends received from a corporation (unless the corporation qualifies as a “foreign personal holding company” or a “passive foreign investment company”, as defined below) if such U.S. Holder owns shares representing at least 10% of the voting power and value of the corporation. The availability of this deduction is subject to several complex limitations which are beyond the scope of this discussion. Foreign Tax Credit A U.S. Holder who pays (or has withheld from distributions) Canadian income tax with respect to the ownership of common shares may be entitled, at the option of the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid or withheld. Generally, it will be more advantageous to claim a credit because a credit reduces United States Federal income taxes on a dollar-for-dollar basis, while a deduction merely reduces the taxpayer’s income subject to tax. This election is made on a year-by-year basis and applies to all foreign income taxes (or taxes in lieu of income tax) paid by (or withheld from) the U.S. Holder during the year. There are significant and complex limitations which apply to the credit, among which is the general limitation that the credit cannot exceed the proportionate share of the U.S. Holder’s United States income tax liability that the U.S. Holder’s foreign source income bears to his/her or its worldwide taxable income. The various items of income and deduction must be classified into foreign and domestic sources. Complex rules govern this classification process. In addition, this limitation is calculated separately with respect to specific classes of income such as “passive income”, “high withholding tax interest”, “financial services income”, “shipping income”, and certain other classifications of income. Dividends distributed will generally constitute “passive income” or, in the case of certain U.S. Holders, “financial services income” for these purposes. The availability of the foreign tax credit and the application of the limitations on the credit are fact specific and holders and prospective holders of common shares of should consult their own tax advisors regarding their individual circumstances. For individuals whose entire income from sources outside the United States consists of qualified passive income whose total amount of creditable foreign taxes paid or accrued during the taxable year does not exceed US$300 (US$600 in the case of a joint return) and for whom an election is made under section 904(j), the limitation on credit does not apply. Disposition of Common Shares A U.S. Holder will recognize gain or loss upon the sale of common shares equal to the difference, if any, between (i) the amount of cash plus the fair market value of any property received, and (ii) the tax basis in the common shares. Preferential tax rates apply to long-term capital gains of U.S. Holders which are individuals, estates, or trusts. This gain or loss will be capital gain or loss if the common shares are capital assets in the hands of the U.S. Holder, which will be a short-term or long-term capital gain or loss depending upon the holding period of the U.S. Holder. Gains and losses are netted and combined according to special rules in arriving at the overall capital gain or loss for a particular tax year. Deductions for net capital losses are subject to significant limitations. For U.S. Holders which are not corporations, any unused portion of such net capital loss may be carried over to be used in later tax years until such net capital loss is thereby exhausted, but individuals may not carry back capital losses. For U.S. Holders which are corporations (other than corporations subject to Subchapter S of the Code), an unused net capital loss may be carried back three years from the loss year and carried forward five years from the loss year to be offset against capital gains until such net capital loss is thereby exhausted. - 65 - Foreign Personal Holding Company If at any time during a taxable year more than 50% of the total combined voting power or the total value of the our outstanding shares is owned, actually or constructively, by five or fewer individuals who are citizens or residents of the United States and 60% (50% after the first tax year) or more of our gross income for such year was derived from certain passive sources, then we would be treated as a “foreign personal holding company.” In that event, U.S. Holders that hold common shares would be required to include in gross income for such year their allocable portions of such passive income to the extent we do not actually distribute such income. We do not believe we currently have the status of a “foreign personal holding company”. However, there can be no assurance that we will not be considered a foreign personal holding company for any future taxable year. - 54 - Passive Foreign Investment Company As a foreign corporation with U.S. Holders, we potentially could be treated as a passive foreign investment company (“PFIC”), as defined in Section 1297 of the Code, depending upon the percentage of our income which is passive, or the percentage of our assets which are held for the purpose of producing passive income. We do not believe we currently are a PFIC. The rule governing PFICs can have significant tax effects on U.S. Holders of foreign corporations. These rules do not apply to non-U.S. Holders. Section 1297 of the Code defines a PFIC as a corporation that is not formed in the United States and, for any taxable year, either (i) 75% or more of its gross income is “passive income”, which includes interest, dividends and certain rents and royalties or (ii) the average percentage, by fair market value (or, if the corporation is a controlled foreign corporation or makes an election, by adjusted tax basis), of its assets that produce or are held for the production of “passive income” is 50% or more. The taxation of a US Holder who owns stock in a PFIC is extremely complex and is therefore beyond the scope of this discussion. U.S. Holders should consult with their own tax advisors with regards to the impact of these rules. Controlled Foreign Corporation If more than 50% of the voting power of all classes of our common shares entitled to vote is owned, actually or constructively, by citizens or residents of the United States, United States partnerships, corporations, or estates or trusts other than foreign estates or trusts, each of whom own actually or constructively own 10% or more of the total combined voting power of all classes of our capital stock (“United States Shareholders”), then we would be a “controlled foreign corporation” (CFC). We do not believe we currently are a CFC. The CFC classification would affect many complex results, one of which is that certain income of a CFC would be subject to current U.S. tax. The United States generally taxes United States Shareholders of a CFC currently on their pro rata shares of the Subpart F income of the CFC. Such United States Shareholders are generally treated as having received a current distribution out of the CFC’s Subpart F income and are also subject to current U.S. tax on their pro rata shares of the CFC’s earnings invested in U.S. property. The foreign tax credit described above may reduce the U.S. tax on these amounts. In addition, under Section 1248 of the Code, gain from the sale or exchange of shares by a U.S. Holder of common shares of a corporation which is or was a United States Shareholder at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of earnings and profits of the corporation (accumulated only while the shares were held by the United States Shareholder and while the corporation was a CFC attributable to the shares sold or exchanged). If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to the United States Shareholders of the CFC. This rule generally will be effective for taxable years of United States Shareholders beginning after 1997 and for taxable years of foreign corporations ending with or within such taxable years of United States Shareholders. The PFIC provisions continue to apply in the case of a PFIC that is also a CFC with respect to the U.S. Holders that are less than 10% shareholders. F. F.        Dividends and Paying Agents Dividends and Paying Agents Not applicable. - 66 -G.        Statement by Experts G. Statement by Experts Not applicable. H. H.        Documents on Display Documents on Display Any document referred to in this annual report may be inspected at our principal executive offices at Suite 1100, 1199 West Hastings Street, Vancouver, British Columbia Canada V6E 3T5 during regular business hours. Various documents referenced in this annual report also are included as exhibits to this annual report in accordance with Item 19 of this Form 20-F. We are required to file periodic reports and other information with the SEC. You may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC further maintains an internet website at www.sec.gov that contains reports and other information about issuers like us who file electronically with the SEC. - 55 - In addition, we file various documents on the Canadian Securities Administrator’s System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com as required by applicable Canadian law and stock exchanges. I. I.        Subsidiary Information Subsidiary Information Not applicable. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK The significant market risks to which the Company is exposed are currency, interest rate and other price risk. Currency risk Foreign currency risk is the risk that the fair value of financial instruments of future cash flows will fluctuate as a result of changes in foreigner change rates. The Company operates internationallyin Canada and the United States and is therefore exposed to foreign exchange currency risk arising from fluctuationstransactions denominated in Canadian dollars. Based on the table below , a 10% change in the exchange ratesrate between the Canadian dollar and various currencies, primarily US dollars and Mexican pesos. The Company hasU.S. Dollars would not hedged its exposure to foreign currency fluctuations.have material effect on the Company’s operations. The Company is exposed to currency risk as follows:     December 31, 2012     December 21, 2011       US     Pesos     US     Pesos        Cash $  1,715,415     183,410   $  1,155,138     1,114,735        Other receivables and restricted cash   69,000     -     69,000     12,614,401        Due from exploration partners   616,899     -     236,206     -        Reclamation bond   171,160     -     510,415     -        Accounts payable and accrued liabilities   (343,686 )   (760,178 )   (1,498,898 )   (53,726 )      Derivative liabilities - warrants   (784,988 )   -     -     -   Net foreign exposure $  1,443,800     (576,768 ) $  471,861     13,675,410   Basedfollowing table sets forth, for the periods indicated, the high and low exchange rates based on the above net foreign currency exposuresnoon buying rate in Canadian dollars. Such rates are the number of Canadian dollars per one (1) U.S. dollar quoted by the Bank of Canada:   High Low December 2015 $1.3990 $1.3360 November 2015 $1.3360 $1.3095 October 2015 $1.3242 $1.2904 September 2015 $1.3413 $1.3147 Exchange rate information (from U.S.$ to Canadian $), based on the closing rates, as at each of the years ended December 31, 2012,2014 and assuming all other variables remain constant, a 5% weakening or strengthening of the Canadian dollar against a) the US dollar would result in a change of $73,930 (2011 - $24,402)2015 is set out in the Company’s loss; and b) the Mexican peso would have no material impact in the Company’s loss for the year.table below:   Year Ended December 31   2014 2015 Rate at end of Period Low High $1.1601 $1.0639 $1.1656 $1.3840 $1.1728 $1.3990 - 67 - Interest rate risk The Company’s cash and cash equivalents are held in bank accounts that earn interest at variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have a significant impact on the estimated fair value as of December 31, 2012.2015. The Company manages interest rate risk by maintaining an investment policy that focuses primarily on preservation of capital and liquidity. Other price risk Other price risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from currency risk or interest rate risk. The Company’s marketable securities are carried at market value and are therefore directly affected by fluctuations in the market value of the underlying securities. The Company’s sensitivity analysis suggests that a 10% change in market prices would have no material impact on the value of the Company’s marketable securities. ITEM 12. ITEM 12.      DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES      Not applicable. - 6856 - Not applicable. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ITEM 13.      DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS ITEM 14.      MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS Effective June 18, 2008,12, 2013, in accordance with the vote of shareholders at the 20082013 Annual General Meeting on June 18, 2008,12, 2013, we adopted a rights plan applicable to our common shares (the “Rights Plan”“Rights Plan”). This Rights Plan replaced an earlier shareholder rights plan dated June 18, 2008. Under the Rights Plan, we issued one right for no consideration in respect of each outstanding common share. All common shares we subsequently issue during the term of the Rights Plan will have one right represented for each common share. The term of the Rights Plan is through the first annual meeting of shareholders held after June 18, 2013.12, 2018. The rights issued under the Rights Plan become exercisable only if a party acquires 20% or more of our common shares without complying with the Rights Plan or without a waiver from our Board of Directors. Each right entitles the registered holder to purchase from us on the occurrence of certain events, one common share at the price of CDN$100 per share, subject to adjustment (the “Exercise Price”). If a “Flip-in Event” as defined in the Rights Plan occurs, each right would then entitle the registered holder to receive, upon payment of the Exercise Price, that number of common shares that have a market value at the date of that occurrence equal to twice the Exercise Price. The rights are not exercisable until the “Separation Time” as defined in the Rights Plan. The purpose of the Rights Plan is to ensure, to the extent possible, that all shareholders are treated equally and fairly in connection with any take-over bid or similar proposal to acquire our common shares. Take-over bids may be structured in such a way as to be coercive or discriminatory in effect, or may be initiated at a time when it will be difficult for our Board of Directors to prepare an adequate response. Such offers may result in shareholders receiving unequal or unfair treatment, or not realizing the full or maximum value of their investment in us. The Rights Plan discourages the making of any such offers by creating the potential of significant dilution to any offeror who does so. An offeror can avoid that potential by making an offer that either: (i) qualifies as a “Permitted Bid” under the Rights Plan, and therefore meets certain specified conditions (including a minimum deposit period of 90 days) which aim to ensure that all shareholders are treated fairly and equally; or (ii) does not qualify as a “Permitted Bid” but is negotiated with and has been exempted by our Board of Directors from the application of the Rights Plan in light of the opportunity to bargain for agreed terms and conditions to the offer that are believed to be in the best interests of shareholders. Under current Canadian securities laws, any party wishing to make a formal take-over bid for our common shares is required to leave the offer open for acceptance for at least 35 days. To qualify as a “Permitted Bid” under the Rights Plan, however, a take-over bid must remain open for acceptance for not less than 90 days. The Board of Directors believes that the statutory minimum period of 35 days may be insufficient for the directors to: (i) evaluate a take-over bid (particularly if the consideration consists, wholly or in part, of shares of another issuer); (ii) explore, develop and pursue alternative transactions that could better maximize shareholder value; and (iii) make reasoned recommendations to the shareholders. The additional time afforded under a “Permitted Bid” is intended to address these concerns by providing the Board of Directors with a greater opportunity to assess the merits of the offer and identify other possible suitors or alternative transactions, any by providing other bidders or proponents of alternative transactions with time to come forward with competing, and potentially superior, proposals. ITEM 15. CONTROLS AND PROCEDURES ITEM 15.      CONTROLS AND PROCEDURES Disclosure Controls and Procedures - 57 - Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended) as of the end of the fiscal year covered by this report. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2012,2015, our disclosure controls and procedures were effective. - 69 - Management’s Annual Report on Internal Control Over Financial Reporting Our management’s report onmanagement is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”) as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) promulgated under the Exchange Act. Management (under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer) assessed the effectiveness of our ICFR as of December 31, 2014, using the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO 2013 framework). Based on page [2this assessment, our management concluded that our ICFR were effective as of 40] under Item 17 of thisDecember 31, 2015. This annual report.      Thereport does not include an attestation report of Smythe Ratcliffe LLP, our independent registered public accounting firm on management’s assessment ofregarding our internal control over financial reporting is set forth on page [4 of 40] under Item 17 of this annual report.ICFR. Our management's report was not subject to attestation by our registered independent public accounting firm because we are not an accelerated filer or large accelerated filer and exempt as an Emerging Growth Company. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 20122015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 16A. Audit Committee financial expert Item 16A.    Audit Committee financial expert Our Board of Directors has determined that Anthony WalshTerrance Eyton is an “audit committee financial expert”, as defined in Item 16A(b) of Form 20-F, serving on the Audit Committee of the Company as within the criteria prescribed under SEC and NYSE MKT rules. Our BoardSEC.. Item 16B.    Code of Directors has determined that Anthony Walsh is an “independent” director as that term is defined under NYSE MKT rules.Ethics Item 16B. Code of Ethics We have adopted a Code of Business Conduct and Ethics for all our directors, officers, and employees. It includes a Code of Ethical Conduct for Financial Managers that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The Code of Business Conduct and Ethics is available in the Governance section of our website at www.quaterraaresources.com. All applicable amendments to and waivers of the Code of Business Conduct Ethics governing our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions will be posted on our website and furnished to the SEC on Form 6-K. Item 16C. Principal Accountant Fees and Services The Company will provide to any person without charge, upon request via email at info@quaterra.com, a copy of the Code of Business Conduct and Ethics. Item 16C.    Principal Accountant Fees and Services The following table shows the aggregate fees billed to us by our principal accountant Smythe Ratcliffe LLP, Chartered Professional Accountants, in each of the last two fiscal years. Year ended December 31, CAD$  Year ended December 31, 2012 2011 2015 2014 Audit Fees $101,000 $113,500 $49,500 $65,330 Audit-Related Fees $900 NIL $14,500 Nil Tax Fees $3,000 $2,800 $2,500 All Other Fees - - - 58 - Audit feesare the aggregate fees billed by the Company’s independent auditor for the audit of the Company’s annual consolidated financial statements, reviews of interim consolidated financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. Audit-related feesare fees charged by the Company’s independent auditor for assurance and related services that are reasonably related to the performance of the audit or review of financial statements and are not reported under “Audit Fees”. Tax feesare fees for professional services rendered by the Company’s independent auditors for tax compliance and tax advice on actual or contemplated transactions. The Audit Committee recommends to the Board of the Directors the external auditor to perform audit, review, and attestation services. The Audit Committee pre-approves all non-audit services provided by our external auditors, and pre-approved the tax fees and the all other fees listed in the table above. - 70 -Item 16D.    Exemptions from the listing standards for Audit Committees Item 16D. Exemptions from the listing standards for Audit Committees Not applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Item 16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers None. Item 16F. Change in Registrant’s Certifying Accountant Item 16F.    Change in Registrant’s Certifying Accountant Not applicable. Item 16G. Item 16G.    Corporate Governance      Our common shares are listed on the NYSE MKT Section 110 of the NYSE MKT Company Guide permits the exchange to consider the laws, customs and practices of foreign issuers in relaxing listing criteria and to grant exemptions from listing criteria based on these considerations.      A significant way in which our governance practices differ from those followed by U.S. domestic companies pursuant to NYSE MKT listing standards relates to the shareholder meeting quorum requirement: The NYSE MKT minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on the NYSE MKT is required to state its quorum requirement in its bylaws. Our quorum requirement is set forth in our Articles. A quorum for a meeting of our shareholders is one person present in person, being a shareholder entitled to vote thereat or a duly appointed proxy holder for an absent shareholder so entitled.Not applicable.      An additional significant way in which our governance practices differ from those followed by U.S. domestic companies pursuant to NYSE MKT listing standards relates to shareholder approval of additional share issuances. Section 713 of the NYSE MKT Company Guide generally requires shareholder approval as a prerequisite to approval of applications to list additional shares when the additional shares will be issued in connection with a transaction involving the sale or issuance by a company of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of presently outstanding stock for less than the greater of book or market value of the stock. However, the issuance of common stock in an amount in excess of 20% of the presently outstanding stock for less than book or market value, without shareholder approval, is not prohibited under the rules of the TSX Venture Exchange (“TSX-V”) and does not constitute a default under the TSX-V rules or any applicable laws in Canada. Section 110 of the NYSE MKT Company Guide permits the NYSE MKT to consider the laws, customs and practices of foreign issuers in relaxing certain listing criteria, and to grant exemptions from listing criteria based on these considerations. In connection with prior issuances of common shares, the NYSE MKT has granted the Company an exemption from the shareholder approval requirements of Section 713 of the NYSE MKT Company Guide. The Company may seek similar exemption from the requirements of Section 713 of the NYSE MKT Company Guide in the future.Item 16H.    Mine Safety Disclosure Item 16H. Mine Safety Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”“Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal year ended December 31, 2012,2015, the Company had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to the Company’s United States operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act. - 7159 - PART III ITEM 17. FINANCIAL STATEMENTS ITEM 17.      FINANCIAL STATEMENTS Index to Consolidated Financial Statements:   Page Report of Independent Registered Public Accounting Firm dated March 27, 201324, 2016 7771 Consolidated Statements of Financial Position as at December 31, 20122015, 2014, and 2011January 1, 2014 7872 Consolidated Statements of Comprehensive Loss for the fiscal years ended December 31, 2012, 20112015, 2014 and 20102013 7973 Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2012, 20112015, 2014 and 20102013 8074 Consolidated Statements of Changes in Equity for the fiscal years ended December 31,2012, 201131,2015, 2014 and 20102013 8175 Notes to consolidated financial statements 8276 ITEM 18. FINANCIAL STATEMENTS ITEM 18.      FINANCIAL STATEMENTS Not applicable. ITEM 19. EXHIBITS ITEM 19.      EXHIBITS The following documents are filed as exhibits to this annual report on Form 20-F: Exhibit   Number Description of Exhibit 1 Articles of Quaterra Resources Inc., dated December 13, 2007 (incorporated by reference to Exhibit 13.1 to the Company’s Annual ReportRegistration Statement on Form 20-F for the year ended December 31, 2008)8-A (0-55319) filed February 5, 2014). 2 Shareholder Rights Plan, dated June 18, 200812, 2013 (incorporated by reference to Exhibit 24.1 to the Company’s Annual ReportRegistration Statement on Form 20-F for the year ended December 31, 2008)8-A (0-55319) filed February 5, 2014). 4 Amended and Restated Service Agreement between Manex Resource Group and Quaterra Resources Inc. dated as of February 9, 2012 as amended September 1, 2013 and March 1, 2014. 8 List of Subsidiaries 12.1 Certification of the principal executive officer filed pursuant to Section 302 of the Sarbanes-OxleySarbanes- Oxley Act of 2002 12.2 Certification of the principal financial officer filed pursuant to Section 302 of the Sarbanes-OxleySarbanes- Oxley Act of 2002 13.1 Certification of the principal executive officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13.2 Certification of the principal financial officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - 7260 - SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. QUATERRA RESOURCES INC. Dated: March 31, 2016 By:  /s/ Lei Wang     Dated: March 28, 2013 By: /s/ Scott Hean Scott B. HeanLei Wang     Chief Financial Officer - 7361 - (An Exploration Stage Company) Audited Consolidated Financial Statements December 31, 20122015 (Expressed in CanadianU.S. Dollars) - 74 - Management’s Responsibility for Financial Reporting The management of Quaterra Resources Inc. is responsible for the integrity and fair presentation of the financial information contained in this annual report. Where appropriate, the financial information, including consolidated financial statements, reflects amounts based on management’s best estimates and judgments. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Financial information presented elsewhere in the annual report is consistent with that disclosed in the consolidated financial statements. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Management has established and maintains a system of internal accounting control designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, financial information is reliable and accurate and transactions are properly recorded and executed in accordance with management’s authorization. This system includes established policies and procedures, the selection and training of qualified personnel, and an organization providing for appropriate delegation of authority and segregation of responsibilities. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management has a process in place to evaluate internal control over financial reporting based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on this assessment, management has concluded that as at December 31, 2012, the Company’s internal control over financial reporting was effective. The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets periodically with management and the independent auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting and internal control matters before the consolidated financial statements are approved by the Board of Directors and submitted to the Company’s shareholders. Smythe Ratcliffe LLP, an independent registered public accounting firm, appointed by the shareholders, has audited the Company’s consolidated financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) and has expressed its opinion in the independent auditors’ report. The effectiveness of the Company’s internal control over financial reporting as at December 31, 2012 has also been audited by Smythe Ratcliffe LLP, and their opinion is included in their report. “Thomas C. Patton” (signed) “Scott Hean”Lei Wang” (signed)     Thomas C. Patton Scott HeanLei Wang President and Chief Executive Officer Chief Financial Officer March 27, 2013 Vancouver, British Columbia, Canada - 75 -March 24, 2016 Vancouver, British Columbia, Canada Page2 of30 INDEPENDENT AUDITORS’ REPORT To the Shareholders of Quaterra Resources Inc.TO THE SHAREHOLDERS OF QUATERRA RESOURCES INC. We have audited the accompanying consolidated financial statements of Quaterra Resources Inc., which comprise the consolidated statements of financial position as at December 31, 20122015, December 31, 2014 and 2011,January 1, 2014, and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years ended December 31, 2012, 20112015, 2014 and 2010,2013, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Quaterra Resources Inc. as at December 31, 20122015, December 31, 2014 and 2011,January 1, 2014, and its financial performance and its cash flows for the years ended December 31, 2012, 20112015, 2014 and 20102013 in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board. Emphasis of Matter Without qualifying our opinion, we draw attention to note 1 in the consolidated financial statements, which describes matters and conditions that indicate the existence of material uncertainties that cast substantial doubt about the Company’s ability to continue as a going concern. Other Matter We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal controls over financial reporting as at December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations for the Treadway Commission (COSO) and our report dated March 27, 2013 expresses an unqualified opinion on Quaterra Resources Inc.’s internal control over financial reporting. "Smythe Ratcliffe LLP" (signed) Chartered Professional Accountants Vancouver, Canada March 27, 201324, 2016 - 76 - INDEPENDENT AUDITORS’ REPORT PageTo the Shareholders3 of Quaterra Resources Inc. 30(An Exploration Stage Company) We have audited Quaterra Resources Inc.’s (the “Company”) internal control over financial reporting as at December 31, 2012 based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risks. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as at December 31, 2012, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of the Company as at December 31, 2012 and 2011, and the related consolidated statements of comprehensive loss, changes in equity and cash flows for the years ended December 31, 2012, 2011 and 2010, and our report dated March 27, 2013 expressed an unqualified opinion. "Smythe Ratcliffe LLP" (signed) Chartered Accountants Vancouver, Canada March 27, 2013 - 77 - Quaterra Resources Inc. Consolidated Statements of Financial Position (Expressed in Canadian dollars)U.S. Dollars)     Note     December 31, 2012     December 31, 2011     Note     December 31, 2015     December 31, 2014     January 1, 2014   Assets                                 (Restated - Note 2(b))   (Restated - Note 2(b)) Current assets:                                           Cash and cash equivalents       $  1,795,555   $  12,147,321         $  4,522,123   $  1,482,469   $  770,409   Restricted cash         80,148     94,638   Amounts due from exploration partners         613,753     240,222   Taxes receivable         30,294     15,498   Prepaids and deposits         220,164     257,488   Amounts due from exploration partner         47,856     25,273     42,617   Taxes and other receivables         4,907     4,239     5,780   Amount due from Freeport Nevada LLC   5(c)     1,935,212     1,984,654     -   Prepaid and deposits         80,728     65,917     73,491           2,739,914     12,755,167           6,590,826     3,562,552     892,297   Non-current assets:                                           Marketable securities   4     12,333     27,667           -     -     3,590   Taxes receivable         -   �� 919,315   Amount due from Freeport Nevada LLC   5(c)   -     1,850,650     -   Equipment   5     224,876     348,795     4     14,278     65,923     129,547   Mineral properties   6     70,165,561     59,040,786     5     30,300,010     32,296,322     38,651,358   Reclamation bonds         170,287     519,092           52,152     61,701     156,833   Total assets       $  73,312,971   $  73,610,822           30,366,440     34,274,596     38,941,328   Total Assets       $  36,957,266   $  37,837,148   $  39,833,625                                             Liabilities                                           Current liabilities:                                           Accounts payable and accrued liabilities       $  656,115   $  1,829,704         $  525,563   $  325,309   $  465,774   Due to related parties   10     26,990     47,884           -     2,839     593,606   Convertible notes   7     379,277     -     -   Loan payable   6     515,137     -     -           683,105     1,877,588           1,419,977     328,148     1,059,380   Non-current liability                   Non-current liabilities:                         Convertible notes   7     -     389,215     -   Derivative liability - warrants   7(b)     774,673     -     8     1,391,956     1,292,652     1,026,722   Total liabilities         1,457,778     1,877,588                             1,391,956     1,681,867     1,026,722   Total Liabilities         2,811,933     2,010,015     2,086,102   Shareholders' Equity                                           Share capital   7     115,816,740     111,923,521           100,050,761     100,050,761     100,050,761   Share-based payment reserve         19,020,057     17,988,540           18,424,303     17,002,242     16,782,049   Accumulated other comprehensive loss         -     (51,199 ) Deficit         (62,981,604 )   (58,127,628 )         (84,329,731 )   (81,225,870 )   (79,085,287 )         71,855,193     71,733,234           34,145,333     35,827,133     37,747,523   Total liabilities and shareholders' equity       $  73,312,971   $  73,610,822   Total Liabilities and Shareholders' Equity       $  36,957,266   $  37,837,148   $  39,833,625   (See the accompanying notes to consolidated financial statements) Approved on behalf of the Board of Directors:Directors on March 24, 2016: “Thomas Patton”(signed) “Anthony WalshTerry Eyton” (signed) Director Thomas Patton Anthony WalshDirector (See the accompanying notes to consolidated financial statements) - 78 -Page4 of30 Quaterra Resources Inc. Consolidated Statements of Comprehensive Loss (Expressed in Canadian dollars)U.S. Dollars)     Note   Years ended December 31,           Years Ended December 31,          2012     2011     2010     Note     2015     2014     2013   General and administrative expenses                       Administration and general office     $  726,113   $  701,670   $  579,032           (Restated - Note 2(b))     (Restated - Note 2(b))   General administrative expenses                         Administration and general office expense      $ 273,704   $  315,729   $  566,652   Consulting       366,364     644,757     369,779           159,825     33,784     222,569   Depreciation       133,595     149,810     95,184           9,529     29,689     64,184   Directors' fees       126,971     110,294     113,240           17,985     -     -   Investor relations and communications       224,409     309,110     274,827           72,329     77,790     34,306   Personnel costs       1,135,986     1,152,792     833,372           701,737     908,364     694,751   Professional fees       595,753     429,889     473,532           274,875     570,372     554,154   Share-based payments   8 (a)   1,046,517     2,846,707     2,251,258     9     208,450     220,193     396,270   Transfer agent and regulatory fees       142,561     149,580     157,205           63,014     96,472     90,318   Travel and promotion       53,137     203,086     134,443           78,286     39,559     69,366         (4,551,406 )   (6,697,695 )   (5,281,872 )         (1,859,734 )   (2,291,952 )   (2,692,570 ) Exploration partner administration income       90,847     181,417     155,639   Foreign exchange loss       (166,914 )   (189,877 )   (324,828 ) Fair value gain on derivative liability   8 (e)   -     -     4,037,184   Gain on sale of mineral property   6 (c)   820,712     -     50,000                           Exploration partner fees         25,000     19,649     22,780   Fair value gain (loss) on derivative liability   8     (1,207,198 )   597,124     2,036,493   Foreign exchange gain (loss)         70,587     182,449     (6,777 ) General exploration costs       (182,852 )   (506,297 )   (794,571 )         (18,089 )   (366,030 )   (58,106 ) Impairments       -     (4,183,224 )   (622,121 ) Interest income       57,985     169,662     11,321   Recovery (write-off) of equipment       39,954     (38,525 )   -   Impairment of marketable securites   4   (66,533 )   -     -   Write-off of taxes receivable   15   (895,769 )   -     -   Impairment of marketable securities         -     (3,590 )   (7,035 ) Impairment of mineral properties   5     -     (3,022,543 )   (22,582,486 ) Gain (loss) on disposal of equipment         (42,116 )   6,972     -   Gain (loss) on disposal of mineral properties         -     2,853,832     (1,495,318 ) Interest expense and other         (72,311 )   (116,494 )   -   Write-off of tax taxes receivable         -     -     (43,616 )         (1,244,127 )   151,369     (22,134,065 )                                               Net loss for the year       (4,853,976 )   (11,264,539 )   (2,769,248 )      $ (3,103,861 ) $  (2,140,583 ) $  (24,826,635 ) Unrealized loss on marketable securities       (15,334 )   (34,000 )   (4,333 )         -     -     (7,035 ) Transfer on impairment of marketable securities Transfer on impairment of marketable securities     66,533     -     -           -     -     7,035   Comprehensive loss for the year     $  (4,802,777 ) $  (11,298,539 ) $  (2,773,581 )      $ (3,103,861 ) $  (2,140,583 ) $  (24,826,635 )                         Loss per share - basic and diluted     $  (0.03 ) $  (0.08 ) $  (0.02 )      $ (0.02 ) $  (0.01 ) $  (0.14 ) Weighted average number of common sharesoutstanding       155,378,395     144,227,216     122,095,093           193,479,416     193,479,416     172,117,694   (See the accompanying notes to consolidated financial statements) - 79 -Page5 of30 Quaterra Resources Inc. Consolidated Statements of Cash Flows (Expressed in Canadian dollars)U.S. Dollars)     Years Ended December 31,     Years ended December 31,     2015     2014     2013     2012     2011     2010           (Restated - Note 2(b))     (Restated - Note 2(b))   Operating activities                                     Net loss for the year $  (4,853,976 ) $  (11,264,539 ) $  (2,769,248 ) $  (3,103,861 ) $  (2,140,583 ) $  (24,826,635 ) Items not involving cash:                                     Depreciation   133,595     149,810     95,184     9,529     29,689     64,184   Fair value (gain) loss on derivative liability   1,207,198     (597,124 )   (2,036,493 ) (Gain) loss on sale of mineral property   -     (2,853,832 )   1,495,318   Interest expenses   82,990     64,759     43,831   Share-based payments   1,046,517     2,846,707     2,251,258     208,450     220,193     396,270   Gain on sale of mineral property   (820,712 )   -     (50,000 ) Unrealized loss (gain) on foreign exchange   43,266     22,210     (23,689 ) Shares issued for services   30,000     90,000     90,000   Impairments   -     4,183,224     622,121   Impairments of mineral properties   -     3,022,543     22,582,486   Impairment of marketable securities   66,533     -     -     -     3,590     7,035   Write-off of equipment   -     38,525     -   Write-off of taxes receivable   895,769     -     -   Fair value gain on derivative liability   -     -     (4,037,184 ) Write-off of taxes and other receivables   -     2,204     -   Disposal of equipment   42,116     (6,972 )   -     (3,459,008 )   (3,934,063 )   (3,821,558 )   (1,553,578 )   (2,255,533 )   (2,274,004 ) Changes in non-cash working capital                                     Taxes and other receivables   (14,796 )   (626,826 )   (247,664 )   (668 )   1,541     20,318   Prepaids and deposits   37,324     (4,452 )   (75,433 ) Prepaid and deposits   (14,811 )   7,574     185,226   Accounts payable and accrued liabilities   (60,356 )   181,646     15,551     (194,512 )   (66,631 )   40,532   Due to related parties   (20,894 )   6,659     (209,412 )   (2,839 )   2,839     (23,252 ) Cash used in operating activities   (3,517,730 )   (4,377,036 )   (4,338,516 )   (1,766,408 )   (2,310,210 )   (2,051,180 )                   Financing activities                                     Shares issued for cash, net of issue costs   3,848,219     15,530,711     27,685,252   Warrants issued for cash   774,673     -     -   Shares and warrants issued for cash, net of issue costs   -     -     2,588,631   Other payable   -   459,481   -   Loan payable   500,000     (549,775 )   549,775   Cash provided by financing activities   4,622,892     15,530,711     27,685,252     500,000     (90,294 )   3,138,406                     Investing activities                                     Expenditures on mineral properties   (13,397,677 )   (17,345,625 )   (9,049,566 )   (3,683,923 )   (1,673,038 )   (3,623,413 ) Due from exploration partners   (373,531 )   638,548     (626,866 )   (22,583 )   17,344     486,132   Purchase of equipment   (9,676 )   (318,787 )   (150,433 ) Mineral property option payment   4,575,000     2,382,332     -   Proceeds from disposal of equipment   -     34,471     -   Reclamation bonds   348,805     (143,425 )   (90,813 )   9,329     77,903     -   Proceeds from sale of mineral property   1,980,381     -     10,000     3,500,000     2,390,870     1,283,725   Restricted cash   11,500     (48,886 )   (45,752 ) Cash used in investing activities   (11,440,198 )   (17,218,175 )   (9,953,430 ) Cash provided by (used) in investing activities   4,377,823     3,229,882     (1,853,556 ) Effect of foreign exchange on cash   (16,730 )   (394 )   23,689     (71,761 )   (117,318 )   (10,130 ) Decrease in cash and cash equivalents during the year   (10,351,766 )   (6,064,894 )   13,416,995   Increase (decrease) in cash and cash equivalents during the year   3,039,654     712,060     (776,460 ) Cash and cash equivalents, beginning of year   12,147,321     18,212,215     4,795,220     1,482,469     770,409     1,546,869                     Cash and cash equivalents, end of year $  1,795,555   $  12,147,321   $  18,212,215   $  4,522,123   $  1,482,469   $  770,409   Supplemental cash flow information (Note 11)                   Supplemental cash flow information (Note 12) (See the accompanying notes to consolidated financial statements) - 80 -Page6 of30 Quaterra Resources Inc. Consolidated Statements of Changes in Equity (Expressed in Canadian dollars)U.S. Dollars)       Common Shares     Share-based payment     Accumulated Other                   Shares     Amount     reserve     Comprehensive Loss     Deficit     Total   Balance at December 31, 2009   111,459,371   $  63,168,843   $  13,453,030   $  (12,866 ) $  (44,093,841 ) $  32,515,166   Shares issued for cash, net of issue costs   14,725,618     19,955,427                       19,955,427   Exercise of options and warrants   9,954,486     7,729,825                       7,729,825   Common shares issued for services   74,686     90,000                       90,000   Common shares issued for mineral property   250,000     355,500                       355,500   Fair value of compensation options         (533,480 )   533,480                 -   Fair value of options and warrants exercised         594,075     (594,075 )               -   Fair value of derivative liability - warrants exercised         4,440,760                       4,440,760   Share-based payments               2,251,258                 2,251,258   Unrealized loss on available-for-sale marketable securities                     (4,333 )         (4,333 ) Net loss for the year                           (2,769,248 )   (2,769,248 ) Balance, December 31, 2010   136,464,161     95,800,950     15,643,693     (17,199 )   (46,863,089 )   64,564,355   Shares issued for cash, net of issue costs   3,293,407     5,918,882                       5,918,882   Exercise of options and warrants   12,505,732     9,611,829                       9,611,829   Common shares issued for services   89,983     90,000                       90,000   Fair value of options and warrants exercised         501,860     (501,860 )               -   Share-based payments               2,846,707                 2,846,707   Unrealized loss on available-for-sale marketable securities                     (34,000 )         (34,000 ) Net loss for the year                           (11,264,539 )   (11,264,539 ) Balance, December 31, 2011   152,353,283     111,923,521     17,988,540     (51,199 )   (58,127,628 )   71,733,234   Shares issued for cash, net of issue costs   10,541,571     3,848,219                       3,848,219   Cancelled shares   (2,501 )                           -   Common shares issued for services   98,483     45,000     (15,000 )               30,000   Share-based payments               1,046,517                 1,046,517   Unrealized loss on available-for-sale marketable securities                     (15,334 )         (15,334 ) Impairment of available-for-sale marketable securities                     66,533           66,533   Net loss for the year                           (4,853,976 )   (4,853,976 ) Balance, December 31, 2012   162,990,836   $  115,816,740   $  19,020,057   $  -   $  (62,981,604 ) $  71,855,193       Common Shares     Share-based payment     Accumulated other                   Shares     Amount     reserve     comprehensive loss     Deficit     Total   Balance, December 31, 2012   162,990,836   $  99,776,122   $  16,385,779   $  -   $  (54,258,652 ) $  61,903,249                                         Common shares issued for cash, net of issue costs   29,810,000     2,588,630                       2,588,630                                         Common shares issued for mineral properties   678,580     81,843                       81,843                                         Derivative liability - warrants         (2,395,834 )                     (2,395,834 )                                       Share-based payments               396,270                 396,270                                         Unrealized loss on available-for-sale marketable securities                     (7,035 )         (7,035 )                                       Impairment of available-for-sale marketable securities                     7,035           7,035                                         Net loss for the year                           (24,826,635 )   (24,826,635 )                                       Balance, December 31, 2013   193,479,416     100,050,761     16,782,049     -     (79,085,287 )   37,747,523                                         Share-based payments               220,193                 220,193                                         Net loss for the year                           (2,140,583 )   (2,140,583 )                                       Balance, December 31, 2014   193,479,416     100,050,761     17,002,242     -     (81,225,870 )   35,827,133                                         Share-based payments               208,450                 208,450                                         Derivative liability - warrants               1,213,611                 1,213,611                                         Net loss for the year                           (3,103,861 )   (3,103,861 )                                       Balance, December 31, 2015   193,479,416   $  100,050,761   $  18,424,303   $  -   $  (84,329,731 ) $  34,145,333   (See the accompanying notes to consolidated financial statements) - 81 -Page7 of30 Quaterra Resources Inc. Notes to Consolidated Financial Statements For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013 (Expressed in Canadian dollars)U.S. Dollars)   1. Nature and Continuance of operations and going concernOperations Quaterra Resources Inc. (“Quaterra” or “the Company”the “Company”) is engaged in the acquisition and exploration of precious and base metal mineral properties in the United States and Mexico. Quaterra is a publicly listed companywas incorporated in British Columbia, Canada under theBusiness Corporations Act(British Columbia). on May 11, 1993. The Company’s common shares are listed on the TSX Venture Exchange (“QTA”TSX-V”) and the New York Stock Exchange MKT (“QMM”).OTCQX Markets. The head office, principal address and records office of the Company are located atis Suite 1100 –1199– 1199 West Hastings Street, Vancouver, British Columbia,BC, Canada, V6E 3T5. The Company’s registered office is 1710 - 1177 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2L3. The Company is a copper exploration company working on mineral properties it has acquired by way of option agreements and claim staking in the process of exploringUnited States and Mexico. Currently the Company is focusing its mineraleffort on the Bear Property located in Lynn County, Nevada, United States. On June 16, 2014, the Company announced a Membership Interest Option Agreement (the “Option Agreement”) with Freeport-McMoran Nevada LLC (“Freeport Nevada”), whereby Freeport Nevada could earn up to a 75% interest in the Company’s wholly owned subsidiary Singatse Peak Services LLC (“Singatse Peak”) for $138.6 million in spending through completing a feasibility study. On June 15, 2015, the Company announced that Freeport Nevada elected to continue its Option Agreement and committed $7.15 million towards a 12-month drilling program (Note 5). The Company defers all acquisition, exploration and evaluation costs related to the properties and has not yet determined whether its mineral properties contain economically recoverable mineral reserves.on which it is conducting exploration. The underlying value and the recoverability of the amounts recorded as mineral properties is entirely dependent upon the existence of economically recoverable mineral reserves and the ability of the Company to obtain the necessary financingfunding to complete its acquisition,the exploration and developmentactivities of its mineral properties, or receive proceeds from joint venture partners’ contributions.upon the Company’s ability to dispose of its interests on a profitable basis. The carrying value of the Company’s mineral properties does not reflect current or future values. The Company incurred a net loss of $4,853,976 for the year ended December 31, 2012 (2011 - $11,264,539; 2010 - $2,769,248). As at December 31, 2012, the Company had an accumulated deficit $62,981,604 with a working capital of $2,056,809. TheThese consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The ability ofbusiness for the foreseeable future. Should the Company be unable to continue as a going concernrealize its assets and meetdischarge its commitments as they become due, including completionliabilities in the normal course of business, the acquisition, exploration and developmentnet realizable value of its mineral properties, is dependentassets may be materially less than the amounts on the Company’s ability to obtain the necessary financing. Management is planning to raise additionalconsolidated statements of financial position. The Company believes that based on its current working capital to financeand committed funding from Freeport Nevada, it could sustain its operations and expected growth, if necessary, or alternatively to disposemaintain its minimum obligations, including general corporation activities for the next 12 months. 2. Significant Accounting Policies These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board, effective December 31, 2015. The principal accounting policies applied in the preparation of its interests in certain properties. The outcome of these matters cannot be predicted at this time. Although management is confident that it will be able to raise sufficient funds there is no assurance at the date these consolidated financial statements were approved that these financing initiatives will be successful. The lack of sufficient committed funding forare set out below and have been applied consistently to all the next 12 months indicates a material uncertainty, which casts substantial doubt over the Company’s ability to continue as a going concern. These consolidated financial statements do not include the adjustments that would result if the Company is unable to continue as a going concern.years presented, unless otherwise stated. Management has planned levels of exploration spending on the Company’s properties with an expectation that future capital raises would provide the necessary funding, which includes equity financing, joint venture partners’ contributions, and/or realizing the carrying amount through the sale of mineral property interests. The business of mining exploration involves a high degree of risk and there is no assurance that current exploration projects will result in future profitable mining operations. The Company has no source of revenue, and has significant cash requirements to meet its administrative overhead, pay its liabilities, and maintain its mineral interests. a) Basis of presentation and consolidation These consolidated financial statements were approved by the boardhave been prepared on a historical cost basis, except for financial instruments classified as available-for-sale and derivative financial liability, which are stated at their fair values. Page8 of directors for issue on March 27, 2013. - 82 -30 Quaterra Resources Inc. Notes to Consolidated Financial Statements For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013 (Expressed in Canadian dollars)U.S. Dollars)   These consolidated financial statements incorporate the financial statements of the Company and its subsidiaries, which are controlled by the Company:         Percentage of ownership         at December 31,   Name of subsidiary Principal activity Place of incorporation 2015 2014   Quaterra Alaska Inc. Exploration United States 100% 100%   Singatse Peak Services LLC Exploration United States 100% 100%   Quaterra International Limited Holding company British Virgin Islands 100% 100%   QTA International Nieves Limited Holding company British Virgin Islands 100% 100%   Minera Stockwork de Plata, S A de C.V. Holding company Mexico 100% 100%   Minera Agua Tierra S.A. de C.V. Exploration Mexico 100% 100% Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All material intercompany transactions, balances and expenses are eliminated on consolidation. 2. Summary of significant accounting policies These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) effective as of December 31, 2012. The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. a) Basis of presentation and consolidation These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments classified as available-for-sale and derivative financial liability, which are stated at their fair values. These consolidated financial statements are presented in Canadian dollars, the Company and subsidiaries’ functional currency. These consolidated financial statements incorporate the financial statements of the Company and the entities controlled (directly or indirectly) by the Company (its subsidiaries) includingQuaterra Alaska Inc.andSingatse Peak Services LLC– incorporated in the United States,Minera Agua Tierra S.A. de C.V.– incorporated in Mexico, andQuaterra International Limited– incorporated in the British Virgin Islands. All significant intercompany transactions and balances have been eliminated. b) Accounting estimates and judgments The preparationTranslation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. Management believes the estimates are reasonable; however, actual results could differ from those estimates and could impact future results of operations. The areas where assumptions, estimates and judgments are significant to the consolidated financial statements relate to, but are not limited to, the following: (i) The recoverability of non-current taxes receivable related to Mexico value added taxes. Management uses all relevant facts available, such as the development of policies in Mexico, historical collectability, and the general economic environment of Mexico, to determine if the non-current taxes receivable is impaired; (ii) The recoverability of the carrying value of the mineral properties: the estimation of the impairment indicators involves the application of a number of significant judgments and estimates to certain variables including metal price trends, plans for properties, and the results of exploration and evaluation to date; (iii) Fair value of derivative liabilities and share-based payments: the fair value of derivative liabilities that are not traded in an active market is determined by using a valuation technique. Management makes estimates and utilizes assumptions in determining the fair value for share- based payments, warrants, and the (gain) loss on the revaluation of the derivative liability; (iv) The Company applies judgment in assessing the functional currency of each entity consolidated in these financial statements; andforeign currencies - 83 -Items included in the consolidated financial statements of the Company and each of its subsidiaries are measured in each entity’s functional currency in which the primary economic environment the entity operates. Change in functional currency and presentation currency Further to the Option Agreement entered in June 2014 with Freeport Nevada, and the sale of the Company’s interest in Mexico Nieves property in December 2014 (Note 5), the Company changed the functional and presentation currency of its Canadian parent and all subsidiaries from Canadian dollars (“CAD”) to U.S. dollars (“USD”) effective January 1, 2015. The change is to better reflect the Company’s business activities based on the fact that a significant majority of its cash flows were denominated in USD. In making this change to the USD currency, the Company followed the guidance in IAS 21,The Effects of Changes in Foreign Exchange Rates and has applied the functional currency change prospectively and presentation currency change retrospectively. For the functional currency change, all assets, liabilities, issued capital and other components of equity were translated into USD at the exchange rate on the effective date. Comparative figures have been translated using the exchange rate effective at the date of change in functional currency. In addition to the comparative financial statements, the Company has presented a third consolidated statement of financial position as at January 1, 2014 as required by IFRS for a change in accounting policy. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities are translated at exchange rates prevailing at each reporting date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated using the historical rate on the date that the fair value was determined. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other than the Company’s functional currency are recognized in net loss. Page9 of30 Quaterra Resources Inc. Notes to Consolidated Financial Statements For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013 (Expressed in Canadian dollars)U.S. Dollars)   2. Significant accounting policies, continued b) Accounting estimates and judgments, continued (v) Deferred tax assets: the assessment of availability of future taxable profits involves judgment. A deferred tax asset is recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized. c) Foreign currency translation Items included in the financial statements of each consolidated entity are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of transactions. Monetary assets and liabilities are translated at exchange rates prevailing at each reporting date. Non-monetary assets and liabilities are translated using the historical rate on the date of the transaction. Non-monetary assets and liabilities that are stated at fair value are translated using the historical rate on the date that the fair value was determined. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in currencies other than the Company’s functional currency are recognized in net income (loss). d) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, bank deposits and highly liquid investments with a maturity of three months or less.   Cash and cash equivalents includes deposits in banks and highly-liquid investments that are readily convertible to known amounts of cash and have maturities of three months or less from the date acquired. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. e) Marketable securities Marketable securities in entities over which the Company has no significant influence are classified as available-for-sale and are carried at quoted market value. Resulting unrealized gains or losses are reflected in other comprehensive income (loss), while realized gains or losses are reflected in net income (loss). f) Reclamation bonds Certain cash is held in long-term reclamation bonds to support future reclamation work in the United States. No interest is earned on these bonds. - 84 - Quaterra Resources Inc. Notes to Consolidated Financial Statements For the years ended December 31, 2012, 2011 and 2010 (Expressed in Canadian dollars) 2. Significant accounting policies, continued g)d) Equipment Equipment is measured at cost less accumulated depreciation and impairment losses. Cost comprises expenditures that are directly attributable to the acquisition of the asset. Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of the equipment, and are recognized in net income (loss). Equipment is stated at cost less accumulated depreciation and impairment losses. Cost comprises expenditures that are directly attributable to the acquisition of the asset. Gains and losses on disposal of an item of equipment are determined by comparing the proceeds from disposal with the carrying amount of the equipment, and are recognized in net loss. Depreciation is calculated over the estimated useful life of the assets using the declining-balance method at an annual rate of 30% for vehicles and field equipment, and up to 75% for computer equipment.   h)e) Mineral properties The Company is in the advanced exploration stage with respect to its investment in mineral properties, and accordingly, follows the practice of capitalizing all costs relating to the acquisition of, exploration for and evaluation of mineral claims. Such costs include, but are not exclusive to, geological and geophysical studies, exploratory drilling and sampling. Capitalization of costs commences once the Company has obtained legal rights to explore a specific area. The aggregate costs related to abandoned mineral claims are charged to operations at the time of any abandonment or when it has been determined that there is evidence of a permanent impairment. An impairment charge relating to a mineral property is subsequently reversed when new exploration results or actual or potential proceeds on sale result in a revised estimate of the recoverable amount but only to the extent that this does not exceed the original carrying value of the property that would have resulted if no impairment had been recognized. Proceeds from the sale of properties or cash proceeds received from farm-out agreements are recorded as a reduction of the related mineral interest, with any excess proceeds accounted for in net loss.   f) Convertible notes The Company’s convertible notes are split into their corresponding debt and equity components at the date of issue. The debt component is classified as a liability and recorded at the present value of the Company’s obligation to make future principal and interest payments. The equity component represents the value of the conversion right and attached warrants and is determined using the residual value approach. Page10 of30 Quaterra Resources Inc. Notes to Consolidated Financial Statements The cost of acquiring mineral propertiesFor the Years Ended December 31, 2015, 2014 and related exploration and development costs are deferred on an individual area of interest basis until the properties are placed into production, sold or determined to be impaired. Once a license to explore an area has been secured, directly attributable expenditures on exploration and evaluation activities are capitalized to mineral properties. Costs incurred to acquire an interest2013 (Expressed in a mineral property are capitalized as a mineral property acquisition cost. Costs incurred prior to obtaining the right to explore are expensed as incurred. Proceeds from the sale of properties or cash proceeds received from farm-out agreements are recorded as a reduction of the related mineral interest, with any excess proceeds accounted for in net income (loss). U.S. Dollars)   Management reviews the carrying value of capitalized acquisition and exploration costs at least annually to consider whether there are any conditions that may indicate impairment.   i)g) Unit offeringShare capital The Company uses the residual value method with respect to the measurement of common shares and share purchase warrants issued as units. The proceeds from the issue of units is Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. The proceeds from the issuance of units are allocated between common shares and share purchase warrants on a residual value basis, wherein the fair value of the common shares is based on the market value on the date of announcement of the placement and the balance, if any, is allocated to the attached warrants. Share issuance costs are netted against share proceeds.

