EX-99.1 2 financials.htm 2ND QUARTER INTERIM FINANCIAL STATEMENTS MD Filed by Filing Services Canada Inc.  (403) 717-3898  

 

 

 






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MAG SILVER CORP.

(An exploration stage company)

 

Interim Unaudited Consolidated Financial Statements

For the three and six months ended June 30, 2010

 

 

 

 

Dated: August 16, 2010







      








A copy of this report will be provided to any shareholder who requests it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



See accompanying notes to the unaudited consolidated financial statements.



MAG SILVER CORP.

 

 

 

 

(An exploration stage company)

 

 

 

 

Consolidated Balance Sheets (Unaudited)

 

 

 

 

 

 

 

(expressed in Canadian dollars)

 

June 30, 2010

 

Dec. 31, 2009

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT

 

 

 

 

Cash

 

 $         51,313,141

 

 $         26,803,652

Accounts receivable (Note 3)

 

              2,560,217

 

              2,033,518

Interest receivable

 

                   27,217

 

                     9,116

Marketable securities (Note 4)

 

                   15,527

 

                   13,399

Prepaid expenses

 

                 166,517

 

                   91,300

TOTAL CURRENT ASSETS

 

            54,082,619

 

            28,950,985

EQUIPMENT AND LEASEHOLDS (Note 5)

 

                 142,043

 

                 149,070

INVESTMENT IN MINERA JUANICIPIO S.A. DE C.V. (Note 6)

 

            10,358,458

 

              8,610,350

MINERAL RIGHTS (Note 7)

 

              7,732,794

 

              7,509,214

DEFERRED EXPLORATION COSTS (Note 7)

 

            43,579,005

 

            37,433,919

TOTAL ASSETS

 

 $       115,894,919

 

 $         82,653,538

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

 

CURRENT

 

 

 

 

Accounts payable and accrued liabilities

 

 $           2,135,502

 

 $           1,076,606

 

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

Share capital (Note 8)

 

 

 

 

Authorized - unlimited common shares,  

 

 

 

 

without par value

 

 

 

 

Issued and outstanding at June 30, 2010 - 54,538,395

 

 

 

 

common shares (Dec. 31, 2009 - 49,316,569)  

 

          142,477,602

 

          107,614,849

Contributed surplus

 

            11,750,358

 

            11,177,518

Accumulated other comprehensive loss

 

             (1,517,141)

 

             (1,790,132)

Deficit accumulated during the exploration stage

 

           (38,951,402)

 

           (35,425,303)

TOTAL SHAREHOLDERS' EQUITY

 

          113,759,417

 

            81,576,932

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

 $       115,894,919

 

 $         82,653,538

 

 

 

 

 

CONTINUING OPERATIONS (Note 1)

 

 

 

 

COMMITMENTS (Note 14)

 

 

 

 

 

 

 

 

 

ON BEHALF OF THE BOARD

 

 

 

 

 

 

 

 

 

/s/ "Derek White"

 

 

 

 

Derek White, Director

 

 

 

 

 

 

 

 

 

/s/ "R. Michael Jones"

 

 

 

 

R. Michael Jones, Director

 

 

 

 








See accompanying notes to the unaudited consolidated financial statements.




MAG SILVER CORP.

 

 

 

 

 

 

 

 

(An exploration stage company)

 

 

 

 

 

 

 

 

Consolidated Statements of Loss and Comprehensive Loss (Unaudited)

(expressed in Canadian dollars)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the

 

For the

 

For the

 

For the

 

 

three month

 

three month

 

six month

 

six month

 

 

period ended

 

period ended

 

period ended

 

period ended

 

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

Accounting and audit

 

 $            145,463

 

 $                70,056

 

 $           255,086

 

 $            164,015

Amortization

 

                 13,090

 

                     8,586

 

                25,967

 

                 17,172

Filing and transfer agent fees

 

                 10,324

 

                   84,138

 

              105,581

 

               189,591

Foreign exchange loss

 

                   8,681

 

               (122,157)

 

                31,640

 

               (13,088)

General office and property investigation

 

               230,162

 

                 257,267

 

              365,015

 

               595,745

Legal

 

               569,569

 

              1,864,685

 

              738,559

 

            2,490,158

Management and consulting fees

 

               269,491

 

                 267,654

 

              519,271

 

               766,761

Mineral property costs written off (Note 7)

 

                         -   

 

                 491,316

 

                        -   

 

            3,641,571

Shareholder relations

 

                 54,949

 

                 225,161

 

              189,665

 

               458,238

Stock compensation expense

 

                         -   

 

              1,211,099

 

           1,159,401

 

            1,260,945

Travel

 

               103,486

 

                   80,138

 

              206,750

 

               167,317

 

 

            1,405,215

 

              4,437,943

 

           3,596,935

 

            9,738,425

INTEREST INCOME

 

                 46,449

 

                   53,239

 

                70,836

 

               191,964

NET LOSS FOR THE PERIOD

 

 $        (1,358,766)

 

 $         (4,384,704)

 

 $      (3,526,099)

 

 $       (9,546,461)

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

  CURRENCY TRANSLATION ADJUSTMENT

 

                 21,349

 

                 (21,944)

 

              270,863

 

               (10,396)

  UNREALIZED GAIN ON MARKETABLE SECURITIES

 

                   2,449

 

                     1,698

 

                  2,128

 

                   5,827

COMPREHENSIVE LOSS FOR THE PERIOD

 

 $        (1,334,968)

 

 $         (4,404,950)

 

 $      (3,253,108)

 

 $       (9,551,030)

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED

 

 

 

 

 

 

 

 

LOSS PER SHARE

 

 $                 (0.03)

 

 $                  (0.09)

 

 $               (0.07)

 

 $                (0.19)

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER

 

 

 

 

 

 

 

 

OF SHARES OUTSTANDING

 

          52,098,803

 

            49,238,523

 

         50,932,140

 

          49,222,633





See accompanying notes to the unaudited consolidated financial statements.




