Unassociated Document


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

FORM 10-Q

R           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

OR

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

Commission File Number:  001-31593

BRIGUS GOLD CORP.
(Formerly APOLLO GOLD CORPORATION)
(Exact name of registrant as specified in its charter)

Yukon Territory, Canada
Not Applicable
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

1969 Upper Water Street, Suite 2001
Halifax, Nova Scotia
(Address of principal executive offices)
B3J 3R7
Canada
(Zip code)

Registrant’s telephone number, including area code:  (902) 422-1421

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

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

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

Large Accelerated Filer £
Accelerated Filer R
Non-Accelerated Filer £ (do not check if a smaller
reporting company)
Smaller Reporting Company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes £       No R

At August 13, 2010, there were 140,658,358 common shares of Brigus Gold Corp. outstanding.
 



 
TABLE OF CONTENTS

   
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51
   
 
 
Certification of CEO Pursuant to Section 302
Exhibit 31.1
 
Certification of CFO Pursuant to Section 302
Exhibit 31.2
 
Certification of CEO and CFO Pursuant to Section 906
Exhibit 32.1

STATEMENTS REGARDING FORWARD LOOKING INFORMATION
 
This Quarterly Report on Form 10-Q contains forward looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, business prospects, plans, objectives, goals, strategies, future events, capital expenditures, and exploration and development efforts.  Forward-looking statements can be identified by the use of words such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “continue,” or the negative of such terms, or other comparable terminology.  These statements include comments regarding:
 
 
·
the benefits and effects of the business combination with Linear Gold Corp.;
 
·
plans for the development of and production at the Black Fox mine including, without limitation, the timing of the development of, and future production from, the underground mine at Black Fox;
 
·
repayments of indebtedness and our ability to meet our repayment obligations under the Black Fox project finance facility;

 
2

 

 
·
our exploration and development plans, including such plans for our Grey Fox, Pike River, Goldfields, Ixhuatan, Huizopa and Dominican Republic projects;
 
·
our ability to repay the convertible debentures issued to RAB Special Situations (Master) Fund Limited (“RAB”) due August 23, 2010;
 
·
the future effect on our share price of share issuances and registration for immediate resale arising from the exercise of a significant number of common share purchase warrants;
 
·
liquidity to support operations and debt repayment;
 
·
future financing of projects, including our Grey Fox, Pike River, Goldfields, Ixhuatan, Huizopa and Dominican Republic projects;
 
·
completion of a Canadian National Instrument 43-101 for our exploration properties;
 
·
the establishment and estimates of mineral reserves and resources;
 
·
daily production, mineral recovery rates and mill throughput rates;
 
·
total production costs;
 
·
cash operating costs;
 
·
total cash costs;
 
·
grade of ore mined and milled from Black Fox and cash flows derived therefrom;
 
·
anticipated expenditures for development, exploration, and corporate overhead;
 
·
timing and issue of permits, including permits necessary to conduct phase II of open pit mining at Black Fox;
 
·
expansion plans for existing properties;
 
·
estimates of closure costs and reclamation liabilities;
 
·
our ability to obtain financing to fund our estimated expenditure and capital requirements;
 
·
factors impacting our results of operations; and
 
·
the impact of adoption of new accounting standards.

These forward looking statements are subject to numerous risks, uncertainties and assumptions including: compliance with the terms of the Black Fox project finance facility; integrating the business of Linear Gold Corp.; recent changes in management; unexpected changes in business and economic conditions, including the global financial and capital markets; significant increases or decreases in gold prices; changes in interest and currency exchange rates including the LIBOR rate; timing and amount of production; unanticipated changes in grade of ore; unanticipated recovery or production problems; changes in operating costs; operational problems at our mining properties; metallurgy, processing, access, availability of materials, equipment, supplies and water; determination of reserves; costs and timing of development of new reserves; results of current and future exploration and development activities; results of current and future exploration activities; results of future feasibility studies; joint venture relationships; political or economic instability, either globally or in the countries in which we operate; local and community impacts and issues; timing of receipt of government approvals; accidents and labor disputes; environmental costs and risks; competitive factors, including competition for property acquisitions; availability of external financing at reasonable rates or at all; and the factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2009 under the heading “Risk Factors.”  Many of these factors are beyond our ability to control and predict.  These factors are not intended to represent a complete list of the general or specific factors that may affect us.  Except as required by securities law, we disclaim any obligation to update forward looking statements, whether as a result of new information, future events or otherwise.
 
ACCOUNTING PRINCIPLES, REPORTING CURRENCY AND OTHER INFORMATION
 
Brigus Gold Corp. prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and publishes its financial statements in United States dollars. This Quarterly Report on Form 10-Q should be read in conjunction with our condensed consolidated financial statements and related notes included in this quarterly report, as well as our annual financial statements for the fiscal year ended December 31, 2009 included in our Annual Report on Form 10-K.
 
 
3

 

Unless stated otherwise, all dollar amounts are expressed in United States dollars.
 
References to “we,” “our,” “us,” the “Company” or “Brigus” mean Brigus Gold Corp. (formerly Apollo Gold Corporation) and its consolidated subsidiaries, or to any one or more of them, as the context requires.
 
On June 24, 2010, the Company’s shareholders authorized the Company to effect a 1-for-4 reverse split of the number of shares of the Company's common stock (the “Reverse Split”).  Immediately prior to the Reverse Split, 517,565,717 shares of common stock were outstanding.  Upon execution of the Reverse Split, such shares were consolidated into 129,391,429 shares of common stock.  This Quarterly Report on Form 10-Q and the accompanying financial statements have been retroactively adjusted to reflect the Reverse Split.
 
NON-GAAP FINANCIAL INFORMATION
 
In this Quarterly Report on Form 10-Q, Brigus uses the terms “cash operating costs,” “total cash costs” and “total production costs,” each of which are considered non-GAAP financial measures as defined in the United States Securities and Exchange Commission (“SEC”) Regulation S-K Item 10 and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with U.S. GAAP.  These terms are used by management to assess performance of individual operations and to compare Brigus’s performance to other gold producers.
 
The term “cash operating costs” is used on a per ounce of gold basis.  Cash operating costs per ounce is equivalent to direct operating cost, as found on the Consolidated Statements of Operations, less production royalty expenses and mining taxes but includes by-product credits for payable silver.
 
The term “total cash costs” is equivalent to cash operating costs plus production royalties and mining taxes.
 
The term “total production costs” is equivalent to total cash costs plus non-cash costs including depreciation and amortization and accretion on accrued site closure costs.
 
This information differs from measures of performance determined in accordance with generally accepted accounting principles (“GAAP”) in Canada and the United States and should not be considered in isolation or a substitute for measures of performance prepared in accordance with GAAP.  These measures are not necessarily indicative of operating profit or cash flow from operations as determined under GAAP and may not be comparable to similarly titled measures of other companies.  See Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a reconciliation of these non-GAAP measures to our Consolidated Statements of Operations.