  	j)h)	Share-based payments
  		The Company has a stock option plan that is described in note 8. Share-based payments to employees are measured at the fair value of the equity instruments issued and are amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or at the fair value of the equity instruments issued (if it is determined the fair value of the goods or services cannot be reliably measured), and are recorded at the date the goods or services are received. The offset to the recorded cost is to share-based payment reserve. If and when the stock options or warrants are ultimately exercised, the applicable amounts

  The Company has a stock option plan that is described in Note 9. Share-based payments to employees are measured at the fair value of the equity instruments issued and are amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of the goods or services received or at the fair value of the equity instruments issued (if it is determined the fair value of the goods or services cannot be reliably measured), and are recorded at the date the goods or services are received. The offset to the recorded cost is to share-based payment reserve. If and when the stock options or warrants are ultimately exercised, the applicable amount of reserve is transferred to share capital.

  i)

  Financial instruments

  - 85 -Financial instruments are classified as one of the following: fair value through profit or loss (“FVTPL”), held-to-maturity, loans and receivables, available-for-sale financial assets or other financial liabilities. Financial assets held-to-maturity, loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive loss and reported in shareholders’ equity.

  At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss accordingly.

  The Company’s warrants that have an exercise price denominated in a currency other than the Company’s functional currency are treated as derivative liabilities, and accordingly, recorded in the Company’s consolidated statements of financial position at fair value calculated using the Black-Scholes option pricing model. Changes in fair values are recorded in profit or loss.

  j)

  Earnings (loss) per share

  Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the year. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive.

  k)

  Income tax

  Income tax comprises current and deferred tax. Income tax is recognized in net loss, except to the extent related to items recognized directly in equity or in other comprehensive loss.

  Page11 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  2.	Significant accounting policies, continued
  	k)	Income tax
  		Income tax comprises current and deferred tax. Income tax is recognized in net income (loss), except to the extent related to items recognized directly in equity or in other comprehensive loss.
  		Deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.

  	l)	Income (loss) per shareMeasurement uncertainties and estimates

  
  

  	(i)	Basic income (loss) per share is calculated using the weighted average number of common shares outstanding during the year. The Company uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method the dilutive effect on income per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the average market price during the year. However, the calculation of diluted loss per share excludes the effects of various conversions and exercise of options and warrants that would be anti-dilutive.Resource estimates

  The Company relies on appropriately qualified persons to estimate mineral resources. The information relating to the geological data on the size, depth and shape of the ore body requires complex geological judgments to interpret the data. Changes in the indicated and inferred mineral resources estimates may impact the carrying value of the mineral properties.

  (ii)

  Impairment of mineral properties

  The assessment of the impairment indicators involves the application of a number of significant judgments and estimates to certain variables, including metal price trends, plans for properties and the results of exploration and evaluation to date.

  (iii)

  Share-based payments and fair value of derivative liabilities

  The Company follows accounting guidelines in determining the fair value of share-based compensations. The computed amount is not based on historical costs, but is derived based on subjective assumptions input into a pricing model.

  Fair value of derivative liabilities that are not traded in an active market is determined by using a valuation technique. Management makes estimates and utilizes assumptions in determining the fair value for share-based payments, warrants and the (gain) loss on the revaluation of the derivative liability in determining inputs to be used for the Black-Scholes option pricing model.

  (iv)

  Deferred tax assets

  The assessment of availability of future taxable profits involves judgment. A deferred tax asset is recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences and the carry-forward of unused tax credits and unused tax losses can be utilized.

  (v)

  Recoverability of amounts receivable

  The assessment of recoverability of amounts receivable involves judgment. Amounts receivable are recognized to the extent that it is probable that the amounts will be received by the Company.

  	m)	Financial instruments
  		Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. It initially measures financial assets and financial liabilities at their fair value, adding or deducting directly attributable transaction costs (except for transaction costs directly attributable to acquiring financial assets or financial liabilities at fair value through profit or loss (“FVTPL”), which is recognized immediately in profit or loss). Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. Financial liabilities are derecognized when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.
  		Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.Accounting judgments

  - 86 -The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimations, that have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are related to the economic recoverability of the mineral properties, the determination of functional currency for the Company and its subsidiaries and the assumption that the Company will continue as a going concern.

