For the year ended December 31, 2011    
 

 

 

 

 

 

 

 

 

 

 

 

 

     
 

 Independent Auditor’s ReportTo the Shareholders of Aurizon Mines Ltd.We have completed an integrated audit of Aurizon Mines Ltd.’s December 31, 2011 financial statements and its internal control over financial reporting as at December 31, 2011 and an audit of its December 31, 2010 financial statements. Our opinions, based on our audits, are presented below.Report on the financial statementsWe have audited the accompanying financial statements of Aurizon Mines Ltd., which comprise the balance sheets as at December 31, 2011, December 31, 2010 and January 1, 2010 and the statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2011 and 2010, and the related notes, which comprise a summary of significant accounting policies and other explanatory information.Management’s responsibility for the financial statementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.Auditor’s responsibilityOur responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. Canadian generally accepted auditing standards require that we comply with ethical requirements.An audit involves performing procedures to obtain audit evidence, on a test basis, about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting principles and policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.   
 PricewaterhouseCoopers LLP, Chartered AccountantsPricewaterhouseCoopers Place, 250 Howe Street, Suite 700, Vancouver, British Columbia, Canada  V6C 3S7T: +1 604 806 7000, F: +1 604 806 7806, www.pwc.com/ca“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.   
 Aurizon Mines Ltd. Page 22011 Annual Financial Statements       
OpinionIn our opinion, the financial statements present fairly, in all material respects, the financial position of Aurizon Mines Ltd. as at December 31, 2011, December 31, 2010 and January 1, 2010 and its financial performance and cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Report on internal control over financial reportingWe have also audited Aurizon Mines Ltd.’s internal control over financial reporting as at December 31, 2011, based on criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).Management’s responsibility for internal control over financial reportingManagement is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Management’sReport on Internal Control over Financial Reporting included in Management’s Discussion and Analysis of Financial Condition and Results of Operations.Auditor’s responsibilityOur responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control, based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances.We believe that our audit provides a reasonable basis for our audit opinion on the company’s internal control over financial reporting. Definition of internal control over financial reportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
  Aurizon Mines Ltd. Page 32011 Annual Financial Statements   
  Inherent limitationsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.OpinionIn our opinion, Aurizon Mines Ltd. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by COSO. (signed) PricewaterhouseCoopers LLP Chartered AccountantsVancouver, British ColumbiaMarch 16, 2012
 

