EX-99.1 2 v321546_ex99-1.htm EXHIBIT 99.1

Jaguar Mining Inc.

Condensed Interim Consolidated Financial Statements

June 30, 2012 and 2011

(unaudited)

JAGUAR MINING INC.

Condensed Interim Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars)

		(Unaudited)
		June 30, 2012			December 31, 2011

Assets
Current assets:
Cash and cash equivalents		$	31,944		$	74,475
Inventory	Note 3		27,921			34,060
Prepaid expenses and sundry assets	Note 4		31,550			25,541
Derivatives	Note 5(a)		114			-
			91,529			134,076

Prepaid expenses and sundry assets	Note 4		42,039			48,068
Restricted cash			909			909
Property, plant and equipment	Notes 6,7		352,486			388,675
Mineral exploration projects	Notes 6,8		94,743			88,938

		$	581,706		$	660,666

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities		$	33,133		$	34,922
Notes payable	Note 9		29,138			22,517
Income taxes payable			17,628			18,953
Reclamation provisions			1,877			2,082
Other provisions			4,960			4,347
Deferred compensation liabilities	Note 11		59			2,953
Other liabilities			-			1,475
			86,795			87,249

Notes payable	Note 9		233,844			228,938
Option component of convertible notes	Note 5(b)		8,179			79,931
Deferred income taxes			10,504			8,635
Reclamation provisions			17,522			15,495
Deferred compensation liabilities	Note 11		489			2,270
Other liabilities			105			339
Total liabilities			357,438			422,857

Shareholders' equity:
Share capital			370,043			370,043
Stock options			12,155			14,207
Contributed surplus			5,466			3,414
Deficit			(163,396	)		(149,855	)
Total equity attributable to equity shareholders of the Company			224,268			237,809

Contingent liability	Note 10
Subsequent event	Note 10
		$	581,706		$	660,666

On behalf of the Board:

Richard Falconer	Director

John Andrews	Director

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

JAGUAR MINING INC.

Condensed Interim Consolidated Statements of Operations and Comprehensive Income (Loss)

(Expressed in thousands of U.S. dollars, except per share amounts)

(Unaudited)
		Three Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2012			Six Months Ended June 30, 2011

Gold sales		$	46,535		$	60,557		$	97,507		$	115,697
Production costs			(41,250	)		(36,837	)		(82,650	)		(69,893	)
Stock-based compensation			301			(28	)		343			(23	)
Depletion and amortization			(10,630	)		(10,843	)		(23,922	)		(21,963	)
Gross profit (loss)			(5,044	)		12,849			(8,722	)		23,818

Operating expenses:
Exploration			26			717			71			1,051
Stock-based compensation	Note 11		(1,487	)		(393	)		(2,295	)		(3,084	)
Administration			2,601			5,419			8,946			10,674
Management fees			-			363			-			524
Amortization			292			313			581			670
Other			590			234			991			1,071
Total operating expenses			2,022			6,653			8,294			10,906

Income (loss) before the following			(7,066	)		6,196			(17,016	)		12,912

Gain on derivatives	Note 5(a)		(114	)		(126	)		(114	)		(413	)
Gain on conversion option embedded in convertible debt	Note 5(b)		(57,427	)		(9,180	)		(71,752	)		(7,840	)
Foreign exchange loss (gain)			7,685			(6,527	)		4,511			(9,616	)
Accretion expense			537			624			1,133			1,194
Interest expense			7,077			7,074			14,201			12,757
Interest income			(566	)		(2,867	)		(2,424	)		(4,332	)
Gain on disposition of property			(90	)		(472	)		(368	)		(998	)
Impairment of Paciência property	Note 6		47,692			-			47,692			-
Other non-operating expenses (income)			566			(128	)		534			(321	)
Total other expenses (income)			5,360			(11,602	)		(6,587	)		(9,569	)