  Page12 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  2.3.	Significant accounting policies, continued
  	m)	Financial instruments, continued
  		At initial recognition, the Company classifies its financial instruments in the following categories depending on the purpose for which the instruments were acquired:
  		(i)	FVTPL: A financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term.
  			Financial instruments in this category are recognized initiallyRecent and subsequently at fair value. Gains and losses arising from changes in fair value are recorded in net income (loss) in the period in which they arise. Financial assets and liabilities at FVTPL are classified as current, except if they are expected to be realized beyond twelve months of the statement of financial position date, where they are classified as non-current.
  		(ii)	Available-for-sale investments: Available-for-sale marketable securities are non-derivative financial assets that are either designated in this category or not classified in any of the other categories. The Company’s available-for-sale assets are marketable securities.
  			Available-for-sale investments are initially recognized at fair value and are subsequently carried at fair value. Gains or losses arising from changes in fair value are recognized in other comprehensive loss. Available-for-sale investments are classified as non-current, unless management expects to dispose of them within twelve months. An impairment loss is established when there is a significant or prolonged decline in fair value of the investment below its cost. The amount of the impairment loss is measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in net income (loss). Any amounts related to that asset are removed from other comprehensive income (loss) and are included in net income (loss). Reversals in respect of available-for-sale financial assets are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized directly in other comprehensive income (loss) until the assets are disposed of.
  		(iii)	Loans and receivables: loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest rate method, less any impairment losses.
  		(iv)	Financial liabilities at amortized cost: financial liabilities at amortized cost include accounts payable and accrued liabilities and due to related parties. They are initially recognized on the trade date at fair value when the Company becomes a party to the contractual provisions of the instrument and derecognized when its contractual obligations are discharged or cancelled, or they expire.Future Accounting Changes

  - 87 -The Company has reviewed new and revised accounting pronouncements that have been issued but are not yet effective. The Company has neither completed its assessment of the impact nor early adopted the new and amended standards on its consolidated financial statements.

  IFRS 9Financial Instruments

  IFRS 9 replaces the current standard, IAS 39Financial Instruments: Recognition and Measurement. The new standard replaces the current classification and measurement criteria for financial assets and liabilities with only two classification categories: amortized cost and fair value. The new standard is effective for annual periods beginning on or after January 1, 2018, with an early adoption permitted.

  IFRS 15Revenue from Contracts with Customers

  The new standard provides a comprehensive revenue recognition model for all contracts with customers and requires management to exercise judgment and make estimates that affect revenue recognition. IFRS 15 is effective for annual reporting periods beginning after January 1, 2018.

  IFRS 10 Consolidated Financial Statementsand IAS 28Investments in Associates and Joint Ventures

  The amendments to IFRS 10 Consolidated Financial Statements (IFRS 10) and IAS 28 Investments in Associates and Joint Ventures (IAS 28) deal with situations where there is a sale or contribution of assets between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture that is accounted for using the equity method, are recognized in the parent's profit or loss only to the extent of the unrelated investors' interests in that associate or joint venture. The effective date of these amendments have been deferred indefinitely. The adoption of these amendments is not expected to have an impact on the Company’s consolidated financial statements.

  IFRS 16Leases

  IFRS 16 specifies how an IFRS reporter will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17Leases.

  The standard was issued in January 2016 and is effective for annual periods beginning on or after January 1, 2019.

  Page13 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  2.4.	Significant accounting policies, continued
  	m)	Financial instruments, continued
  		(v)	Derivative financial instruments: the Company’s warrants that have an exercise price denominated in US dollars, which is different to the Company’s functional currency, are treated as derivative liabilities at fair value determined using the Black-Scholes option pricing model. Changes in fair values have been recorded as gains or losses in net income (loss).
  3.	Future accounting changes
  	The Company has reviewed new and revised accounting pronouncements that have been issued by the IASB but are not yet effective and determined that the following may have an impact on the Company:
  	a)	IFRS 9,Financial Instruments,addresses theclassification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of International Accounting Standard (“IAS”) 39,Financial Instruments: Recognition andMeasurement, that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.
  		For financial liabilities, the standard retains most of the IAS 39 requirements, except that fair value changes due to credit risk for liabilities designated as FVTPL would generally be recorded in other comprehensive income.
  		IFRS 9 is required to be applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted.
  	b)	IFRS 10,Consolidated Financial Statements,replaces the guidance on control and consolidation in IAS 27,Consolidated and Separate Financial Statements, and SIC-12,Consolidation – Special Purpose Entities. IFRS 10 changes the definition of control under IFRS so that the same criteria are applied to all entities to determine control.Equipment

  - 88 -The Company holds the following equipment at December 31, 2015, 2014 and 2013:

  			Computer Equipment			Field Equipment			Vehicles			Total
  	Cost
  	Balance, December 31, 2013	$	127,529		$	150,651		$	423,248		$	701,428
  	Disposal during the year		-			-			(79,693	)		(79,693	)
  	Balance, December 31, 2014		127,529			150,651			343,555			621,735
  	Disposal during the year		(59,310	)		(55,387	)		(227,153	)		(341,850	)
  	Balance, December 31, 2015		68,219			95,264			116,402			279,885
  	Accumulated depreciation
  	Balance, December 31, 2013		125,823			117,957			328,101			571,881
  	Depreciation for the year		1,706			9,808			18,175			29,689
  	Disposal of fixed asset		-			-			(45,758	)		(45,758	)
  	Balance, December 31, 2014		127,529			127,765			300,518			555,812
  	Depreciation for the year		-			4,002			5,527			9,529
  	Disposal during the year		(59,310	)		(43,225	)		(197,199	)		(299,734	)
  	Balance, December 31, 2015		68,219			88,542			108,846			265,607
  	Carrying value
  	At December 31, 2013		1,706			32,694			95,147			129,547
  	At December 31, 2014		-			22,886			43,037			65,923
  	.  At December 31, 2015	$	-		$	6,722		$	7,556		$	14,278

  Page14of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  3.5.	Future accounting changes, continued
  	c)	IFRS 11,Joint Arrangements,replaces IAS 31,Interests in Joint Ventures. IFRS 11 reduces the types of joint arrangements to two: joint ventures and joint operations. IFRS 11 requires the use of equity accounting for interests in joint ventures, eliminating the existing policy choice of proportionate consolidation for jointly controlled entities under IAS 31. Entities that participate in joint operations will follow accounting much like that for jointly controlled assets and jointly controlled operations under IAS 31.

  
  

  	d)	IFRS 12,Disclosure of Interests in Other Entities,sets out the disclosure requirements for all forms of interests in other entities including joint arrangements and associates.
  	e)	IFRS 13,Fair Value Measurement, establishes a single framework for measuring fair value where it is required by other standards. It aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS.
  	f)	There have been amendments to existing standards, including IAS 27,Separate Financial Statements, and IAS 28,Investments in Associates and Joint Ventures. IAS 27 addresses accounting for subsidiaries jointly controlled entities and associates in non-consolidated financial statements. IAS 28 has been amended to include joint ventures in its scope and to address the changes in IFRS 10 to 13.

  The above standards are required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted.

  	g)	IAS 1,Presentation of Financial Statements,has been amended to require entities to separate items presented in other comprehensive income on the basis of whether they are potentially classifiable to profit or loss subsequently. The amendment is effective for annual reporting periods beginning on or after July 1, 2012. The Company anticipates that the adoption of this standard will have no material impact.
  		IAS 1 is required to be applied for accounting periods beginning on or after July 1, 2012, with earlier adoption permitted.Mineral Properties

  The Company is currently evaluatingin the impactbusiness of exploring and developing its copper assets in the state of Nevada. Exploration programs are carried out through the Company’s management expertise and the use of consultants and contractors. Continuation of these new pronouncementsprograms is dependent on its consolidated financial statements. The adoptionthe drilling results, the continuing participation of these standards is notFreeport Nevada, or the Company’s ability to raise funds.

  Total mineral property acquisition and exploration costs for the year ended December 31, 2015 and 2014 were as follows:

  			United States															Mexico
  			MacArthur			Yerington			Bear			Herbert			Other			Nieves			Total
  	Mineral Properties		Copper			Copper			Copper			Gold			Properties
  	Acquisition
  	Balance, December 31, 2014	$	3,132,901		$	3,361,701		$	427,752		$	141,313		$	456,897		$	634,181		$	8,154,745
  	Additions		368,164			202,986			750,117			12,112			131,317			2,000			1,466,696
  	Balance, December 31, 2015		3,501,065			3,564,687			1,177,869			153,425			588,214			636,181			9,621,441
  	Exploration
  	Balance, December 31, 2014		16,945,752			6,339,702			15,403			1,374,146			105,994			1,730,946			26,511,943
  	Geological		59			11,775			672,104			-			-			20,723			704,661
  	Geophysical		-			-			50,900			-			-			-			50,900
  	Geochemical		-			-			61,204			-			-			-			61,204
  	Drilling		(40,500	)		641			1,494,804			-			-			-			1,454,945
  	Technical Studies		-			1,228			146,342			-			-			-			147,570
  	Other		1,760			14,012			176,940			-			-			-			192,712
  	Additions (recovery)		(38,681	)		27,656			2,602,294			-			-			20,723			2,611,992
  	Balance, December 31, 2015		16,907,071			6,367,358			2,617,697			1,374,146			105,994			1,751,669			29,123,935
  	Recovery from sales of properties and advances for exploration		(2,076,188	)		(847,930	)		(4,021,248	)		-			-			(1,500,000	)		(8,445,366	)
  	Total acquisition and explorationBalance, December 31, 2015	$	18,331,948		$	9,084,115		$	(225,682	)	$	1,527,571		$	694,208		$	887,850		$	30,300,010

  (1) During the year, the Company reclassified it's Nieves property as held for sale as proceeds from the sale are expected to have a significant impact onbe received within the Company's financial position or financial performance.next 6 months.

  - 89 -Page15 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  4.	Marketable securities
  	The following table presents the fair value of the Company’s shares of Redtail Metals Corp. (“Redtail”) and Auramex Resource Corp. (“Auramex”):

  
  

  						December 31, 2012									December 31, 2011
  									Accumulated									Accumulated
  			Number of						unrealized			Carrying						unrealized			Carrying
  			shares			Cost			losses			value			Cost			losses			value
  	Redtail		66,667		$	38,866		$	(32,533	)	$	6,333		$	38,866		$	(26,199	)	$	12,667
  	Auramex		100,000			40,000			(34,000	)		6,000			40,000			(25,000	)		15,000
  					$	78,866		$	(66,533	)	$	12,333		$	78,866		$	(51,199	)	$	27,667

  			United States															Mexico
  			MacArthur			Yerington			Bear			Herbert			Other			Nieves			Total
  	Mineral Properties		Copper			Copper			Copper			Gold			Properties
  	Acquisition
  	Balance, December 31, 2013	$	2,897,490		$	2,901,978		$	293,467		$	129,755		$	2,184,789		$	1,511,445		$	9,918,924
  	Additions		235,411			459,723			134,285			11,558			75,068			101,055			1,017,100
  	Recovery		-			-			-			-			(430,750	)		(978,319	)		(1,409,069	)
  	Disposal		-			-			-			-			(1,059,968	)		-			(1,059,968	)
  	Impairments		-			-			-			-			(312,242	)		-			(312,242	)
  	Balance, December 31, 2014		3,132,901			3,361,701			427,752			141,313			456,897			634,181			8,154,745
  	Exploration
  	Balance, December 31, 2013		16,800,522			6,071,783			10,653			1,361,137			342,971			4,145,368			28,732,434
  	Geological		133,931			163,414			4,750			678			-			67,081			369,854
  	Geophysical		2,852			-			-			-			-			-			2,852
  	Technical Studies		8,396			18,770			-			-			-			-			27,166
  	Other		51			85,735			-			12,331			-			28,357			126,474
  	Additions		145,230			267,919			4,750			13,009			-			95,438			526,346
  	Impairments		-			-			-			-			(236,977	)		(2,509,860	)		(2,746,837	)
  	Balance, December 31, 2014		16,945,752			6,339,702			15,403			1,374,146			105,994			1,730,946			26,511,943
  	Recovery from sales of properties		(1,708,023	)		(617,288	)		(45,055	)		-			-			-			(2,370,366	)
  	Total acquisition and explorationBalance, December 31, 2014	$	18,370,630		$	9,084,115		$	398,100		$	1,515,459		$	562,891		$	2,365,127		$	32,296,322

  During the year ended December 31, 2012, the Company’s shareholding in Auramex was reduced from 1,000,000 to 100,000 common shares due to a share consolidationPage16 of 1-for-10 by Auramex.

  The fair value of these marketable securities has been determined by reference to their closing quoted share price at the reporting date.

  During the year ended December 31, 2012, management made the assessment that the marketable securities have experienced a prolonged decline in their fair values. Accordingly, an impairment of $66,533 has been transferred from accumulated other comprehensive loss and recognized in net loss.

  - 90 -30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  5.

  a)

  EquipmentYerington Assets

  
  

  			Computer			Field
  			equipment			Equipment			Vehicles			Total
  	Cost
  	Balance, December 31, 2010	$	97,348		$	93,651		$	354,228		$	545,227
  	Additions during the year		50,683			81,219			186,885			318,787
  	Disposals		-			-			(59,498	)		(59,498	)
  	Balance, December 31, 2011		148,031			174,870			481,615			804,516
  	Additions during the year		-			-			9,676			9,676
  	Balance, December 31, 2012	$	148,031		$	174,870		$	491,291		$	814,192
  	Accumulated depreciation
  	Balance December 31, 2010	$	93,708		$	63,679		$	169,497		$	326,884
  	Depreciation for the year		19,006			32,174			98,630			149,810
  	Disposals		-			-			(20,973	)		(20,973	)
  	Balance, December 31, 2011		112,714			95,853			247,154			455,721
  	Depreciation for the year		27,398			23,705			82,492			133,595
  	Balance, December 31, 2012	$	140,112		$	119,558		$	329,646		$	589,316
  	Carrying value
  	At December 31, 2011	$	35,317		$	79,017		$	234,461		$	348,795
  	At December 31, 2012	$	7,919		$	55,312		$	161,645		$	224,876

  - 91On June 13, 2014, the Company entered into the Option Agreement with Freeport-McMoRan Nevada LLC, which sets out terms for exploration of the Company’s copper properties in Yerington district, Nevada, including MacArthur, Yerington, Bear and Wassuk, collectively the “Yerington Assets”. All Yerington Assets are held 100% under Singatse Peak.

  Pursuant to the terms of the Option Agreement, amended on May 8, 2015, Freeport Nevada has the right to earn an initial interest of 55% in Singatse Peak by funding a total of $40.75 million over three stages in four years (“Option Period”) starting June 2014. Freeport Nevada can earn an additioanl 20% interest by funding Singatse Peak to complete a feasibility study or through a sole fuding of $97.85 million, whichever comes first. Freeport Nevada can choose to fund with Quaterra on the basis of 55% and 45%, respectively. Alternatively, Freeport Nevada could earn a further 5% for up to an additional $50 million in Singatse Peak after completing the $97.85 million sole funding.

  The funds received during the Option Period were used for Yerington Assets land, water and mineral rights maintainance, compliance with environmental law, exploration drilling program and general administration expenditures. Details and status of the Option Agreement as of December 31, 2015 are listed below:

  Three-Stages	Option Period	Funding Obligation	Funds Received
  Stage 1 - completed	12 months	$2.5 million	$2.5 million
  Stage 2 - committed	12 months	$7.15 million	$4.575 million
  Stage 3 - optional	24 months	$31.1 million	$Nil

  During the first 12 months (“Stage 1”), all Yeringon Assets were transferred to Singatse Peak from Quaterra Alaska Inc. in August 2014. On June 13, 2015, Freeport Nevada elected to extend the Option Period for an additional 12 months (“Stage 2”) immediately following the expiration of the Stage 1 period.

  By June 13, 2016, Freeport Nevada will decide if a further 24 months extension (“Stage 3”) of the Option Agreement will be made or not. If Freeport Nevada terminates the Option Agreement during the Option Period, the Yerington Assets will be retrurned to the Company in which Freeport would have not earned any interest.

  The Company has proratably decreased the carrying value of the Yerington Assets for the $2.5 million received in Stage 1 corresponding to total amounts invested in the properties at the time of receipt of each payment. Funding received for Stage 2 has been mainly  spent in a drilling program at its Bear property started in August 2015.

  At any time when the Company and Freeport Nevada are proportionally funding their share of costs, and before an affirmative decision to begin production, a non-funding party will suffer ordinary dilution. Should either party’s interest fall below 10%, it will be converted into a 1% net smelter royalty (“NSR”) royalty. After a production decision, a non-funding party will dilute to a 1% NSR royalty.

  Detailed description of the Yerington Assets are as below:

  (i)

  MacArthur Property, Nevada

  The Company acquired a 100% interest in the MacArthur project through an option agreement dated September 13, 2005, and subsequently amended, with North Exploration LLC by for total $2.2 million completed in January 2015.

  Page17 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  The property is subject to a 2% NSR, which may be reduced to a 1% NSR royalty in consideration for $1.0 million.

  6.

  (ii)

  Mineral propertiesYerington Property, Nevada

  The total deferred acquisitionCompany acquired a 100% interest in the Yerington property on April 27, 2011 by making a $500,000 cash payment and exploration costsissuing 250,000 common shares of the Company. The property has a 2% NSR royalty capped at $7.5 million on commencement of commercial production.

  The Yerington property is a historic mining site formerly owned and operated by the Anaconda Company, Atlantic Richfield Company and Arimetco. The property has a history of environmental releases, which are outlined in an environmental site assessment undertaken for mineral properties forthe Company by the Chambers Group and subsequently updated by SRK Consulting. The Yerington mine site is aComprehensive Environmental Response Compensation and Liability Act site, but has not been listed on the National Priorities List.

  Prior to closing on the property, the Company obtained Bona Fide Prospective Purchaser (“BFPP”) Reasonable Steps letters from the US Environmental Protection Agency (“EPA”), the State of Nevada Department of Environmental Protection and the Bureau of Land Management. These letters define reasonable steps that the Company could take to retain its status as a BFPP.