  Aurizon Mines Ltd. Page 42011 Annual Financial Statements     Aurizon Mines Ltd.Balance Sheets(Expressed in thousands of Canadian dollars, unless otherwise stated)As at,Notes
December 31,  2011 
December 31, 2010   (Note 26)
January 1, 2010   (Note 26)ASSETS        Current assets          Cash and cash equivalents5$ 213,486 $ 139,341 $ 113,098   Marketable securities6864 1,129 -      Inventories712,545 12,085 11,897   Accounts receivable and other89,474 7,258 4,825   Derivative instrument assets14b357 -    5,274   Tax credits receivable95,210 12,398 2,587 Total current assets  241,936 172,211 137,681 Non-current assets          Property, plant and equipment10164,783 152,012 163,976   Mineral properties114,995 4,220 2,362   Deferred finance costs12343 -    -      Other assets136,324 8,100 14,551 Total non-current assets  176,445 164,332 180,889 TOTAL ASSETS  $ 418,381 $ 336,543 $ 318,570             LIABILITIES        Current liabilities          Accounts payable and accrued liabilities15$  25,788 $ 18,905 $ 16,451   Derivative instrument liabilities14b-    -    13,885   Current income and resource tax liabilities17b18,338 -    3,752   Current portion of long-term obligations  -    756 652 Total current liabilities  44,126 19,661 34,740 Non-current liabilities          Long-term obligations  -    -    705   Provisions1616,153 13,114 23,255   Deferred tax liabilities17c36,918 35,378 28,150 Total non-current liabilities  53,071 48,492 52,110 Total liabilities  97,197 68,153 86,850           EQUITY        Shareholders’ equity              Issued capital18274,165 269,677 253,874   Contributed surplus  1,170 1,022 979   Stock based compensation1818,711 13,719 10,514   Accumulated other comprehensive gains (losses)  (386)379 -     Retained earnings (Deficit)  27,524 (16,407)(33,647)Total shareholders’ equity  321,184 268,390 231,720 TOTAL LIABILITIES AND EQUITY  $ 418,381 $ 336,543 $ 318,570  The attached notes form an integral part of these financial statements.These financial statements were approved for issue by the Board of Directors on March 14, 2012. They are signed on the Company’s behalf by:(signed) Andre Falzon                                                                         (signed) George PaspalasAndre Falzon, Chairman of the Audit Committee                             George Paspalas, President and Chief Executive Officer
  Aurizon Mines Ltd. Page 52011 Annual Financial Statements      Aurizon Mines Ltd.Statements of Comprehensive Income(Expressed in thousands of Canadian dollars, unless otherwise stated)For the years endedNotes
December 31, 2011
December 31, 2010  (Note 26)        Revenue  $ 259,999 $ 178,743 Less cost of sales19(127,725)(112,723)Gross profit  132,274 66,020         Other operating expenses      Exploration costs19(26,468)(15,643)General and administration costs19(19,547)(16,950)Other net gains (losses)  (457)2,157 Operating profit  85,802 35,584         Finance income201,538 719 Finance costs20(921)(750)Other derivative gains (losses)20165 (4,402)Profit before income tax  86,584 31,151         Income tax expense17a(42,653)(13,911)NET PROFIT FOR THE YEAR  43,931 17,240         Other comprehensive income (loss)      Non-cash gain (loss) on marketable securities  (765)379 TOTAL COMPREHENSIVE INCOME FOR THE YEAR  $  43,166 $  17,619         Weighted average number of common shares outstanding – Basic  162,623160,250Earnings per share (excluding OCI) – Basic – expressed in cents per share  $ 0.27$ 0.10Weighted average number of common shares outstanding – Diluted  164,374162,149Earnings per share (excluding OCI) – Diluted– expressed in cents per share  $ 0.27$ 0.10The attached notes form an integral part of these financial statements.   
 Aurizon Mines Ltd. Page 62011 Annual Financial Statements     Aurizon Mines Ltd.Statements of Changes in Equity(Expressed in thousands of Canadian dollars, unless otherwise stated)For the years ended
December 31,   2011
December 31,  2010(Note 26)  Share capital      Balance at beginning of year$ 269,677 $ 253,874        Share issuances for cash3,102 9,887        Fair value of share options exercised1,386 4,316        Mineral properties payments-   1,600   Balance at end of year274,165 269,677 Contributed surplus        Balance at beginning of year1,022 979        Forfeitures of vested share options148 43   Balance at end of year1,170 1,022 Stock based compensation        Balance at beginning of year13,719 10,514        Stock based compensation6,526 7,564        Forfeitures of share options          Value of vested options transferred to contributed surplus (148) (43)       Share options exercised, transferred to share capital(1,386)(4,316)  Balance at end of year18,711 13,719 Accumulated other comprehensive income      Balance at beginning of year379    -       Non-cash gains (losses) on marketable securities(765)379   Balance at end of year(386)379 Retained earnings (Deficit)        Balance at beginning of year(16,407)(33,647)      Net profit for the year43,931 17,240   Balance at end of year27,524 (16,407)TOTAL SHAREHOLDERS’ EQUITY$ 321,184$ 268,390The attached notes form an integral part of these financial statements.   
 Aurizon Mines Ltd. Page 72011 Annual Financial Statements     Aurizon Mines Ltd. Statements of Cash Flows(Expressed in thousands of Canadian dollars, unless otherwise stated)For the years endedNotes
December 31, 2011
December 31, 2010  (Note 26)        Operating activities      Net profit for the year  $  43,931 $  17,240 Adjustment for non-cash items:        Depreciation and amortization  39,131 34,249   Share-based compensation  6,526 7,564   Deferred income taxes  1,540 7,227   Refundable and non-refundable taxes  2,077 6,904   Derivative losses gains  (357)(8,611)  Other23a1,077 907       93,925 65,480   Decrease (increase) in non-cash working capital items23b27,372 (14,460)Net cash provided by operating activities  121,297 51,020         Investing activities        Property, plant and equipment  (47,270)(32,376)  Mineral properties  (800)(258)  Other investing activities23c(918)(1,364)Net cash used in investing activities  (48,988)(33,998)          Financing activities        Issuance of shares  3,102 9,887   Deferred finance costs  (493)-     Long-term obligations  (773)(666)Net cash provided by financing activities  1,836 9,221           NET INCREASE  IN CASH AND CASH EQUIVALENTS  74,145 26,243 CASH AND CASH EQUIVALENTS  – BEGINNING OF YEAR  139,341 113,098 CASH AND CASH EQUIVALENTS – END OF YEAR   $ 213,486 $ 139,341 The attached notes form an integral part of these financial statements.Supplemental cash flow information is disclosed in Note 23.    
 Aurizon Mines Ltd. Page 82011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)1.     GENERAL INFORMATIONAurizon Mines Ltd (“Aurizon” or “the Company”) is a Canadian based gold producer with operations, development and exploration activities in Quebec, Canada.  Aurizon is incorporated and domiciled in Canada, and has no subsidiaries. The address of the Company’s registered office is Suite 1120 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia, Canada.2.BASIS OF PREPARATION AND ADOPTION OF IFRSBasis of presentationThe Company prepares its financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”) as set out in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and require publicly accountable enterprises to apply such standards effective for periods beginning on or after January 1, 2011. Accordingly, these are the Company’s first annual financial statements prepared in accordance with IFRS as issued by the IASB. In these financial statements, the term “Canadian GAAP” (“CGAAP”) refers to Canadian GAAP before the adoption of IFRS.Statement of complianceThese financial statements have been prepared in compliance with IFRS. Subject to certain transition elections and exceptions disclosed in note 26, the Company has consistently applied the accounting policies used in the preparation of its opening IFRS balance sheet as at January 1, 2010 throughout all periods presented, as if these policies had always been in effect. Note 26 discloses the impact of the transition to IFRS on the Company’s reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company’s financial statements for the year ended December 31, 2010 prepared under Canadian GAAP.3.     SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies used in the preparation of these financial statements are described below:Principles of consolidationThe Company had no subsidiaries for the periods presented.Functional currency and foreign currency translation(i) Functional and presentation currency Items included in these financial statements are measured using the currency of the primary economic environment in which the Company operates (the “functional currency”). These financial statements are presented in Canadian dollars (Cad$), which is the Company’s functional and presentation currency.(ii) Transactions and balancesForeign currency transactions are translated into Canadian dollars at the rates prevailing on the date of the transactions. Monetary assets and liabilities denominated in foreign currency are translated into Canadian dollars at rates of exchange in effect at the balance sheet date. Non-monetary assets, liabilities and other items are translated at historical rates. Revenue and expenses are translated at average exchange rates prevailing during the year, except for depreciation and amortization which are translated at historical rates. The resulting gains and losses are included in the determination of earnings.   
 Aurizon Mines Ltd. Page 92011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)   
 3.     SIGNIFICANT ACCOUNTING POLICIES (continued)Property, plant and equipmentMining propertiesProducing mining properties are carried at cost, less accumulated depreciation, amortization, and write-downs. Amortization is provided over the estimated life of the asset using proven and probable mineral reserves net of estimated mill recovery rates.Carrying values of producing and non-producing mining properties and the property, plant and equipment associated with those mining properties are reviewed for impairment when events or changes in circumstances suggest that the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The Company evaluates impairment losses (other than goodwill impairment), for potential reversals when events or circumstances warrant such consideration.Acquisition and development costs associated with a non-producing mining property where proven and probable reserves exist are capitalized until the property is producing, abandoned, impaired in value or placed for sale, provided the conditions set out below in ‘development costs relating to mineral properties’ are met.  The costs are transferred to producing mining properties in the case of a property placed into production.The recoverability of the amounts capitalized in respect of non-producing mining properties is dependent upon the existence of economically recoverable reserves and resources, the ability of the Company to obtain the necessary financing to complete the exploration and development of the properties, and upon future profitable production or proceeds from the disposition of the properties.  