Income (loss) before income taxes			(12,426	)		17,798			(10,429	)		22,481
Income taxes
Current income taxes			302			1,428			621			1,933
Deferred income taxes			3,622			784			2,491			1,238
Total income taxes			3,924			2,212			3,112			3,171

Net income (loss) and comprehensive income (loss) for the period		$	(16,350	)	$	15,586		$	(13,541	)	$	19,310

Basic and diluted earnings (loss) per share	Note 12	$	(0.19	)	$	0.18		$	(0.16	)	$	0.23

Weighted average number of common shares outstanding - basic	Note 12		84,409,648			84,373,648			84,409,648			84,373,648
Weighted average common shares outstanding - diluted	Note 12		84,409,648			84,376,376			84,409,648			84,377,786

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

JAGUAR MINING INC.

Condensed Interim Consolidated Statements of Shareholders' Equity

(Expressed in thousands of U.S. dollars)

(Unaudited)
	Common Shares				Stock Options						Contributed Surplus		Deficit			Total
	#		$		#			$			$		$			$

Balance, January 1, 2011		84,373,648		369,747		3,777,500			13,054			1,901		(84,232	)		300,470
Vested options expired		-		-		(575,000	)		(1,363	)		1,363		-			-
Vested options expired upon termination		-		-		(20,000	)		(70	)		70		-			-
Net income		-		-		-			-			-		19,310			19,310
Balance, June 30, 2011		84,373,648		369,747		3,182,500			11,621			3,334		(64,922	)		319,780

Balance, January 1, 2012		84,409,648		370,043		4,005,000			14,207			3,414		(149,855	)		237,809
Vested options expired		-		-		(10,000	)		(35	)		35		-			-
Vested options expired upon termination		-		-		(610,000	)		(2,017	)		2,017		-			-
Net loss		-		-		-			-			-		(13,541	)		(13,541	)
Balance, June 30, 2012		84,409,648		370,043		3,385,000			12,155			5,466		(163,396	)		224,268

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

JAGUAR MINING INC.

Condensed Interim Consolidated Statements of Cash Flows

(Expressed in thousands of U.S. dollars)

(Unaudited)
		Three Months Ended June 30, 2012			Three Months Ended June 30, 2011			Six Months Ended June 30, 2012			Six Months Ended June 30, 2011

Cash provided by (used in):
Operating activities:
Net income (loss) and comprehensive income (loss) for the period		$	(16,350	)	$	15,586		$	(13,541	)	$	19,310
Adjustments to reconcile net earnings to net cash provided from (used in) operating activities:
Unrealized foreign exchange loss (gain)			3,318			(3,955	)		(1,734	)		(6,749	)
Stock-based compensation expense recovered			(1,788	)		(365	)		(2,638	)		(3,061	)
Interest expense			7,077			7,074			14,201			12,757
Accretion of interest income			-			(94	)		-			(188	)
Accretion expense			537			624			1,133			1,194
Income taxes recovery			-			(104	)		-			(104	)
Deferred income taxes			3,622			784			2,491			1,238
Depletion and amortization			10,922			11,156			24,503			22,633
Loss on disposition of property, plant and equipment			532			-			547			-
Write-down of Paciência inventory	Note 3		3,222			-			2,394			-
Impairment of Paciência property	Note 6		47,692			-			47,692			-
Unrealized gain on derivatives			(114	)		(28	)		(114	)		(29	)
Unrealized gain on option component of convertible note			(57,427	)		(9,180	)		(71,752	)		(7,840	)
Reclamation expenditure			(10	)		(8	)		(113	)		(26	)
			1,233			21,490			3,069			39,135
Change in non-cash operating working capital
Inventory			5,844			(1,334	)		3,732			933
Prepaid expenses and sundry assets			(4,365	)		(5,420	)		(7,148	)		(7,476	)
Accounts payable and accrued liabilities			(863	)		4,697			(2,241	)		5,380
Income taxes payable			(917	)		2,315			(1,325	)		3,325
Provisions			296			-			613			-
Deferred compensation liabilities			(656	)		(83	)		(2,268	)		(244	)
			572			21,665			(5,568	)		41,053
Financing activities:
Repayment of debt			(1,119	)		(4,117	)		(2,218	)		(7,935	)
Increase in debt			1,000			-			7,000			99,313
Interest paid			(3,841	)		(4,254	)		(6,994	)		(4,615	)
Other liabilities			(1,630	)		7			(1,709	)		(55	)
			(5,590	)		(8,364	)		(3,921	)		86,708
Investing activities:
Mineral exploration projects			(1,800	)		(2,266	)		(6,963	)		(4,611	)
Purchase of property, plant and equipment			(12,029	)		(23,735	)		(31,017	)		(41,602	)
Proceeds from disposition of property			659			-			684			-
			(13,170	)		(26,001	)		(37,296	)		(46,213	)