REPORTING REQUIREMENTS FOR DISCLOSURE OF MINERAL PROPERTIES

We report our reserves on two separate standards to meet the requirements for reporting in both Canada and the United States.  Accordingly, certain information in this Quarterly Report on Form 10-Q concerning our properties and operations has been prepared in accordance with Canadian standards under applicable Canadian securities laws, which differ from the requirements of U.S. securities laws. The terms “Mineral Resource, Measured Mineral Resource, Indicated Mineral Resource and “Inferred Mineral Resource used in this Quarterly Report on Form 10-Q are Canadian mining terms as defined in accordance with NI 43-101 under guidelines set out in the Definition Standards for Mineral Resources and Mineral Reserves adopted by the Canadian Institute of Mining, Metallurgy and Petroleum Council on December 11, 2005 (“CIM Standards”).

 
4

 

 
While the terms “Mineral Resource, Measured Mineral Resource, Indicated Mineral Resource and “Inferred Mineral Resource are recognized and required by Canadian securities regulations, they are not recognized by the SEC. Pursuant to United States standards as promulgated by the SEC under Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. “Inferred Mineral Resource has a great amount of uncertainty as to its existence, as to whether it can be mined and as to its economic and legal feasibility, except in rare cases. It cannot be assumed that all or any part of an “Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian securities regulations, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies, except in rare cases. Readers are cautioned not to assume that all or any part of a “Measured Mineral Resource” or “Indicated Mineral Resource” will ever be converted into Mineral Reserves. Readers are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable. Disclosure of contained ounces is permitted disclosure under Canadian regulations; however, the SEC generally only permits issuers to report resources as in place tonnage and grade without reference to unit measures. As such, certain information contained in this Quarterly Report on Form 10-Q concerning descriptions of mineralization and resources under Canadian standards may not be comparable to similar information made public by United States companies subject to reporting and disclosure requirements of the SEC.

In addition, the definitions of “Proven Mineral Reserves and “Probable Mineral Reserves under CIM Standards differ in certain respects from the U.S. standards.  Our Proven and Probable Mineral Reserves are estimated in accordance with definitions set forth in NI 43-101 and on a basis consistent with the definition of Proven and Probable Mineral Reserves set forth in SEC Industry Guide 7.  Because we report our Mineral Reserves to both NI 43-101 and SEC Industry Guide 7 standards, it is possible for our reserve estimates to vary between the two. Where such a variance occurs it will arise from the differing requirements for reporting Mineral Reserves set forth by the different reporting authorities to which we are subject.

PART I — FINANCIAL INFORMATION
 
FINANCIAL STATEMENTS
 
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, accompanying notes and other relevant information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 17, 2010.

 
5

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(Unaudited)

   
June 30,
2010
   
December 31,
 2009
 
ASSETS
     
CURRENT
     
Cash
  $ 4,728     $  
Restricted cash (Note 5)
    17,524       6,731  
Accounts receivable and other
    1,453       1,690  
Prepaids
    1,317       394  
Derivative instruments (Note 6)
          1,961  
Inventories (Note 7)
    5,283       8,189  
Total current assets
    30,305       18,965  
Derivative instruments (Note 6)
          4,844  
Inventories, long-term (Note 7)
    4,538        
Long-term investments (Note 8)
    4,476       1,036  
Property, plant and equipment
    174,783       116,171  
Investment in Montana Tunnels joint venture (Note 14)
          3,440  
Restricted certificates of deposit
    14,650       14,805  
TOTAL ASSETS
  $ 228,752     $ 159,261  
                 
LIABILITIES
               
CURRENT
               
Bank indebtedness
  $     $ 328  
Accounts payable
    7,902       6,789  
Accrued liabilities
    3,833       2,129  
Derivative instruments (Note 6)
    19,370       12,571  
Current portion of long-term debt (Note 9)
    27,152       34,860  
Total current liabilities
    58,257       56,677  
Accrued long-term liabilities
    1,877       483  
Derivative instruments (Note 6)
    39,988       31,654  
Long-term debt (Note 9)
    32,018       48,909  
Equity-linked financial instruments (Note10)
    21,002       27,318  
Accrued site closure costs
    5,620       5,345  
Future income tax liabilities
    9,946       1,304  
TOTAL LIABILITIES
    168,708       171,690  
                 
Commitments and Contingencies (Note 18)
               
                 
SHAREHOLDERS’ EQUITY (DEFICIENCY)
               
Common stock – Nil par value, unlimited shares authorized, 129,391,429 and 66,050,232 shares issued and outstanding, respectively
    281,002       202,769  
Additional paid-in capital
    53,035       45,555  
Accumulated deficit
    (273,993 )     (260,753 )
TOTAL SHAREHOLDERS’ EQUITY (DEFICIENCY)
    60,044       (12,429 )
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
  $ 228,752     $ 159,261  

Subsequent Events (Note 21)

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

 
6

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(U.S. dollars and shares in thousands, except per share amounts)
(Unaudited)

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenue from sale of minerals
  $ 22,163     $ 4,709     $ 39,789     $ 4,709  
                                 
Operating expenses
                               
Direct operating costs
    8,274       2,034       18,258       2,034  
Depreciation and amortization
    4,029       1,023       7,490       1,033  
Accretion expense – accrued site closure costs
    177       69       352       69  
General and administrative expenses
    3,681       1,096       5,630       2,028  
Exploration and business development
    1,426       302       1,697       529  
      17,587       4,524       33,427       5,693  
Operating income (loss)
    4,576       185       6,362       (984 )
Other income (expenses)
                               
Interest income
    59       38       113       78  
Interest expense (Note 12)
    (2,679 )     (1,319 )     (6,021 )     (2,149 )
Debt transaction costs
          (10 )           (1,249 )
Loss on modification of debentures (Note 9(b))
                (513 )     (1,969 )
Linear acquisition costs
    (2,636 )           (3,213 )      
Fair value change on equity-linked financial instruments (Note 10)
    1,881       (8,829 )     11,894       (13,582 )
Realized gain (loss) on derivative instruments
    3,582       (492 )     239       (124 )
Unrealized (loss) gain on derivative instruments
    (23,919 )     3,376       (21,938 )     (15,042 )
Foreign exchange (loss) gain and other
    (553 )     184       (331 )     281  
      (24,265 )     (7,052 )     (19,770 )     (33,756 )
Loss before income taxes and equity loss in Montana Tunnels joint venture
    (19,689 )     (6,867 )     (13,408 )     (34,740 )
Income taxes (Note 13)
                869       73  
Equity loss in Montana Tunnels joint venture (Note 14)
          (333 )     (701 )     (957 )
Net loss and comprehensive loss for the period
  $ (19,689 )   $ (7,200 )   $ (13,240 )   $ (35,624 )
                                 
Basic and diluted net loss per share (Note 15)
  $ (0.23 )   $ (0.12 )   $ (0.17 )   $ (0.62 )
                                 
Basic and diluted weighted-average number of shares outstanding (Note 15)
    86,988       58,540       78,087       57,613  

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

 
7

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
(U.S. dollars and shares in thousands)
(Unaudited)

   
Number of
Shares
   
Share
Capital
   
Debenture
Note
Warrants
   
Additional
Paid-In
Capital
   
Deficit
   
Total
 
                                     
Balance, December 31, 2008
    55,715     $ 189,451     $ 2,234     $ 48,241     $ (197,572 )   $ 42,354  
                                                 