  During the year ended December 31, 2012, the Company entered into a voluntary settlement agreement (the “Settlement Agreement”) with the EPA to assist in upgrading the fluid management system (the “System”), which manages fluids from the former Arimetco operations at the property. Under the terms of the Settlement Agreement, the Company agreed to complete a study of the System in order to determine additional repairs or modifications that may be required, and 2011 wereto work with the EPA to determine which, if any, of the conclusions of the study should be implemented. As part of the Settlement Agreement, the Company obtained a site-wide covenant from the EPA not to sue for existing environmental contamination related to historic mining operations at the site.

  In September 2014, Singatse Peak submitted to the EPA a final report that documented the work Singatse Peak performed under the EPA Agreement. On January 7, 2015, the EPA issued a notice of completion to Singatse Peak confirming that the obligations defined in the Settlement Agreement had been met. Singatse Peak believes it does not have further obligations under the Settlement Agreement, except for those as a landowner and as a BFPP.

  (iii)

  Bear Property, Nevada

  During the year ended December 31, 2013, the Company entered into four option agreements to acquire private land in Yerington, Nevada, known as the Bear Deposit. In May 2015, the Company entered into the 5^th option agreement to have acquired additional private land covering a portion of the Bear Deposit.

  Under the terms of the five option agreements, Company is required to make approximately $6.24 million cash payments in order to maintain the exclusive right to purchase the land, mineral rights and certain water rights and to conduct mineral exploration on these properties. Payments due under the five option agreements by year are as follows:

  		United States															Mexico
  		MacArthur			Yerington			Alaska			Uranium			Other			Nieves			Other			Total
  Mineral Properties		Property			Property						Properties			Properties						Properties
  Acquisition
  Balance, December 31, 2011	$	2,358,534		$	2,803,906		$	120,357		$	4,761,909		$	2,384,460		$	1,535,959		$	1,737,922		$	15,703,047
  Additions during the year		719,304			389,956			16,135			200,680			619,285			87,351			740,915			2,773,626
  Disposal of mineral property		-			-			-			-			(949,052	)					-			(949,052	)
  Recovery - Goldcorp		-			-			-			-			-			-			(5,950	)		(5,950	)
  Balance, December 31, 2012		3,077,838			3,193,862			136,492			4,962,589			2,054,693			1,623,310			2,472,887			17,521,671
  Exploration
  Balance, December 31, 2011		17,144,368			3,623,164			554,119		��	7,728,123			763,148			3,920,039			9,604,778			43,337,739
  Geological		832,756			940,564			193,948			108,831			68,838			189,143			1,282,023			3,616,103
  Geophysical		50,798			31,251			4,468			-			88,588			140,709			17,288			333,102
  Geochemical		79,293			416,847			38,266			-			7,867			82,048			491,926			1,116,247
  Drilling		6,390			624,681			529,490			-			-			219,016			877,730			2,257,307
  Technical studies		475,364			640,819			1,055			14,132			-			130,778			140,919			1,403,067
  Other		194,706			244,635			190,700			15,989			-			10,750			169,780			826,560
  Additions during the year		1,639,307			2,898,797			957,927			138,952			165,293			772,444			2,979,666			9,552,386
  Disposal of mineral property		-			-			-			-			(210,617	)		-			-			(210,617	)
  Recovery - Goldcorp		-			-			-			-			-			-			(35,618	)		(35,618	)
  Balance, December 31, 2012		18,783,675			6,521,961			1,512,046			7,867,075			717,824			4,692,483			12,548,826			52,643,890
  Total acquisition and explorationBalance, December 31, 2012	$	21,861,513		$	9,715,823		$	1,648,538		$	12,829,664		$	2,772,517		$	6,315,793		$	15,021,713		$	70,165,561

  	•	$329,258 due in 2013 (paid)
  	•	$341,258 due in 2014 (paid)
  	•	$788,258 due in 2015 (paid) and
  	•	$4,781,774 from 2016 to 2022.

  - 92 -Page18 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.

  (iv)

  Mineral properties, continuedWassuk Property, Nevada

  
  

  		United States															Mexico
  		MacArthur			Yerington			Alaska			Uranium			Other			Nieves			Other			Total
  Mineral Properties		Property			Property						Properties			Properties						Properties
  Acquisition
  Balance, December 31, 2010	$	1,731,500		$	2,100,233		$	276,933		$	4,458,996		$	2,165,930		$	1,472,896		$	1,267,888		$	13,474,376
  Additions during the year		627,034			703,673			6,644			302,913			1,075,462			63,063			489,238			3,268,027
  Impairments		-						(163,220	)		-			(856,932	)		-			-			(1,020,152	)
  Recovery - Goldcorp		-			-			-			-			-			-			(19,204	)		(19,204	)
  Balance, December 31, 2011		2,358,534			2,803,906			120,357			4,761,909			2,384,460			1,535,959			1,737,922			15,703,047
  Exploration
  Balance, December 31, 2010		10,820,796			839,354			2,415,742			7,611,207			1,005,545			2,780,131			6,138,519			31,611,294
  Geological		911,405			636,992			134,021			99,946			208,468			180,940			1,484,410			3,656,182
  Geophysical		172,171			75,661			108,182			-			282,868			12,556			583,421			1,234,859
  Geochemical		1,045,297			323,472			10,032			27			17,268			143,686			390,895			1,930,677
  Drilling		3,703,192			1,128,462			162,549			-			128,770			718,257			1,914,623			7,755,853
  Technical studies		61,995			232,696			1,965			12,075			-			59,112			41,006			408,849
  Other		429,512			386,527			-			4,868			4,929			25,357			263,851			1,115,044
  Additions during the year		6,323,572			2,783,810			416,749			116,916			642,303			1,139,908			4,678,206			16,101,464
  Impairments		-			-			(2,278,372	)		-			(884,700	)		-			-			(3,163,072	)
  Recovery - Goldcorp		-			-			-			-			-			-			(1,211,947	)		(1,211,947	)
  Balance, December 31, 2011		17,144,368			3,623,164			554,119			7,728,123			763,148			3,920,039			9,604,778			43,337,739
  Total acquisition and explorationDecember 31, 2011	$	19,502,902		$	6,427,070		$	674,476		$	12,490,032		$	3,147,608		$	5,455,998		$	11,342,700		$	59,040,786

  - 93 -On May 26, 2011, further amended in May 2014 and March 2016, the Company entered into a mining lease with an option to purchase agreement with Majuba Mining Ltd. to earn an interest in certain unpatented mining claims in Lyon County, Nevada, for $1.51 million plus a work commitment of $300,000 by August 1, 2018:

  	•	$390,000 prior payments before August 23, 2013 (paid)
  	•	$80,000 on or before each of August 1, 2014 and 2015 (paid)
  	•	$100,000 on or before each of August 1, 2016
  	•	$200,000 on or before each of August 1, 2017 and 2018, and
  	•	$230,000 on or before each of August 1, 2019 and August 1, 2020.

  The property is subject to a 3% NSR royalty upon commencing commercial production, which can be reduced to a 1% NSR royalty in consideration for $1.5 million.

  b)

  Nieves Silver Concessions, Mexico

  The Company acquired a 100% interest in the Nieves silver property, located in northern Zacatecas, Mexico, by making option payments to the original concession holders through an Underlying Agreement. In April 2003, the U.S.-based Blackberry Ventures 1, LLC (“Blackberry”) earned a 50% interest in the Nievis property through a joint arrangement by making a $1.5 million cash payment. The Company held the other 50% interest and was the operator for the Nieves property until December 2014. All work plans were made in consultation with Blackberry, which contributed its share of ongoing exploration costs plus a 10% administration fee.

  On December 29, 2014, the Company entered into a Stock Purchase Agreement to sell its 50% interest in the Nieves property to Blackberry for $4.0 million. Under the terms of this agreement, the Company would receive four equal payments over 15 months on December 29, 2014, March 1, 2015, September 1, 2015 and March 1, 2016. Blackberry would earn an additional 12.5% interest in the Nieves property upon each payment. All costs for maintaining and exploring the Nieves property would be the sole responsibility of Blackberry until Blackberry completes the $4.0 million payments. In the event that Blackberry subsequently sells the Nieves property, the Company will receive 7.5% of the future net sale price.

  As a result of this Stock Purchase Agreement, the Company recorded a $2.5 million impairment in December 2014 to reflect the fair value of the Nieves property.

  As of December 31, 2015, $2.5 million out of the $4.0 million payments was received. The Company agreed to extend the September payment to November 16, 2015 upon receiving a $25,000 extension fee from Blackberry. On November 16, 2015, Blackberry paid $500,000 with the remaining $500,000 further extended to June 1, 2016 subject to certain conditions. See Note 16 for more details.

  During the year ended December 31, 2015, $111,656 was billed to Blackberry for certain geological personnel costs paid by the Company, of which $47,900 (December 31, 2014 – $25,273) was still owed as of December 31, 2015.

  The Nieves concessions are subject to a maximum 3% NSR to the original concession holders, which the Company may purchase at any time in consideration for $2.0 million. In addition, Kennecott Exploration Company, the optionor in the initial underlying agreement, retained a 2% NSR royalty on certain core claims and 1% NSR royalty on certain peripheral claims. On January 24, 2007, this NSR was purchased by Royal Gold Inc. Commencing January 26, 2004, an advance minimum royalty payment of $75,000 is due to the concession holders until the commencement of commercial production.

  Page19 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.	c)	Mineral properties, continued
  	a)	MacArthur Property, Nevada
  		Pursuant to an agreement dated September 13, 2005, and subsequently amended, with North Exploration LLC (“North Exploration”), the Company acquired the right to earn an interest in certain unpatented mining claims covering the former MacArthur copper-oxide mine, in the Yerington Mining District of Lyon County, Nevada. The Company may elect to acquire the property by making the following staged payments totaling US$2.207 million of which $1.783 million has been paid to March 27, 2013:Other Non-Core Assets

  
  

  On September 10, 2014, the Company entered into an Asset Purchase Agreement with Freeport-McMoRan Mineral Properties Inc. (“Freeport”) to sell its interests in the three non-core assets for $5.0 million (the “Purchase Price”) and 19 million share purchase warrants to Freeport.

  On October 3, 2014, Freeport acquired the Company’s remaining interests in SW Tintic copper in Utah, Butte Valley copper in Nevada and Cave Peak molybdenum in Texas, and paid $1.0 million. The remaining $4.0 million was payable in $500,000 tranches every quarter commencing January 1, 2015.

  The 19 million warrants are exercisable at $0.16 per warrant for five years subject to vesting and termination provisions corresponding to the payment of the Purchase Price in tranches. 20% of the warrants were vested October 3, 2014 and 10% would be vested upon each quarterly payment of the Purchase Price. In the event of any failure to pay a quarterly payment of the Purchase Price, any unvested warrants will terminate; conversely, upon any accelerated payment of the balance of the Purchase Price, any unvested warrants will vest.

  The Company discounted the value of the $5.0 million at 5% and accretes interest to income on the effective interest method. During the year ended December 31, 2015, the Company accrued $106,240 interest income related to the receivable.

  As of December 31, 2015, $3.0 million had been received and 11.4 million warrants were vested.

  	(i)d)	US$635,000 and 150,000 shares by January 15, 2010 (paid and issued)
  	(ii)	US$524,000 on or before January 15, 2011 (paid)
  	(iii)	US$524,000 plus interest at the rate of 6% per annum by January 15, 2012 (paid)
  	(iv)	US$100,000 plus $31,440 interest by January 15, 2013 (paid)
  	(v)	US$424,000 plus interest at the rate of 6% per annum by January 15, 2014 or US$212,000 plus interest by January 15, 2014 and 2015, respectively.

  
  

  		The property is subject to a 2% net smelter return (“NSR”), which may be reduced to 1% for US$1 million.
  	b)	YeringtonHerbert Gold Property, Nevada
  		On April 27, 2011, the Company completed the acquisition of the Yerington property after more than three years of legal and environmental due diligence. The purchase price was US$500,000 cash, 250,000 of the Company’s common shares and a 2% NSR capped at US$7.5 million on commencement of commercial production.
  		The Yerington property is a historic mining site formerly owned and operated by the Anaconda Company, Atlantic Richfield Company (“ARC”) and Arimetco. The property has a history of environmental releases, which are outlined in an environmental site assessment undertaken for the Company by the Chambers Group and subsequently updated by SRK Consulting. The Yerington Mine Site is aComprehensive Environmental Response Compensation and Liability Act(“CERLA”) site, but has not been listed on the National Priorities List.
  		Prior to closing on the property, the Company obtained Bona Fide Prospective Purchaser (“BFPP”) Reasonable Steps letters from the US Environmental Protection Agency (“EPA”), the State of Nevada Department of Environmental Protection and the Bureau of Land Management (“BLM”). These letters define reasonable steps that the Company could take to retain its status as a BFPP.
  		During the year ended December 31, 2012, the Company entered into a voluntary Settlement Agreement (the “Agreement”) with the EPA to assist in upgrading the fluid management system (the “System”), which manages fluids from the former Arimetco operations at the property. Under the terms of the Agreement, the Company agreed to complete a study of the System in order to determine additional repairs or modifications that may be required and to work with the EPA to determine which, if any, of the conclusions of the study should be implemented. The Company may elect to fund 50% of these repairs at an expected cost of approximately US$300,000 and be completed by 2014.Alaska

  - 94 -Pursuant to an option agreement made in November 2007, the Company is required to make annual payments of $20,000 until 2017 and $30,000 from November 2018 and every anniversary thereafter.

  In October 2011, the Company entered into a joint venture agreement with Grande Portage Resources Ltd. (“Grande Portage”) whereby the Company maintains a 35% interest in the Herbert Gold property and Grande Portage earned a 65% interest by spending $1.25 million on June 15, 2012. The two parties bear their proportionate share of the costs for the future exploration work. In the event any party does not contribute their propionate share of such costs and its interest is reduced to 10% or less based on the formula provided in the joint venture agreement, its interest will be automatically converted into a 1% NSR, which may be acquired by the other party for $1.0 million.

  On November 7, 2014 the Company elected not to participate in future exploration work programs proposed by Grande Portage other than the claim fees and option payments.

  The property is subject to a 5% NSR on commencement of commercial production.

  Page20 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.	Mineral properties, continued
  	b)	Yerington Property, Nevada, continued
  		As part of the Agreement, the Company will obtain a site-wide covenant not to sue from the EPA for existing environmental contamination related to historic mining operations at the site. ARC is the primary responsible party for the existing environmental liabilities at the site due to its ownership of Anaconda and past operations at the site.
  	c)	Butte Valley Copper Prospect, Nevada
  		On January 1, 2011, the Company entered into an option agreement with North Exploration to acquire 41 mining claims in White Pine County, Nevada, known as the Butte Valley property. The Company can earn a 100% interest in the claims by making staged payments totaling US$1 million
  		On August 2, 2012, the Company entered into a purchase and sale agreement with Freeport-McMoRan Mineral Properties (“FMMP”) for Butte Valley at gross proceeds of US$2 million. A gain of $820,712 from the sale was recorded in the year ended December 31, 2012.
  		On October 2, 2012, the Company received net proceeds of $1,737,692 from FMMP, after mineral claim payments and settlement fees. The Company retains the right, if and when FMMP completes a positive feasibility study, to elect to have either a 30% working interest in the project or a 2% NSR.
  	d)	Copper Canyon Project, Nevada
  		Pursuant to an agreement in November 2007, as amended October 9, 2009 and October 19, 2010, the Company acquired the right to earn an interest in certain mining claims, known as the Copper Canyon Project in Mineral County, Nevada. To earn a 100% interest, the Company is required to make payments totaling US$625,000 as follows:Loan Payable

  
  

  On May 8, 2015, the Company enterted into a $500,000 secured note (“Loan Payable”) with Freeport Nevada in order to facilitate a real property interest acquisition within the Bear property. As a result, the Option Agreement was amended to increase the total funding obligation during the Option Period from $38.6 million to $40.75 million, and reduce the sole funding to complete the feasibility study from $100 million to $97.85 million (Note 5(a)).

  The Loan Payable bears a simple interest rate of 5% per annum and is due 180 days following written notice of terminiation of the Option Agreement by Freeport Nevada. The Company can extend the 180 days by paying an extension fee of 5% of the outstanding principal and interest accrued not to exceed $100,000.

  In the event Freeport Nevada elects to enter Stage 3 of the Option Agreement, the $500,000 may be credited to the Freeport Nevada future funding obligation. Since the payment date for the Loan Payable is beyond the Company’s discretion, it was classified as a current liability.

  7.	Convertible Notes

  On July 2, 2014, the Company closed a non-brokered private placement of 500 units for gross proceeds of $500,000. Each unit was priced at $1,000 and comprised of one non-transferable convertible redeemable promissory note (“Note”) and 11,442 non-transferable warrants. Each warrant entitles the holders to purchase one common share of the Company at a price of CAD$0.16 per share until January 2, 2016, subject to acceleration provision. During the year the Notes were extended for one year to January 2, 2017.

  The Notes bear a simple interest rate of 10% per annum. Interest may be paid in cash or shares at the option of the Company, subject to any required exchange approvals in the case of share payments.

  The Notes provide the following terms as to conversion or redemption:

  	(i)	Initial paymentThe outstanding principal amount of US$15,000 (paid) and US$70,000 on or before November 6, 2009 (paid)each Note may be converted by the Note holder into common shares of the Company at the rate of CAD$0.10 per share at any time until maturity.
  	(ii)	Commencing November 6, 2010, US$35,000 (paid) annually through November 6, 2024 (2011 and 2012 paid)The Notes automatically convert into common shares at CAD$0.10 per share in the event the closing price of the shares is CAD$0.12 or higher for 10 consecutive trading days.
  	(iii)	US$15,000 on or before November 6, 2025.The Company may, prior to conversion, redeem the principal amount of the notes outstanding by paying to the holders the principal amount of the Notes together with interest in cash at the rate of 15% per annum calculated to the date of such redemption.

  
  

  			December 31,			December 31,
  			2015			2014
  	Fair value of convertible note at maturity	$	500,000		$	500,000
  	Fair value of convertible note at date of issue	$	298,329		$	298,329
  	Cumulative accretion		276,671			90,886
  	Change on extension of warrants expiry date		(195,723	)		-
  	Balance at December 31	$	379,277		$	389,215

  The property is subject to a 2.5% NSR on commencement of commercial production, which can be reduced to 2% for US$500,000. ShouldDecember 31, 2015, the Company decideextended the expiry date of the warrants to commence commercial production, a paymentJanuary 2, 2017.

  Page21 of US$750,000 is due within five business days from the date the decision is made.

