EX-99.1 2 v328254_ex99-1.htm Q3 INTERIM FINANCIAL STATEMENTS

Jaguar Mining Inc.

Condensed Interim Consolidated Financial Statements

September 30, 2012 and 2011

(Unaudited)

JAGUAR MINING INC.

Condensed Interim Consolidated Balance Sheets

(Expressed in thousands of U.S. dollars)

(Unaudited)
		September 30,			December 31,
		2012			2011

Assets
Current assets:
Cash and cash equivalents		$	19,991		$	74,475
Inventory	Note 3		26,729			34,060
Prepaid expenses and sundry assets	Note 4		21,854			25,541
Derivatives	Note 5(a)		90			-
			68,664			134,076

Prepaid expenses and sundry assets	Note 4		54,735			48,068
Restricted cash			409			909
Property, plant and equipment	Notes 6,7		350,136			388,675
Mineral exploration projects	Notes 6,8		94,218			88,938

		$	568,162		$	660,666

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities		$	31,892		$	34,922
Notes payable	Note 9		28,541			22,517
Income taxes payable			17,993			18,953
Reclamation provisions			3,985			2,082
Other provisions			5,148			4,347
Deferred compensation liabilities	Note 11		88			2,953
Other liabilities			-			1,475
			87,647			87,249

Notes payable			237,117			228,938
Option component of convertible notes	Note 5(b)		12,920			79,931
Deferred income taxes			10,868			8,635
Reclamation provisions			15,968			15,495
Deferred compensation liabilities	Note 11		574			2,270
Other liabilities			106			339
Total liabilities			365,200			422,857

Shareholders' equity:
Share capital			370,043			370,043
Stock options	Note 10		9,163			14,207
Contributed surplus			8,777			3,414
Deficit			(185,021	)		(149,855	)
Total equity attributable to equity shareholders of the Company			202,962			237,809

Subsequent events	Notes 5(a),14
		$	568,162		$	660,666

On behalf of the Board:

Richard Falconer	Director

David Petroff	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 Loss

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

(Unaudited)
		Three Months			Three Months			Nine Months			Nine Months
		Ended			Ended			Ended			Ended
		September 30,			September 30,			September 30,			September 30,
		2012			2011			2012			2011

Gold sales		$	38,412		$	70,041		$	135,919		$	185,739
Production costs			(25,183	)		(40,602	)		(107,833	)		(110,494	)
Stock-based compensation			100			(189	)		443			(212	)
Depletion and amortization			(7,807	)		(11,534	)		(31,729	)		(33,497	)
Gross profit (loss)			5,522			17,716			(3,200	)		41,536

Operating expenses:
Exploration			730			230			801			1,281
Paciência	Note 13		3,126			-			3,126			-
Stock-based compensation	Notes 10,11		427			3,818			(1,868	)		734
Administration			5,885			6,044			14,831			16,718
Management fees			-			165			-			690
Amortization			297			316			878			986
Other			795			438			1,786			1,509
Total operating expenses			11,260			11,011			19,554			21,918

Income (loss) before the following			(5,738	)		6,705			(22,754	)		19,618

(Gain) loss on derivatives	Note 5(a)		(16	)		1,219			(130	)		805
(Gain) loss on conversion option
embedded in convertible debt	Note 5(b)		4,741			27,260			(67,011	)		19,420
Foreign exchange loss			734			18,559			5,245			8,944
Accretion expense			527			648			1,660			1,842
Interest expense			7,177			7,203			21,377			19,960
Interest income			(617	)		(2,854	)		(3,039	)		(7,186	)
(Gain) loss on disposition of property			197			(595	)		(171	)		(1,593	)
Impairment of Paciência property	Note 6		-			-			47,692			-
Other non-operating expenses (income)			2,439			(30	)		2,973			(349	)
Total other expenses			15,182			51,410			8,596			41,843

Loss before income taxes			(20,920	)		(44,705	)		(31,350	)		(22,225	)
Income taxes
Current income taxes			303			979			924			2,911
Deferred income taxes			402			5,588			2,892			6,826
Total income taxes			705			6,567			3,816			9,737

Net loss and comprehensive loss for the period		$	(21,625	)	$	(51,272	)	$	(35,166	)	$	(31,962	)

Basic and diluted loss per share	Note 12	$	(0.26	)	$	(0.61	)	$	(0.42	)	$	(0.38	)

Weighted average number of
common shares outstanding - basic	Note 12		84,409,648			84,388,909			84,409,648			84,378,791
Weighted average number of
common shares outstanding - diluted	Note 12		84,409,648			84,388,909			84,409,648			84,378,791