Cumulative effect of change in accounting principle
                      (6,939 )     (1,531 )     (8,470 )
Shares issued for services
    1,293       1,553                         1,553  
Shares issued in settlement of interest
    611       772                         772  
Warrants issued for services
                      961             961  
Warrants exercised
    1,903       1,416                         1,416  
Shares issued for cash and related compensation warrants
    6,527       9,577             294             9,871  
Expiration of note warrants
                (2,234 )     2,234              
Stock-based compensation
                      764             764  
Net loss and comprehensive loss
                            (61,650 )     (61,650 )
Balance, December 31, 2009
    66,050       202,769             45,555       (260,753 )     (12,429 )
 
                                               
Shares issued for services (Note 11(a)(i and iii))
    673       1,039                         1,039  
Warrants issued for services (Notes 9(b) and 11(a)(iii))
                      149             149  
Warrants exercised (Note 11(a)(ii))
    2,145       2,145                         2,145  
Shares issued for cash (Notes 4 and 11(a)(iv))
    15,625       24,497                         24,497  
Shares cancelled (Notes 4 and 11(a)(iv))
    (15,625 )     (24,497 )           5,121             (19,376 )
Shares and options issued for acquisition of Linear (Notes 4 and 11(a)(v))
    60,523       75,049             1,844             76,893  
Stock-based compensation
                      366             366  
Net loss and comprehensive loss
                            (13,240 )     (13,240 )
Balance, June 30, 2010
    129,391     $ 281,002     $     $ 53,035     $ (273,993 )   $ 60,044
 

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

 
8

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
(Unaudited)

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Operating activities
                       
Net loss for the period
  $ (19,689 )   $ (7,200 )   $ (13,240 )   $ (35,624 )
Items not affecting cash:
                               
Depreciation and amortization
    4,029       1,023       7,490       1,033  
Amortization of deferred financing costs
    41       15       79       15  
Stock-based compensation
    128       174       366       356  
Shares and warrants issued for services and payment of interest
                599       4,020  
Accretion expense – accrued site closure costs
    177       69       352       69  
Accretion expense – amortization of debt discount
    1,226       469       2,809       469  
Accretion expense – convertible debentures
    193       203       408       1,005  
Interest paid on convertible debentures
                (772 )     (567 )
Unrealized loss (gain) on derivative instruments
    23,919       (3,376 )     21,938       15,042  
Net change in value of equity-linked financial instruments
    (1,881 )     8,829       (11,894 )     13,582  
Foreign exchange (gain) loss and other
    446       (600 )     601       (663 )
Income taxes
                (869 )     (73 )
Equity investment in Montana Tunnels joint venture
          (1,581 )     589       (957 )
Net change in non-cash operating working capital items (Note 16(a))
    2,788       (3,222 )     1,542       (2,635 )
Earnings distribution from Montana Tunnels joint venture
          2,716             3,196  
Net provided by (used in) operating activities
    11,377       (2,481 )     9,998       (1,732 )
                                 
Investing activities
                               
Property, plant and equipment expenditures
    (4,033 )     (18,580 )     (5,095 )     (40,446 )
Net cash acquired in the Linear acquisition via the issuance of common shares, warrants and options
    15,426             15,426        
Restricted cash and certificates of deposit, including bank indebtedness
    171       (10,034 )     (11,121 )     (1,864 )
Net cash provided by (used in) investing activities
    11,564       (28,614 )     (790 )     (42,310 )
                                 
Financing activities
                               
Proceeds on issuance of shares to Linear
                24,497        
Proceeds from exercise of warrants
          352       2,145       851  
Proceeds from debt
          28,500             66,534  
Repayments of debt
    (19,573 )     (1,561 )     (30,546 )     (22,498 )
Net cash (used in) provided by financing activities
    (19,573 )     27,291       (3,904 )     44,887  
                                 
Effect of exchange rate changes on cash
    (571 )     95       (576 )     91  
                                 
Net increase (decrease) in cash
    2,797       (3,709 )     4,728       936  
Cash, beginning of period
    1,931       4,645              
Cash, end of period
  $ 4,728     $ 936     $ 4,728     $ 936  
                                 
SUPPLEMENTAL CASH FLOW INFORMATION
                               
Interest paid
  $ 823     $ 1,550     $ 3,497     $ 2,475  
Income taxes paid
  $     $     $     $ 25  

See Note 16 for additional supplemental cash flow information.

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

 
9

 

 
BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

1.
BUSINESS COMBINATION WITH LINEAR GOLD CORP.
 
On March 9, 2010, Brigus Gold Corp. (formerly Apollo Gold Corporation) (“Brigus” or the “Company”) and Linear Gold Corp. (“Linear”) entered into a binding letter of intent (as amended on March 18, 2010, the “Letter of Intent”) pursuant to which (i) the businesses of Brigus and Linear would be combined by way of a court-approved plan of arrangement (the “Arrangement”) pursuant to the provisions of the Business Corporations Act (Alberta) (“ABCA”) and (ii) Linear purchased 15,625,000 common shares of Brigus for gross proceeds of Cdn$25.0 million (the “Private Placement”) on March 19, 2010.  As part of the Arrangement, the Brigus common shares issued to Linear in this Private Placement were cancelled without any payment upon completion of the Arrangement.

On June 25, 2010, the Company completed the business combination of Brigus Gold Corp. and Linear .  The Arrangement was structured as a court-approved plan of arrangement under the ABCA pursuant to which Brigus acquired all of the issued and outstanding Linear shares and Linear amalgamated with 1526753 Alberta ULC (the “Brigus Sub”).  Under the terms of the Arrangement, former shareholders of Linear received, after giving effect to a 4 for 1 common share consolidation described in Note 4(a), 1.37 Brigus common shares for each common share of Linear, subject to adjustment for fractional shares.  Outstanding options and warrants to acquire Linear shares have been converted into options and warrants to acquire Brigus common shares, adjusted in accordance with the same ratio.  The Company issued 60,523,014 common shares, 11,191,677 warrants to purchase common shares and 3,448,746 options to purchase common shares in connection with the completion of the Arrangement.

The Arrangement has allowed the Company to reduce its debt related to the Black Fox project, and to provide capital to fund underground development at Black Fox and the exploration programs at the Grey Fox and Pike River properties.  The Arrangement has also provided an increased number of properties to the Company, including the Goldfields project in northern Saskatchewan, Canada, the Ixhuatan property in southern Mexico, and the Ampliacion Pueblo Viejo, Loma El Mate, and Loma Hueca properties in the Dominican Republic.

The Arrangement is accounted for using the acquisition method with Brigus as the acquirer of Linear.  The Company is in the process of completing a full and detailed valuation of the fair value of the net assets of Linear acquired with the assistance of an independent third party.

After adjusting Linear’s Equity investment in Brigus to its market value as of June 24, 2010, Brigus has estimated the fair value of Linear’s non-mineral interest net assets to be equal to their current carrying values.  The remainder of the purchase price has been assigned as an increase to the estimated fair value of the acquired mineral interests, including a deferred income tax adjustment of $9.5 million.