  - 95 -30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.8.	Mineral properties, continued
  	e)	Goldfield East Claims, Nevada
  		On June 15, 2011, the Company entered into an option agreement with Nevada Alaska Mining Co., Inc. to acquire a 100% interest in certain mining claims in Esmeralda County, Nevada, for US$1 million over ten years:

  
  

  	(i)	US$20,000 upon execution (paid)
  	(ii)	US$20,000 each on or before June 15, 2012 (paid) and 2013
  	(iii)	US$40,000 on or before June 15, 2014
  	(iv)	US$50,000 each on or before June 15, 2015 and 2016
  	(v)	US$100,000 each on or before June 15, 2017, 2018 and 2019
  	(vi)	US$250,000 each on or before June 15, 2020 and 2021.

  
  

  		The property is subject to a 2% NSR on commencement of commercial production.
  	f)	Poker Brown Project, Nevada
  		On August 24, 2012, the Company entered into an option agreement with Nevada Alaska Mining Co., Inc. to acquire a 100% interest in certain mining claims in Pershing County, Nevada, for US$1 million payable over 10 years as follows:

  
  

  	(i)	US$20,000 upon execution (paid)
  	(ii)	US$20,000 each on or before August 24, 2013 and 2014
  	(iii)	US$40,000 on or before August 24, 2015
  	(iv)	US$50,000 each on or before August 24, 2016 and 2017
  	(v)	US$100,000 each on or before August 24, 2018, 2019 and 2020
  	(vi)	US$250,000 each on or before August 24, 2021 and 2022.

  
  

  		A 2.5% NSR is required upon commercial production of which 0.5% can be purchased at US$500,000.
  	g)	Wassuk Copper Project, Nevada
  		On May 26, 2011, the Company entered into a mining lease with an option to purchase agreement with Majuba Mining Ltd. to earn an interest in certain unpatented mining claims in Lyon County, Nevada, for US$1.61 million:

  
  

  	(i)	US$140,000 on or before May 26, 2011 (paid)
  	(ii)	US$130,000 on or before May 26, 2012 (paid)
  	(iii)	US$120,000 on or before May 26, 2013
  	(iv)	US$110,000 each on or before May 26, 2014 and 2015
  	(v)	US$200,000 each on or before anniversary date until May 26, 2020.Derivative Liability

  Share purchase warrants issued with an exercise price denominated in a currency other than the Company’s functional currency are considered derivative instruments. As such they are classified as financial liabilities measured at fair value and are re-measured each reporting period with all changes recorded as a component of net loss.

  In connection with the non-brokered private placement closed on July 2, 2014, as per Note 7, and the Asset Purchase Agreement with Freeport as per Note 5(c), the Company issued 5.721 million and 19 million share purchase warrants to the unit holders. As these warrants are either exercisable in a different currency from the Company’s functional currency, or the number of shares to be issued upon exercising are subject to foreign exchange fluctuation, they are classified as derivative liabilities and carried at fair value. The Company is required to incur a total of US$300,000 exploration work on or before May 26, 2014, and any difference between the actual expenditures and US$300,000 iswarrants are therefore required to be paidrevalued at FVTPL at each reporting date.

  Based on the Company’s valuation of the debt portion and the derivative component at the date of issuance, the convertible note proceeds were allocated as $298,329 to the debt component and $201,671 to the derivative component of the instrument representing an effective interest rate of 35% to the debt component. The resulting discount to the debt component was amortized and accreted back to the debt over the term of the instrument. On December 24, 2015 the convertible notes were extended for one additional year. The fair value of the instruments was determined at the date of extension; the fair value of the liability component was determined using present value of expected cash-flows and the derivative liability component was valued on extension using the Black-Scholes option model using the following assumptions: volatility of 142.5%, expected term of 1 year, discount rate of 0.48% and dividend yield of 0%. Based on the valuation of the instruments, the proportionate allocation of fair values of the convertible note were allocated to the debt component as $379,277 (Note 7) and the derivative component as $195,723.

  The derivative component was further revalued at December 31, 2015, including the extended expiry date of January 2, 2017, resulting in an ending balance of the event that less than US$300,000 is so incurred.derivative instrument of $207,741. The derivative liability component was revalued using the following assumptions: volatility of 142.73%, expected term of 1 year, discount rate of 0.48% and dividend yield of 0%.

  - 96 -The following table sets out the changes in derivative liability:

  			Number of Warrants			Fair value assigned
  	At December 31, 2013		36,351,571		$	1,026,722
  	Issuance of promissory notes		-			185,328
  	Issuance of derivative warrants		19,000,000			677,726
  	Expiration of warrants		(6,541,571	)		-
  	Change in fair value estimates		-			(597,124	)
  	At December 31, 2014		48,810,000		$	1,292,652
  	Warrants extension		(29,810,000	)		(1,279,936	)
  	Change in fair value estimates		-			1,207,198
  	Change in contract of warrant		5,721,000			172,042
  	At December 31, 2015		24,721,000		$	1,391,956

  Page22 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.9.	Mineral properties, continued
  	g)	Wassuk Copper Project, Nevada, continued
  		The project is subject to a 3% NSR upon commencing commercial production of which 1% can be bought for US$1.5 million.
  	h)	Missouri Flat Prospect, Nevada
  		On August 1, 2011, the Company entered into an option agreement with a private owner to acquire a 100% interest in certain mining claims situated in Lyon County, Nevada, for US$500,000 as below:Share-Based Payments

  
  

  	(i)a)	US$5,500 upon execution (paid)
  	(ii)	US$5,000 on or before January 1, 2012 (paid)
  	(iii)	US$10,000 each on or before January 1, 2013 (paid in 2012) and July 15, 2013
  	(iv)	US$10,000 each on or before January 1, 2014 and July 15, 2014
  	(v)	US$10,000 each on or before January 1, 2015 and July 15, 2015
  	(vi)	The remaining US$369,500 on or before January 1, 2018 unless subsequently amended
  	(vii)	US$15,000 each on or before January 1, 2016 and July 15, 2016
  	(viii)	US$15,000 each on or before January 1, 2017 and July 15, 2017.

  
  

  		The Company has an option at any time to purchase the property for the difference between US$500,000 and the sum of the amount previously paid.
  	i)	South West Tintic, Utah
  		Pursuant to an agreement made in March 2007, the Company acquired the right to earn an interest in certain unpatented mining claims, which forms part of the South West Tintic Claims in Juab County, Utah. To earn a 100% interest, the Company was required to make US$1 million option payments (US$60,000 paid) over 10 years.
  		Effective May 29, 2009, as amended August 28, 2012, the Company signed an earn-in agreement with Freeport-McMoRan Exploration Corporation (“FMEC”) of Phoenix, Arizona, for the property. Under the terms of the agreement, FMEC has the exclusive right and option to acquire a 70% ownership interest in this property by making a US$275,000 property payment (paid) and by spending US$4.725 million on exploration over five years.
  		The property is subject to a 2% NSR on commencement of commercial production, which may be reduced to 1% for US$1 million.
  	j)	Peg Leg, Arizona
  		On August 27, 2009, the Company signed an earn-in agreement with FMEC for the Company’s Peg Leg copper project in Arizona. FMEC has the exclusive right and option to acquire a 70% interest in the Peg Leg project by spending US$3 million on exploration by December 31, 2012. In the first quarter of 2011, the property was returned and total exploration expenditures of $257,533 were written off.Stock options

  - 97 -The Company has a stock option plan (the “Plan”), which is approved by the shareholders of the Company annually. The Plan is designed to attract and retain individuals and to reward them for current and expected future performance. Options generally are granted for a maximum term of five years and expire 90 days following the termination of the optionee’s employment with the Company. The exercise price for the options is set at the closing market price of the common shares on the grant date. The vesting period of options vary with terms determined by the board of directors. Under the Plan, the Company is authorized to grant stock options of up to 10% of the number of common shares issued and outstanding of the Company at any given time.

  The following table presents changes in stock options outstanding:

  			December 31, 2015						December 31, 2014
  			Number of			Weighted Average			Number of			Weighted Average
  			Options			Exercise Price (CAD)			Options			Exercise Price (CAD)
  	Outstanding, beginning of year		15,400,000		$	0.55			16,310,000		$	0.78
  	Granted		2,635,000		$	0.12			3,880,000		$	0.09
  	Expired		(2,270,000	)	$	(1.25	)		(4,790,000	)	$	(0.96	)
  	Outstanding, end of year		15,765,000		$	0.38			15,400,000		$	0.55

  The following table summarizes stock options outstanding by expiry dates with exercise and fair value at the date of recording in CAD:

  	Exercise	Fair
  	price	Value
  	(CAD$)	(CAD$)	Expiry Date	December 31, 2015	December 31, 2014
  	$1.80	$0.87	April 1, 2015	-	100,000
  	$1.76	$0.98	April 22, 2015	-	200,000
  	$1.29	$0.78	August 9, 2015	-	1,405,000
  	$1.55	$0.90	October 6, 2015	-	65,000
  	$1.51	$0.90	November 3, 2015	-	100,000
  	$0.60	$0.12	December 31, 2015	-	400,000
  	$1.60	$0.93	March 24, 2016	200,000	200,000
  	$1.25	$0.74	August 9, 2016	2,370,000	2,370,000
  	$0.90	$0.50	October 24, 2016	300,000	300,000
  	$0.50	$0.32	March 27, 2017	100,000	100,000
  	$0.45	$0.28	June 28, 2017	2,520,000	2,520,000
  	$0.16	$0.12	September 19, 2018	3,810,000	3,810,000
  	$0.10	$0.06	June 25, 2019	2,830,000	2,830,000
  	$0.05	$0.04	December 31, 2019	1,000,000	1,000,000
  	$0.05	$0.04	March 26, 2020	200,000	-
  	$0.13	$0.10	July 16, 2020	2,435,000	-
  		Total stock options outstanding		15,765,000	15,400,000

  Page23 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.	Mineral properties, continued Subsequent to December 31, 2015, 200,000 stock options with an exercise price of CAD$1.60 per option expired unexercised. The weighted average remaining contractual life for options outstanding and exercisable at December 31, 2015 was 2.65 and 2.65 years (December 31, 2014 – 2.89 and 2.87 years), respectively. The Company used the following weighted average assumptions in the Black-Scholes option pricing model to fair value the options granted:       December 31, 2015     December 31, 2014     December 31, 2013     Weighted average share price   CAD $     0.09     CAD $     0.09     CAD $     0.19 ��   Risk-free interest rate         0.48%           1.25%           1.72%     Expected share price volatility         142.73%           111%           96%     Expected option life in years         5.0           5.0           5.0     Forfeiture rate         0%           0%           0%     Expected dividend yield         0%           0%           0%   Share-based payments expense were incurred as follows:       Years ended December 31,         2015     2014     2013     Consultants $  38,239   $  10,717   $  83,186     Directors and officers   146,298     178,397     290,106     Employees   23,913     31,079     22,978       $  208,450   $  220,193   $  396,270   Volatility was determined based on the historical volatility over the estimated lives of the options.
  	k)	Herbert Gold Project, Alaska
  		Pursuant to an agreement made in November 2007, the Company acquired the right to earn an interest in certain mining claims, known as the Herbert Gold Project. To earn a 100% interest, the Company, and subsequent to June 2010 the joint venture between Quaterra and Grande Portage Resources Ltd. (“Grande Portage”), is required to make annual payments of US$12,000 from November 2007 to 2011 (paid), US$20,000 from November 2012 (paid) to 2017, and US$30,000 from November 2018 and every consecutive anniversary thereafter.
  		In June 2010, Grande Portage entered into an agreement with Quaterra to earn up to a 65% interest in the Herbert Gold Project by spending US$1.25 million by June 15, 2012. As of December 31, 2012, Grande Portage had earned its 65% interest and the Company retained a 35% interest. The two parties formed a joint venture for the further exploration and development of the property, with each party bearing their proportionate share of the costs. If any party does not contribute their proportionate share of such costs, then the joint venture agreement includes a dilution formula whereby if any party's interest is reduced to 10% or less, its interest will be automatically converted into a 1% NSR, which may be acquired by the other party at any time for US$1 million.
  		The property is subject to a NSR on commencement of commercial production as follows:

  
  

  	(i)b)	3.0% on gold prices less than US$400/ounce
  	(ii)	3.5% on gold prices between US$401/ounce and US$500/ounce
  	(iii)	4.0% on gold prices between US$501/ounce and US$600/ounce
  	(iv)	5.0% on gold prices above US$601/ounce.

  
  

  	l)	Uranium Properties (Arizona, Utah and Wyoming)
  		Pursuant to a June 2005 agreement with North Exploration, the Company acquired an option toShare purchase mining claims situated in Arizona, Utah and Wyoming. The Company is required to make payments of US$500,000 (paid) and issue 600,000 common shares (issued) before September 6, 2010.
  		The property is subject to a 2% NSR upon commencement of commercial production, which can be reduced to 1% for US$1 million.
  		Pursuant to an August 2006 agreement, as amended subsequently, with Nustar Exploration LLC (“NuStar”), the Company leased 18 claims in the Arizona Strip District. The Company is required to pay the following:

  
  

  	(i)	US$90,000 on or before August 10, 2008 (paid)
  	(ii)	US$100,000 on or before August 10, 2013.warrants

  Each groupThe following table presents changes in total warrants outstanding:

  			December 31, 2015						December 31, 2014
  												Weighted
  			Number of			Weighted Average			Number of			Average Exercise
  			Warrants			Exercise Price			Warrants			Price
  	Outstanding, beginning of
  	year		54,531,000		$	0.14			36,351,571		$	0.18
  	Issued		-			-			24,721,000		$	0.14
  	Expired		-			-			(6,541,571	)	$	0.49
  	Outstanding, end of year		54,531,000		$	0.14			54,531,000		$	0.14

  Page24 of claims within this agreement is subject to a 4% royalty upon commencement of commercial production of which 3% royalty can be bought back for US$500,000 per claim group.

  - 98 -30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  6.	Mineral properties, continued
  	l)	Uranium Properties (Arizona, Utah and Wyoming), continued
  		On March 23, 2007, the Company entered into a Purchase and Royalty Agreement with NuStar to acquire certain unpatented lode mining claims in Mohave County, Arizona, for US$125,000 cash payment. The claims are subject to a 4% royalty of which 75% can be purchased for US$1 million (reduced from 4% to 1%) as it applies to each breccia pipe discovered on the claims.
  		On January 9, 2012, the Interior Department announced a Public Land Order to withdraw approximately one million acres of federal land in northern Arizona from mineral exploration on new claims for a twenty-year period. Approximately 85% of Quaterra’s claims lie within these federal jurisdiction lands and 15% lie within Arizona State lands, which are unaffected by the withdrawal
  		In April 2012, the Company, together with various co-plaintiffs filed a lawsuit in the United States District Court for the State of Arizona naming as defendants the United States Department of the Interior and the BLM. The results of this legal action are unknown at this time, and, if not successful, could lead to an impairment write-down of approximately $10 million.
  	m)	Cave Peak Molybdenum Prospect, Texas
  		Pursuant to an option agreement made in March 2007, the Company may acquire a 100% interest in certain prospect permits. The option payments are as follows: US$230,000 on or before March 27, 2010 (paid); US$150,000 on or before March 27, 2011 (paid by FMEC); and US$220,000 on or before March 27, 2012 (paid by FMEC).
  		On July 24, 2009, the Company acquired a mining lease with the state of Texas for 19 years for a total of US$120,462 (US$30,462 paid); US$35,000 is due upon the submittal of an initial plan of operations to conduct exploration; and US$55,000 on submittal of a supplemental plan of operations to conduct mining. If production has not commenced before one year of the date of the lease, the lease will be terminated unless delay payments are made on anniversary dates during the lease term as follows:

  The following table summarizes information about the warrants outstanding by expiry dates:

  				Number of Warrants
  	Expiry date	Exercise price		December 31, 2015	December 31, 2014
  	September 13, 2018(1)	USD$	0.15	29,810,000	29,810,000
  	January 2, 2017(2)	CAD$	0.16	5,721,000	5,721,000
  	October 3, 2019	USD$	0.16	19,000,000	19,000,000
  				54,531,000	54,531,000

  
  

  	(i)	US$26,190 on July 24, 2010 (paid)
  	(ii)	US$26,190 on each anniversary date 2011 (paid by FMEC), 2012 (paid by FMEC) and 2013
  	(iii)	US$39,280 on each anniversary date between 2014 and 2018
  	(iv)	US$78,560 on each anniversary date between 2019 and 2023
  	(v)	US$104,750 on each anniversary date between 2024 and 2027.

  Effective November 1, 2010, as amended February 3, 2012, the Company entered into an option agreement with FMEC, which allows FMEC to earn 70% of this property by paying future land and lease holding costs and by spending US$5 million in exploration expenditures by December 31, 2016. Except for the 2011 land holding costs, which are a firm commitment, all other exploration expenditures are optional.

  This property is subject to a production royalty of 6.25% on commencement of commercial production with an annual advanced minimum royalty (“AMR”) of US$500,000.

  - 99 -

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  6.	Mineral properties, continued
  	n)	Reveille Property, Nevada
  		Pursuant to an agreement made in August 2010, the Company entered into a lease with an option to purchase certain mining claims known as the Reveille claims in Nye County, Nevada. The total consideration is US$1 million over 10 years as follows:

  
  

  	(i)	US$20,000 upon execution (paid) and US$20,000 each on or before July 31, 2011 and 2012 (paid)
  	(ii)	US$40,000 on or before July 31, 2013
  	(iii)	US$50,000 each on or before July 31, 2014 and 2015
  	(iv)	US$100,000 each on or before July 31, 2016 and 2017
  	(v)	US$100,000 on or before July 31, 2018
  	(vi)	US$250,000 each on or before July 31, 2019 and 2020.