Development costs relating to mineral properties  Drilling and related development costs incurred to define the shape of proven and probable reserves for production planning are included in operations if they are expected to be mined within the same period. Drilling and related development costs incurred to prepare areas that will be mined in future years are capitalized and amortized over the life of the ore body.  Drilling and related costs incurred to convert measured, indicated and inferred resources to reserves at production stage properties and development stage properties that have proven and probable reserves are capitalized provided that the following conditions have been met:·  There is a probable future benefit arising from these costs that will contribute to future net cash inflows;·  The Company can obtain the benefit and control access to it; and·  The transaction or event giving rise to the benefit has already occurred.The following criteria are used by management in its assessment of determining whether there is sufficient evidence that the expenditure will result in a future economic benefit to the Company:Geology:There is sufficient certainty that the geologic data together with other factors, such as a history of converting resources to reserves will support the likelihood of conversion of mineral resources to proven and probable reserves.Infrastructure:The mineral deposit can be extracted and processed utilizing existing or planned infrastructure that is within proximate access to the deposit.Life of mine plans:A life of mine plan, supporting geologic models, and historical costs provide inputs in the determination of additional drilling and development work required to expand or further define the mineral deposit.Authorizations:Operating and environmental permits exist or there is reasonable assurance that they are obtainable.Stage of mine development:A production stage property provides greater certainty that a future economic benefit is probable than a development stage property.
  Aurizon Mines Ltd. Page 102011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)   
 3.     SIGNIFICANT ACCOUNTING POLICIES (continued)Property, plant and equipment (continued)Exploration properties, exploration and evaluation expenditureAcquisition costs of exploration properties are capitalized.  Exploration expenditures on exploration properties are charged to the statement of comprehensive income in the period in which they are incurred.  If studies performed on an exploration property demonstrate future economic benefits and the Company has secured the exploration rights to the property, the subsequent costs relating to further exploring or developing the property for eventual production are capitalized, provided the conditions discussed above are met.  Acquisition costs of abandoned properties are charged to the statement of comprehensive income in the period in which the project is abandoned.Land, buildings, plant and equipmentGeneral land, buildings, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. The carrying amount of a replaced asset is derecognized when replaced. Repairs and maintenance costs are charged to the statement of comprehensive income during the period in which they are incurred.The Company allocates the amount initially recognized in respect of an item of land and buildings, plant and equipment to its significant parts and depreciates separately each such part. Residual values, methods of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate.Depreciation ratesDepreciation of property, plant and equipment begins when assets are available for use and is calculated as follows:Asset categoryDepreciation methodUseful Life EstimatesMine site infrastructure and tailingsUnit of productionLife of mineMachinery, equipment and furniture20% declining balance5-10 yearsComputers and software50% declining balance2-4 yearsOffice buildings and warehouse10% declining balance10+ yearsImpairment of long lived assetsCarrying values of capitalized exploration properties are reviewed for impairment whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The Company evaluates impairment losses (other than goodwill impairment), for potential reversals when events or circumstances warrant such consideration. Any reversal is limited to the amount originally recognized. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held with banks, and other short-term highly liquid investments with original maturities of three months or less.   
 Aurizon Mines Ltd. Page 112011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 3.     SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instrumentsFinancial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument.At initial recognition, the Company classifies its financial instruments in the following categories depending on their nature and the purpose for which the instruments were acquired:(i)  Financial assets and liabilities at fair value through profit or loss: A financial asset or liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the short-term. Derivatives are also included in this category unless they are designated as hedges. Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the statement of comprehensive income. Gains and losses arising from changes in fair value are presented in the statement of comprehensive income within other gains and losses in the period in which they arise. Financial assets and liabilities at fair value through profit or loss are classified as current except for any position expected to be realized or paid beyond twelve months of the balance sheet date, which is then classified as non-current.(ii)  Available-for-sale investments: Available-for-sale investments are non-derivatives that are either designated in this category, or not classified in any of the other financial instrument categories. The Company’s available-for-sale assets comprise marketable securities. Available-for-sale investments are recognized initially at fair value plus transaction costs, and are subsequently carried at fair value, with gains or losses arising from changes in fair value recognized in other comprehensive income. Available-for-sale investments are classified as non-current, unless the investment matures within twelve months, or management expects to dispose of them within twelve months. Interest on available-for-sale investments, calculated using the effective interest method, is recognized in the statement of comprehensive income as part of finance income. Dividends on available-for-sale equity instruments are recognized in the statement of comprehensive income as part of other gains and losses when the Company’s right to receive payment is established.  When an available-for-sale investment is sold or impaired, the accumulated gains or losses are moved from other comprehensive income to other gains and losses. (iii)  Loans and receivables: Loans and receivables are non-derivative financial assets, with fixed or determinable payments, that are not quoted in an active market. Loans and receivables are initially recognized at the amount expected to be received less, when material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at an amortized cost using the effective interest method less a provision for impairment.(iv)  Financial liabilities are initially recorded at fair value and subsequently measured at amortized cost and include trade payables, accrued liabilities, bank debt and long-term obligations. Trade payables and accrued liabilities are initially recognized at the amount required to be paid less, when material, a discount to reduce the payables to fair value. Subsequently, trade payables are measured at amortized cost using the effective interest method. Bank debt and long-term debt are recognized initially at fair value, net of any transaction costs incurred, and subsequently at amortized cost using the effective interest method. Financial liabilities are classified as current liabilities if payment is due within twelve months. Otherwise, they are presented as non-current liabilities. (v)  Derivative financial instruments: The Company has used gold and currency derivative instruments to manage its exposure to the fluctuating price of gold and foreign exchange movements. Such derivatives are revalued at each reporting period and any gains or losses arising from the use of derivative instruments, both realized and unrealized, are charged to the statement of comprehensive income. Aurizon Mines Ltd. Page 122011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)All derivatives recorded on the balance sheet are reflected at fair value. Revaluation adjustments on these instruments are reflected in the statement of comprehensive income, because the Company does not follow hedge accounting.3.     SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment of financial assetsAt each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. An evaluation is made as to whether a decline in fair value is based on indicators such as adverse changes in the market, economic or legal environments. If such evidence exists, the Company recognizes an impairment loss as follows:(i)  Financial assets carried at amortized cost: the loss is the difference between the amortized cost of the loan or receivable, and the present value of the estimated future cash flows, discounted using the instrument’s original effective interest rate. The carrying amount of the asset is reduced by this amount through the use of an allowance account. (ii)  Available-for-sale financial assets: the impairment loss is the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the statement of income. This amount represents the cumulative loss in other comprehensive income that is reclassified to net income.Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on available-for-sale equity instruments are not reversed.InventoriesInventory is comprised of gold bullion, in-process inventory and mine supplies.In-process inventory and gold bullion is valued at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and costs of selling final product.Costs consist of direct costs related to production such as mining, milling, and refining costs, as well as a portion of indirect costs, which include depreciation of capital assets and amortization of mining assets.  Inventory unit costs are calculated based on ounces of gold produced, resulting in an imputed cost per unit produced which is subsequently attributed to the cost of the ounces of gold sold.Mine supplies are valued at the lower of cost and net realizable value. Any provision for obsolescence is determined by reference to specific items. Borrowing costsBorrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognized as finance costs in the statement of comprehensive income in the period in which they are incurred. Share-based compensation The Company grants stock options to key employees, directors, and officers. Each tranche is treated as a separate award with its own vesting period and grant date fair value. Fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period based on the number of awards expected to vest, by increasing the stock based compensation equity account. The number of awards expected to vest is periodically reviewed, and the estimated option forfeiture rate is adjusted as required throughout the life of the option, with the final adjustment to expense occurring when the vesting period of each tranche expires.
  Aurizon Mines Ltd. Page 132011 Annual Financial  Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)   