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		Deficit			Total
												Surplus
		#		$		#			$			$		$			$

Balance, January 1, 2011			84,373,648		369,747		3,777,500			13,054			1,901		(84,232	)		300,470
Stock options granted			-		-		880,000			2,798			-		-			2,798
Exercise of stock options			36,000		296		(36,000	)		(131	)		-		-			165
Vested options expired			-		-		(575,000	)		(1,363	)		1,363		-			-
Vested options expired upon termination			-		-		(30,000	)		(106	)		106		-			-
Net loss			-		-		-			-			-		(31,962	)		(31,962	)
Balance, September 30, 2011			84,409,648		370,043		4,016,500			14,252			3,370		(116,194	)		271,471

Balance, January 1, 2012			84,409,648		370,043		4,005,000			14,207			3,414		(149,855	)		237,809
Stock options granted	Note 10		-		-		1,326,250			319			-		-			319
Vested options expired			-		-		(195,000	)		(688	)		688		-			-
Vested options expired upon termination			-		-		(1,285,000	)		(4,675	)		4,675		-			-
Net loss			-		-		-			-			-		(35,166	)		(35,166	)
Balance, September 30, 2012			84,409,648		370,043		3,851,250			9,163			8,777		(185,021	)		202,962

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			Three Months			Nine Months			Nine Months
		Ended			Ended			Ended			Ended
		September 30,			September 30,			September 30,			September 30,
		2012			2011			2012			2011

Cash provided by (used in):
Operating activities:
Net loss and comprehensive loss for the period		$	(21,625	)	$	(51,272	)	$	(35,166	)	$	(31,962	)
Adjustments to reconcile net earnings to net cash provided from (used in) operating activities:
Unrealized foreign exchange (gain) loss			(1,981	)		23,151			(3,715	)		16,402
Stock-based compensation expense (recovered)	Notes 10,11		327			4,007			(2,311	)		946
Interest expense			7,177			7,203			21,377			19,960
Accretion of interest income			-			-			-			(188	)
Accretion expense			527			648			1,660			1,842
Income taxes recovered			-			(36	)		-			(140	)
Deferred income taxes			402			5,588			2,892			6,826
Depletion and amortization			8,104			11,850			32,607			34,483
Provision and loss on disposition of PPE			2,586			-			3,133			-
Write-down of Paciência inventory			-			-			2,394			-
Impairment of Paciência property			-			-			47,692			-
Unrealized (gain) loss on derivatives	Note 5(a)		23			1,090			(90	)		1,061
Unrealized (gain) loss on option component of convertible note	Note 5(b)		4,741			27,260			(67,011	)		19,420
Reclamation expenditures			(73	)		(73	)		(186	)		(99	)
			208			29,416			3,276			68,551
Change in non-cash operating working capital:
Inventory			1,854			388			5,586			1,321
Prepaid expenses and sundry assets			(3,447	)		(82	)		(10,595	)		(7,559	)
Accounts payable and accrued liabilities			(1,732	)		1,297			(3,973	)		6,678
Income taxes payable			364			(785	)		(961	)		2,540
Deferred compensation liability			(36	)		(255	)		(2,304	)		(501	)
Other provisions			189			-			802			-
			(2,600	)		29,979			(8,169	)		71,030
Financing activities:
Issuance of common shares			-			164			-			164
Decrease in restricted cash			500			-			499			-
Repayment of debt			(7,196	)		(7,115	)		(9,415	)		(15,049	)
Increase in debt			6,200			6,000			13,200			105,313
Interest paid			(3,229	)		(4,387	)		(10,223	)		(9,002	)
Other liabilities			1			333			(1,707	)		278
			(3,724	)		(5,005	)		(7,646	)		81,704
Investing activities:
Mineral exploration projects	Note 8		(973	)		(5,062	)		(7,935	)		(9,674	)
Purchase of property, plant and equipment	Note 7		(6,781	)		(28,820	)		(37,795	)		(70,420	)
Proceeds from disposition of property			187			-			869			-
			(7,567	)		(33,882	)		(44,861	)		(80,094	)
Effect of foreign exchange on non-U.S. dollar denominated cash and cash equivalents			1,938			(14,767	)		6,192			(10,138	)
Increase (decrease) in cash and cash equivalents			(11,953	)		(23,675	)		(54,484	)		62,502
Cash and cash equivalents, beginning of period			31,944			125,400			74,475			39,223
Cash and cash equivalents, end of period		$	19,991		$	101,725		$	19,991		$	101,725

The accompanying notes are an integral part of these 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 September 30, 2012 and 2011

(Unaudited)

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 September 30, 2012 and September 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 November 8, 2012.

