NATURE OF BUSINESS, BASIS OF PRESENTATION AND GOING CONCERN

White Mountain Titanium Corporation, through its subsidiaries, (collectively, the “Company”) is in the business of exploring for titanium deposits or reserves on its Cerro Blanco mining concessions. The Company is an exploration stage company and its principal business is to advance exploration and development activities on the Cerro Blanco rutile (titanium dioxide) Property (“Cerro Blanco”) located in Region III of northern Chile.

The accompanying condensed consolidated interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2016 and for the period then ended have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with United States (“US”) accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed or omitted. These unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s December 31, 2015, Annual Report on Form 10-K filed with the US Securities and Exchange Commission (“SEC”) on March 28, 2016. The organization and business of the Company, accounting policies followed by the Company, other than the recently adopted accounting pronouncements discussed below and other information are contained in the notes to the Company’s audited consolidated financial statements for the year ended December 31, 2015 filed as part of the Company’s December 31, 2015 Annual Report on Form 10-K. The results of operations for the period ended March 31, 2016 are not necessarily indicative of the operating results for the full year.

These condensed consolidated interim financial statements have been prepared by management on the basis of US GAAP applicable to a going concern, which assumes the Company will continue to operate for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The Company has an accumulated deficit of $60,390,653 at March 31, 2016 (December 31, 2015 - $59,653,661), has not yet commenced revenue-producing operations, and has significant expenditure requirements to continue to advance its exploration and development activities on the Cerro Blanco property. Management intends to raise additional capital through stock issuance to finance operations. However, there is no assurance that management will be successful in its future financing activities.

SIGNIFICANT ACCOUNTING POLICIES

Convertible debentures

Convertible debentures and warrants are bifurcated between debt component and equity component based on the relative fair values of the debt and warrants, the conversion component of the debt component is then fair valued and accounted for as additional discount to the debt component and is treated as a derivative liability and fair valued every balance sheet date, the resulting discount to the debt component is amortized over the term of the debt using the effective interest rate method.

The following accounting pronouncement was adopted by the Company:

SIGNIFICANT ACCOUNTING POLICIES (continued)

During the period the Company adopted update No. 2015-02 Consolidation (Topic 810) Amendments to the Consolidated Analysis. The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments:

Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities

Eliminate the presumption that a general partner should consolidate a limited partnership

Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships

Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds.

SIGNIFICANT ACCOUNTING POLICIES (continued)

In August 2014, the FASB issued Update No. 2014-15— Presentation of Financial Statements— Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . The amendments in the Update provide guidance on management’s responsibility to disclose conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern. The Update requires management also to discuss plans to mitigate the conditions or events and if the plans will alleviate the substantial doubt by considering the probability of implementation of the plans and mitigation effect of the plans. The new requirements are effective for annual periods ending after December 15, 2016, The adoption of this standard had no effects on the Company’s condensed consolidated interim financial statements.

FINANCIAL INSTRUMENTS AND RISKS

The Company has classified its financial instruments as follows:

Cash – as held-for-trading

Receivables – as refundable deposits and receivables

Accounts payable and accrued liabilities – as other financial liabilities
Convertible Note – as other financial liabilities
Derivative Liabilities – as held for trading

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).

FINANCIAL INSTRUMENTS AND RISKS (continued)

Credit risk:

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge its contractual obligations.

The Company mitigates credit risk by maintaining its cash with high credit quality US, Chilean and Chinese financial institutions.

Liquidity risk:

Liquidity risk is the risk that the Company will encounter difficulty in satisfying financial obligations as they become due. The Company manages its liquidity risk by forecasting cash flows required for operations and anticipated investing and financing activities. The Company’s cash at March 31, 2016 and December 31, 2015 totaled $2,016,463 and $396,878, respectively. At March 31, 2016 and December 31, 2015, the Company had accounts payable and accrued liabilities of $405,423, and $135,354, respectively, all of which fall due in the next fiscal quarter. The Company has a Convertible Note for principal amount of $2,000,000 which is due on March 16, 2018.

Market risk:

Market 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 risk: interest rate risk, foreign currency risk and other price risk.

Interest rate risk

To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk. The Company’s Convertible Note is not exposed to interest rate cash flow risk as it bears a fixed interest rate.

To the extent that changes in prevailing market interest rates differ from the interest rate in the Company’s monetary assets and liabilities, the Company is exposed to interest rate price risk.