 3.     SIGNIFICANT ACCOUNTING POLICIES (continued)ProvisionsGeneralProvisions are recognized when (i) the Company has a present obligation (legal or constructive) as a result of a past event, and (ii), it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and reliable estimate can be made of the amount of the obligation. If the effect of time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.Asset retirement obligation provisionThe Company records the present value of estimated costs of legal and constructive obligations to restore operating locations in the period in which the obligation is incurred. The nature of these restoration activities includes dismantling and removing structures, rehabilitating mines and tailings dams, dismantling operating facilities, closure of plant and waste sites, and restoration, reclamation and re-vegetation of affected areas. The obligation generally arises when the asset is installed or the ground/environment is disturbed at the production location. When the liability is initially recognized, the present value of the estimated restoration cost is capitalized by increasing the carrying amount of the related mining assets. Over time, the discounted liability is increased for the change in present value based on a risk-free discount rate. The periodic unwinding of the discount is recognized in the statement of comprehensive income as a finance cost. At each reporting date the rehabilitation liability is re-measured to reflect changes in discount rates, and timing or amount of the costs to be incurred. Additional disturbances or changes in rehabilitation costs will be recognized as additions or charges to the corresponding assets and rehabilitation liability when they occur. For closed sites, changes to estimated costs are recognized immediately in the statement of comprehensive income. Income taxIncome tax comprises current and deferred tax. Income tax is recognized in the statement of comprehensive income except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted, or substantively enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.Deferred income tax assets and liabilities are presented as non-current in the balance sheet.Tax on income in interim periods is accrued using the tax rate that would be applicable to expected total annual earnings of the Company.Royalties, resource taxes and revenue-based taxes are accounted for under IAS 12 Income taxes when they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority, and the amount payable is based on taxable income – rather than based on quantity produced or as a percentage of revenue – after adjustment for temporary differences. For such arrangements, current and deferred tax is provided on the same basis as described above for the other forms of taxation.The Company is entitled to a refundable tax credit on qualified exploration expenditures incurred in the province of Quebec. The refundable tax credits total 15% of qualified exploration expenditure incurred. In accordance with IAS 20, the exploration tax credits have been applied against the costs incurred. The Company is also entitled to non-refundable tax credits on qualified exploration expenditures which are deductible against Federal and B.C. income taxes due. The non-refundable tax credits are 10% of qualified exploration expenditure incurred. In accordance with IAS 20, the exploration tax credits have been applied against the costs incurred.
  Aurizon Mines Ltd. Page 142011 Annual Financial Statements  Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)   
 3.     SIGNIFICANT ACCOUNTING POLICIES (continued)Revenue recognitionBullion salesRevenue from the sale of gold bullion is recognized when the significant risks and rewards of ownership have been transferred. This is considered to occur when title passes to a counterparty pursuant to a purchase arrangement from which collectability is reasonably assured. This generally occurs on the date the refinery has been instructed by the Company to transfer the bullion to a counterparty. Revenue is measured at the fair value of the consideration received or receivable.Royalty incomeRoyalty income is recognized on an accrual basis when the Company has reasonable assurance with respect to measurement and collectability.Interest revenueInterest revenue is recognized as it accrues, using the effective interest method.Earnings per shareBasic earnings per share (EPS) is calculated by dividing the net profit (loss) for the year attributable to equity owners of the Company by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments and is computed using the treasury stock method. The Company’s potentially dilutive instruments comprise stock options granted to employees and directors.Segment reportingOperating segment disclosure is reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the Chief Executive Officer of the Company (the “CEO”). The Company has identified one reportable segment.Accounting standards and amendments issued but not yet adoptedUnless otherwise noted, the following revised standards and amendments are effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. The Company has not yet assessed the full impact of these standards and amendments or determined whether it will early adopt them. (i)  IFRS 9 Financial Instruments, was issued in November 2009, effective years beginning on or after January 1, 2015, and addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only 2 categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent that they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely. In addition, this new standard has been updated to include guidance on financial liabilities and derecognition of financial instruments. (ii)  IFRS 10 Consolidated Financial Statements requires an entity to consolidate an investee when it has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation – Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial statements   
 Aurizon Mines Ltd. Page 152011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 3.     SIGNIFICANT ACCOUNTING POLICIES (continued)Accounting standards and amendments issued but not yet adopted (continued) (iii)  IFRS 11Joint Arrangements requires a venture to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venture will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have a choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-monetary Contributions by Venturers (iv)  IFRS 12 Disclosure of Interests in Other Entities establishes disclosure requirements for interests in other entities, such as subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard carries forward existing disclosures and also introduces significant additional disclosure that addresses the nature of, and risks associated with, an entity’s interests in other entities. (v)  IFRS 13 Fair Value Measurement is a comprehensive standard for fair value measurement and disclosure for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and does not always reflect a clear measurement basis or consistent disclosures. (vi)  IAS 1 Presentation of Financial Statements has been amended to require entities to separate items presented in OCI into two groups, based on whether or not items may be recycled in the future. Entities that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012 with earlier application permitted. (vii)  IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine sets out the accounting for overburden waste removal (stripping) costs in the production phase of a mine. Stripping activity may create two types of benefit i) inventory produced and ii) improved access to ore. Stripping costs associated with the former should be accounted for as a current production cost in accordance with IAS 2, Inventories. The latter should be accounted for as an addition to or enhancement of an existing asset.4.     SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTSThe preparation of financial statements requires management to use judgment in applying its accounting policies and estimates and assumptions about the future.Estimates and other judgments are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.The Company has identified the following accounting policies under which significant judgments, estimates and assumptions are made, where actual results may differ from these estimates under different assumptions and conditions, and may materially affect financial results or the Company’s balance sheet reported in future periods.·  Share-based compensation - the fair value of share-based compensation is computed using the Black-Scholes option pricing model which requires management to make certain estimates and assumptions in relation to the expected life of options, expected volatility, the risk-free interest rate, and the number of options expected to vest (see note 18c for key assumptions used in determining the value of share-based payments).·  Asset retirement obligation provision – the Company’s provision for reclamation and closure cost obligations represents management’s best estimate of the present value of the future cash outflows required to settle the liability which reflects estimates of future costs, inflation, market risks and the applicable risk-free interest rates for discounting the future cash outflows. These factors are reviewed each reporting period, and changes in the above factors can result in a change to the provision recognized by the Company. Aurizon Mines Ltd. Page 162011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 5.     CASH AND CASH EQUIVALENTS    December 31, 2011December 31, 2010January 1,    2010          Cash at bank and on hand  $129,539$53,060$49,605Short-term investments  83,94786,28163,493Cash and cash equivalents  $213,486$139,341$113,098Interest earned on cash is dependent on the type of bank account it is deposited in.  Some accounts earn interest at floating rates based on daily bank deposit rates while others earn rates that fluctuate from time to time based on changes in the prime rate or bond rates.  Short-term investments are comprised of Canadian chartered banks bankers acceptances and treasury bills having maturities at the date of acquisition of less than three months, bearing interest at rates between 0.765% and 1.13% (2010 – Bankers’ acceptance notes bearing interest between 0.91% and 1.08%).6.     MARKETABLE SECURITIES        Opening Balance – January 1, 2010    $      -Additions – at cost     750Unrealized gain    379Fair value – available for sale – December 31, 2010    $1,129Additions – at cost    500Unrealized loss    (765)Fair value – available for sale – December 31, 2011    $ 864The Company acquired marketable securities in accordance with the requirements of property agreements that were entered into during 2010 and 2011. Unrealized gains or losses resulting from the change in fair value of the marketable securities are recorded in the comprehensive income statement as other comprehensive income or loss.7.     INVENTORIES    December 31, 2011December 31, 2010January 1, 2010          Supplies and materials  $   5,290$  4,292$   3,692Stockpile ore  218162440Gold bullion and in-process  7,0377,6317,765Inventories  $ 12,545$ 12,085$ 11,897During 2011, the Company charged $0.5 million to earnings in respect of write-downs for obsolete supplies inventories (2010 - $0.1 million).
  Aurizon Mines Ltd. Page 172011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 
 