  
  

  		The property is subject to a 2% NSR on commencement of commercial production of which 1% can be bought down for US$1 million.
  	o)	Willow Creek Molybdenum Project, Montana
  		On March 24, 2011, the Company renegotiated the option agreement with Willow Creek Discovery Group, LLC for the Willow Creek property in Montana. All second anniversary option payments (year 2010) were waived and cancelled providing that all claim rental payments are made and additional drilling to a minimum of 500 feet is undertaken. The Company terminated the option agreement and recorded an impairment of $1,109,446 in the second quarter of 2011.
  	p)	Nieves Silver Concessions, Mexico
  		The Company originally owned a 100% interest in the Nieves silver property located in northern Zacatecas, Mexico. In 2003 the Company entered into an agreement with U.S.-based Blackberry Ventures 1, LLC (“Blackberry”). Pursuant to the terms of the agreement, Blackberry advanced US$1.5 million to the Company and earned a 50% interest in the property. Accordingly, the Company owns the remaining 50% interest. All work plans are made in consultation with the joint venture partner, Blackberry, which contributes its share of ongoing exploration costs plus a 10% administration fee. As at December 31, 2012, Blackberry owed $613,753 (2011 - $158,370) for their share of exploration expenditures incurred in the second half of the year. Subsequent to the year-end December 31, 2012, US$189,994 was received.
  		The Nieves concessions are subject to a maximum 3% NSR to the original concession holders, which the Company may purchase at any time for US$2 million. In addition, Kennecott Exploration Company, the optionor in the initial Underlying Agreement, retained a 2% NSR on certain core claims and 1% on certain peripheral claims. On January 24, 2007, this NSR was purchased by Royal Gold Inc. Commencing January 26, 2004, an AMR payment of US$75,000 is due to the concession holders until the commencement of commercial production.

  - 100 -

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  6.	Mineral properties, continued
  	q)	Goldcorp Inc. (“Goldcorp”) – Investment Framework Agreement (“IFA”)
  		On January 29, 2010, the Company entered into an IFA with Goldcorp to fund the Company’s mining properties in central Mexico totalling US$10 million. In February 2010 and 2011, US$4 million and US$6 million, respectively, were received from Goldcorp (note 7). In April 2012, the IFA was extended to January 29, 2013 and Goldcorp was required to acquire additional common shares (note 7(c)).
  		In February 2010, Goldcorp selected Sierra Sabino for advanced exploration. For the year ended December 31, 2012, the Company incurred marginal exploration expenditures and had no plan for further exploration work.
  	r)	Microondas Precious Metal Prospect (part of IFA), Mexico
  		On April 8, 2011, the Company entered into a letter of intent agreement with La Cuesta International Inc. (“LCI”) to acquire a 100% interest in six mineral concessions in Zacatecas, Mexico, in consideration of certain cash payments and the issuance of up to 20,000 common shares of the Company as follows:

  
  

  	(i)	US$10,000 on or before December 1, 2011 (paid)
  	(ii)	US$10,000 on or before June 1, 2012 (paid) and elected a one-time cash payment equal to the value of 20,000 common shares based on the share price at the close of trading on May 15, 2012 (US$8,000 - paid)
  	(iii)	US$15,000 on or before December 1, 2012 (paid)
  	(iv)	US$20,000 on or before June 1, 2013
  	(v)	US$25,000 on or before December 1, 2013
  	(vi)	US$25,000 each six months thereafter.

  
  

  		The property is subject to a 1% NSR that is capped at US$5 million and a 2% NSR for a portion of the property.
  	s)	Santo Domingo, Mexico (part of IFA)
  		On January 6, 2010, the Company entered into an option agreement with LCI, pursuant to which the Company has an option to acquire a 100% interest in four mineral concessions located in Durango, Mexico, known as the Santo Domingo prospect. Total consideration consists of US$7.5 million in cash payments, including NSR royalties, 100,000 common shares of the Company and $50,000 (incurred) in work expenditures as follows:

  
  

  	(i)	US$10,000 and 100,000 common shares on January 6, 2010 (paid and issued) and US$10,000 on July 1, 2010 (paid)
  	(ii)	US$15,000 on or before January 1, 2011 (paid) and US$15,000 on or before July 31, 2011 (paid)
  	(iii)	US$20,000 each on or before January 1, 2012 (paid in 2011) and July 31, 2012 (paid)
  	(iv)	Commencing January 1, 2013 (paid for January 2013), US$25,000 every six months.

  - 101 -

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  6.	Mineral properties, continued
  	s)	Santo Domingo, Mexico (part of IFA), continued
  		The property is subject to 1% NSR on materials removed from the property, and 0.5% on any properties acquired within a specified area. The Company shall pay a minimum of US$25,000 per calendar quarter or the NSR, whichever is greater, upon commencing mining operations.
  	t)	El Calvo, Mexico (part of IFA)
  	(1)	On June 14, 2012,19, 2015, the Company entered into an option agreement allowing the Company to earn a 100% interest in the El Calvo property located in San Luis Potosi State, Mexico. The Company is required to pay US$1.7 million over four years as below:

  
  

  	(i)	US$50,000 on June 14, 2012 (paid)
  	(ii)	US$100,000 on June 14, 2013
  	(iii)	US$150,000 on December 14, 2013
  	(iv)	US$250,000 on June 14, 2014
  	(v)	US$400,000 on June 14, 2015
  	(vi)	US$750,000 on June 14, 2016.

  
  

  	u)	Tecolote, Mexico (part of IFA)
  		On September 30, 2008, the Company and EXMIN Resources Inc. (“EXMIN”) entered into an agreement allowing the Company to earn a 75% interest in EXMIN’s Tecolote Property, Mexico. Under the terms of the agreement, the Company can earn a 75% interest in the property by spending US$500,000 (US$678,015 incurred) in exploration costs by September 30, 2012 plus making cash payments of US$100,000 on or before September 30, 2011 (paid).
  	v)	Impairments
  		In 2011 five mineral properties were deemed to be impaired due to lack of exploration merits: Duke Island - $2,441,592, Peg Leg - $257,533, Klondike - $49,809, Gray Hill - $324,844 and Willow Creek - $1,109,446, totaling $4,183,224. There were no mineral properties written down during the year ended December 31, 2012.
  	w)	Realization of assets
  		The Company’s investment in and expenditures on mineral property interests comprise a significant portion of the Company’s assets. Realization of the Company’s investment in the assets is dependent on establishing legal ownership of the property interest, and on the attainment of successful commercial production or from the proceeds of disposal. The attainment of commercial production is in turn dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain necessary financing to complete the development of the property interest, and upon future profitable production.

  - 102 -

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  6.	Mineral properties, continued
  	x)	Title to mineral properties
  		Title to mineral properties involves certain inherent risks due to the difficulties of determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history of many mineral properties. Although the Company has taken steps to ensure title to the mineral property in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures may not guarantee the Company’s title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects.
  	y)	Environmental matters
  		The Company is subject to the laws and regulations relating to environmental matters in all jurisdictions in which it operates, including provisions relating to property reclamation, discharge of hazardous material and other matters. With the exception of the Yerington property, the Company may also be held liable should environmental problems be discovered that were caused by former owners and operators. The Company conducts its mineral exploration activities in compliance with applicable environmental protection legislation.
  7.	Share capital
  	a)	The Company has authorized an unlimited number of common shares without par value.
  	b)	On December 28, 2012, the Company completed a US$0.35 non-brokered private placement and issued 6,541,571 units for gross proceeds of US$2,289,550 ($2,259,462). Each unit is comprised of one common share and one share purchase warrant. Each share purchase warrant entitles the holder to acquire one common share of the Company at US$0.53 for a period two years, expiring December 28, 2014, subject to the following acceleration provision: if, at any time after four months from the date of closing of the Offering, the five-day weighted average trading price of the Company’s common stock on the NYSE MKT exceeds US$1.00 (the last day of such five-day period being the (“Trigger Date”), the Company will, within seven days of the Trigger Date (the “Notice Date”) accelerateextended the expiry date of the warrants by giving noticetwo years from September 13, 2016 to September 13, 2018.
  	(2)	On December 31, 2015, the holders of the warrants thatCompany extended the expiry date of the warrants has been acceleratedby one year from January 2, 2016 to 30 days after the Notice Date. The Company has determined that such warrants with an exercise price denominated in a currency that is different from the Company’s functional currency are classified as a derivative liability and carried at their fair value. Any changes in the fair value from period to period are recorded as a gain or loss in net income (loss).
  		The gross proceeds of $2,259,462 were allocated to common shares in the amount of $1,484,789 and to warrants in the amount of $774,673. Share issue costs totaled $55,452 and were allocated against the common share proceeds.
  		The fair value of the warrants was estimated at $0.12 on the date issued using the Black-Scholes option pricing model assuming an expected volatility of 85%, a risk-free interest rate of 1.1%, a dividend yield of 0%, and an expected term of two years. As at December 31, 2012, 6,541,571 warrants entitling the holder to purchase 6,541,571 common shares of the Company were outstanding.January 2, 2017.

  - 103 -On July 28, 2014, the Company repriced the exercise price of 6,541,571 warrants from $0.53 to $0.16 per warrant. On December 28, 2014, the warrants expired unexercised.

  ---

  
  

  Quaterra Resources Inc.10.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  Related Party Transactions

  
  

  7.	Share capital, continued
  	c)	On April 12, 2012, the Company closed a private placement and issued 4 million common shares for gross proceed of $2.48 million under the terms of the Amended and Restated IFA with Goldcorp. The proceeds were used to fund additional exploration on certain properties in central Mexico. Share issue costs of $61,118 were incurred.
  		The original IFA entered into January 29, 2010 provided Goldcorp with an option to acquire a certain interest in the Company’s central Mexico projects for US$10 million over two years. Pursuant to which, in February 2011, the Company issued 3,293,407 common shares and 1,646,703 share purchase warrants for gross proceeds of US$6 million ($5,994,000) and, in February 2010, the Company issued 3,001,418 common shares and 1,500,709 share purchase warrants for gross proceeds of US$4 million ($4,231,999).
  8.	Share-based payments
  	a)	Stock options
  		The Company has a stock option plan (the “Plan”), which is approved by the shareholders annually. The Plan is designed to attract and retain individuals and to reward them for current and expected future performance. Options generally are granted for a maximum term of five years and expire 90 days following the termination of the optionee’s agreement. The exercise price for the options is set at the closing market price of the common shares on the grant date. The vesting periods of options vary with terms determined by the board of directors. Under the Plan, the Company is authorized to grant stock options of up to 10% of the number of common shares issued and outstanding of the Company at any given time.
  		The following table presents changes in stock options for the years ended December 31, 2012 and 2011:

  
  

  		December 31, 2012						December 31, 2011
  		Number of			Weighted Average						Weighted Average
  		Options			Exercise Price			Number of Options			Exercise Price
  Outstanding, beginning of year		11,460,000		$	1.53			10,624,000		$	1.60
  Granted		3,695,000		$	0.47			3,690,000		$	1.26
  Expired		(1,145,000	)	$	2.61			(2,199,500	)	$	1.54
  Exercised		-		$	-			(654,500	)	$	1.11
  Outstanding, end of year		14,010,000		$	1.16			11,460,000		$	1.53
  Exercisable, end of year		13,635,000		$	1.17			11,158,333		$	1.53

  - 104 -

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  8.	Share-based payments, continued
  	a)	Stock options, continued
  		The following table summarizes information about the stock options outstanding by expiry dates:

  
  

  Exercise			Options Outstanding
  price	Fair Value	Expiry Date	December 31, 2012	December 31, 2011
  $ 3.33	$ 1.98	July 20, 2012	-	775,000
  $ 3.45	$ 2.05	March 31, 2013	150,000	150,000
  $ 3.30	$ 1.87	June 19, 2013	905,000	905,000
  $ 0.98	$ 0.52	November 9, 2014	1,745,000	1,750,000
  $ 1.02	$ 0.51	November 9, 2014	2,095,000	2,100,000
  $ 2.00	$ 1.22	January 14, 2015	40,000	40,000
  $ 1.80	$ 0.85	April 1, 2015	100,000	100,000
  $ 1.76	$ 0.97	April 22, 2015	200,000	200,000
  $ 1.29	$ 0.75	August 9, 2015	1,605,000	1,685,000
  $ 1.55	$ 0.90	October 6, 2015	65,000	65,000
  $ 1.51	$ 0.90	November 3, 2015	100,000	100,000
  $ 0.60	$ 0.12	December 31, 2015	400,000	-
  $ 1.60	$ 0.96	March 24, 2016	305,000	355,000
  $ 1.25	$ 0.74	August 9, 2016	2,800,000	2,935,000
  $ 0.90	$ 0.51	October 24, 2016	300,000	300,000
  $ 0.50	$ 0.32	March 27, 2017	100,000	-
  $ 0.45	$ 0.28	June 28, 2017	3,100,000	-
  Total stock options outstanding			14,010,000	11,460,000

  The weighted average remaining contractual life for options outstanding and exercisable on December 31, 2012 was 2.91 (2011 – 3.25) years and 2.90 (2011 – 3.22) years, respectively.

  On January 1, 2013, 25,000 stock options at an exercise price of $0.45 and an expiry date of June 28, 2017 expired unexercised due to forfeiture.

  The Company uses the following weighted average assumptions to fair value the options granted through the Black-Scholes option pricing model:

  			December 31, 2012			December 31, 2011			December 31, 2010
  	Weighted average share price	$	0.44		$	1.26			1.39
  	Risk-free interest rate		1.11%			1.13%			4.45%
  	Expected share price volatility		82%			89%			92%
  	Expected option life in years		3.9			4.0			3.0
  	Forfeiture rate		0%			0%			0%
  	Expected dividend yield		0%			0%			0%

  Volatility was determined based on the historical volatility over the estimated lives of the options.

  - 105 -

  ---

  
  

  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  8.	Share-based payments, continued
  	a)	Stock options, continued
  		The share-based payments expense is incurred as follows:

  
  

  		Years ended December 31,
  		2012			2011			2010
  Consultants	$	368,835		$	1,078,605		$	1,175,872
  Directors and officers		460,455			1,018,476			787,668
  Employees		217,227			749,626			287,718
  	$	1,046,517		$	2,846,707		$	2,251,258

  
  

  	b)	Share purchase warrants
  		The following table presents changes in warrants for the years ended December 31, 2012 and 2011:

  
  

  			December 31, 2012						December 31, 2011
  			Number of			Weighted Average			Number of			Weighted Average
  			Warrants			Exercise Price			Warrants			Exercise Price
  	Outstanding, beginning of year		9,009,512		$	1.94			20,186,023		$	1.16
  	Issued		6,541,571		$	0.53			1,646,703		$	2.27
  	Expired		(7,362,809	)	$	1.87			(971,982	)	$	0.75
  	Exercised		-		$	-			(11,851,232	)	$	0.75
  	Outstanding, end of year		8,188,274		$	0.88			9,009,512		$	1.94

  The following summarizes information about the share purchase warrants as of December 31, 2012 and 2011:

  Expiry date		Exercise price			December 31, 2012			December 31, 2011
  February 4, 2012	$	1.76			-			1,500,709
  October 27, 2012	$	1.90			-			5,862,100
  February 7, 2013	$	2.27			1,646,703			1,646,703
  December 28, 2014		USD 0.53			6,541,571			-
  					8,188,274			9,009,512

  
  

  		On February 7, 2013, 1,646,703 warrants at an exercise price of $2.27 expired unexercised.
  	c)	Pursuant to a financial and advisory service agreement dated April 15, 2011, the Company issued 98,483 (2011 – 89,983) common shares during the year ended December 31, 2012 for such services with a fair value of $45,000 (2011 - $90,000). The agreement expired April 15, 2012.

  - 106 -

  ---

  
  

  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  8.	Share-based payments, continued
  	d)	Agent compensation options
  		During the year ended December 31, 2011, the Company issued 703,452 agent compensation options at an exercise price of $1.45 expiring October 27, 2012 in relation to the brokered private placement on October 27, 2010. Each option entitles the agent to acquire one common share of the Company and one- half of one share purchase warrant exercisable at $1.90 by October 27, 2012 on which date the entire agent compensation options expired unexercised.
  	e)	Warrants issued on November 27, 2008, December 19, 2008 and January 15, 2009 with respect to the convertible debt financing had an exercise price denominated in US dollars. As a result, these warrants are required to be measured and recognized at fair value with changes subsequent to the initial recognition charged to the net income (loss) until they are fully exercised. The Company has determined the fair value using the Black-Scholes option pricing model.
  		For the year ended December 31, 2010, the Company recorded a warrant revaluation gain of $4,037,184 resulting from the fair value change of this derivative liability that expired unexercised. On exercise of the warrants, the associated derivative liability of $4,440,760 was transferred to share capital.
  9.	Compensation of key management
  	Key management comprises directors and executive officers. Certain executive officers are entitled to termination benefits equal to up to two years’ gross salary amounting to $1,625,000$300,000 in the event of a change of control. The Company has no post-employment benefits and other long-term employee benefits.
  	Compensation awarded to key management was as follows:

  
  

  			Years ended December 31,
  			2012			2011			2010
  	Salaries and employee benefits	$	918,297		$	805,770		$	637,500
  	Directors' fees		126,971			110,294			113,240
  	Share-based payments		460,455			1,018,476			787,668
  		$	1,505,723		$	1,934,540		$	1,538,408

  
  

  			Years ended December
  			2015			2014			2013
  	Salaries and employee benefits	$	516,933		$	583,341		$	338,768
  	Directors' fees		17,985			-			150
  	Share-based payments		146,299			178,397			283,577
  		$	681,217		$	761,738		$	622,495

  Director fees were re-instated beginning July 1, 2015 at CAD$47,500 per annum payable equally on a quarterly basis.

  10.	Related party transactions
  b)	The Company’sCompany paid remuneration for the following items with companies related parties consistby way of companiesofficers in common:

  
  

  			Years ended December 31,
  			2015			2014			2013
  	Manex Resources Group(i)	$	130,705		$	263,010		$	398,895
  	Lawrence Page Q.C. Law Corp.(ii)		-			7,873			12,222
  	Atherton Enterprises Ltd.(iii)		-			-			76,279
  		$	130,705		$	270,883		$	487,396

  
  

  (i)

  Manex Resource Group (“Manex”) is a private company owned by executive officers or directors. The following feesthe Corporate Secretary that provides general office and expenses were incurred in the normal course of operations:administrative services.

  
  

  			Years ended December 31,
  			2012			2011			2010
  	Manex Resource Group(a)	$	535,349		$	514,577		$	501,350
  	Lawrence Page, Q.C. Law Corp.(b)		4,115			6,410			7,820
  	Atherton Enterprises Ltd.(c)		157,880			175,000			175,000
  		$	697,344		$	695,987		$	684,170

  - 107 -Page25 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  10.	Related party transactions, continued
  	a)	Manex Resource Group (“Manex”) is a private company owned by a director that provides general office and administrative services. As of December 31, 2012, $26,374 (2011 - $47,884) was still owing in due to related parties.
  	b)(ii)	Lawrence Page, Q.C. Law Corp. is a company owned by a directorthe Corporate Secretary that provides legal services. As of December 31, 2012, $616 (2011 - $nil) was still owing in due to related parties.
  	c)(iii)	Atherton Enterprises Ltd. is a private company owned by an officer that providesMr. Scott Hean, the CFO services toof the Company. Effective December 1, 2013, Mr. Hean became a salaried employee of the Company.