Inventory:

During the nine months ended September 30, 2012, the Company incurred a write-down of inventory at Paciência of $2.4 million (nine months ended September 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 September 30, 2012, total recoverable taxes denominated in Brazilian reais (R$) amounted to R$131.2 million ($64.7 million) (December 31, 2011 - R$121.4 million ($64.7 million)).

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 September 30, 2012 and 2011

(Unaudited)

Risk Management Policies:

(a) Derivative financial instruments;

i) Forward foreign exchange contracts:

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

Settlement Date	Amount US$		Settlement amount R$
31-Oct-12	$	1,000	R$	2,096
30-Nov-12		1,000		2,104
31-Dec-12		1,000		2,112
	$	3,000	R$	6,312

As at September 30, 2012, derivative assets included $90,000 of unrealized foreign exchange gains relating to the forward foreign exchange contracts (December 31, 2011 - $nil). Included in the statements of operations and comprehensive loss are the following amounts of unrealized and realized gains on foreign exchange derivatives:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012			2011		2012			2011
Unrealized (gain) loss	$	23		$	1,090	$	(90	)	$	1,061
Realized (gain) loss		(39	)		129		(40	)		(450	)
	$	(16	)	$	1,219	$	(130	)	$	611

Subsequent to September 30, 2012, the Company purchased $19 million additional foreign exchange contracts for the Reais at a weighted average rate of 2.06 maturing October 31, 2012 to April 30, 2013.

ii) Commodity sales contracts.

Subsequent to September 30, 2012, the Company purchased gold forward sales contracts to sell 7,900 ounces of gold during the fourth quarter of 2012 at $1,775.

(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.

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 September 30, 2012 and 2011

(Unaudited)

	b.	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.

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:

September 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	$	-	$	90	$	-

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

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 September 30, 2012 and 2011

(Unaudited)

September 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	$	-	$	-	$	12,920

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 September 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.

Impact to option component of convertible notes:

Assumption	Change for Sensitivity Analysis	Pre-tax Impact of Changes as at September 30, 2012			Pre-tax Impact of Changes as at December 31, 2011

Volatility	5% increase	$	979		$	5,138
	5% decrease	$	(996	)	$	(5,274	)

Credit spread	1% increase	$	70		$	826
	1% decrease	$	(72	)	$	(861	)

The carrying amount of the option components of the convertible notes was $12.9 million as at September 30, 2012 (December 31, 2011 - $79.9 million). The change in fair value of $4.7 million (a loss) and $67.0 million (a gain) for the three and nine months ended September 30, 2012, respectively is shown as a loss (gain) on conversion option embedded in convertible debt in the statements of operations and comprehensive loss (three and nine months ended September 30, 2011 - $27.3 million loss and $19.4 million loss, 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 September 30, 2012 and 2011

(Unaudited)

	September 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets
Cash and cash equivalents¹	$	19,991	$	19,991	$	74,475	$	74,475
Restricted cash¹		409		409		909		909
Loan receivable²		792		792		950		950

Financial Liabilities
Accounts payable and accrued liabilities¹		31,892		31,892		34,922		34,922
Notes payable²		265,658		145,281		251,455		223,750
Other provisions³		5,148		5,148		4,347		4,347
Option component of convertible notes⁴		12,920		12,920		79,931		79,931
Deferred compensation liabilities⁵		662		662		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 its 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 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 charge of $47.7 million during the second quarter of 2012 and is recorded in Impairment of Paciência property in the statements of operations and comprehensive loss, (three and nine months ended September 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. The loss of $46.3 million 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 September 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 Paciência 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 the 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 (“PPE”):

Property, Plant and Equipment	Processing plant		Vehicles			Equipment			Leasehold improvements			Assets under construction			Mining properties			Total
Cost
Balance, 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	)		-
Transfer from MEP		-		-			-			-			-			1,098			1,098
Balance, December 31, 2011	$	13,865	$	14,442		$	220,431		$	2,744		$	11,772		$	283,709		$	546,963

Balance, January 1, 2012	$	13,865	$	14,442		$	220,431		$	2,744		$	11,772		$	283,709		$	546,963
Additions		25		3,163			3,107			6			9,810			28,374			44,485
Interest capitalized		-		-			-			-			-			154			154
Disposals		-		(2,871	)		(432	)		(430	)		-			-			(3,733	)
Transfer to assets held for sale		-		(888	)		(5,536	)		-			(998	)		-			(7,422	)
Reclassify within PPE		61		2			7,919			44			(8,026	)		-			-
Transfer from MEP		-		-			-			-			-			1,477			1,477
Balance, September 30, 2012	$	13,951	$	13,848		$	225,489		$	2,364		$	12,558		$	313,714		$	581,924