Effect of foreign exchange on non-U.S. dollar denominated cash and cash equivalents			269			2,557			4,254			4,629
Increase (decrease) in cash and cash equivalents			(17,919	)		(10,143	)		(42,531	)		86,177
Cash and cash equivalents, beginning of period			49,863			135,543			74,475			39,223
Cash and cash equivalents, end of period		$	31,944		$	125,400		$	31,944		$	125,400

Supplemental cash flow information	Note 13

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

	1.	Nature of Business and Basis of Preparation:

Jaguar Mining Inc. (the “Company” or “Jaguar”) is a company domiciled in Canada. The address of the Company’s registered office is 100 King Street West, Suite 4400, 1 First Canadian Place, Toronto, Ontario, M5X 1B1.

The activities of the Company are directed towards developing and operating mineral projects in Brazil.

These condensed interim consolidated financial statements of the Company as at and for the periods ended June 30, 2012 and June 30, 2011 include the accounts of the Company and its wholly-owned subsidiaries: Mineração Serras do Oeste Ltda. (“MSOL”), Mineração Turmalina Ltda. (“MTL”) and Mineração Chega Tudo Ltda. (“MCT”). All significant intercompany accounts and transactions have been eliminated on consolidation.

Statement of Compliance:

These condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”).

The condensed interim consolidated financial statements of the Company follow the same accounting policies and methods of application as the Company’s annual audited consolidated financial statements. The condensed interim consolidated financial statements do not contain all disclosures required by International Financial Reporting Standards (“IFRSs”) as issued by the IASB and accordingly should be read in conjunction with the Company’s December 31, 2011 audited consolidated financial statements.

These condensed interim consolidated financial statements were authorized for issue by the audit committee on August 9, 2012.

Inventory:

During the six months ended June 30, 2012 the company incurred a write-down of inventory at Paciência of $2.4 million (six months ended June 30, 2011 - $nil).

Prepaid Expenses and Sundry Assets:

The Company is required to pay certain taxes in Brazil that are based on purchases of consumables and property, plant and equipment. These taxes are recoverable from the Brazilian tax authorities through various methods. As at June 30, 2012, total recoverable taxes denominated in Brazilian reais (R$) amounted to R$125.4 million ($62.0 million) (December 31, 2011 - R$121.4 million ($64.7 million)). Highlighted numbers do not agree to the Balance Sheet.

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

Risk Management Policies:

(a) Derivative financial instruments; Forward foreign exchange contracts:

As at June 30, 2012, the Company had the following forward foreign exchange contracts outstanding:

Settlement Date	Amount in thousands of US$		Settlement amount in thousands of R$
31-Aug-12	$	1,000	R$	2,078
28-Sep-12		1,000		2,087
31-Oct-12		1,000		2,096
30-Nov-12		1,000		2,104
31-Dec-12		1,000		2,112
	$	5,000	R$	10,477