MAG SILVER CORP.

 

 

 

 

 

 

 

 

 

(An exploration stage company)

 

 

 

 

 

 

 

 

 

 

Consolidated Statements of Shareholders' Equity (Unaudited)

 

 

(expressed in Canadian dollars)

 

 

 

 

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

Accumulated

accumulated

 

 

 

 

 

Common shares

 

 

 

other

during the

 

Total

 

Total

 

without par value

 

Contributed

 

comprehensive

exploration

 

Deficit

 

shareholders'

 

Shares

 

Amount

 

Surplus

 

loss ("AOCL")

stage

 

and "AOCL"

 

equity

Balance, December 31, 2008

          49,155,566

 

107,023,016

 

9,583,860

 

(1,027,690)

(21,935,093)

 

(22,962,783)

 

93,644,093

Stock options exercised

                 161,003

 

            591,833

 

            (210,806)

 

                           -   

                           -   

 

                           -   

 

                381,027

Stock compensation expense

                           -   

 

                        -   

 

          1,804,464

 

                           -   

                           -   

 

                           -   

 

            1,804,464

Translation adjustment

                           -   

 

                        -   

 

                         -   

 

             (771,725)

                           -   

 

             (771,725)

 

              (771,725)

Unrealized gain on marketable

 

 

 

 

 

 

 

 

 

 

 

 

    securities

                           -   

 

                        -   

 

                         -   

 

                   9,283

                           -   

 

                   9,283

 

                    9,283

Net loss

                           -   

 

                        -   

 

                         -   

 

                           -   

         (13,490,210)

 

        (13,490,210)

 

         (13,490,210)

Balance, December 31, 2009

          49,316,569

 

     107,614,849

 

           11,177,518

 

           (1,790,132)

       (35,425,303)

 

       (37,215,435)

 

          81,576,932

Issued for cash (Note 8 (a))

           4,603,500

 

        33,171,016

 

                         -   

 

                           -   

                           -   

 

                           -   

 

            33,171,016

Stock options exercised

                618,326

 

          1,691,737

 

            (586,561)

 

                           -   

                           -   

 

                           -   

 

              1,105,176

Stock compensation expense

                           -   

 

                        -   

 

            1,159,401

 

                           -   

                           -   

 

                           -   

 

              1,159,401

Translation adjustment

                           -   

 

                        -   

 

                         -   

 

              270,863

                           -   

 

              270,863

 

               270,863

Unrealized gain on marketable securities

                           -   

 

                        -   

 

                         -   

 

                    2,128

                           -   

 

                    2,128

 

                     2,128

Net loss

                           -   

 

                        -   

 

                         -   

 

                           -   

         (3,526,099)

 

         (3,526,099)

 

         (3,526,099)

Balance, June 30, 2010

         54,538,395

 

 $142,477,602

 

 $     11,750,358

 

 $         (1,517,141)

 $    (38,951,402)

 

 $  (40,468,543)

 

 $     113,759,417

 

 

 

 

 

 

 

 

 

 

 

 

 




See accompanying notes to the unaudited consolidated financial statements.






MAG SILVER CORP.

 

 

 

 

 

 

 

(An exploration stage company)

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

(expressed in Canadian dollars)

 

 

 

 

 

 

 

 

For the

 

For the

 

For the

 

For the

 

three month

 

three month

 

six month

 

six month

 

period ended

 

Period ended

 

period ended

 

Period ended

 

June 30,

 

June 30,

 

June 30,

 

June 30,

 

2010

 

2009

 

2010

 

2009

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net loss for the period

 $       (1,358,766)

 

 $  (4,384,704)

 

 $  (3,526,099)

 

 $  (9,546,461)

Items not involving cash:

 

 

 

 

 

 

 

Amortization

                 13,090

 

              8,586

 

            25,967

 

           17,172

Mineral property costs written off (Note 7)

                        -   

 

          491,316

 

                   -   

 

      3,641,571

Non-cash stock compensation expense

                        -   

 

       1,211,099

 

       1,159,401

 

      1,260,945

 

 

 

 

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

             (498,690)

 

        (203,857)

 

        (526,699)

 

     (1,171,991)

Interest receivable

               (19,128)

 

            17,046

 

          (18,101)

 

           71,266

Prepaid expenses

                 56,562

 

            52,585

 

          (75,217)

 

          (38,582)

Accounts payable and accrued liabilities

               (62,537)

 

       1,469,173

 

          (95,433)

 

      1,062,232

 

          (1,869,469)

 

     (1,338,756)

 

     (3,056,181)

 

     (4,703,848)

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Purchase of equipment and leasehold improvements

                 (1,425)

 

                    -   

 

          (18,940)

 

          (14,239)

Investment in Juanicipio Joint Venture

             (980,783)

 

     (1,073,512)

 

     (1,477,245)

 

     (1,110,996)

Mineral rights

             (179,090)

 

        (140,015)

 

        (223,580)

 

        (979,505)

Deferred exploration costs

          (3,305,051)

 

     (6,023,719)

 

     (4,990,757)

 

   (10,283,615)

 

          (4,466,349)

 

     (7,237,246)

 

     (6,710,522)

 

   (12,388,355)

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Issuance of common shares upon exercise of stock options

               226,265

 

            99,175

 

       1,105,176

 

         252,975

Issuance of common shares, net of share issue costs

          33,171,016

 

                    -   

 

     33,171,016

 

                   -   

 

          33,397,281

 

            99,175

 

     34,276,192

 

         252,975

INCREASE (DECREASE) IN CASH

          27,061,463

 

     (8,476,827)

 

     24,509,489

 

   (16,839,228)

CASH, BEGINNING OF PERIOD

          24,251,678

 

     43,900,160

 

     26,803,652

 

    52,262,561

CASH, END OF PERIOD

 $       51,313,141

 

 $  35,423,333

 

 $  51,313,141

 

 $ 35,423,333




See accompanying notes to the unaudited consolidated financial statements.