8.           ACCOUNTS RECEIVABLE AND OTHER    December 31, 2011December 31, 2010January 1, 2010          Accounts receivable  $ 5,157$ 3,707$ 3,262Prepaid expenses  3,5843,1071,563Exploration advances  733444-Accounts Receivable and other  $9,474$ 7,258$4,825In accordance with property option agreements, the Company advances funds to its counterparts for the undertaking of exploration programs on the properties. The advances are drawn down and expensed as the exploration work progresses. As at December 31, 2011, advances totalling $0.7 million are expected to be expensed within the next twelve months (2010 - $0.4 million).9.           TAX CREDITS RECEIVABLE    December 31, 2011December 31, 2010January 1, 2010          Quebec refundable tax credits (Note 13b)  $  2,490$      709$     709Quebec refundable resource credits        -         -        862Non-refundable tax credits  2,72011,6891,016Tax credits receivable  $  5,210$ 12,398$  2,587 a)    Quebec refundable tax creditsDuring the year, the Company received a refund of $0.7 million in respect of eligible exploration expenditures incurred in 2009.  In addition, the Company expects to receive a refund of $2.5 million in 2012 relating to eligible exploration expenditures incurred in 2010.b)    Non-refundable tax creditsNon-refundable tax credits arise from certain eligible exploration expenditures.  As at December 31, 2011, the Company has recorded a total of $2.7 million (2010 - $15.2 million) in respect of non-refundable tax credits which may be used to reduce future income taxes.  Based on assertions and estimates deriving from the Company’s long-term mining plan and cash-flow models, the Company expects that there will be sufficient future taxable earnings against which these credits can be applied.  The portion of these tax credits expected to be utilized within one year is $2.7 million (2010 - $11.7 million), which is expected to be applied against 2012 Quebec income taxes owed.
  Aurizon Mines Ltd. Page 182011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 10.           PROPERTY, PLANT AND EQUIPMENT  
Producing Property
Mine Infrastructure
Machinery and equipment
Office buildings and warehouse
Computers and Software
Office Equipment and Furniture
TOTALCOST              At January 1, 2010       $ 188,837         $ 47,463        $ 31,844           $  1,219         $  1,891            $  530          271,784Additions           22,454             3,769             7,081                 48                262                  -           33,614Disposals                  -                  -              (341)                  -                  -                  -              (341)Change in ARO estimates                  -                999                  -                  -                  -                  -                999Change in ARO Obligation (1)                  -         (11,888)                  -                  -                  -                  -         (11,888)At December 31, 2010          211,291           40,343           38,584             1,267             2,153                530          294,168Additions33,8364,77411,08515630713450,292Disposals                  -                  -(479)                  -                  -                  -(479)Change in ARO estimates                  -         1,477                  -                  -                  -                  -1,477At December 31, 2011245,12746,59449,1901,4232,460664345,458                ACCUMULATED DEPRECIATION              At January 1, 2010         (73,829)         (19,681)         (11,804)              (843)           (1,262)              (389)       (107,808)Charge for year         (22,149)           (7,404)           (4,481)           (31)              (380)              (27)         (34,472)Disposals                  -                  -                124                  -                  -                  -                124At December 31, 2010         (95,978)         (27,085)         (16,161)              (874)           (1,642)              (416)       (142,156)Charge for year         (27,881)           (4,972)           (5,435)           (43)              (341)              (44)(38,716)Disposals                  -                  -292                  -                  -                  -292Adjustment   (2)(95)                  -                  -                  -                  -                  -(95)At December 31, 2011  (123,954)   (32,057)  (21,304)           (917)   (1,983)              (460)(180,675)                NET BOOK VALUE              At January 1, 2010         $ 115,008          $ 27,782          $ 20,040               $ 376                $ 629                $ 141         $ 163,976At December 31, 2010         $ 115,313          $ 13,258          $ 22,423               $ 393               $ 511                $ 114         $ 152,012At December 31, 2011$ 121,173$ 14,537$ 27,886$ 506$ 477$ 204$ 164,783(1)  The decrease of $11,888 as December 31, 2010 represents a reduction in the estimated asset retirement obligation liability at the Casa Berardi mine and a corresponding decrease in the carrying amount of the related asset included in property, plant and equipment.(2) Adjustment of $95 is for reimbursement of Quebec government assistance and deferred accretion charges.   
 Aurizon Mines Ltd. Page 192011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 11.           MINERAL PROPERTIES    December 31,2011 December 31,  2010January 1,  2010          Exploration Properties        Joanna, Quebec  $ 3,865 $ 3,865 $ 2,262Kipawa, Quebec  75 75 75Duvay, Quebec  500 -  - Duverny, Quebec  95 65 - Rex South, Quebec  280 150 - Opinaca, Quebec  100 -  - Patris, Quebec  80 40 - Other  -   25 25    $ 4,995$ 4,220 $ 2,362a)    Joanna PropertyThe Company holds a 100% interest in the Joanna Gold Project in the Abitibi region of Quebec.The Company has earned, subject to a 2% net smelter royalty, a 100% interest in the Feifer claims block of the Joanna Property.  An advance royalty of $0.5 million is payable upon completion of a feasibility study, and receipt of a decision by a financial institution to finance development of the property to commercial production.The Company has earned, subject to a 1% net smelter royalty, a 100% interest in two mineral claims located within the existing boundary of the Joanna Property.  Advance royalties are payable at certain milestones including $0.7 million at feasibility and $0.8 million upon achieving commercial production.   In addition, a net smelter royalty of 1.5% is payable on the 75% interest acquired from Vantex Resources Ltd.  The Company has an option to buy back 50% of the 1.5% royalty at any time at a cost of $0.5 million.The Company has earned, subject to a 2% net smelter royalty, a 100% interest in nineteen mineral claims (the “Alexandria claims”) adjacent to the Feifer claims property.  One half of the net smelter return royalty may be purchased at any time for $2.0 million.During the year, the Company incurred expenditures at Joanna totalling $10.3 million, of which $6.0 million related to exploration work, and $4.3 million related to feasibility work and environmental impact studies.  All expenditures were charged to earnings.  In 2010, expenditures incurred and charged to earnings at Joanna totalled $13.2 million, of which $9.1 million related to exploration expenditures, and feasibility work and environmental impact study charges totalled $4.1 million.b)    Kipawa PropertyThe Company has acquired mineral claims in Quebec by staking at a cost of $75 thousand.In July 2011, the Company signed an agreement with Forum Uranium Corp. (“Forum”), whereby Forum can earn a 50% interest in the Kipawa property by completing $200,000 in exploration as a firm commitment within 12 months and a further $150,000 in exploration, including a minimum of 1,000 metres of drilling, within 24 months of the date of the agreement. Forum has the option to earn a further 15% interest, totalling a 65% interest in the project by establishing an NI 43-101 resource estimate on the property within four years of the agreement date. Forum is Operator during the earn-in period. Upon completion of its earn-in, Forum and Aurizon may form a Joint Venture with Forum as Operator.