Accumulated amortization and impairment
Balance, 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, December 31, 2011	$	7,789	$	7,041		$	57,295		$	963		$	-		$	85,200		$	158,288

Balance, January 1, 2012	$	7,789	$	7,041		$	57,295		$	963		$	-		$	85,200		$	158,288
Amortization for the period		720		1,726			14,570			345			-			15,855			33,216
Impairment loss (Note 6)		1,115		1,238			18,384			189			922			24,487			46,335
Transfer to assets held for sale		-		(558	)		(2,804	)		-			-			-			(3,362	)
Eliminated on disposal		-		(2,017	)		(242	)		(430	)		-			-			(2,689	)
Balance, September 30, 2012	$	9,624	$	7,430		$	87,203		$	1,067		$	922		$	125,542		$	231,788

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 September 30, 2012	$	4,327	$	6,418		$	138,286		$	1,297		$	11,636		$	188,172		$	350,136

Included in Prepaid expenses and sundry assets are $1.1 million of assets held for sale. Included in Other non-operating expenses for the three and nine months ended September 30, 2012, are impairment charges of $2.5 million and $3.0 million relating to these assets (three and nine months ended September 30, 2011 - $nil).

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 September 30, 2012 and 2011

(Unaudited)

Mineral Properties (“MP”):

Mineral Properties	Paciência			Turmalina			Caeté			Gurupi		Pedra Branca		Total
Balance, 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	)
Transfer to PPE		-			-			(1,098	)		-		-		(1,098	)
Balance, December 31, 2011	$	3,616		$	8,865		$	16,381		$	60,076	$	-	$	88,938

Balance, January 1, 2012	$	3,616		$	8,865		$	16,381		$	60,076	$	-	$	88,938
Additions		430			667			337			6,519		39		7,992
Interest capitalized		-			-			122			-		-		122
Impairment loss (Note 6)		(1,357	)		-			-			-		-		(1,357	)
Transfer to PPE		-			(1,477	)		-			-		-		(1,477	)
Balance, September 30, 2012	$	2,689		$	8,055		$	16,840		$	66,595	$	39	$	94,218

Notes Payable:

	September 30,		December 31,
	2012		2011
Bank indebtedness	$	26,963	$	23,173
CVRD note		8,169		7,968
4.5% convertible notes		143,385		136,327
5.5% convertible notes		87,141		83,987
Total notes payable	$	265,658	$	251,455
Less: current portion		28,541		22,517
Long-term portion	$	237,117	$	228,938

Fair value of notes payable	$	145,281	$	223,750

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 September 30, 2012 and 2011

(Unaudited)

10.

Capital Stock:

Options:

During September 2012, 1,200,000 options were granted to the new CEO of the Company at a strike price of Cdn.$1.05. One third of the options vested immediately. One third will vest after one year and one third after two years. The options expire September 10, 2017. Included in stock compensation expense for the three and nine months ended September 30, 2012, is $319,000 related to these options. The following assumptions were used to value the options granted:

	September 30, 2012		December 31, 2011
Risk-free interest rate	1.21% -	1.29%	1.19% -	1.42%
Expected dividend yield		0%		0%
Expected share price volatility	75% -	81%	67% -	70%
Expected life of the option in years	2.5 -	3.5	3.75 -	4.6
Weighted average grant date fair value of shares	Cdn.	$1.05	Cdn.	$6.28
Expected forfeiture rate		nil		nil

During the third quarter of 2012, 126,250 options were granted to consultants at an exercise price of Cdn.$1.26. The options will vest during the fourth quarter of 2012 and expire September 27, 2017. The direct method was used to value the consultant’s options (using the value of the services to be rendered). The options will be expensed over the service period during the fourth quarter of 2012.

During the three and nine months ended September 30, 2011, the Company issued 880,000 options to directors and officers at a strike price of Cdn.$6.28. The options vested immediately and expire September 15, 2016. Included in stock compensation expense for the three and nine months ended September 30, 2011 is $2.8 million related to these options.

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 September 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, which were cancelled in the quarter ended September 30, 2012. 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. In September 2012, 60,000 Deferred Stock Units and 50,000 SARs with a reference price of Cdn$1.26 were granted to new directors of the Company.