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



1.

CONTINUING OPERATIONS


MAG Silver Corp. (the “Company” or “MAG”) was incorporated on April 21, 1999 under the Company Act of the Province of British Columbia and its shares were listed on the TSX Venture Exchange on April 21, 2000. On October 5, 2007, the Company moved to the TSX.  Unless the context requires otherwise, references in these consolidated financial statements to the Company include the subsidiaries of the Company whose financial results are consolidated in these financial statements.


The Company is an exploration and predevelopment company working on mineral properties it has staked or acquired by way of option agreement, principally in Mexico. The Company has not yet determined whether these mineral properties contain any economically recoverable ore reserves. The Company defers all acquisition, exploration and development costs related to the properties on which it is conducting exploration. The recoverability of these amounts is dependent upon the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete the development of the interests, and future profitable production, or alternatively, upon the Company’s ability to dispose of its interests on a profitable basis.


These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assume that the Company will realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has incurred losses from inception and does not currently have any revenue generating operations. The Company’s ability to continue as a going concern is dependent upon its ability in the future to achieve profitable operations and, in the meantime, to obtain the necessary financing to meet its obligations and repay its liabilities when they become due. External financing, predominantly by the issuance of equity to the public, will be sought to finance the operations of the Company.


Although the Company has taken steps to verify title to the properties on which it is conducting exploration and in which it has an interest, in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements and non-compliance with regulatory requirements.


2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


These unaudited interim consolidated financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). The preparation of financial data is based on accounting policies and practices consistent with those used in the preparation of the Company’s audited annual consolidated financial statements for the year ended December 31, 2009. The accompanying unaudited interim financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2009, as they do not contain all disclosures required by Canadian GAAP for annual financial statements.

In the opinion of management, all adjustments necessary to present fairly the financial position of the Company as at June 30, 2010 and results of its operations and cash flows for all periods presented have been made. The interim results are not necessarily indicative of results for a full year.







MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



Principles of consolidation


The financial statements of entities which are controlled by the Company through voting equity interests, referred to as subsidiaries, are consolidated. Variable interest entities (“VIEs”), which include, but are not limited to, special purpose entities, trusts, partnerships, and other legal structures, as defined by the Accounting Standards Board in Accounting Guideline (“AcG”) 15, Consolidation of Variable Interest Entities (“AcG 15”), are entities in which equity investors do not have the characteristics of a “controlling financial interest” or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.  VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities’ expected losses and/or expected residual returns.  The Company does not believe that it has any VIEs subject to consolidation. All significant intercompany balances and transactions have been eliminated upon consolidation.  The principal subsidiary at June 30, 2010 is Minera Los Lagartos, S.A. de C.V. (“Lagartos”) which holds several properties in Mexico.


Investments where the Company has the ability to exercise significant influence, generally where the Company has a 20% to 50% equity interest are accounted for using the equity method. Under this method, the Company’s share of the investee’s earnings or losses is included in operations and its investments therein are adjusted by a like amount. Dividends received from these investments are credited to the investment accounts.


The Company’s 44% interest in the Juanicipio Joint Venture (Note 6) is recorded using the equity method.



Recent Accounting Pronouncements


(i)

Convergence with International Financial Reporting Standards


In February 2008, the Accounting Standards Board confirmed that International Financial Reporting Standards (IFRS) will replace Canadian GAAP for publicly accountable enterprises for financial periods beginning on and after January 1, 2011. The Company’s first mandatory filing under IFRS, which will be the first quarter of 2011, will contain IFRS-compliant information on a comparative basis, as well as reconciliations for that quarter and as at the January 1, 2010 transition date. Although IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences in recognition, measurement and disclosure. The Company has not yet fully determined the impact of the IFRS transition, if any, on the consolidated results. The Company is in the process of planning for IFRS convergence and has started the evaluation of the differences between IFRS and the Company’s accounting policies and the assessment of the various alternatives available for first time adoption of IFRS.


(ii)

Business Combinations


In January 2009, the CICA issued Section 1582, Business Combinations, Section 1601, Consolidations, and Section 1602, Non-controlling Interest. These new standards are harmonized with International Financial Reporting Standards (IFRS). Section 1582 specifies a number of changes, including: an expanded definition of a business, a requirement to measure all business acquisitions at fair value, a requirement to measure non-controlling interests at fair value, and a requirement to recognize acquisition-related costs as expenses. Section 1601 establishes the standards for preparing consolidated financial statements. Section 1602 specifies that non-controlling interests be treated as a separate component of equity, not as a liability or other item outside of equity. The new standards will become effective in 2011 but early adoption is permitted. The Company is evaluating the attributes of early adoption of this standard and its potential effects if events or transactions occurred that this standard applies to.  





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



 



3.