  Aurizon Mines Ltd. Page 202011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 11.           MINERAL PROPERTIES (continued)c)    Duvay PropertyIn September 2011, the Company entered into an agreement with Tres-Or Resources Ltd. (“Tres-Or”), under which the Company may earn an initial 50% interest in Tres-Or’s Duvay property situated in the Abitibi region of Quebec.  The Duvay property is situated adjacent to the Duverny property, in which the Company may earn 100% ownership in accordance with an option agreement signed in 2010.  The 50% interest in the Duvay property may be earned by making cash payments of $1.5 million and incurring work expenditures totalling $6.5 million, over the next four years, of which a firm commitment of $2.5 million must be incurred in the first 18 months of the agreement.  An additional 15% interest, bringing the total interest to 65% in the property, may be earned by either delivering a pre-feasibility study on the property or by incurring $13 million of additional exploration expenditures within three years of achieving the 50% participation.During 2011, the Company made an initial cash payment of $0.5 million and advanced $0.9 million to Tres-Or in respect of work expenditures, which have been charged to earnings.d)    Duverny PropertyIn March 2010, the Company signed a letter of intent whereby Aurizon agreed to purchase 14 mineral claims in the Duverny Township in the Abitibi region of north-western Quebec. Aurizon may acquire 100% ownership of the claims by making cash payments totalling $100,000 by the second anniversary of the agreement.  As at December 31, 2011, the Company has made total cash payments of $70,000 in respect of the Duverny property, and has acquired minerals claims adjacent to the property by staking at a cost of $25,000.e)    Fayolle PropertyIn May 2010, the Company entered into an option and joint venture agreement with Typhoon Exploration Inc., (“Typhoon”) whereby Aurizon may earn a 50% interest in Typhoon’s Fayolle property in the Abitibi region of Quebec.  The 50% interest, subject to an underlying 2% net smelter royalty, may be earned by incurring expenditures of $10 million over four years, of which $3.5 million is a firm commitment to be spent over the first two years.  The Company may earn an additional 15% interest on the project by either delivering a bankable feasibility study, or spending an additional $15 million on the project.  During the course of the initial four year term, the Company has the right to subscribe for common shares of Typhoon of up to $0.5 million on each anniversary of the option agreement, for a total investment of $2 million.  The first two subscriptions totalling $1 million are firm commitments and are required in order for the Company to earn the initial 50% interest.During the year, the Company advanced $5.9 million to Typhoon for exploration expenditures, of which $5.7 million has been charged to earnings.  During 2010, the Company advanced $1.8 million to Typhoon for exploration expenditures, of which $1.6 million was charged to earnings.The first share subscription totalling $0.5 million was completed in June 2010 and consisted of 609,756 Typhoon shares at a unit price of $0.82 per share.  A second subscription totalling $0.5 million was completed in June 2011 and consisted of 633,905 shares at a unit price of $0.79.Since the beginning of the agreement, the Company has advanced a total of $7.7 million to Typhoon, which fulfils the firm commitment of $3.5 million required over the first two years of the agreement.  In addition, the firm commitment to subscribe to $1 million of Typhoon shares was fulfilled in 2011.f)    Rex South PropertyIn May 2010, the Company entered into an agreement with Azimut Exploration Inc. (“Azimut”), under which the Company may earn an initial 50% in Azimut’s Rex South Property situated in northern Quebec. The 50% interest may be earned by making an initial cash payment of $150,000 upon signing and making further cash payments for an aggregate of $580,000 over the first four years.  Minimum work expenditures totalling $1 million during the first year and further expenditures for an aggregate of $5 million over the next five years are required to earn the initial 50% interest.  An additional 15% interest may be earned by: (i) making additional cash payments of $70,000 per year over five years for an aggregate of $350,000, (ii) incurring a minimum of $700,000 of work expenditures per year over a five year period for an aggregate of $3.5 million, and (iii) delivering a bankable feasibility study.
   Aurizon Mines Ltd. Page 212011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)11.           MINERAL PROPERTIES (continued)f)    Rex South Property (continued)During the year, the Company made a cash payment of $130,000 and incurred $5.0 million in work expenditures.  During 2010, the Company made an initial cash payment of $150,000 and incurred $1.6 million of exploration costs, bringing the total cumulative work expenditures to $6.6 million since the agreement was signed, thus fulfilling the requirement to incur an aggregate of $5 million of work expenditures during the first five years of the agreement.  Further cash payments totalling $300,000 within the next three years are required for the Company to earn the 50% interest in the Rex South property.g)    Marban PropertyIn July 2010, the Company entered into an option and joint venture agreement with Niogold Mining Corporation (“Niogold”) with respect to the Marban property, located in the Malartic gold camp in the Abitibi region, Quebec.  Pursuant to the agreement, Aurizon may earn a 50% interest in the Marban property, subject to underlying royalties, by: (i) incurring expenditures of $20 million over three years, of which $5 million is a firm commitment to be spent in the first year; (ii) completing an updated NI 43-101 compliant mineral resource estimate; and (iii) making a resource payment equal to the sum of $30 (or $40 if the price of gold is then above US$1,560) multiplied by 50% of the number of total gold ounces in the measured and indicated resource categories plus $20 (or $30 if the price of gold is then above US$1,560) multiplied by 50% of the number of total gold ounces in the inferred resource category, based on the updated resource estimate. Aurizon may earn an additional 10% interest, for an aggregate of 60% interest, by delivering a feasibility study.  Moreover, Aurizon may earn an additional 5%, for an aggregate 65% interest, by arranging project financing for capital expenditures estimated by the feasibility study to place the project into commercial production.  Niogold will be operator during the initial earn-in period and Aurizon will provide input on exploration programs and will become operator after the initial 50% interest has been earned.During the year, the Company advanced $4.8 million to Niogold for exploration expenditures, which have been charged to earnings.  During 2010, the Company advanced $1.4 million to Niogold for exploration expenditures, which were charged to earnings.Since the beginning of the agreement, the Company has advanced a total of $5.9 million to Niogold, which fulfils the firm commitment of $5.0 million required over the first two years of the agreement.h)    Opinaca PropertyIn September 2010, Aurizon entered into an agreement with Azimut Exploration Inc. (“Azimut”) and Everton Resources Inc. (“Everton”), whereby Aurizon may acquire up to an undivided 60% ownership interest in the Opinaca property located in the James Bay area, 350 kilometres north of Matagami, Quebec. The Opinaca property is owned by Azimut and Everton as to an undivided 50% interest each.  Aurizon may earn a 50% interest in the project by making cash payments totalling $0.6 million and incurring expenditures of $6 million over four years, including 5,000 metres of drilling by the second anniversary. After earning its initial 50% interest in the project, Aurizon may then elect to earn an additional interest of 10%, for a total interest of 60%, by making cash payments totalling $0.3 million over three years from the election date, incurring expenditures totalling $3 million over three years from the election date, and delivering an independent pre-feasibility study on or before the fourth anniversary. In addition, in the event that prior to the end of the eighth year of the initial option agreement, mineral resources of at least 2,000,000 ounces of gold, at an average grade of at least 6 grams of gold per tonne, are discovered, Aurizon shall make a payment of $1.5 million, payable in Aurizon common shares (50% to Azimut, 50% to Everton), subject to regulatory approval.During 2011, the Company made a cash payment of $100,000 and incurred $2.7 million in work expenditures, which were charged to earnings.  During 2010, the Company incurred $0.1 in exploration expenditures on the Opinaca property.  In aggregate, work expenditures incurred by the Company and charged to earnings total $2.8 million since the agreement was signed.   