As at June 30, 2012, derivative assets include $114,000 of unrealized foreign exchange gains relating to the forward foreign exchange contracts (December 31, 2011 - $nil). Included in the Statements of Operations and Comprehensive Income (Loss) are the following amounts of unrealized and realized gains on foreign exchange derivatives:

	Three Months Ended June 30						Six Months Ended June 30
	2012			2011			2012			2011
Unrealized gain	$	(114	)	$	(29	)	$	(114	)	$	(29	)
Realized gain		-			(315	)		-			(578	)
	$	(114	)	$	(344	)	$	(114	)	$	(607	)

(b) Financial instruments; Fair value estimation:

IFRS 7 Financial Instruments - Disclosures prescribes the following three-level fair value hierarchy for disclosure purposes based on the transparency of the inputs used to measure the fair values of the assets and liabilities:

Level 1 – quoted prices (unadjusted) of identical instruments in active markets that the reporting entity has the ability to access at the measurement date.

Level 2 – inputs are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – one or more significant inputs used in a valuation technique are unobservable for the instruments.

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. The classification of a financial instrument in the hierarchy is based upon the lowest level of input that is significant to the measurement of fair value.

The fair values of the Company’s financial assets and financial liabilities that are measured at fair value are as follows:

June 30, 2012
Financial assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Derivatives

Forward foreign exchange contracts	$	-	$	114	$	-

December 31, 2011

Financial assets

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs (Level 3)

None

June 30, 2012
Financial liabilities	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Option component of convertible notes	$	-	$	-	$	8,179

December 31, 2011
Financial liabilities	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Option component of convertible notes	$	-	$	-	$	79,931

The option components of the convertible notes are fair valued using the Crank-Nicolson valuation model which requires inputs, such as volatility and credit spread, that are both unobservable and significant, and therefore are categorized as Level 3 in the fair value hierarchy.

The table below summarizes a sensitivity analysis for the inputs of volatility and credit spread as at June 30, 2012 and December 31, 2011 with all other variables held constant. It shows how the option component of the convertible notes and net income would have been affected by changes in these relevant risk variables that were reasonably possible at that date.

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

Impact to option component of convertible notes:

Assumption	Change for Sensitivity Analysis		Pre-tax Impact of Change as at June 30, 2012			Pre-tax Impact of Changes as at December 31, 2011
Volatility		5% increase	$	991		$	5,138
		5% decrease	$	(987	)	$	(5,274	)

Credit spread		1% increase	$	89		$	826
		1% decrease	$	(93	)	$	(861	)

The carrying amount of the option components of the convertible notes was $8.2 million as at June 30, 2012 (December 31, 2011 - $79.9 million). The change in fair value of $57.4 million and $71.8 million for the three and six months ended June 30, 2012 respectively is shown as a gain on conversion option embedded in convertible debt in the statements of operations and comprehensive income (loss) (three and six months ended June 30, 2011 - $9.2 million gain and $7.8 million gain, respectively).

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

	June 30, 2012				December 31, 2011
	Carrying				Carrying
	Value		Fair Value		Value		Fair Value

Financial Assets
Cash and cash equivalents¹	$	31,944	$	31,944	$	74,475	$	74,475
Restricted cash¹		909		909		909		909
Loan receivable²		774		774		950		950

Financial Liabilities
Accounts payable and accrued liabilities¹		33,133		33,133		34,922		34,922
Other provisions³		4,960		4,960		4,347		4,347
Notes payable²		262,982		140,268		251,455		223,750
Option component of convertible notes⁴		8,179		8,179		79,931		79,931
Deferred compensation liabilities⁵		548		548		5,223		5,223

Cash and cash equivalents and restricted cash are recorded at their carrying values. The carrying value of accounts payable and accrued liabilities approximate their fair values due to their immediate or short term to maturity.

The fair value of the loan receivable included in prepaid expenses and sundry assets, and notes payable is based on their market price, if available. If a market price is not available then the fair value is determined by discounting the future cash flows at the current market rate of interest available to the Company.