ACCOUNTS RECEIVABLE

 

 

June 30, 2010

 

Dec. 31, 2009

Goods and services tax recoverable

 

77,210 

 

 $ 45,239 

Mexican value added tax ("IVA") recoverable

 

2,483,007 

 

  1,493,337 

Other

 

  -   

 

  494,942 

 

 

 $ 2,560,217 

 

 $ 2,033,518 

 

 

 

 

 



4.

MARKETABLE SECURITIES


In 2008, the Company purchased 1,000 shares of Fresnillo plc, a company which holds a 56% interest in Minera Juanicipio, S.A. de C.V. (Note 6).  


At June 30, 2010, the Company holds the following marketable securities:


Available-for-sale securities

Number of

Shares

Cost ($)

Accumulated Unrealized

Gains ($)

Fair

Value ($)

Fresnillo PLC

1,000

  10,570

         4,957

      15,527


At December 31, 2009, the Company had the following marketable securities:

Available-for-sale securities

Number of

Shares

Cost ($)

Accumulated Unrealized

Gains ($)

Fair

Value ($)

Fresnillo PLC

1,000

  10,570

         2,829

      13,399


During the six months ended June 30, 2010 the Company recognized an unrealized gain of $2,128 ($9,283 for the year ended December 31, 2009) in other comprehensive loss on the above marketable securities designated as available-for-sale instruments. Overall the Company has an accumulated unrealized gain of $4,957.


5.

EQUIPMENT AND LEASEHOLDS


 

June 30, 2010

 

 

 

Accumulated

 

Net book

 

Cost

 

depreciation

 

value

 

 

 

 

 

 

Computer equipment

 $ 133,367 

 

 $ 73,659 

 

 $ 59,708 

Field equipment

 $ 162,018 

 

  85,433 

 

  76,585 

Leasehold improvements

  7,666 

 

  1,916 

 

  5,750 

 

 $ 303,051 

 

 $ 161,008 

 

 $ 142,043 

 

 

 

 

 

 






MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)




 

December 31, 2009

 

 

 

Accumulated

 

Net book

 

Cost

 

depreciation

 

value

 

 

 

 

 

 

Computer equipment

 $ 133,367 

 

 $ 63,123 

 

 $ 70,244 

Field equipment

  150,744 

 

  71,918 

 

  78,826 

 

 $ 284,111 

 

 $ 135,041 

 

 $ 149,070 

 

 

 

 

 

 



Equipment is recorded at cost and is amortized on the declining balance basis at the following annual rates:

 

Computer equipment and software

 30%

Field equipment

 30%


Leasehold improvements are recorded at cost and depreciated on a straight-line basis over the term of the lease.



6.

INVESTMENT IN MINERA JUANICIPIO S.A. DE C.V.


Pursuant to an original option agreement dated July 18, 2002 and subsequent corporate acquisitions the Company acquired a 100% interest in the Juanicipio Property in exchange for total consideration of $919,458. Of this amount, $656,125 was paid in cash and 366,667 common shares of the Company were issued at a value of $263,333.


Pursuant to a letter of intent dated March 17, 2005 and a formal agreement effective July 1, 2005 (the “Agreement”) with Industrias Peñoles, S.A. de C.V. (“Peñoles”), the Company granted to Peñoles or any of its subsidiaries an option to earn a 56% interest in the Juanicipio Property in Mexico in consideration for Peñoles conducting US$5,000,000 of exploration on the property over four years and Peñoles purchasing US$1,000,000 of Common Shares of the Company in two tranches for US$500,000 each.


In mid 2007, Peñoles met all of the earn-in requirements of the Agreement.  In December 2007, the Company and Peñoles created an operating company named Minera Juanicipio, S.A. de C.V. (“Minera Juanicipio”) for the purpose of holding and operating the Juanicipio Property. In 2008, MAG was notified that Peñoles had transferred its 56% interest of Minera Juanicipio to Fresnillo plc (“Fresnillo”) pursuant to a statutory merger.  Minera Juanicipio is held 56% by Fresnillo and 44% by the Company.  In December 2007 all mineral rights and surface rights relating to the Juanicipio project held by the Company and Peñoles, respectively, were ceded into Minera Juanicipio.  Minera Juanicipio is currently governed by a shareholders agreement.  All costs relating to the project and Minera Juanicipio are required to be shared by the Company and Fresnillo pro-rata based on their ownership interests in Minera Juanicipio.


To capitalize Minera Juanicipio, the Company invested 63.40 million pesos ($6.025 million) into Minera Juanicipio while Peñoles invested 80.69 million pesos ($7.668 million). MAG then received a payout from Minera Juanicipio of 26.41 million pesos ($2.510 million) against its contribution of the Juanicipio mineral rights while Peñoles received 70.28 million pesos ($6.679 million) against its contribution of surface rights and the Company’s 44% share of exploration costs incurred by Peñoles subsequent to the completion of their earn-in and up to December 31, 2007.





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)




The Company has recorded its investment in Minera Juanicipio using the equity basis of accounting. The cost of the investment includes the carrying value of the deferred exploration and mineral and surface rights costs incurred by the Company on the Juanicipio Property and contributed to Minera Juanicipio plus the required net cash investment to establish and maintain its 44% interest.


Effective December 31, 2007 the Company concluded that the functional currency of Minera Juanicipio was the Mexican peso as expenditures in Minera Juanicipio were principally being incurred in pesos and funded by advances from the shareholders which were denominated in pesos. The Company translates its net investment in Minera Juanicipio using the current rate method with translation gains and losses recorded in other comprehensive loss which is a component of shareholders’ equity, until there is a realized reduction in the net investment.