 Aurizon Mines Ltd. Page 222011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 11.           MINERAL PROPERTIES (continued) i) Wildcat PropertyIn September 2010, Aurizon entered into an agreement with Everton Resources Inc., (“Everton”), whereby Aurizon may acquire up to a 65% interest in Everton’s Wildcat property located in the James Bay region, 350 kilometres north of Matagami, Quebec. The Wildcat property is 100% owned by Everton. Aurizon may earn a 50% interest in the project by incurring expenditures of $3.25 million over four years, including 3,000 metres of drilling within two years.  In addition, the agreement required Aurizon to subscribe for a private placement of 1,000,000 units of Everton at a price of $0.25 per unit, each unit comprising one common share and one share purchase warrant, exercisable to acquire one additional common share at $0.40 per share for a term of two years.After earning its initial 50% interest in the project, Aurizon may then elect to earn an additional interest of 15%, for a total interest of 65%, by making cash payments totalling $300,000 over three years from the election date, incurring expenditures totalling $3 million over three years from the election date, and delivering an independent pre-feasibility study by the end of the fourth anniversary of the election date. In addition, in the event that prior to the end of the eighth year of the initial option agreement, mineral resources of at least 2,000,000 ounces of gold, at an average grade of at least 6 grams of gold per tonne, are discovered, Aurizon shall make a payment of $1.5 million, payable to Everton in Aurizon common shares, subject to regulatory approval.During the year, the Company incurred $0.9 million in work expenditures at the Wildcat project.  In 2010, the Company incurred a total of $0.1 in exploration expenditures on the Opinaca property, and subscribed to 1,000,000 Everton common shares at a cost of $250,000.j)    Patris PropertyIn December 2010, the Company entered into an agreement with Midland Exploration Inc. (“Midland”), under which the Company would be entitled to earn an initial 50% in Midland’s Patris Property situated in the Abitibi region of Quebec.  The 50% interest may be earned by making an initial cash payment of $40,000 upon signing and making further cash payments for an aggregate of $230,000 over the next four years.  Minimum work expenditures totalling $0.6 million during the first year and further expenditures for an aggregate of $3 million over the next four years are required to earn the initial 50% interest.  An additional 10% interest may be earned by delivering a pre-feasibility study on the property within a four-year period during which it will make annual cash payments of $80,000 and complete 40,000 metres of drilling.During 2011, the Company made a cash payment of $40,000 to Midland and advanced $0.5 million in respect of work expenditures, which have been charged to earnings.  During 2010, the Company made the initial cash payment of $40,000 and did not incur any work expenditures.k)   Beaufor Mine and Perron PropertyThe Company retains a gold-indexed royalty on 50% of the future gold production from the Beaufor mine and Perron property.  The Company is entitled to receive royalties ranging from $17 per ounce to $30 per ounce at gold prices ranging from US$300 to US$500 per ounce.  The Company also retains a royalty on 100% of any production from the Perron property, ranging from $17 per ounce to $30 per ounce at gold prices ranging from US$300 to US$500 per ounce.  There has been no commercial production from the Perron property to date.  During 2011, the Company received royalties totalling $0.4 million in respect of the Beaufor mine (2010: $0.3 million). Aurizon Mines Ltd. Page 232011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 12.           DEFERRED FINANCE COSTS    December 31, 2011December 31, 2010January 1, 2010          Deferred finance costs  
$  343$  -  $  - a)  Revolving credit facilityOn January 31, 2011 the Company established a US$50 million revolving credit facility with Canadian Imperial Bank of Commerce and The Bank of Nova Scotia. The revolving credit facility has an initial three year term and is collateralised by a charge over the assets of Aurizon. The facility is available for drawdown in US dollars at a bank base rate or a LIBOR-based rate (plus 200 to 400 basis points depending on the type of loan and financial and operating measures), payable according to the quoted rate term. The Company has the ability to repay the principal in part or in its entirety at any time without penalty. Funds drawn on the facility may be used to finance working capital requirements, acquisitions, and for general corporate purposes. There are no hedging requirements under the terms of the credit facility.The facility has three financial covenants including a leverage ratio, a tangible net worth calculation, and a mine coverage ratio. For the year ended December 31, 2011 these covenants were met.The standby fees on undrawn amounts under the facility range between 0.75% and 1.0% per annum depending on certain financial measures.  As at December 31, 2011, there were no amounts outstanding under the credit facility.During the year the Company has capitalized the facility establishment costs of $493 thousand (2010 - $nil) that will be amortized over the initial three year term of the credit facility. For the year ended December 31, 2011, the Company recognized a facility establishment cost amortization expense of $150 thousand (2010 - $nil), and standby fees of $344 thousand (2010 - $nil).13.           OTHER ASSETS  December 31,2011December 31,2010January 1, 2010Reclamation deposits (a)$  1,315$    896 $      612Non-refundable tax credits (Note 9)-  3,493 13,438Refundable tax credits (b)4,457  3,041 -   Workers compensation premiums (c)222340 501Deposit on long-term hydro-electric project (d)330330 -     $ 6,324$ 8,100 $ 14,551a)   Reclamation depositsAs at December 31, 2011, the Company has invested $1.3 million (2010 – $0.9 million) in restricted deposits in accordance with the current financial guarantee requirements set forth by the Ministère des Ressources naturelles et de la Faune of the province of Quebec for future site restoration costs at the Casa Berardi mine.  As updated mine closure plans are submitted to and approved by this government body, the related financial guarantees will be adjusted accordingly. See note 16a for further information.The future funding requirements as prescribed by the Ministère des Ressources naturelles et de la Faune are:  201220132014Total          Reclamation deposits required
$ 1,242
$ 2,079
$ 2,902
$  6,223   
 Aurizon Mines Ltd. Page 242011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 13.           OTHER ASSETS (continued)b)   Refundable tax creditsThe Company has recorded $4.5 million of refundable tax credits relating to admissible exploration expenditures incurred in 2011 (2010 – $3.0 million).c)   Workers compensation premiumsIn 2008, the Company began participating in a retrospective workers compensation premiums program in which annual workers compensation premiums are retrospectively adjusted based on the Company’s overall safety records and history of incident claims.  As at December 31, 2011, the Company has accrued a receivable totalling $0.2 million (2010 - $0.3 million), based on the estimated refunds relating to the premiums paid for the years ended December 31, 2011, 2010, 2009 and 2008.d)   Deposit on long-term power supply projectAs at December 31, 2011, the Company has prepaid $0.3 million (2010 – $0.3 million) to Hydro Quebec in respect of preliminary studies relating to the installation of power lines to the Company’s Joanna Gold Project.14.           COMMITMENTS  a)  Contractual obligations and commitmentsThe Company’s significant contractual obligations and commitments as at December 31, 2011 are as follows:(all figures undiscounted)Notes
Total
Due in  Less Than  1 Year
Due 2 - 3  Years
Due 4 - 5  Years
Due in More Than 5 Years
As at  December 31,  2010Asset retirement obligations(i), 16a$ 19,002
$     -$   1,213$     -$ 17,789$ 19,002Equipment and supply contracts(ii)13,5187,2563,1313,131-837Mineral properties firm commitments(iii),112,2226501,572--6,388Employee incentives16b1,8215881,034199--Head office operating lease  82225350663-1,052Reimbursable government assistance  -----773Total contractual obligations  $ 37,385$ 8,747$ 7,456$ 3,393$ 17,789$  28,052 (i)  On a discounted basis, the asset retirement obligations total $15.0 million as at December 31, 2011 (2010 - $13.1 million). (ii)  As at December 31, 2011, the Company has committed to purchase mobile equipment and other infrastructure requirements totalling $5.7 million (2010 - $0.5 million).  In addition, the Company has secured the procurement of some of its reagents used in the mill concentrator until the end of year 2016, resulting in an estimated commitment of $7.8 million (2010 – nil). (iii)  Firm commitments represent exploration work expenditures and property option payments that the Company is contractually bound to make, whether the Company fulfills all the requirements of the agreements or not.   
 Aurizon Mines Ltd. Page 252011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 14.           COMMITMENTS (continued)  b)Derivative positionsThe Company’s derivative positions at December 31, 2011 were as follows:  Total *Canadian – U.S. dollars  Forward sales contracts – US$$11,000Average exchange rate US/Cad$1.05Canadian dollars to be received$11,550* all derivative contracts expire in 2012  As at December 31, 2011, the net unrealized mark-to-market asset of the currency derivative positions totalled $357 thousand (2010 - nil).  The US$/Cad exchange rate was 1.017 as at December 31, 2011.  There were no outstanding gold derivative contracts as at December 31, 2011.  The Company’s derivative positions as at December 31, 2010 were nil.15.           ACCOUNTS PAYABLE AND ACCRUED LIABLITIES  December 31, 2011
December 31, 2010January 1, 2010Trade payables$ 14,598$ 10,293$ 9,942Accrued expenses11,1908,6126,509Accounts payable and accrued liabilities$ 25,788$ 18,905$ 16,451 16.           PROVISIONS  December 31, 2011December 31, 2010January 1, 2010Asset retirement obligations                                                    (a)$  15,019 $ 13,114 $ 23,255 Non-current employee incentive provision                           (b)1,134 -   -   Provisions$ 16,153 $ 13,114 $ 23,255    
 