The allocation of the purchase price is based upon management’s preliminary estimates and certain assumptions with respect to the fair value increment associated with the assets acquired and the liabilities assumed.  The actual fair values of the assets and liabilities are to be determined as of the date of acquisition when further analysis is completed. Consequently, the actual allocation of the purchase price may result in different adjustments than those shown below.
 
 
10

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

The preliminary purchase price allocation is subject to change and is summarized as follows:

Purchase of Linear shares (60,523,014 Brigus common shares)
  $ 75,049  
Fair value of options and warrants issued
    7,422  
Purchase consideration
  $ 82,471  

The purchase price was allocated as follows:

Net working capital acquired (including cash of $15.4 million)
  $ 14,162  
Equity investment in Brigus
    19,375  
Property, plant and equipment (including mineral exploration properties of $56.1 million)
    58,416  
Other assets
    35  
Future income tax liability
    (9,517 )
Net identifiable assets
  $ 82,471  

Linear’s results of operations from the acquisition date, June 24, 2010, have been included in Brigus’ consolidated statements of operations for the three and six months ended June 30, 2010.

The following table presents supplemental pro forma financial information as if the Arrangement had occurred on January 1, 2010 for the three and six months ended June 30, 2010 and January 1, 2009 for the three and six months ended June 30, 2009.  As such, all periods presented include charges related to the Arrangement.  The pro forma consolidated results are not necessarily indicative of the results that would have occurred in the periods presented below had the Company completed the Arrangement on January 1, 2010 or January 1, 2009.   In addition, the pro forma financial results do not purport to project the future results of the combined Company nor do they reflect cost savings relating to the integration of Brigus and Linear.

   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenue from the sale of gold
  $ 22,163     $ 4,709     $ 39,789     $ 4,709  
Loss from continuing operations attributable to Brigus
    (15,922 )     (7,116 )     (10,929 )     (34,951 )
Net loss attributable to Brigus
    (15,922 )     (7,449 )     (11,630 )     (35,908 )
                                 
Basic and diluted net loss per share attributable to Brigus
    (0.18 )     (0.13 )     (0.15 )     (0.62 )

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Brigus to reflect the removal of acquisition costs related to the Arrangement including employee severance charges had they been applied on January 1, 2010 and 2009, as applicable.

2.
CONTINUING OPERATIONS
 
These interim condensed consolidated financial statements are prepared on the basis of a going concern which assumes that Brigus Gold Corp. will realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  To date the Company has funded its operations through issuance of debt and equity securities, and cash generated by the Black Fox mine.  On June 24, 2010, the Company acquired Linear (as more fully described in Note 1) which included a working capital surplus of $14.2 million.  The Company’s ability to continue as a going concern is dependent on its ability to continue to generate cash flow from the Black Fox mine and to issue debt and/or equity securities.
 
 
11

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

As of June 30, 2010, the Company had a working capital deficiency of $28.0 million and an accumulated deficit of $274.0 million.  As at June 30, 2010, the Company held cash of $4.7 million, restricted cash of $17.5 million and had current debt of $27.2 million consisting of (1) the current portion of the Black Fox project financing facility (the “Project Facility”) (Note 9(a)) of $16.6 million, (2) the outstanding principal and accrued interest due on the Series 2007-A convertible debentures of $4.6 million (Note 9(b)), and (3) $6.0 million for capital leases and other current debt.  As a result, based on the Company’s financial position as of June 30, 2010, there was substantial doubt that the Company would continue as a going concern.
  
On July 29, 2010, the Company completed a private placement of 10,000,000 flow-through common shares at Cdn$1.40 per share for aggregate gross proceeds of Cdn$14.0 million (Note 21(a)).  In addition, on August 3, 2010, the Company and the two banks (the “Banks”) associated with the Project Facility agreed to amend, subject to a number of conditions, the Project Facility by, among other things, replacing the Project Facility repayment schedule with a revised interim repayment schedule as more fully described in Note 21(b), which includes a deferral of the $10.0 million payment originally scheduled for September 30, 2010.
 
If the Company is unable to generate sufficient cash flow from Black Fox, satisfy the conditions to the Banks’ revised interim repayment schedule, and/or secure additional financing, it may be unable to continue as a going concern and material adjustments would be required to the carrying value of assets and liabilities and balance sheet classifications.

3.
NATURE OF OPERATIONS
 
Brigus is engaged in gold mining including extraction, processing, refining and the production of other by-product metals, as well as related activities including the exploration and development of potential mining properties and acquisition of mining claims.  Brigus owns Black Fox, an open pit and underground mine development and mill located near Matheson in the Province of Ontario, Canada (“Black Fox”).  Mining of ores at Black Fox began in March 2009, milling operations commenced in April 2009, and commercial production commenced in late May 2009.  Exploration properties adjacent to the Black Fox mine include the Grey Fox and Pike River properties.
 
Brigus is also advancing the Goldfields Project located near Uranium City, Saskatchewan, Canada, which hosts the Box and Athona gold deposits. In Mexico, Brigus holds a 100 percent interest in the Ixhuatan Property located in the state of Chiapas, and the Huizopa Joint Venture, an 80 percent interest in an early stage, gold-silver exploration joint venture located in the Sierra Madres in the State of Chihuahua. In the Dominican Republic, Brigus and Everton Resources have a joint venture covering the Ampliacion Pueblo Viejo, Loma El Mate and Loma Hueca exploration projects.
 
4.
SIGNIFICANT ACCOUNTING POLICIES
 
(a)           Basis of Presentation
 
On June 24, 2010, the Company’s shareholders authorized the Company to effect a 1-for-4 reverse split of the number of shares of the Company's common stock (the “Reverse Split”).  Immediately prior to the Reverse Split, 517,565,717 shares of common stock were outstanding.  Upon execution of the Reverse Split, such shares were consolidated into 129,391,429 shares of common stock.  The accompanying financial statements have been retroactively adjusted to reflect the Reverse Split.

 
12

 
 
BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

These unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and except as described in Note 20, conform in all material respects with accounting principles generally accepted in Canada (“Canadian GAAP”).  The accounting policies followed in preparing these financial statements are those used by the Company as set out in the audited financial statements for the year ended December 31, 2009, except as disclosed in (b) below.  Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with Canadian GAAP have been omitted.  These interim financial statements should be read together with the Company’s audited financial statements for the year ended December 31, 2009.
 
In the opinion of management, all adjustments considered necessary for fair presentation have been included in these financial statements.  Interim results are not necessarily indicative of the results expected for the fiscal year.
 
(b)
Recently adopted accounting pronouncements

In June 2009, the ASC guidance for consolidation accounting was updated to require an entity to perform a qualitative analysis to determine whether the enterprise’s variable interest gives it a controlling financial interest in a variable interest entity (“VIE”).  This analysis identifies a primary beneficiary of a VIE as the entity that has both of the following characteristics: (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses or receive benefits from the entity that could potentially be significant to the VIE.  The updated guidance also requires ongoing reassessments of the primary beneficiary of a VIE.  The provisions of the updated guidance are effective for the Company’s fiscal year beginning January 1, 2010.  The provisions of the updated guidance were adopted January 1, 2010.  The adoption had no impact on the Company’s financial position, results of operations, or cash flows.