The Company owns a 44% interest in Minera Juanicipio. The Company’s historical investment relating to its interest in the Juanicipio property and Minera Juanicipio is detailed as follows:


 


June 30, 2010


Dec. 31, 2009

   Camp costs

 $             5,715


 $           13,957

   Geological

              51,671


            184,109

   Geophysical

                      -   


                2,835

   Gov't fees and licenses

                4,337


                9,986

   Travel

                3,230


              13,124

   Site administration

              12,350


                6,397

Cash contributions to the Minera Juanicipio

         1,399,942

 

            984,920

Total for the current period

         1,477,245


         1,215,328

   Balance, beginning of year

         8,610,350

 

         8,166,747

 

 $    10,087,595

 

 $      9,382,075

   Translation adjustment

            270,863


           (771,725)

Balance, end of year

 $    10,358,458

 

 $      8,610,350



Summary of the Unaudited Interim Financial Statements of Minera Juanicipio:


At June 30, 2010 the assets of Minera Juanicipio consisted of cash and short term investments in the amount of 5.8 million pesos ($482,500), value added taxes recoverable and other receivables in the amount of 6.2 million pesos ($511,900) and mineral, surface rights and exploration expenditures in the amount of 255.9 million pesos ($21.2 million).  Payables to Peñoles and other vendors for exploration work amounted to 1.4 million pesos ($116,900) while shareholders equity was 260.6 million pesos ($22.0 million).





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



7.

MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS



Six month period ended June 30, 2010


(Batopilas)


 






Cinco de








Don Fippi


Guigui


Lagartos NW


Lagartos SE


Mayo


La Mojina  


Other


Total

Acquisition costs of
















mineral & surface rights
















   Bal., beginning of year

 $     1,422,672


 $     1,576,570


 $        50,032


 $        36,458


 $      3,003,721


 $                -   


 $       1,419,761


 $      7,509,214

   Incurred during period

                      -   


                     -   


                    -   


                    -   


               27,184


        133,954


            62,442


           223,580

   Less amounts written off

                      -   

 

                     -   

 

                    -   

 

                    -   

 

                        -   

 

                   -   

 

                      -   

 

                       -   

   Balance, end of period

 $     1,422,672

 

 $     1,576,570

 

 $        50,032

 

 $        36,458

 

 $     3,030,905

 

 $     133,954

 

 $    1,482,203

 

 $      7,732,794

















Deferred exploration costs
















   Camp costs

 $           18,677


 $                  -   


 $                 -   


 $         18,481


 $         212,228


 $                -   


 $         32,332


 $          281,718

   Drilling

                7,837


                     -   


                    -   


                 327


         3,566,140


                   -   


                1,420


         3,575,724

   Geochemical

               2,425


                     -   


                    -   


              2,317


            762,698


                   -   


                8,619


            776,059

   Geological

             74,053


                     -   


              1,837


         102,345


            687,748


            7,548


             64,358


           937,889

   Geophysical

                      -   


                     -   




                    -   


                     612


               204


                      -   


                    816

   Gov't fees and licenses

                7,134


             11,846


         106,356


          89,260


               29,091


            3,865


            110,354


            357,906

Metallurgical

                      -   


                     -   


                    -   


                    -   


                31,314


                   -   


                      -   


               31,314

   Site administration

                11,187


                     -   


                    -   


             3,202


              35,383


               706


                5,650


               56,128

   Travel

              10,955


                     -   


                    -   


             4,832


              40,378


                   -   


                7,508


              63,673

   Transport and shipping

               7,349

 

                     -   

 

                    -   

 

              2,547

 

               50,091

 

                   -   

 

               3,872

 

              63,859


            139,617


             11,846


          108,193


          223,311


          5,415,683


          12,323


            234,113


         6,145,086

   Bal., beginning of year

        4,954,714


        1,513,373


      1,305,896


     8,601,839


         17,901,130


                   -   


        3,156,967


      37,433,919

   Less amounts written off

                      -   

 

                     -   

 

                    -   

 

                    -   

 

                        -   

 

                   -   

 

                      -   

 

                       -   

   Balance, end of period

 $     5,094,331

 

 $     1,525,219

 

 $   1,414,089

 

 $   8,825,150

 

 $    23,316,813

 

 $       12,323

 

 $    3,391,080

 

 $   43,579,005



MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



7.

MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS (continued)



Six month period ended June 30, 2010


(Batopilas)


 






Cinco de








Don Fippi


Guigui


Lagartos NW


Lagartos SE


Mayo


La Mojina  


Other


Total

Acquisition costs of
















mineral & surface rights
















   Bal., beginning of year

 $    1,422,672


 $    1,576,570


 $        50,032


 $         36,458


 $      3,003,721


 $                -   


 $     1,419,761


 $    7,509,214

   Incurred during period

                      -   


                    -   


                    -   


                     -   


               27,184


        133,954


          62,442


         223,580

   Less amounts written off

                      -   

 

                    -   

 

                    -   

 

                     -   

 

                        -   

 

                   -   

 

                    -   

 

                     -   

   Balance, end of period

 $    1,422,672

 

 $    1,576,570

 

 $        50,032

 

 $         36,458

 

 $     3,030,905

 

 $     133,954

 

 $  1,482,203

 