The carrying value of other provisions approximates fair value and is determined by discounting the future expected cash outflows where losses are probable.

The option component of the convertible notes is recorded at fair value. Fair value of the conversion option feature is measured using the Crank-Nicolson model.

The fair value of stock appreciation rights (“SAR”) liabilities is measured using the Black-Scholes model and is recognized over the service or vesting period. The carrying values, measured using intrinsic value, of the Deferred Stock Unit (“DSU”) and Restricted Stock Unit (“RSU”) liabilities approximate their fair values.

Impairment on Paciência Property:

Over the past year the Paciência (CPA) operations have faced significant and increasing challenges. Recent reviews determined that a complete remediation plan would best be accomplished by placing the operations on a temporary care and maintenance program until the necessary design and structural changes have been implemented in the mines. As a result of the temporary shutdown the Company considered this an indicator of impairment and prepared an impairment test on the Paciência operation. The impairment test resulted in an impairment loss of $47.7 million during the second quarter of 2012 and is recorded in ‘impairment of Paciência property” in the Interim Consolidated Statements of Operations and Comprehensive Income (Loss), (three and six months ended June 2011 - $nil). The Paciência property is a cash generating unit (“CGU”) which includes property, plant and equipment, mineral rights, deferred exploration costs, and asset retirement obligations net of amortization. The CGU also includes mineral exploration project assets relating to properties not in production such as mineral rights and deferred exploration costs. $46.3 million of the loss was taken against assets in property, plant and equipment and $1.4 million of the loss was recognized relating to assets included in mineral exploration projects. The recoverable amount of the property was determined using a fair value less cost to sell approach (“FVLCS”). FVLCS for the property was determined by considering the net present value of future cash flows generated by the property. Net future cash flows were derived from life of mine plans for this property. The following significant assumptions were used to value the property:

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

Discount rate: 8%

Gold price: first five years: $1,450-$1,600

after five years: $1,275

Expected future cash flows used to determine the FVLCS used in the impairment testing of the Paciencia property are inherently uncertain and could materially change over time. The cash flows are significantly affected by a number of factors including estimates of production levels, operating costs and capital expenditures reflected in our life of mine plans; as well as economic factors beyond management’s control, such as gold prices and discount rates. Should management’s estimate of the future not reflect actual events, further impairments may be identified or reversal of the existing impairment may occur.

Property, Plant and Equipment:

	Processing								Leasehold			Assets under			Mining
Property, Plant and Equipment	plant		Vehicles			Equipment			improvements			construction			properties			Total
Cost
Balance at January 1, 2011	$	13,733	$	12,684		$	188,967		$	2,208		$	8,391		$	229,189		$	455,172
Additions		112		1,794			15,217			536			16,015			59,632			93,306
Disposals		-		(114	)		(1,538	)		-			(961	)		-			(2,613	)
Reclassify within PPE		20		78			17,785			-			(11,673	)		(6,210	)		-
Reclassify from MEP		-		-			-			-			-			1,098			1,098
Balance at December 31, 2011	$	13,865	$	14,442		$	220,431		$	2,744		$	11,772		$	283,709		$	546,963

Balance at January 1, 2012	$	13,865	$	14,442		$	220,431		$	2,744		$	11,772		$	283,709		$	546,963
Additions		25		3,110			2,155			6			8,407			22,635			36,338
Disposals		-		(2,063	)		(115	)		(430	)		-			-			(2,608	)
Reclassify to Assets held for sale		-		-			-			-			(998	)		-			(998	)
Reclassify within PPE		61		2			7,532			44			(7,640	)		-			-
Balance at June 30, 2012	$	13,950	$	15,491		$	230,003		$	2,365		$	11,541		$	306,344		$	579,695