Foreign currency risk

The Company is exposed to foreign currency risk to the extent expenditures incurred or funds received and balances maintained by the Company are denominated in currencies other than the US dollar (primarily Chilean pesos (“CLP”), Chinese yuan (“RMB”), and Hong Kong dollars (“HKD”)). As at March 31, 2016, the Company has net monetary liabilities of $43,401 (December 31, 2015 - net monetary liabilities of $44,693) denominated in CLP, net monetary assets of $4,584 (December 31, 2015 - $7,678) denominated in HKD, and net monetary assets of $75,765 (December 31, 2015 - $152,095) denominated in RMB.

FINANCIAL INSTRUMENTS AND RISKS (continued)

As at March 31, 2016, the Company’s sensitivity analysis suggests that a change in the absolute rate of exchange in CLP, RMB and HKD by 10% will not have a material effect on the Company’s business, financial condition and results of operations, and a change in the absolute rate of exchange in CLP by 6% will also not have a material impact.

The Company has not entered into any foreign currency contracts to mitigate this risk.

Other price risk

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, other than those arising from interest rate risk or foreign currency risk. The Company is not exposed to other price risk.

MINERAL PROPERTIES

Cerro Blanco

On September 5, 2003, the Company, through its wholly-owned Chilean subsidiary, White Mountain Chile, entered into a purchase agreement with Compañía Contractual Mineral Ojos del Salado (“Ojos del Salado”), a wholly-owned Chilean subsidiary of Phelps Dodge Corporation, to acquire a 100% interest in nine exploration mining concessions, collectively known as Cerro Blanco. Cerro Blanco is located in Region III of northern Chile, approximately 39 kilometers, or 24 miles, west of the city of Vallenar. Consideration for the purchase, including legal fees, was $651,950

The purchase agreement covering Cerro Blanco was originally entered into between Ojos del Salado and Dorado Mineral Resources NL (“Dorado”) on March 17, 2000. Under that agreement, Dorado purchased the mining exploitation concessions from Ojos del Salado for $1,000,000, of which $350,000 was paid. A first mortgage and prohibitions against entering into other contracts regarding mining concessions without the prior written consent of Ojos del Salado had also been established in favor of Ojos del Salado. On September 5, 2003, White Mountain Chile assumed Dorado’s obligations under the purchase agreement, including the mortgage and prohibitions, with payment terms as described above.

La Martina

As a result of regional exploration carried out in January 2013, a new rutile prospect named La Martina has been discovered and staked in the Atacama, or Region III, geographic region of northern Chile. La Martina, which is located approximately 45 kilometres southwest of the city of Vallenar and 17 kilometres southwest of the Cerro Blanco project, consists of six registered exploration concessions. Concession fees and other costs incurred in staking the property have been expensed.

Ownership in 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 characteristic of mineral properties. The Company has investigated ownership of its mineral properties, and to the best of its knowledge, ownership of its interests is in good standing. At present, the Company has determined that it has no material asset retirement obligations (“AROs”).

MINERAL PROPERTIES (continued)

NOTES PAYABLE

On March 16, 2016, the Company and its wholly-owned subsidiary Sociedad Contractual Minera White Mountain Titanium Corporation entered into a loan agreement and issued a 7% Senior Convertible Promissory Note to the lender for a total of $2,000,000 (the “Convertible Note”).

The Convertible Note has a maturity date of March 16, 2018 and bears simple interest of 7% per annum on the unpaid principal amount until the principal amount is repaid in full.

The Convertible Note is convertible into shares of the Company’s Series A Preferred Stock (“Series A Shares”) at the rate of $0.12 per share, par value of $0.001 per share. The Series A Shares have the same voting rights as Common Stockholders and are convertible into Common Stock at conversion price of $0.12 per share. The Convertible Note will automatically convert into Series A Preferred Stock if the Company successfully raises an additional $8,000,000, the proceeds of which are allocated for certain qualified milestones relating to the Cerro Blanco project, or if the Company secures a water off-take agreement for its proposed desalination plant with volume and price components that are mutually satisfactory to both the Company and the lender. In addition, the Company issued to the lender 100 shares of Series A Preferred Stock with a $0.001 par value and warrants to purchase 8,333,333 shares of Common Stock at price of $0.30 per share until March 16, 2019. An amount of $12 was recognized for the preferred share issuance which has been recognized as a derivative liability.

In the event of default, the interest rate increases to 25% per annum. Subject to certain exceptions, the Convertible Note is senior to any other indebtedness of the Company.