  
  

  c)

  Related party loan payable

  During the year ended December 31, 2013, the President and CEO of the Company advanced three loans to the Company in the principal amount of $800,000. The loans are unsecured, bear annual interest of 10% and are due on demand with 40 days’ notice.

  The principal and interest amounts outstanding were fully repaid in the year ended December 31, 2014.

  11.	Commitments and Contingencies

  
  

  	a)	The Company has a five-year service agreement with Manex until August 31, 2017 at a monthly rate of CAD$8,000. The Company may terminate the service agreement by paying Manex the lesser of CAD$96,000 or a total fee owing for the remainder of the service agreement.
  11.b)	Supplemental cash flow informationTo acquire certain mineral property interests in Nevada, the Company must make optional acquisition expenditures in order to satisfy the terms of existing option agreements, failing which the rights to such mineral properties will revert back to the property vendors. For details of the Company’s mineral property payments see Note 5.

  
  

  For the years ended		December 31,			December 31,			December 31,
  		2012			2011			2010
  Non-cash items
  Mineral property expenditures included in accounts payable	$	302,366		$	1,415,599		$	622,884
  Non-cash share issue costs	$	-		$	-		$	533,480
  Shares received for mineral properties	$	-		$	-		$	40,000
  Shares issued for mineral properties	$	-		$	-		$	355,500

  
  

  As at		December 31,			December 31,
  		2012			2011
  Cash and cash equivalents comprises
  Cash	$	1,795,555		$	2,147,321
  Term deposits and bankers acceptance		-			10,000,000

  
  

  12.	Deferred income taxesSupplemental Cash Flow Information

  
  

  	For the years ended		December 31,			December 31,			December 31,
  			2015			2014			2013
  	Non-cash items
  	Mineral property expenditures included in accounts payable	$	397,591		$	2,825		$	120,489
  	Shares issued for mineral properties	$	-		$	-		$	81,843
  	Warrant derivative liability	$	1,279,937		$	-		$	-
  	Extension of convertible note	$	215,140		$	-		$	-
  	Cash & cash equivalents
  	Cash in bank	$	1,910,693		$	1,482,469		$	770,409
  	Option payment - Freeport Nevada		1,611,430
  	Short-term investments		1,000,000			-			-
  		$	4,522,123		$	1,482,469		$	770,409

  Page26 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2015, 2014 and 2013

  (Expressed in U.S. Dollars)

  
  

  13.	Deferred Income Taxes

  
  

  	a)	A reconciliation of income tax provision computed at Canadian statutory rates to the reported income tax provision is provided as follows:

  
  

  			2012			2011			2010
  	Loss for the year	$	4,853,976		$	11,264,539		$	2,769,248
  	Canadian statutory tax rate		25.0%			26.5%			28.5%
  	Income tax benefit computed at statutory rates		1,213,494			2,985,103			789,236
  	Foreign tax rates different from statutory rates		224,933			266,896			22,335
  	Temporary differences		887,107			311,553			2,228,377
  	Change in timing differences		427,291			(1,316,464	)		(960,676	)
  	Rate difference between current and deferred taxes		(66,920	)		45,108			38,709
  	Foreign exchange gains or losses		(531,660	)		345,176			(831,885	)
  	Permanent differences		(284,224	)		(820,811	)		(659,490	)
  	Unused tax losses and tax offsets not recognized in tax asset		(1,870,021	)		(1,816,561	)		(626,606	)
  		$	-		$	-		$	-

  - 108 -

  ---

  			2015			2014
  	Loss for the year	$	3,103,861		$	2,140,583
  	Canadian statutory tax rate		26%			26%
  	Income tax benefit computed at statutory rates		807,004			556,552
  	Foreign tax rates different from statutory rates		78,484			52,663
  	Expired losses		(598,813	)		-
  	Temporary differences		(10,950	)		735,795
  	Change in timing differences		1,887,498			1,046,033
  	Rate difference between current and deferred taxes		(33,680	)		314,843
  	Foreign exchange gains or losses		(871,772	)		1,580,067
  	Permanent differences		(54,974	)		81,810
  	Unused tax losses and tax offsets not recognized in tax asset		(1,202,797	)		(4,367,763	)
  		$	-		$	-

  
  

  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  12.	Deferred income taxes, continued

  
  

  		Effective January 1, 2012, the Canadian federal corporate tax rate decreased from 16.5% to 15.0% and the British Columbia provincial tax rate remained the same at 10.0%. The overall reduction in tax rates has resulted in a decrease in the Company’s statutory tax rate from 26.5% to 25.0%.
  		In 2009, the Mexican government approved tax reform that includes a 2% increase in the income tax rate in Mexico from 28% to 30% for a three-year period starting in 2010.
  	b)	The tax effected items that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities at December 31, 20122015 and 20112014 are presented below:

  
  

  			2012			2011
  	Deferred tax assets
  	Tax losses carried forward	$	5,915,207		$	4,781,079
  	Tax value over book value of equipment		59,294			46,722
  	Tax value over book value of investments		-			4,585
  	Deferred tax assets		5,974,501			4,832,386
  	Deferred tax liability
  	Book value over tax value of mineral properties		(5,974,501	)		(4,832,386	)
  	Net deferred tax assets	$	-		$	-

  			2015			2014
  	Deferred tax assets
  	Tax losses carried forward	$	-		$	626,754
  	Tax value over book value of mineral properties		107,190			-
  	Deferred tax assets		107,190			626,754
  	Deferred tax liability
  	Tax losses carried forward		(107,190	)		(626,754	)
  	Net deferred tax assets	$	-		$	-

  Page27 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2015, 2014 and 2013

  (Expressed in U.S. Dollars)

  
  

  c)

  The Company recognizes tax benefits on losses or other deductible amounts generated in countries where it is probable the deferred tax assets will be recovered. The Company’s unrecognized deductible temporary differences and unused tax losses for which no deferred tax asset is recognized consist of the following amounts:

  
  

  			December 31,			December 31,
  			2012			2011
  	Non-capital losses	$	22,770,000		$	19,689,000
  	Share issue costs		709,000			1,057,000
  	Tax value over book value of mineral properties		5,915,000			3,837,000
  	Tax value over book value of equipment		134,000			57,000
  	Tax value over book value of investments		33,000			16,000
  	Unrecognized deductible temporary differences	$	29,561,000		$	24,656,000

  			2015			2014
  	Non-capital losses	$	52,979,635		$	45,077,000
  	Share issue costs		409,946			535,538
  	Tax value over book value of mineral properties		4,246,236			14,452,967
  	Tax value over book value of equipment		561,332			607,938
  	Tax value over book value of investments		21,266			35,084
  	Unrecognized deductible temporary differences	$	58,218,415		$	60,708,527

  The Company’s unrecognized unused non-capital losses expire as follows:

  			Canada			United States			Mexico
  	2014 - 2018	$	643,000		$	-		$	6,652,000
  	2019 - 2023		-			916,000			15,753,000
  	2024 - 2032		16,299,000			4,910,000			-
  	Total	$	16,942,000		$	5,826,000		$	22,405,000

  			Canada			United States			Mexico
  	2016 - 2020	$	-		$	-		$	10,711,834
  	2021 - 2025		-			677,681			10,496,445
  	2026 - 2035		15,421,169			15,672,505			-
  	Total	$	15,421,169		$	16,350,186		$	21,208,279

  - 109 -The Company’s unused capital losses of $12,924 are available to carry forward indefinitely.

  14.	Segmented Information

  The Company has one business segment, the exploration of mineral properties. The Company’s significant non-current assets are distributed by geographic locations as follows:

  			December 31, 2015						December 31, 2014
  			Equipment			Mineral property			Equipment			Mineral property
  	Mexico	$	-		$	887,850		$	45,929		$	2,365,128
  	United States		14,278			29,412,160			19,994			29,931,194
  	Total	$	14,278		$	30,300,010		$	65,923		$	32,296,322

  Page28 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years endedYears Ended December 31, 2012, 20112015, 2014 and 20102013

  (Expressed in Canadian dollars)U.S. Dollars)

  
  

  13.	Commitments
  	a)	On February 9, 2012, the Company renewed its service agreement with Manex for its Vancouver head office administration and corporate services at a monthly rate of $19,250 for a five-year term expiring August 31, 2017. The Company may terminate the agreement by paying Manex the lesser of $462,000 or a total of fee owing for the remainder of the term.
  	b)	On March 1, 2011, the Company’s US subsidiary entered into a lease agreement for its premises located in the city of Yerington, Nevada. The initial term of the lease is three years with an option to extend for an additional three years.
  	c)	As of December 31, 2012, the Company had the following commitments related to its office premises:

  
  

  December 31, 2013	$	277,561
  December 31, 2014		251,296
  December 31, 2015		231,000
  December 31, 2016		231,000
  December 31, 2017		154,000
  	$	1,144,857

  
  

  14.	Segmented information
  	The Company has one business segment, the exploration of mineral properties. The Company’s significant non-current assets are distributed by geographic locations as follows:

  
  

  		December 31, 2012						December 31, 2011
  					Mineral			Taxes						Mineral
  		Equipment			property			receivable			Equipment			property
  Mexico		116,722			21,337,506			919,315			194,290			16,798,700
  U.S.A		108,154			48,828,055			-			154,505			42,242,086
  Total	$	224,876		$	70,165,561		$	919,315		$	348,795		$	59,040,786

  
  

  15.	Capital managementManagement and financial instrumentsFinancial Instruments

  The Company considers its capital under management to consist of shareholders’ equity. The Company manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Company’s assets.

  The Company’s objectives of capital management are intended to ensure the entity’s ability to support the Company’s normal operating requirements on an ongoing basis, continue the development and exploration of its mineral properties, and support any expansionary plans.

  To effectively manage the entity’s capital requirements, the Company has in place a planning and budgeting process to help determine the funds required to ensure the Company has the appropriate liquidity to meet its operating and growth objectives.

  - 110 -

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  15.	Capital management and financial instruments, continued

  There were no changes in the Company’s approach to capital management during the year ended December 31, 2012.2015.

  The Company’s activities expose it to a variety of risks arising from financial instruments. TheseThe Company examines the various financial instrument risks to which it is exposed and management’s objectives, policiesassesses the impact and procedures for managinglikelihood of these risks are disclosed as follows.risks.

  The following is a summary classificationCompany designates the fair value of financial instruments as of December 31, 2012 and 2011:according to the following:

  															Total
  			Loans and			Available-			Held-for-			Other financial			carrying
  	December 31, 2012		receivables			for-sale			trading			liabilities			value
  	Financial assets
  	Cash and cash equivalents	$	-		$	-		$	1,795,555		$	-		$	1,795,555
  	Restricted cash		80,148												80,148
  	Amounts due from joint venture partners		613,753												613,753
  	Marketable securities					12,333									12,333
  	Reclamation bonds		170,287												170,287
  	Financial liabilities														-
  	Accounts payable and accrued liabilities											(656,115	)		(656,115	)
  	Due to related parties											(26,990	)		(26,990	)
  	Derivative liabilities - warrants					(774,673	)								(774,673	)
  		$	864,188		$	(762,340	)	$	1,795,555		$	(683,105	)	$	1,214,298

  
  

  												Other			Total
  			Loans and			Available-			Held-for-			financial			carrying
  	December 31, 2011		receivables			for-sale			trading			liabilities			value
  	Financial assets
  	Cash and cash equivalents	$	-		$	-		$	12,147,321		$	-		$	12,147,321
  	Restricted cash		94,638												94,638
  	Amounts due from exploration partners		240,222												240,222
  	Marketable securities					27,667									27,667
  	Reclamation bonds		519,092												519,092
  	Financial liabilities														-
  	Accounts payable and accrued liabilities											(1,829,704	)		(1,829,704	)
  	Due to related parties											(47,884	)		(47,884	)
  		$	853,952		$	27,667		$	12,147,321		$	(1,877,588	)	$	11,151,352

  - 111 -

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  Quaterra Resources Inc.	Level 1 -	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
  Notes to Consolidated Financial Statements	Level 2 -	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
  For	Level 3 -	Prices or valuation techniques that require inputs that are both significant to the years ended December 31, 2012, 2011fair value measurement and 2010
  (Expressed in Canadian dollars)

  
  

  15.	Capital management and financial instruments, continuedunobservable (supported by little or no market activity).

  Fair value

  The Company’s marketable securities measured at fair value were categorized in Level 1 at $12,333 (2011 -$27,667). The fair value of the Company’s marketable securities is based on active market prices at the reporting date.

  TheCompany has designated its cash and cash equivalent as held-for-trading; amounts due from joint venture partner, other receivables and amount due from Freeport Nevada are classified as loans and receivables; reclamation bonds are classified as held-to-maturity; accounts payable and accrued liabilities are classified as other financial liabilities; and derivative liability is measured at fairclassified as held-for-trading.

  Fair value and categorized in Level 2 at $774,673 (2011 - $nil). The fair value of the derivative liability is based on the Black-Scholes option pricing model inputs disclosed in note 7(b) as determined at the reporting date.

  The recorded amount for cash equivalents, restricted cash, amount due from exploration partners, amounts due from and to related parties, and accounts payable and accrued liabilities approximate their fair values due to their short-term nature. The carrying values of the reclamation bonds approximate their fair values, as these balances are redeemable on demand.

  MarketThe derivative liability is measured at fair value and categorized in Level 3 at $1,391,956 (2014 - $1,292,652). The fair value of the derivative liability is based on the Black-Scholes option pricing model inputs disclosed in Note 8, as determined at the reporting date.

  Foreign currency risk

  MarketForeign currency risk is the risk that the carry value of financial instruments denominated in another currency than the functional currency of the Company may change. The Company operates in Canada and the United States and is therefore exposed to foreign exchange currency risk arising from transactions denominated in CAD. Based on the table below, a 10% change in the exchange rate between the CAD and USD would not have material effect on the Company’s operations.

  Page29 of30

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the Years Ended December 31, 2015, 2014 and 2013

  (Expressed in U.S. Dollars)

  The following table lists the financial instruments denominated in CAD as of year ended:

  			December 31, 2015			December 31, 2014			December 31, 2013
  			CAD			CAD			CAD
  	Cash	$	8,619		$	30,918		$	21,445
  	Other receivables		12,541			4,919			6,709
  	Accounts payable and accrued liabilities		(99,213	)		(242,576	)		(130,894	)
  	Due to related parties		-			(3,295	)		(4,375	)
  	Net foreign exposure	$	(78,053	)	$	(210,034	)	$	(107,115	)

  Interest rate risk

  Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises three types of risks: currency risk, interest rate risk and other price risk.

  Currency risk

  The Company operates internationally and is exposed to foreign currency risk from fluctuations in exchange rates between the Canadian dollar and various currencies, primarily US dollars and Mexican pesos. The Company has not hedged its exposure to foreign currency fluctuations.

  rates. The Company is exposed to currencythe interest rate risk as follows:

  			December 31, 2012						December 21, 2011
  			US			Pesos			US			Pesos
  	Cash	$	1,715,415			183,410		$	1,155,138			1,114,735
  	Other receivables and restricted cash		69,000			-			69,000			12,614,401
  	Due from exploration partners		616,899			-			236,206			-
  	Reclamation bond		171,160			-			510,415			-
  	Accounts payable and accrued liabilities		(343,686	)		(760,178	)		(1,498,898	)		(53,726	)
  	Derivative liabilities - warrants		(784,988	)		-			-			-
  	Net foreign exposure	$	1,443,800			(576,768	)	$	471,861			13,675,410

  Basedthrough the interest earned on the above net foreign currency exposures as at December 31, 2012,cash balances and assuming all other variables remain constant, a 5% weakening or strengthening of the Canadian dollar against a) the US dollar would result in a change of $73,930 (2011 - $24,402) in the Company’s loss;short-term investments and b) the Mexican peso would have no material impact in the Company’s loss for the year.

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  Quaterra Resources Inc.

  Notes to Consolidated Financial Statements

  For the years ended December 31, 2012, 2011 and 2010

  (Expressed in Canadian dollars)

  
  

  15.	Capital management and financial instruments, continued

  Market value, continued

  Interest rate risk

  The Company’s cashloan payable and cash equivalents are held in bank accounts that earn interest at variable interest rates. Due to the short-term nature of these financial instruments, fluctuations in market rates do not have a significant impact on the estimated fair value as of December 31, 2012.convertible notes. The Company manages interest rate risk by maintaining an investment policy that focuses primarily on the preservation of capital and liquidity. However, management does not believe this exposure is significant.

  Other price risk

  Other price risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from currency risk or interest rate risk. The Company’s marketable securities are carried at market value and are therefore directly affected by fluctuations in the market value of the underlying securities. The Company’s sensitivity analysis suggests that a 10% change in market prices would have no material impact on the value of the Company’s marketable securities.

  Credit risk

  Credit risk is the risk of a financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

  The Company’s financial instruments that areCompany is exposed to credit risk and forthrough its cash, which the balances represent the maximum exposure to credit risk are cash and cash equivalents, restricted cash, amounts due from exploration partners, and taxes and other receivables. The Company manages its credit risk on cash and cash equivalents and restricted cash by maintaining these balances atis held in large Canadian chartered banks and financial institutions that have high credit ratings assigned by international credit ratings agencies.and receivables. The Company’s credit risk associated with amounts due from exploration partners is minimized as a result of a strong and continuing working relationship with the partners. Taxes receivables include balances due from the Canadian federal government.

  At December 31, 2012, management assessed the probability of recovering the non-current taxes receivable and determined that the probability of recovery was remote and, accordingly, recognized an impairment loss of $895,769 (2011 - $Nil).The Company believes this credit risk is insignificant.

  Liquidity risk

  Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk by forecasting cash flows from operations and anticipated investing and financing activities and through the management of its capital structure. Accounts payable and accrued liabilities

  16.	Subsequent Events

  
  

  	a)	On January 6, 2016, $500,000 was received and 1.9 million warrants were vested and exercisable immediately at an exercise price of $0.16 per share pursuant to the Asset Purchase Agreement with Freeport, which closed October 3, 2014.
  	b)	On January 15, 2016, the Company sold its 100% owned Mexican subsidiaryMinera Agua de Tierra S.Vfor $500,000.
  	c)	On March 1, 2016, the Company amended and extended the final and deferred payments of $1.5 million due from Blackberry for the Nieves property to $1.0 million by June 1, 2016 as per the Stock Purchase Agreement closed December 29, 2014.

  Page30 of $656,115 are due in the first quarter of fiscal 2013 and due to related parties of $26,990 are due on demand.

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