	Three Months ended			Nine Months ended			Three Months ended			Nine Months ended
Deferred Stock Units	September 30, 2012			September 30, 2012			September 30, 2011			September 30, 2011
Units outstanding, beginning of period		228,079			235,828			221,228			221,228
Units granted		60,000			90,000			-			-
Units vested upon retirement		(14,600	)		(52,349	)		-			-
Balance outstanding, end of period		273,479			273,479			221,228			221,228

Expense recorded in the consolidated statements of operations and comprehensive loss
Stock-based compensation expense (recovery)	$	63		$	(1,081	)	$	288		$	(229	)
Foreign exchange loss		8			38			(79	)		(47	)
	$	71		$	(1,043	)	$	209		$	(276	)

	September 30, 2012		December 31, 2011
Long-term liability included in deferred compensation liabilities in the consolidated balance sheets
Current portion	$	75	$	-
Long-term portion		342		1,460
	$	417	$	1,460

	Three Months ended			Nine Months ended			Three Months ended			Nine Months ended
Stock Appreciation Rights	September 30, 2012			September 30, 2012			September 30, 2011			September 30, 2011
Units outstanding, beginning of period		686,750			1,643,434			1,806,769			1,806,769
Units granted		50,000			325,000			-			-
Units vested		(66,700	)		(1,298,384	)		(53,334	)		(53,334	)
Units expired		(250,000	)		(250,000	)		-			-
Balance outstanding, end of period		420,050			420,050			1,753,435			1,753,435

Expense recorded in the consolidated statements of operations and comprehensive loss
Stock-based compensation expense - cash	$	-		$	774		$	160		$	160
Stock-based compensation expense (recovery) - non-cash		23			(1,549	)		(172	)		(2,571	)
	$	23		$	(775	)	$	(12	)	$	(2,411	)

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 September 30, 2012 and 2011

(Unaudited)

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.

	September 30, 2012		December 31, 2011
Liability included in deferred compensation liabilities in the consolidated balance sheets
Current portion	$	2	$	1,414
Long-term portion		44		181
	$	46	$	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:

	September 30, 2012		December 31, 2011
	September 30, 2012		December 31, 2011
Risk-free interest rate	0.18% -	1.16%	0.01% -	0.90%
Expected dividend yield		0%		0%
Expected share price volatility	96% -	109%	66% -	77%
Expected life of the right in days	61 -	608	66 -	1,043
Weighted average grant date fair value of SARs		$6.81		$7.41
Expected forfeiture rate		nil		nil

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 Company’s Board of Directors announced that the remaining Board members holding Cliff Share Appreciation rights relinquished those rights at that time. At September 30, 2012 and December 31, 2011, no liability was included in deferred compensation liability and no expense was 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 September 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 September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Numerator
Net loss for the period	$	(21,625	)	$	(51,272	)	$	(35,166	)	$	(31,962	)

Denominator
Weighted average number of common shares outstanding - basic		84,410			84,389			84,410			84,379
Dilutive effect of options		-			-			-			-
Weighted average number of common shares outstanding - diluted		84,410			84,389			84,410			84,379

Basic and diluted loss per share	$	(0.26	)	$	(0.61	)	$	(0.42	)	$	(0.38	)

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.

Options and convertible notes considered	Three Months Ended September 30,				Nine Months Ended September 30,
anti-dilutive (in thousands)	2012		2011		2012		2011
Options		4,281		3,160		4,591		3,457
Convertible notes		26,650		26,650		26,650		23,620
		30,931		29,810		31,241		27,077

13.

Paciência:

Paciência expense includes approximately $2.1 million of costs associated with temporarily winding down the operations. These costs include severance costs, labour and services on site to prepare the mine for temporary closure.

Also included in the Paciência expense are ongoing care and maintenance costs of $1 million relating to the plant and mine.

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 September 30, 2012 and 2011

(Unaudited)

14.

Subsequent Event:

On October 29, 2012, the Company announced that it had arranged a $30.0 million standby credit facility ("the Facility") with Renvest Mercantile Bancorp Inc. ("the Lender") through its Global Resource Fund. The Facility is expected to close on or before November 28, 2012 subject to completion of requisite due diligence by the Lender and the finalization of the required loan documentation. Upon closing, Jaguar will draw down $5 million from the Facility. Interest will be applied to the outstanding balance of all amounts drawn down from the Facility at a fixed rate of eleven (11%) per annum, payable monthly in arrears. Additional draw down and standby fees are payable in cash and in common shares. The proceeds from any drawdown will be used for working capital related to its Turmalina, Paciência or Caeté mining projects in Brazil.