In January 2010, the ASC guidance for fair value measurements and disclosure was updated to require additional disclosures related to transfers in and out of level 1 and 2 fair value measurements and enhanced detail in the level 3 reconciliation. The guidance was amended to clarify the level of disaggregation required for assets and liabilities and the disclosures required for inputs and valuation techniques used to measure the fair value of assets and liabilities that fall in either level 2 or level 3.  The updated guidance was effective for the Company’s fiscal year beginning January 1, 2010, with the exception of the level 3 disaggregation which is effective for the Company’s fiscal year beginning January 1, 2011.  The adoption had no impact on the Company’s financial position, results of operations, or cash flows.  Refer to Note 17 for further details regarding the Company’s assets and liabilities measured at fair value.

In December 2009, the ASC guidance for stock compensation was updated to address the classification of employee share-based awards with exercise prices denominated in the currency of a market in which the underlying security trades.  The updated guidance provides that employee share-based awards with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade should not be considered to contain a condition that is not a market, performance, or service condition.  Therefore, such awards would not be classified as liabilities if they otherwise qualify as equity.  The provisions of the updated guidance have been early adopted by the Company effective April 1, 2010.  Although, the adoption had no impact on the Company’s financial position, results of operations, or cash flows on April 1, 2010, the guidance dictated that the 3,448,746 options issued to former Linear employees on June 24, 2010 be classified as equity upon issuance (Note 1).

 
13

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

5.
RESTRICTED CASH
 
Restricted cash consists of:
 
   
June 30,
2010
   
December 31,
2009
 
Restricted cash, current
           
Project Facility (a)
  $ 14,698     $ 2,108  
Unexpended flow-through funds (b)
    2,826       4,623  
    $ 17,524     $ 6,731  

(a)
Project Facility
 
Project Facility restricted cash represents cash on deposit held in restricted accounts.  The cash may be used to settle operational expenses at both Black Fox and the corporate offices, but requires approval from the Banks prior to use.  The balance has been classified as a current asset as it will be utilized within approximately 90 days of the period end to settle such operational expenses.

(b)
Proceeds from flow-through share offering
 
Notwithstanding whether there is a specific requirement to segregate the funds, for accounting purposes the funds received through the flow-through share offering completed on July 15, 2009 which are unexpended at the consolidated balance sheet dates are considered to be restricted and are not considered to be cash or cash equivalents.

6.
DERIVATIVE INSTRUMENTS
 
Fair value of derivative instruments consists of:
 
   
June 30, 2010
   
December 31, 2009
 
   
Cost
Basis
   
Unrealized
Gain (Loss)
   
Fair
Value
   
Cost
Basis
   
Unrealized
Gain (Loss)
   
Fair
Value
 
Assets
                                   
Canadian dollar contracts
  $     $     $     $     $ 6,805     $ 6,805  
Current portion
                            (1,961 )     (1,961 )
Long-term portion
  $     $     $     $     $ 4,844     $ 4,844  
Liabilities
                                               
Gold forward sales contracts
  $     $ (59,358 )   $ (59,358 )   $     $ (44,225 )   $ (44,225 )
Less:  Current portion
          19,370       19,370             12,571       12,571  
Long-term portion
  $     $ (39,988 )   $ (39,988 )   $     $ (31,654 )   $ (31,654 )

On February 20, 2009, the Company entered into a $70.0 million Project Facility with two banks relating to Black Fox (Note 9(a)).  As required by the terms of the Project Facility, the Company entered into a derivative program covering a portion of the Company’s forecasted gold sales and forecasted Canadian dollar operating costs, with the Banks acting as counterparties.

The weighted average price of the forward gold sales program results in proceeds of $876 per ounce of gold.  During the three and six months ended June 30, 2010, the Company realized a $4.6 million loss and an $8.4 million loss on the settlement of gold forward sales contracts covering 14,557 ounces of gold and 30,573 ounces of gold, respectively.

 
14

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

Settlements of the remaining gold forward sales contracts as of June 30, 2010 are as follows (table not in thousands):

Year of Settlement
 
Gold Ounces
   
Average Contract
Price Per Ounce
 
2010
    27,293     $ 876  
2011
    54,704     $ 876  
2012
    73,458     $ 876  
2013
    14,523     $ 876  
      169,978          

The weighted average exchange rate of the foreign exchange derivative program was Cdn$1.21 per $1.  On April 23, 2010, the remaining amounts of the Canadian dollar foreign exchange contracts were unwound early for proceeds of $8.2 million.  During the three and six months ended June 30, 2010, the Company realized gains of $8.2 million and $8.6 million, respectively, for the settlement of the Canadian dollar foreign exchange contracts.  During the three and six months ended June 30, 2010, the Company recorded unrealized losses of $8.2 million and $6.8 million, respectively, for the change in fair value of the Canadian dollar foreign exchange contracts.

The Company did not apply hedge accounting to its derivative transactions.  As a result, the Company accounts for these derivative instruments as investments and records the changes in unrealized gains and losses in the consolidated statement of operations each period.  The fair value of these derivatives is recorded as an asset or liability at each balance sheet date as follows:

   
Asset Derivatives
   
Liability Derivatives
 
   
June 30, 2010
   
December 31, 2009
   
June 30, 2010
   
December 31, 2009
 
   
Balance
Sheet
Location
   
Fair
Value
   
Balance
Sheet
Location
   
Fair
Value
   
Balance
Sheet
Location
   
Fair
Value
   
Balance
Sheet
Location
   
Fair
Value
 
Derivatives not designated as hedging instruments under ASC 815-20
                                               
Gold forward contracts
 
n/a
    $    
n/a
    $    
Derivative
instruments
    $ 59,358    
Derivative
instruments
    $ 44,225  
Canadian currency forward contracts
 
Derivative
instruments
         
n/a
      6,805    
n/a
         
n/a
       
Total derivatives
        $             $ 6,805             $ 59,358             $ 44,225  

The fair value of the gold forward contracts have been determined by examining third party bid and ask gold forward prices for gold contracts that mature on dates that match the Company’s gold forward contract dates.  For the gold forward contract dates for which there was no corresponding third party bid and ask gold forward prices available, the Company estimated the forward price using linear interpolation.  The Company also obtained the risk free rate for each of the gold forward contract maturity dates and used linear interpolation to calculate the risk free rate for the gold forward contract maturity dates that were not available.  As the gold forward contracts are in a loss position, the Company did not include counterparty risk in its valuation.  The Company then calculated the difference between the forward mid price (calculated as the average of bid and ask price) and the contract price determined in the Company’s outstanding forward contracts to determine the net cash flow and thus the value of the contracts.