 $    7,732,794

















Deferred exploration costs
















   Camp costs

 $           18,677


 $                 -   


 $                 -   


 $          18,481


 $         212,228


 $                -   


 $       32,332


 $        281,718

   Drilling

               7,837


                    -   


                    -   


                  327


         3,566,140


                   -   


              1,420


       3,575,724

   Geochemical

               2,425


                    -   


                    -   


               2,317


            762,698


                   -   


              8,619


          776,059

   Geological

             74,053


                    -   


              1,837


          102,345


            687,748


             7,548


           64,358


         937,889

   Geophysical

                      -   


                    -   




                     -   


                     612


               204


                    -   


                  816

   Gov't fees and licenses

                7,134


            11,846


         106,356


           89,260


               29,091


            3,865


          110,354


          357,906

Metallurgical

                      -   


                    -   


                    -   


                     -   


                31,314


                   -   


                    -   


             31,314

   Site administration

               11,187


                    -   


                    -   


              3,202


              35,383


                706


              5,650


             56,128

   Travel

              10,955


                    -   


                    -   


              4,832


              40,378


                   -   


              7,508


            63,673

   Transport and shipping

               7,349

 

                    -   

 

                    -   

 

               2,547

 

               50,091

 

                   -   

 

             3,872

 

            63,859


            139,617


            11,846


          108,193


           223,311


          5,415,683


          12,323


          234,113


       6,145,086

   Bal., beginning of year

        4,954,714


       1,513,373


      1,305,896


      8,601,839


         17,901,130


                   -   


      3,156,967


    37,433,919

   Less amounts written off

                      -   

 

                    -   

 

                    -   

 

                     -   

 

                        -   

 

                   -   

 

                    -   

 

                     -   

   Balance, end of period

 $    5,094,331

 

 $    1,525,219

 

 $   1,414,089

 

 $    8,825,150

 

 $    23,316,813

 

 $       12,323

 

 $  3,391,080

 

 $ 43,579,005

 





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



7.

MINERAL RIGHTS AND DEFERRED EXPLORATION COSTS (continued)


(a)

      Don Fippi (Batopilas) Property

The Company has a 100% interest in the Don Fippi mining concessions located in the Batopilas, Chihuahua district of Mexico, subject to a royalty of 4.5% of the Net Smelter returns obtained from the property. To June 30, 2010, the Company has incurred $5,094,331 in exploration costs on the property.


(b)

Guigui Property

The Company has a 100% interest in mining concessions located in the Santa Eulalia (Guigui), Chihuahua district of Mexico, subject to a royalty of 2.5% of the Net Smelter returns obtained from the property. To June 30, 2010, the Company has incurred $1,525,219 in exploration costs on the property.


(c)

Lagartos Properties

The Company has acquired a 100% interest in exploration concessions on mining claims (Lagartos) on the Fresnillo trend to the northwest and southeast of the Juanicipio property. To June 30, 2010, the Company has incurred $1,414,089 in exploration costs on the Lagartos NW property and $8,825,150 in exploration costs on the Lagartos SE property.


(d)

Cinco de Mayo Property

Under the terms of an agreement dated February 26, 2004, the Company has acquired a 100% interest in the Cinco de Mayo property (the “Cinco de Mayo Property”), subject to a 2.5% net smelter returns royalty, in exchange for cash and share payments together worth US$1,000,000 and exploration expenditures of US$1,000,000 by July 26, 2009.  To June 30, 2010, the Company has paid $1,057,575 (US$900,000) in cash, issued 165,670 common shares at a value of $266,630 and has completed $23,316,813 in exploration costs.


During the year ended December 31, 2008, the Company acquired a 100% interest in certain mining concessions internal to the Cinco de Mayo property from two separate vendors. The Company made a one-time payment of $445,065 (US$350,000) for these mining concessions.  


During the year ended December 31, 2009, the Company acquired a 100% interest in certain mining concessions internal or adjacent to the Cinco de Mayo property from three separate vendors. The Company made a one-time payment of $445,198 for these mining concessions.


During the year ended December 31, 2009, the Company purchased surface rights in the Cinco de Mayo area for $789,253.


Subsequent to the quarter end June 30, 2010, the Company entered into an option agreement to acquire a 100% interest in three additional mining concessions adjacent to the Cinco de Mayo property. The Company paid US$20,000 upon executing the agreement, and is required to pay an additional US$90,000 for these mining concessions, in stages through 2015.


(f)

La Mojina Property

On March 30, 2010, the Company entered into an option agreement to acquire a 100% interest in the La Mojina Property, subject to a 2.5% net smelter returns royalty, half of which can be purchased at any time for US$1,250,000. Under the terms of the agreement, the Company paid US$35,000 ($35,788) upon signing the agreement and an additional US$65,000 ($64,950) on April 14, 2010.  The Company is obligated to make additional scheduled cash payments totalling $960,000 through 2015 and incur cumulative exploration expenditures totalling $2,500,000 over five years to 2015. To June 30, 2010, the Company has completed $12,323 in exploration costs.  On June 25, 2010, the Company acquired by concession an additional claim adjacent to the optioned properties.  





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



 


(g)

Other Properties

As at June 30, 2010, the Company has capitalized $1,482,203 in acquisition costs on other properties in Mexico.  The Company is obligated to make additional scheduled cash payments totalling US$2,650,000 to July 14, 2014 if it wishes to maintain its acquisition rights under the referred option agreements as well as incur approximately another US$2,800,000 in exploration expenditures on the San Ramone claims by July 14, 2013.


The other properties consist of the Zacatecas claims, the La Lorena claims, the Nuevo Mundo claims, the Camino Duro claims, the Salemex claim options and the San Ramone claim options. To June 30, 2010, the Company has incurred $3,391,080 in exploration costs on these properties.



8.

SHARE CAPITAL


(a)

Issued and outstanding


At June 30, 2010, there were 54,538,395 shares outstanding.