Accumulated amortization and impairment
Balance at January 1, 2011	$	6,786	$	4,792		$	36,782		$	378		$	-		$	57,619		$	106,357
Amortization for the year		1,003		2,344			21,022			585			-			27,581			52,535
Eliminated on disposal		-		(95	)		(509	)		-			-			-			(604	)
Balance at December 31, 2011	$	7,789	$	7,041		$	57,295		$	963		$	-		$	85,200		$	158,288

Balance at January 1, 2012	$	7,789	$	7,041		$	57,295		$	963		$	-		$	85,200		$	158,288
Amortization for the period		496		1,221			10,554			229			-			12,044			24,543
Impairment loss (Note 6)		1,115		1,238			18,384			189			922			24,487			46,335
Eliminated on disposal		-		(1,469	)		(58	)		(430	)		-			-			(1,957	)
Balance at June 30, 2012	$	9,400	$	8,031		$	86,175		$	951		$	922		$	121,731		$	227,209

Carrying amounts
At January 1, 2011	$	6,947	$	7,892		$	152,185		$	1,830		$	8,391		$	171,570		$	348,815
At December 31, 2011	$	6,076	$	7,401		$	163,136		$	1,781		$	11,772		$	198,509		$	388,675

At January 1, 2012	$	6,076	$	7,401		$	163,136		$	1,781		$	11,772		$	198,509		$	388,675
At June 30, 2012	$	4,550	$	7,460		$	143,828		$	1,414		$	10,619		$	184,614		$	352,486

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

Mineral Properties:

Mineral Exploration Projects	Paciência			Turmalina		Caeté			Gurupi		Pedra Branca		Total
Carrying amount at January 1, 2011	$	2,644		$	7,374	$	17,354		$	47,286	$	-	$	74,658
Additions		972			1,491		654			12,790		-		15,907
Impairment loss		-			-		(529	)		-		-		(529	)
Reclassify to PP&E		-			-		(1,098	)		-		-		(1,098	)
Carrying amount at December 31, 2011	$	3,616		$	8,865	$	16,381		$	60,076	$	-	$	88,938

Carrying amount at January 1, 2012	$	3,616		$	8,865	$	16,381		$	60,076	$	-	$	88,938
Additions		311			687		288			5,760		39		7,085
Impairment loss (Note 6)		(1,357	)		-		-			-		-		(1,357	)
Interest capitalized		-			-		77			-		-		77
Carrying amount at June 30, 2012	$	2,570		$	9,552	$	16,746		$	65,836	$	39	$	94,743

Notes Payable:

	June 30,		December 31,
	2012		2011
Bank indebtedness	$	27,945	$	23,173
CVRD note		7,968		7,968
4.5% convertible notes		140,993		136,327
5.5% convertible notes		86,077		83,987
Total notes payable	$	262,982	$	251,455
Less: current portion		29,138		22,517
Long-term portion	$	233,844	$	228,938

Fair value of notes payable	$	140,268	$	223,750

10.

Contingent Liability:

The Company has received notice that a complaint has been filed in the New Hampshire Superior Court against the Company and three of the Company’s directors by Daniel Titcomb, the former Chief Executive Officer of the Company. The complaint claims an unspecified amount of damages related to employment claims under New Hampshire laws and wrongful termination. As of August 9, 2012, the Company has not been served with the complaint. The Company believes the complaint to be without merit and intends to vigorously defend the complaint if it is served. A provision for this complaint has not been accrued for in the financial statements.

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

11.

Long-Term Incentive Plans:

In January 2012, upon the employment of the Chief Operating Officer, the board granted 250,000 stock appreciation rights (“SARs”) with a reference price of Cdn.$5.68. Are these cancelled in Q2?

In May 2012, 30,000 Deferred Stock Units and 25,000 SARs with a reference price of Cdn$1.56 were granted to a new director of the Company.

The change in fair value of the SAR liability, measured using the Black-Scholes option-pricing model, is recognized as stock compensation expense (recovery) during the period.