The fair value of the liability component was determined using present value of expected cash-flows. The conversion component of the note was classified as a derivative liability. The estimated fair value of the derivative liability component was valued using the Black-Scholes option model using the following assumptions: volatility of 145.14%, expected term of 2 years, discount rate of 1.13% and dividend yield of 0%. The warrants were classified as equity and were recorded as additional paid in capital at their estimated fair value using the Black-Scholes option model using the following assumptions: volatility of 131.93%, expected term of 3 years, discount rate of 1.13% and dividend yield of 0%

Based on the valuation of the instruments, the proportionate allocation of fair values of the Convertible Note on initial recognition was allocated to the debt component as $748,591, the derivative liability component as $845,809 and the warrants component as $405,600.

The derivative component was further revalued at March 31, 2016 resulting in a gain on derivative liability of $8,070 and an ending balance of $837,751. The derivative liability component was revalued using the following assumptions: volatility of 145.14%, expected term of 1.96 years, discount rate of 1.13% and dividend yield of 0%.

$18,442 of accretion expense was recognized using the effective interest rate during the three months ended March 31, 2016. The debt component as at March 31, 2016 is $767,033.

CAPITAL STOCK

(a) Common stock

During the three months ended March 31, 2016, no common stock was issued.

(b) Preferred stock

During the period ended March 31, 2016, the Company designated 19,000,100 shares of Series A preferred stock with a par value of $0.001 per share. Each share of preferred stock was convertible into one common share at any time at the holder’s option, at a conversion of $0.12 per share subject to the adjustments to the conversion ratio. The adjustment to the conversion price of these preferred shares is based on the lowest of the share price of any common shares issued, the exercise price of any options granted or re-priced, or any preferred shares issued after the issuance of these preferred shares.

The preferred stock was unlisted, non-retractable and non-redeemable. The preferred stockholders were entitled to the number of votes equal to the number of whole shares of common stock into which the preferred stock are convertible. The preferred stockholders were further entitled to the same dividends and distributions as the common stockholders.

In connection with the issuance of the Convertible Note ( Note 6 ) 100 shares of Series A Preferred Stock, $0.001 par value, were issued to the note holder.

(c)   Stock options

The Company has a stock option plan, adopted in 2005, and a stock option/stock issuance plan, adopted in 2010, which has been replaced by a stock incentive plan adopted in June 2015 (individually, the “2005 Plan”, the “2010 Plan”, and the “2015 Plan”, respectively, and, collectively, the “Plans”). Under the Plans, the Company is authorized to grant options to executive officers and directors, employees and consultants of the Company. The 2005 Plan was originally authorized to grant 3,140,000 shares, and the 2015 Plan was originally authorized to issue 4,641,040 shares, which amount is increased at the end of each year to represent 10% of the total number of shares of Common Stock outstanding on the last trading day in December of the immediately preceding calendar year, less 3,949,500 shares. Effective January 1, 2016, the 2015 Plan authorized shares automatically increased to 5,661,944 shares. The terms of any stock options granted under the 2005 Plan may not exceed five years and the exercise price of any stock option granted may not be discounted below the maximum discount permitted under the policies of the Toronto Stock Exchange. The terms of any stock options granted under the 2015 Plan may not exceed ten years and the exercise price of any stock option plan is fixed by the plan administrator.

CAPITAL STOCK (continued)

(c) Stock options (continued)

The Company originally also adopted a management compensation pool for the benefit of officers, directors and employees of the Company. The pool consists of 1% of the outstanding shares at the end of each year. The shares granted under the compensation pool program are issued under the 2015 Plan.

The following table represents service-based stock option activity during the three months ended March 31, 2016 and the year ended December 31, 2015:

CAPITAL STOCK (continued)

(e) Warrants

On March 16, 2016, the Company issued warrants to purchase 8,333,333 shares of Common Stock, in connection with the Convertible Note ( Note 6 ). Each whole warrant is exercisable at $0.30 per share until March 16, 2019.

Stock purchase warrant activity for the period ended March 31, 2016 and the year ended December 31, 2015 is as follows:

LOSS PER SHARE

Potentially dilutive securities not included in diluted weighted average shares outstanding include shares underlying 1,375,000 in outstanding options and 43,695,918 in outstanding warrants.

COMMITMENTS

The Company entered into a lease agreement for office premises in China that commenced July 1, 2014 and expires June 30, 2021. The total lease payment pursuant to the agreement is $584,018, of which the remaining balance at March 31, 2016 is $396,297. If the Company terminates the lease prior to the end of the lease term, a deposit of $14,000 will not be returned.

The Company’s lease payments for office premises in China for the next five years are as follows:

SUBSEQUENT EVENTS

On April 30, 2016, warrants to purchase up to 5,048,299 shares of common stock of the Company at $0.30 per share expired.