On May 18, 2010, the Company closed a brokered private placement for 4,603,500 common shares of the Company at a price of $7.65 per share for gross proceeds of $35,216,775. The Company paid a 5.0% commission of $1,760,839 to the underwriters on this placement. Legal, syndicate, and filing costs totaled an additional $284,920.


During the period ended June 30, 2010, 618,326 stock options were exercised for cash proceeds of $1,105,176.


During the year ended December 31, 2009, 161,003 stock options were exercised for cash proceeds of $381,027.



(b)

Stock options


The Company has entered into Incentive Stock Option Agreements (“Agreements”) with directors, officers, employees and consultants. At the Annual General and Special Meeting of the Shareholders held on June 22, 2010 the Shareholders approved an amendment to the Company’s Stock Option Plan (the “Plan”) which fixed the maximum number of stock options that may be granted under the Plan to 5,453,839.



The following table summarizes the Company’s options:



Period ended


Weighted


Year ended


Weighted


June 30


average


Dec. 31,


average


2010


exercise price


2009


exercise price

Balance outstanding,








  beginning of year

    3,881,341


 $           6.53


  3,312,407


 $           6.59

Activity during the period








  Options granted

       390,000


              7.35


     761,125


              5.68

  Options forfeited

       (60,875)


              8.24


     (31,188)


            13.50

  Options exercised

     (618,326)

 

              1.79

 

   (161,003)

 

              2.37

Balance outstanding,








end of period

    3,592,140

 

 $           7.41

 

  3,881,341

 

 $           6.53





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)





The following table summarizes options outstanding and exercisable at June 30, 2010:




Number


Weighted average


Weighted



outstanding at


remaining


average

Exercise


June 30,


contractual life


exercise

price


2010


    (years)


 price

 $   1.00


            60,000


                    0.42


        0.01

      2.00


            50,000


                    0.96


        0.01

      2.46


           121,000


                    1.06


        0.04

      3.00


           405,000


                    0.60


        0.07

      3.12


            11,000


                    1.17


        0.00

      3.56


            13,000


                    0.72


        0.00

      4.04


           110,000


                    0.75


        0.02

      5.32


           205,584


                    3.98


        0.23

      5.36


           455,000


                    1.45


        0.18

      5.54


           308,485


                    3.81


        0.33

      5.90


            25,000


                    4.35


        0.03

      6.32


           179,057


                    4.46


        0.22

      6.87


            50,000


                    4.67


        0.07

      7.42


           340,000


                    4.74


        0.45

      7.56


            35,000


                    1.57


        0.02

      8.80


           200,000


                    1.65


        0.09

      9.40


            45,000


                    1.75


        0.02

    10.01


           233,389


                    3.00


        0.19

    12.91


           270,625


                    2.62


        0.20

    14.15


           425,000


                    2.29


        0.27

    14.70


            50,000


                    2.09


        0.03

 

 

        3,592,140

 

                    2.48

 

        2.48



At the date the Agreements are entered into, the exercise price of each option is set no lower than the fair value of the common shares at the date of grant.  


During the period ended June 30, 2010, the Company granted 390,000 stock options, (June 30, 2009 – 552,142) and recorded $1,159,401 (June 30, 2009 – $1,260,945) of compensation expense relating to stock options vested to employees and consultants in the quarter.  The stock-based compensation expense for the period ended June 30, 2010 (and June 30, 2009) was determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company’s share price of 57% (June 30, 2009 – 62%), an annual risk free interest rate of 2.54% (June 30, 2009 – 1.93%) and expected lives of three years.





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



 



9.

CAPITAL RISK MANAGEMENT


The Company’s objectives in managing its liquidity and capital are to safeguard the Company’s ability to continue as a going concern and to provide financial capacity to meet its strategic objectives. The capital structure of the Company consists of equity attributable to common shareholders, comprising of issued share capital, common share purchase warrants, contributed surplus, accumulated other comprehensive loss and accumulated deficit.


The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets.


In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual and updated budgets are approved by the Board of Directors. The Company does not pay out dividends.


As at June 30, 2010, the Company does not have any long-term debt and is not subject to any externally imposed capital requirements.


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



10.

FINANCIAL RISK MANAGEMENT


The Company’s operations consist of the acquisition, exploration and development of district scale projects in the Mexican silver belt. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other price risks. Where material, these risks are reviewed and monitored by the Board of Directors.


(a)

Credit risk


Counterparty credit risk is the risk that the financial benefits of contracts with a specific counterparty will be lost if a counterparty defaults on its obligations under the contract. This includes any cash amounts owed to the Company by those counterparties, less any amounts owed to the counterparty by the Company where a legal right of set-off exists and also includes the fair values of contracts with individual counterparties which are recorded in the financial statements.








MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



(i)

Trade credit risk

The Company is in the exploration stage and has not yet commenced commercial production or sales. Therefore, the Company is not exposed to significant trade credit risk and overall the Company’s credit risk has not changed significantly from the prior year.


(ii)

Cash

In order to manage credit and liquidity risk the Company’s policy is to invest only in highly rated investment grade instruments that have maturities of three months or less. Limits are also established based on the type of investment, the counterparty and the credit rating.


(iii)

Derivative financial instruments

As at June 30, 2010, the Company has no derivative financial instruments. MAG may in the future enter into derivative financial instruments in order to manage credit risk. Only derivative financial instruments with highly rated investment grade counterparties will be considered.