	June 30,		December 31,
Stock Appreciation Rights	2012		2011

Liability included in deferred compensation liabilities in the consolidated balance sheets
Current portion	$	2	$	1,414
Long-term portion		22		181
	$	24	$	1,595

Total intrinsic value of liability	$	-	$	406

The fair value of the SAR liability is estimated at the reporting date using the Black-Scholes option-pricing model with the following assumptions:

	June 30,		December 31, 2011
	2012		December 31, 2011
Risk-free interest rate	0.10% -	0.97%	0.01% -	0.90%
Expected dividend yield		0%		0%
Expected share price volatility	79% -	99%	66% -	77%
Expected life of the right in days	153 -	753	66 -	1,043
Weighted average grant date fair value of SARs		$7.73		$7.41

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

	Three Months			Six Months			Three Months			Six Months
	ended			ended			ended			ended
	June 30,			June 30,			June 30,			June 30,
Stock Appreciation Rights	2012			2012			2011			2011
Units outstanding, beginning of period		1,090,100			1,643,434			1,806,769			1,806,769
Units granted		25,000			275,000			-			-
Units vested		(428,350	)		(1,231,684	)		-			-
Balance outstanding, end of period		686,750			686,750			1,806,769			1,806,769

Expense recorded in the consolidated statements of operations and comprehensive income (loss)
Stock-based compensation expense - cash	$	149		$	773		$	-		$	-
Stock-based compensation expense recovery - non-cash		(292	)		(1,571	)		(296	)		(2,398	)
	$	(143	)	$	(798	)	$	(296	)	$	(2,398	)

A Cliff Share Appreciation Rights Plan (“CSAR”) was established to allow the Company to grant performance awards to directors and senior management of the Company. The purpose of the CSAR award is to provide incentive that rewards achieving production, cost targets and appreciation to shareholder value targets by participation in an incentive bonus pool. CSARs call for eventual settlement in cash upon a change in control. On June 18, 2012, the board announced that the four remaining board members holding Cliff Share Appreciation rights relinquished those rights at that time. At June 30, 2012 and December 31, 2010 no liability is included in deferred compensation liability and no expense is recorded in stock based compensation expense.

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

12.

Basic and Diluted Earnings per Share:

Dollar amounts and share amounts in thousands, except per share amounts.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2012			2011		2012			2011
Numerator
Net income (loss) for the period	$	(16,350	)	$	15,586	$	(13,541	)	$	19,310

Denominator
Weighted average number of common outstanding - basic		84,410			84,374		84,410			84,374
Dilutive effect of options		-			2		-			4
Weighted average number of common outstanding - diluted		84,410			84,376		84,410		$	84,378.00

Basic and diluted earnings (loss) per share	$	(0.19	)	$	0.18	$	(0.16	)	$	0.23

The determination of the weighted average number of common shares outstanding for the calculation of diluted earnings per share does not include the following effect of options and convertible notes since they are anti-dilutive.

	Three Months Ended				Six Months Ended
Options and convertible notes considered	June 30,				June 30,
anti-dilutive (in thousands)	2012		2011		2012		2011
Options		3,695		3,467		3,695		3,476
Convertible notes		26,650		26,650		26,650		23,620
		30,345		30,117		30,345		27,096

Jaguar Mining Inc.

Notes to Condensed Interim Consolidated Financial Statements

(tabular dollar amounts in thousands of U.S. dollars, except per share amounts)

Three months ended June 30, 2012 and 2011

(Unaudited)

13.

Supplemental Cash Flow Information:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
Non - cash financing and investing activities	2012		2011		2012		2011
Transfer of Zone C in return for forgiveness of royalties payable (a)	$	90	$	473	$	390	$	998

(a)

See Note 9(a) to the 2011 annual financial statements.

Cash and cash equivalents:

Cash and cash equivalents include R$32.4 million ($16.0 million) in bank certificates of deposit (December 31, 2011 - R$98.2 million ($52.3 million)) and $1.0 million in term deposits (December 31, 2011 – $1.0 million).