 
15

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

The Company’s valuation of its gold forward contracts are considered Level 2 valuations, whereby the valuations utilize quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

7.
INVENTORIES
 
Inventories consist of:
 
   
June 30,
2010
   
December 31,
2009
 
Current portion of inventory
           
Doré inventory
  $ 1,218     $ 3,186  
In-circuit inventory
    1,304       1,561  
Stockpiled ore inventory
    1,557       2,633  
Materials and supplies
    1,204       809  
      5,283       8,189  
Long-term – stockpiled ore inventory
    4,538        
    $ 9,821     $ 8,189  

8.
LONG-TERM INVESTMENTS
 
Long-term investments consist of:
 
   
June 30,
2010
   
December 31,
2009
 
Auction rate securities (a)
  $ 1,036     $ 1,036  
Notes receivable (b)
    3,440        
    $ 4,476     $ 1,036  

(a)
Auction Rate Securities
 
The Company acquired auction rate securities (“ARS”) in 2007, which are recorded in long-term investments, with a face value of $1.5 million.  The Company has recorded an other than temporary impairment on its ARS, within foreign exchange loss and other in the consolidated statement of operations, of nil and $0.05 million for the three and six months ended June 30, 2010 and 2009, respectively, and as such, no amounts have been recorded in other comprehensive income.  The adjusted cost basis and fair value of the ARS at June 30, 2010 and December 31, 2009 was $1.0 million.  The ARS are pledged as collateral for a $0.9 million margin loan.
 
The Company’s ARS investments are valued using a probability-weighted discounted cash flow valuation.  The Company’s valuation of the ARS investments considers possible cash flows and probabilities forecasted under certain potential scenarios.  Each scenario’s cash flow is multiplied by the probability of that scenario occurring.  The major inputs included in the valuation are: (i) maximum contractual ARS interest rate, (ii) probability of passing auction/early redemption at each auction, (iii) probability of failing auction at each auction, (iv) probability of default at each auction, (v) severity of default, and (vi) discount rate.  Changes in these assumptions to reasonably possible alternative assumptions would not significantly affect the Company’s results.
 
There were no changes in the carrying value of the Company’s ARS from December 31, 2009 to June 30, 2010.

 
16

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

 (b)
Notes Receivable
 
On February 1, 2010, the Company sold its 100% interest in MTMI, which held the Company’s remaining 50% interest in the Montana Tunnels joint venture to Elkhorn (Note 14), for consideration consisting of certain promissory notes held by Elkhorn and certain investors in Elkhorn or its affiliates with an aggregate outstanding balance of approximately $9.5 million (the “Elkhorn Notes”).  The Elkhorn Notes are secured by real property in Boulder County, Colorado.  The Elkhorn Notes are due on February 1, 2011.  The Elkhorn Notes bear interest at a rate of 8.0% per annum.  Also, on March 12, 2010, the Company entered into a purchase agreement with a certain party (the “Noteholder”) pursuant to which the Company agreed to issue 398,183 common shares for consideration of a promissory note (the “Additional Notes”) held by the Noteholder with an aggregate balance of $0.7 million.  Principal and interest on the promissory note are due March 12, 2011 and the promissory note bears interest of 8%.
 
Based on a valuation performed on the property securing the Elkhorn Notes and the Additional Notes using Level 3 inputs the notes were recorded at a value of $3.4 million and classified as a long-term investment, as the Company does not anticipate collecting on the Elkhorn Notes within the next twelve months.  Level 3 inputs are those inputs used in a valuation technique that are both significant to the fair value measurement and unobservable, i.e. supported by little or no market activity.  The valuation of the property included $1.7 million for the associated land, and $1.7 million for the replacement cost of the associated buildings.  The land value was determined by examining sales of land in the near vicinity with similar characteristics, and making adjustments as appropriate.  The replacement cost of the buildings was determined by estimating the cost to re-create the structures on the property, and then deducting for the physical depreciation of the standing buildings.
 
9.
LONG-TERM DEBT
 
Long-term debt consists of the following:
 
   
June 30,
2010
   
December 31,
2009
 
Black Fox Project Facility (a)
  $ 37,122     $ 62,514  
Convertible debentures (b)
    4,560       4,926  
Capital leases
    15,932       15,320  
Notes payable and other
    1,556       1,009  
Total debt
    59,170       83,769  
Less: current portion of long-term debt
    (27,152 )     (34,860 )
Total long-term debt
  $ 32,018     $ 48,909  
 
 
17

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

As of June 30, 2010, long-term debt is repayable as follows:
 
   
Black Fox
Project
Facility
   
Convertible
Debentures
   
Capital
leases
   
Notes
Payable
and
other
   
Total
   
2010
  $ 15,000     $ 4,676     $ 2,663     $ 1,556     $ 23,895  
2011
    10,200             5,377             15,577  
2012
    16,598             4,371             20,969  
2013
                3,679             3,679  
2014
                1,883             1,883  
Total payments due under long-term debt
    41,798       4,676       17,973       1,556       66,003  
Less: imputed interest
          (116 )     (2,041 )           (2,157 )
Less: unamortized debt discount
    (4,676 )                       (4,676 )
Total debt
    37,122       4,560       15,932       1,556       59,170  
Less: current portion of long-term debt
    (16,635 )     (4,560 )     (4,401 )     (1,556 )     (27,152 )
Total long-term debt
  $ 20,487     $     $ 11,531     $     $ 32,018  

(a)
Financing Agreement
 
On February 20, 2009, the Company entered into a $70 million Project Facility with the Banks relating to Black Fox.  As of December 31, 2009, the Company had borrowed the full $70 million available under the Project Facility.

The terms of the Project Facility include:  (i) interest on the outstanding principal amount accruing at a rate equal to the London interbank offered rate (“LIBOR”) plus 7% per annum and payable in monthly installments commencing March 31, 2009 (interest is currently payable monthly but may be monthly, quarterly or such other period as may be agreed to by the Banks and the Company); (ii) scheduled repayment of the principal amount in unequal quarterly amounts commencing September 30, 2009 (see discussion below regarding rescheduling of quarterly payments) with the final repayment no later than March 31, 2013; (iii) an arrangement fee of $3.5 million, and 8,709,028 warrants (the “Banks’ Compensation Warrants”) to purchase the Company’s common shares at an exercise price of Cdn$1.008 expiring February 20, 2013.  The average monthly LIBOR rate charged to the Company during the three and six months ended June 30, 2010 was 0.3%.

Borrowings under the Project Facility are secured by substantially all of the Company’s assets, including the Black Fox Project, and the stock of its subsidiaries.  The Project Facility contains various financial and operational covenants that impose limitations on the Company which include, among other requirements, the following:  maintenance of certain financial coverage ratios and minimum project reserves, satisfaction of a minimum tangible net worth test, and the operation of the Black Fox project in compliance with an agreed cash flow budgeting and operational model.  As at June 30, 2010, the Company was, after giving effect to all consents and waiver letters given by the Banks, in compliance with the various financial and operational covenants of the Project Facility.  See Note 21(b) for the subsequent rescheduling of the remaining debt repayments.

The Company recorded a $10.9 million discount on the Project Facility carrying value, comprised of the $3.5 million arrangement fee and the $7.4 million fair value assigned to the Banks’ Compensation Warrants, which discount is being accreted over the life of the loan using the effective interest method and charged to interest expense.  Additionally, at inception, the Company recorded $0.6 million of debt transactions costs that are treated similarly to the discount on the Project Facility.  The accreted interest expense for the three and six months ended June 30, 2010 was $1.3 million and $2.9 million, respectively.