(iv)

Mexican value added tax

As at June 30, 2010, the Company had a receivable of $2,483,007 from the Mexican government for value added tax. Although full recovery is expected by management, recoveries to date have been intermittent.


The Company’s maximum exposure to credit risk at June 30, 2010 is as follows:


 

 

June 30, 2010

 

Dec. 31, 2009

Cash (in Mexico)

 

 $ 172,399 

 

 $ 30,925 

Accounts Receivable (Mexican Government)

 

  2,483,007 

 

  1,493,337 

 

 

 $ 2,655,406 

 

 $ 1,524,262 

 

 

 

 

 



(b)

Liquidity risk


The Company has in place a planning and budgeting process to help determine the funds required to support the Company's normal operating requirements and its exploration and development plans. The annual budget is approved by the Board of Directors. The Company ensures that there are sufficient cash balances to meet its short-term business requirements.


The Company's overall liquidity risk has not changed significantly from the prior year.


(c)

Currency risk


The Company’s functional currency is the Canadian dollar and therefore the Company's results from operations are impacted by fluctuations in the value of foreign currencies in relation to the Canadian dollar. The Company's foreign currency exposures comprise limited amounts of cash, value added taxes receivable, Investment in Minera Juaniciopio, and accounts payable and accrued liabilities denominated in Mexican pesos and United States dollars. Several of the Company’s options to acquire properties in Mexico may result in option payments by the Company denominated in Mexican pesos or in United States dollars. The Company does not use any derivative instruments to reduce its exposure to fluctuations in foreign exchange rates.  Appreciation in the Mexican peso or the United States dollar against the Canadian dollar will increase the Company’s cost of operations. A decrease in the United States dollar or the Mexican peso against the Canadian dollar will result in a loss to the extent that the Company holds net monetary assets in either currency. The Company is also exposed to inflation risk in Mexico.





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



 


The most significant foreign exchange impact on the Company’s net income is the translation of foreign currency based earnings into Canadian dollars in each reporting period. All of the Company’s foreign subsidiaries report their operating results in currencies other than the Canadian dollar. Therefore, exchange rate movements in the Mexican peso relative to the Canadian dollar will impact the consolidated results of the Mexican operations in Canadian dollar terms.


The sensitivity of the Company's net loss and other comprehensive loss for the period ended June 30, 2010 due to changes in the exchange rate for the Mexican peso in relation to the Canadian dollar is summarized in the following table expressed as the increase in the net loss and comprehensive loss for each 10% appreciation in the Canadian dollar:


Net Loss

 

 

 $ 129,144 

Other comprehensive loss

 

 

  969,928 

Comprehensive loss

 

 

 $ 1,099,072 

 

A 10% depreciation in the Canadian dollar against the Mexican peso would have a similar decrease in net loss.


 (d)

Interest rate risk  


The Company’s interest revenue earned on cash is exposed to interest rate risk. A decrease in interest rates would result in lower relative interest income in 2010 and an increase in interest rates would result in higher relative interest income in 2010.



11.

FINANCIAL INSTRUMENTS AND FAIR VALUE DISCLOSURES  


The Company’s financial instruments include cash, accounts receivable, interest receivable, marketable securities, and accounts payable and accrued liabilities. The carrying values of cash, accounts receivable, interest receivable, and accounts payable and accrued liabilities reported in the consolidated balance sheet approximate their respective fair values due to the relatively short-term nature of these instruments.


Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. Level 3 inputs are unobservable (supported by little or no market activity). The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.





MAG SILVER CORP.

(An exploration stage company)

Notes to the Interim Consolidated Financial Statements (Unaudited)



 


The fair value of available-for-sale securities is determined based on a market approach reflecting the closing price of each particular security at the balance sheet date. The closing price is a quoted market price obtained from the exchange that is the principal active market for the particular security, and therefore available-for-sale securities are classified within Level 1 of the fair value hierarchy.


There were no financial instruments fair valued within Levels 2 or 3 of the fair value hierarchy as at June 30, 2010.


12.

SEGMENTED INFORMATION  


The Company operates in one segment, being the exploration of mineral properties in Mexico. Substantially all of the Company’s long term assets are located in Mexico and the Company’s executive and head office is located in Canada.


13.

RELATED PARTY TRANSACTIONS


The Company paid or accrued non-executive directors fees of $65,000 during the six months ended June 30, 2010 (June 30, 2009 - $194,472).


The Company is party to a Field Services Agreement, whereby it has contracted exploration services in Mexico with MINERA CASCABEL S.A. de C.V. (“Cascabel”) and IMDEX Inc. (“IMDEX”).  Since January 2006, these companies have a common director with the Company.  During the six months ended June 30, 2010, the Company accrued or paid Cascabel and IMDEX consulting, administration and travel fees totaling $132,299 (June 30, 2009 - $181,671) and exploration costs totaling $1,251,215 (June 30, 2009 - $1,843,740) under the Field Services Agreement.


The Company was a party to an office services agreement with Platinum Group Metals Ltd., a company with three common directors.  Although the agreement was terminated with effect at December 31, 2009, transitional office services were provided under the agreement as the Company moved to new offices.  During the six months ended June 30, 2010, the Company accrued or paid Platinum Group Metals Ltd. $19,500 under the office service agreement (June 30, 2009 - $68,196).


These transactions were incurred in the normal course of business and are measured at the exchange amount which was the consideration established and agreed to by the noted parties.


14.

COMMITMENTS


The Company’s minimum payments under its five year office lease agreement are as follows:


2010

 

  75,931 

2011

 

  156,209 

2012

 

  156,209 

2013

 

  160,556 

2014

 

  160,556 

 

 

 $ 709,461