 
18

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

(b)
Convertible Debentures
 
On February 26, 2010, the Company reached an agreement with the holder (the “Debenture Holder”) of its Series 2007-A convertible debentures (the “2007 Debentures”) to further extend the maturity date of the $4.3 million principal amount of the 2007 Debentures held by the Debenture Holder from February 23, 2010 to August 23, 2010 (the “Extended Debentures”).  The Debenture Holder owned $4.3 million principal amount of the 2007 Debentures as of December 31, 2009 and February 23, 2010 (on which $0.8 million of interest was paid on March 3, 2010).

In consideration for the foregoing, the Company agreed to (i) issue 200,000 common shares of the Company to the Debenture Holder (“Debenture Holder Shares”) on February 26, 2010, and (ii) issue 536,250 common share purchase warrants (“Debenture Holder Warrants”) with an expiration date of February 23, 2011 and an exercise price of $2.00.

The Company recorded a loss on modification of convertible debentures of $0.5 million comprised of $0.3 million for the Debenture Holder Shares, $0.1 million for the Debenture Holder Warrants and $0.1 million for administrative costs.  The Debenture Holder Warrants were assigned a fair value of $0.1 million, using an option pricing model with the following assumptions:  no dividends are paid, a volatility of the Company’s share price of 66%, an expected life of the warrants of one year, and an annual risk-free rate of 1.3%.

The Extended Debentures bear interest at a rate of 18% per annum and are convertible, at the option of the holder, at any time prior to maturity into common shares of the Company at $2.00.  The Company has the option to force conversion of the Extended Debentures under certain circumstances.

On the date of extension of the Extended Debentures, the $4.3 million principal represented the fair value of the Debentures.  The holder’s option to convert the principal balance into common shares did not represent a beneficial conversion feature at the date of extension as the trading price of the Company’s common shares was lower than the strike price, and as such, no portion of the principal was allocated to the holder’s option to convert the principal balance.  The $4.3 million fair value of the Extended Debentures is classified as a liability.

10.
EQUITY-LINKED FINANCIAL INSTRUMENTS
 
In June 2008, the ASC guidance for derivatives and hedging when accounting for contracts in an entity’s own equity was updated to clarify the determination of whether an instrument (or embedded feature) is indexed to an entity’s own stock which would qualify as a scope exception from hedge accounting.  The provisions of the updated guidance were adopted January 1, 2009.
 
Under the guidance, an equity-linked financial instrument (or embedded feature) would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency.  As of June 30, 2010 and December 31, 2009, the Company had 37.3 million and 26.4 million outstanding warrants to purchase common shares of the Company, respectively, that were denominated in a currency (Canadian dollars) other than its functional currency (US dollars).  As such, these warrants are not considered to be indexed to the Company’s own stock, which precludes the warrants from meeting the scope exception under the guidance.  The warrants thereby are accounted for separately as derivative instruments, rather than as equity instruments.
 
As of June 30, 2010, the Company has assessed the fair value of the outstanding warrants subject to this accounting guidance and recorded a gain of $11.9 million during the six months ended June 30, 2010 (2009 – loss of $13.6 million) on the fair value change of the warrants.
 
 
19

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

These warrants were fair valued at June 30, 2010 and December 31, 2009 using an option pricing model with the following assumptions:  no dividends are paid, weighted average volatilities of the Company’s share price of 74% and 78%, weighted average expected lives of the warrants of 2.5 and 2.6 years, and weighted average annual risk-free rates of 1.6% and 1.8%, respectively.

11.
SHARE CAPITAL
 
(a)
Shares issued in 2010
 
(i)           During the six months ended June 30, 2010, the Company issued (a) 75,000 common shares of the Company to a firm as compensation for services and (b) 398,183 common shares of the Company to a certain party as consideration for a promissory note with an aggregate balance of $0.7 million (See Note 14).
 
(ii)           For the six months ended June 30, 2010, there were 2,145,000 shares issued upon exercise of warrants for proceeds of $2.1 million.  Each warrant exercised had an exercise price of $1.00.
 
(iii)           On February 26, 2010, the Company issued 200,000 common shares of the Company and 536,250 common share purchase warrants that expire on February 23, 2011 and have an exercise price of $2.00 to the Debenture Holder as compensation to extend the 2007 Debentures for six months.  See Note 9(b) for additional information.
 
(iv)           On March 19, 2010, the Company issued 15,625,000 common shares of the Company to Linear for net proceeds of $24.5 million.  These shares were cancelled on June 25, 2010, in conjunction with the Arrangement (See Note 1).
 
(v)           On June 25, 2010, the Company issued 60,523,014 common shares of the Company to the shareholders of Linear in conjunction with the Arrangement (See Note 1).
 
(b)
Warrants
 
A summary of information concerning outstanding warrants is as follows:
 
   
Number of
Warrants and
Shares Issuable
upon Exercise
 
Balance, December 31, 2009
    27,898,294  
Warrants issued in connection with the Arrangement (Note 1)
    11,191,677  
Other warrants issued
    536,250  
Warrants exercised
    (2,145,000 )
Warrants expired
    (255,000 )
Balance, June 30, 2010
    37,226,221  
 
 
20

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

The following table summarizes outstanding warrants as at June 30, 2010:
 
Date Issued
   
Number of Warrants
and Shares Issuable
upon Exercise
   
Exercise Price
 
Expiry Date
 
           
Exercisable in US$
     
February 26, 2010
      536,250      
2.00
 
February 23, 2011
 
             
Exercisable in Cdn$
     
December 31, 2008
      63,750      
1.20
 
December 31, 2010
 
February 20, 2009
      579,475      
1.024
 
February 20, 2011
 
 June 25, 2010
  (1)    3,178,769      
1.096
 
March 19, 2011
 
July 15, 2009
      391,665      
0.96
 
July 15, 2011
 
July 24, 2008
      5,100,813      
2.60
 
July 24, 2011
 
June 25, 2010
  (1)    891,316      
1.571
 
November 19, 2011
 
December 10, 2008
      10,653,563      
0.884
 
December 10, 2012
 
February 20, 2009
      8,709,028      
1.008
 
February 20, 2013
 
June 25, 2010
  (1)    7,121,592      
2.192
 
November 19, 2014
 
        36,689,971              
        37,226,221              
 
 
(1)
Issued in connection with the Arrangement (Note 1)

In addition, 612,098 units issued to placement agents on July 24, 2008 (the Agents’ Units) are outstanding.  Each Agents’ Unit is exercisable at Cdn$2.40 into one common share of the Company and one- half of one warrant (the Agents’ Warrant), with each whole Agents’ Warrant exercisable into one common share of the Company at Cdn$3.12.  The Agent’s Units and Agents’ Warrants expire on July 24, 2012.
 
(c)
Options
 
A summary of information concerning outstanding stock options is as follows:
 
   
Number of
Common
Shares
   
Weighted
Average
Exercise
Price Per
Share
 
Balance, December 31, 2009
    2,898,592     $ 2.55  
Options issued in connection with the Arrangement (Note 1)
    3,448,746       1.25  
Other options issued
    129,312       1.53  
Options forfeited
    (242,018 )     2.19  
Balance, June 30, 2010
    6,234,632     $ 1.82  

 
21

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

The following table summarizes information concerning outstanding and exercisable stock options at June 30, 2010:
 
   
Options Outstanding
   
Options Exercisable
 
Range of Exercise
Prices
 
Number
Outstanding
   
Weighted Average
Remaining
Contractual Life (in
years)
   
Weighted Average
Exercise
Price
   
Number
Exercisable
   
Weighted Average
Exercise
Price
 
$0.50 to $1.00
    1,888,986    
3.3
    $ 0.79       1,885,236     $ 0.79  
$1.00 to $1.50
    1,348,471    
5.3
    $ 1.23       995,153     $ 1.22  
$1.50 to $2.00
    305,419    
5.0
    $ 1.79       187,764     $ 1.73  
$2.00 to $2.50
    1,700,431    
3.5
    $ 2.14       1,700,431     $ 2.14  
$2.50+
    991,325    
4.1
    $ 4.08       991,325     $ 4.08  
      6,234,632    
4.0
    $ 1.82       5,759,909     $ 1.86  

(d)
Stock-based compensation
 
The fair value of each option granted is estimated at the time of grant using the Black-Scholes option-pricing model with weighted average assumptions for grants as follows:
 
   
June 30,
2010
   
June 30,
2009
 
Risk-free interest rate
    1.8 %     1.9 %
Dividend yield
    0 %     0 %
Volatility
    77 %     78 %
Expected life in years
    2       6  
Weighted average grant-date fair value of stock options
  $ 0.55     $ 0.88  

12.
INTEREST EXPENSE
 
Interest expense consists of:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Accretion on convertible debentures
  $ 193     $ 203     $ 408     $ 1,005  
Amortization of debt discount
    1,226       469       2,809       469  
Amortization of deferred financing costs
    41       15       79       15  
Capital leases, Project Facility and other
    1,219       632       2,725       660  
    $ 2,679     $ 1,319     $ 6,021     $ 2,149  

For the three and six months ended June 30, 2009, the Company recorded capitalized interest of $1.0 million and $1.8 million, respectively.
 
13.
INCOME TAXES
 
The Company recorded income tax benefits of $0.9 million and $0.1 million for the six months ended June 30, 2010 and 2009, respectively, related to the issuance of flow-through shares but recorded no other recovery for income taxes as the net loss carry forwards are fully offset by a valuation allowance.

14.
MONTANA TUNNELS JOINT VENTURE
 
On February 1, 2010, the Company completed the sale of its 100% interest in MTMI, which held the Company’s remaining 50% interest in the Montana Tunnels joint venture to Elkhorn, for consideration of certain promissory notes held by Elkhorn and certain investors in Elkhorn or its affiliates with an aggregate outstanding balance of approximately $9.5 million.  Based on a valuation performed on the property securing the Elkhorn Notes using Level 3 inputs (see Note 8(b)), an impairment of $0.3 million was recorded for the Montana Tunnels equity interest as of December 31, 2009.  For the three months ended March 31, 2010, the Company has recorded a $0.7 million loss on the sale of Montana Tunnels.
 
 
22

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)

On March 12, 2010, the Company entered into a purchase agreement with a certain party who was a secondary creditor to the property which secures the Elkhorn Notes (the “Noteholder”) pursuant to which the Company issued 398,183  common shares on March 18, 2010, as consideration for a promissory note held by the Noteholder with an aggregate balance of $0.7 million.  The Company recorded an additional loss on the sale of the Montana Tunnels joint venture of $0.6 million which is included within Equity loss in Montana Tunnels joint venture.  Principal and interest on the promissory note are due March 12, 2011 and the promissory note bears interest of 8% per annum.
 
15.
EARNINGS (LOSS) PER SHARE
 
Basic earnings (loss) per share (“EPS”) is calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted EPS is calculated to reflect the dilutive effect of exercising outstanding warrants and stock options and of conversion of convertible debentures by applying the treasury stock method.
 
Earnings (loss) used in determining EPS are presented below for the three and six months ended June 30.
 
   
Three months ended June 30,
   
Six months ended June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net loss
  $ (19,689 )   $ (7,200 )   $ (13,240 )   $ (35,624 )
Weighted average number of shares outstanding, basic
    86,987,749       58,540,390       78,087,144       57,613,215  
Dilutive securities:
                               
Options
                       
Warrants
                       
Weighted average number of shares outstanding, diluted
    86,987,749       58,540,390       78,087,144       57,613,215  
Basic and diluted earnings (loss) per share
  $ (0.23 )   $ (0.12 )   $ (0.17 )   $ (0.62 )
                                 
Options and warrants outstanding but not included in computation of diluted weighted average number of shares (“OWNI”) because the strike prices exceeded the average price of the common shares
    17,413,566       8,275,821       17,372,509       8,281,133  
Average exercise price of OWNI
  $ 2.37     $ 2.42     $ 2.31     $ 2.36  
Shares issuable for convertible debentures excluded from calculation of EPS because their effect would have been anti-dilutive
    2,145,000       2,145,000       2,145,000       2,145,000  
Conversion price of anti-dilutive convertible securities
  $ 2.00     $ 2.00     $ 2.00     $ 2.00  

Due to a net loss for the three and six months ended June 30, 2010, an additional 26.7 million warrants and stock options were excluded from the EPS computation because their effect would have been anti-dilutive.  Due to a net loss for the three and six months ended June 30, 2009, an additional 23.8 million warrants and stock options were excluded from the EPS computation because their effect would have been anti-dilutive.

 
23

 

BRIGUS GOLD CORP. (formerly Apollo Gold Corporation)
Notes to the Condensed Consolidated Financial Statements
Six month period ended June 30, 2010
(Stated in U.S. dollars, unless indicated otherwise; tabular amounts in thousands except share and per share data)
(Unaudited)
 
16.
SUPPLEMENTAL CASH FLOW INFORMATION
 
(a)
Net changes in non-cash operating working capital items are:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
(Increase) decrease in:
                       
Accounts receivable and other
  $ (206 )   $ (240 )   $ 377     $ (946 )
Prepaids
    320       370       217       382  
Inventories
    (1,357 )     (6,579 )     (1,675 )     (6,579 )
Increase (decrease) in:
                               
Accounts payable
    1,961       2,761       567       3,613  
Accrued liabilities
    2,070       463       2,056       892  
    $ 2,788     $ (3,225 )   $ 1,542     $ (2,638 )

(b)
Non-cash transactions are:
 
   
Three months ended
June 30,
   
Six months ended
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Increase in property, plant and equipment due to assets acquired via issuance of notes payable
  $ 2,605     $ 3,406     $ 2,605     $ 4,039  
Increase in prepaid assets due to financing a portion of the Company’s insurance program via the issuance of notes payable
                1,080       582  
Increase in contributed surplus for the issuance of warrants to the Banks in connection with the Project Facility (Note 9(a)) and a corresponding decrease in debt for the debt discount
                      7,395  
Increase in additional paid-in capital resulting from the cancellation of common shares issued to Linear in March 2010 Private Placement
    5,121             5,121        
Non-cash transactions resulting from the Linear acquisition via the issuance of common shares, warrants and options were as follows:
                               
Increase in current assets excluding cash
    284             284        
Increase in property, plant and equipment
    58,416             58,416        
Increase in restricted certificates of deposit
    35      </