 Aurizon Mines Ltd. Page 262011 Annual Financial Statements     Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 16.           PROVISIONS (continued) a)  Asset retirement obligations  December 31, 2011December 31, 2010Asset retirement obligations - beginning of year$  13,114 $  23,255   Change in obligations during the year-(11,888)  Change in ARO estimate1,477 998   Accretion expense428749   Asset retirement obligations  – end of year$15,019$  13,114    Asset retirement obligations (AROs) result from the acquisition, development, construction and ordinary operation of mining property, plant and equipment, and from environmental regulations set by regulatory authorities. AROs include costs related to tailings pond and tailings dam reclamation, and/or closure (i.e. ongoing monitoring of ground water quality in tailings dam, closing of portals, shafts and tunnels, decontamination of soil, revegetation, etc.), and removal and/or demolition of mine and processing equipment (i.e. crushers, conveyors, mills, floatation tanks, etc.), buildings and other infrastructure.Asset retirement obligations decreased $11.9 million during the comparative year ended December 31, 2010.  The decrease was due to a revision of the reclamation plan for the Casa Berardi mine. The new reclamation plan incorporates updated studies undertaken in 2010 regarding re-vegetation of the tailings pond. The former reclamation plan included costs for a soil and clay layer over the tailings pond prior to re-vegetation. The Company’s updated environmental impact studies, which have been reviewed and approved by the government authorities, have determined that this additional soil and clay layer is not required to meet the high standards of environmental rehabilitation established by both the Company and government regulations. The present value of AROs are estimated using a present value technique that is based on existing laws, contracts or other policies and current technology and conditions. The estimates or assumptions required to calculate the present value of AROs include, among other items, abandonment and reclamation amounts, inflation rates, credit-adjusted risk free rates and timing of retirement of assets. The following significant assumptions were made for the purpose of estimating the AROs:Assumption20112010Undiscounted reclamation costs$19,002$19,002Pre-tax discount rates used for reclamation expenditures expected to be incurred in 20130.99%1.67%Pre-tax discount rates used for reclamation expenditures expected to be incurred in 20222.49%3.52%Average years to reclamation1011As at December 31, 2011, $1.3 million (2010 - $0.9 million) has been invested in restricted deposits for future site reclamation obligations at Casa Berardi (Note 13).During the year ended December 31, 2011 the Company agreed to a restricted deposits investment schedule with the Minister of Natural Resources in Quebec. Approximately 70% of the Company’s ARO liability will be covered by restricted deposit GIC investments held in the name of the Minister of Natural Resources Quebec by the year 2015. For the remaining 30% of the estimated ARO liability, the Company is not required to fund any further restricted deposits. As a result, at the time of closure and restoration of the mine site, the Company will have a significant cash outlay that may affect its ability to satisfy its debt and other contractual obligations. The costs associated with AROs may be significant and the Company may not have sufficient or available resources to fund the costs.   
 Aurizon Mines Ltd. Page 272011 Annual Financial Statements  Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 16.           PROVISIONS (continued)  b)Employee incentive plansThe Company has an employee incentive plan for the discovery and acquisition of Casa Berardi.  Under the terms of the plan, once a mineral deposit has achieved commercial production, a bonus of 0.2% of the net smelter revenues, less any advance payments, is paid to those participating in the plan.  During the first quarter of 2011, the Company recognized a liability of $2.2 million, of which $0.6 million was capitalized to property, plant and equipment, and $1.6 million was charged to earnings.  As at December 31, 2011, the fair value of the estimated incentive payments to be made under this plan totals $1.7 million (2010 - $nil), which includes a current portion of $0.6 million and a non-current portion of $1.1 million.The Company also has an employee incentive plan for the discovery of other mineral deposits.  Under the terms of this plan, a bonus of 0.08% of the value of the mineral reserves as determined in an approved pre-feasibility study, to a maximum of $0.1 million, is paid to those participating in the plan.  Upon approval of a feasibility study, a bonus of 0.15% of the value of the mineral reserves, to a maximum of $0.5 million including the payment at the pre-feasibility stage shall be paid.  During the year ended December 31, 2011, no amount in respect of this incentive plan has been recorded (2010 - $nil).17.           INCOME TAXES a) Current and deferred income and resource tax expense is represented in the statements of comprehensive income as follows:  December 31, 2011December 31, 2010Current income tax expense – Federal$  13,139 $  1,478 Current income tax expense – Quebec5,194 - Current income tax expenses – BC920 - Deferred income tax expense – Federal and Provincial2,850 5,978   22,103 7,456 Current resource tax expense21,860 5,206 Deferred resource tax expense (recovery)(1,310)1,249 Total current and future income taxes$  42,653 $ 13,911  The combined federal and provincial statutory income tax rate for 2011 is 28.21% (2010 – 29.9%). In addition to federal and provincial income taxes, Aurizon is subject to Quebec mining resource taxes.  On May 4, 2011, new resource tax legislation was substantively enacted which required accounting recognition in the second quarter of 2011 of changes in the Quebec Mining Tax Act that are retroactive to March 31, 2010. The new law increased the tax rate from 12% to 14% after March 31, 2010, 15% in 2011, and rising to 16% in 2012.  The new resource tax legislation also impacted changes to the maximum deductibility of certain costs in a particular year.   
 Aurizon Mines Ltd. Page 282011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 17.           INCOME TAXES (continued)  The provision for income and resource taxes is different from the amount that would have resulted from applying the combined federal and provincial income and resource tax rates as a result of the following:  December 31, 2011December 31, 2010Profit before taxes$  86,584$  31,151 Combined federal and provincial income and resource tax rates38.98%38.31%Income and resource taxes at combined federal and provincial rates33,75011,934 Increase (decrease) resulting from:    Effect of change in enacted tax rates7,905(1,411)Non-deductible costs2,6352,917Other(1,637)471Income and resource tax expense$  42,653$  13,911 b)   The significant components of the Company’s current income and resource taxes payable are as follows:Current income and resource taxes payable  December 31, 2011December 31,  2010Current taxes payable – Quebec  $ 13,267-Current taxes payable – Federal  4,420-Current taxes payable – BC  651-Current income and resource tax liabilities  $ 18,338$ -c)   The significant components of the Company’s deferred tax assets and liabilities are as follows:Non-current deferred tax liabilities  December 31, 2011December 31, 2010Deferred income and resource tax assets      Marketable securities  
$     136$     136Asset retirement obligations   (5,772) (4,678)Employee incentive provision  (436)(489)Other  (435)(231)    (6,507)(5,262)Deferred income and resource tax liabilities      Unrealized derivative gains  92-Property, plant and equipment and mineral properties  36,84834,178Refundable tax credits  1,8561,016Non-refundable tax credits  4,6295,446    43,42540,640Deferred income tax liabilities  $ 36,918$ 35,378 Aurizon Mines Ltd. Page 292011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 18.           SHARE CAPITAL a) Authorized  Unlimited number of common shares without par value. Unlimited number of preferred shares without par value of which 8,050,000 are designated as series "A" convertible preferred shares (Issued - none) and 1,135,050 are designated as series "B" convertible preferred shares (Issued - none). b) Issued and fully paid Common Shares   Shares   Amount      (000’s)    Outstanding as at January 1, 2010  159,008   $  253,874  Exercise of share options  2,923   9,887  Fair value of share options exercised  -    4,316  Mineral property payments  214   1,600  Outstanding as at December 31, 2010  162,145    269,677  Exercise of share options927   3,102Fair value of share options exercised-    1,386Outstanding as at December 31, 2011  163,072    $  274,165  c) Share-based compensationThe Company has a share-based compensation plan for key employees, directors, and officers of the Company. In accordance with the terms of the plan, as approved by shareholders’ resolution dated May 13, 2010 and amended by Directors’ resolutions dated November 3, 2010, key employees, directors, and officers of the Company may be granted options to purchase ordinary shares at an exercise price to be determined by the Directors at the time the option is granted, provided that such price not be less than the closing price of the common shares for the Company on the TSX on the trading day immediately preceding the date of the grant of the option or if there was no trade of the Company’s common shares on such date, on the last day on which there was a trade.  Under the terms of the plan, options that are granted are subject to a three year vesting period, where 25% of the options vest on the grant date, and subsequent tranches of 25% of the options vest on each of the first, second, and third anniversaries of the grant date. The maximum term of options granted under the plan is five years, and may only be settled in equity. The number of options granted is determined by the Board of Directors and the total of the options issued may not exceed 7% of the total number of common shares then outstanding on a non-diluted basis.  As at December 31, 2011, the maximum number of awards available to be granted under the plan is 11.4 million shares (granted: 10.9 million). The status of stock options granted to employees and directors as at December 31, 2011 and 2010 and the changes during the years ended on those dates is presented below:  Year ended December 31, 2011     Year ended December 31, 2010  Number of OptionsWeighted-averageexercise priceNumber of OptionsWeighted-averageexercise price  (000’s)      (000’s)      Outstanding at beginning of year9,670     $5.057,949     $3.75Granted2,541     $6.114,695       6.21Exercised(927)    $3.35(2,923)      3.38Expired or forfeited(374)    $5.31(51)      4.13Outstanding at end of year10,910     $5.439,670     $5.05Vested and exercisable at the end of the year7,156     $5.005,913     $4.50
  Aurizon Mines Ltd. Page 302011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 18.           SHARE CAPITAL (Continued)c) Share-based compensation (continued)During 2011, 927,325 options were exercised at an average price of $3.35 per share (2010 – 2,923,250 shares at $3.38 per share).  The weighted average market share price at the time of exercise during 2011 was $6.28 per share (2010 - $6.44 per share). The following shows the vested and exercisable share options, and total outstanding share options, by exercise price range, as at December 31, 2011:Vested and exercisable options  All outstanding optionsExercise  price rangeVested and  exercisable options
Remaining contractual   life (years)
Weighted  average  exercise price
Exercise  price range
Outstanding options
Remaining contractual  life (years)
Weighted average  exercise price$2.00 - $2.991,093
1.9
$2.95
$2.38 - $2.99
1,093
1.9
$2.95$3.00 - $3.99788
0.6
$3.81
$3.00 - $3.99
788
0.6
$3.81$4.00 - $4.992,001
1.9
$4.53
$4.00 - $4.99
2,632
2.2
$4.61$5.00 - $5.991,176
1.9
$5.12
$5.00 - $5.99
1,297
2.0
$5.12$6.00 - $6.99925
4.1
$6.10
$6.00 - $6.99
2,875
4.6
$6.10$7.00 - $7.591,173
3.9
$7.53
$600 -  $7.59
2,225
3.9
$7.52Totals7,156
2.4
$5.00
Totals
10,910
3.0
$5.43During 2011, incentive stock options were granted to officers and employees to purchase up to 2,541,500 shares at a weighted average exercise price of $6.11 per share.  The weighted average fair value of the options granted was estimated as $2.70 per share option using the Black-Scholes option-pricing model.  The total estimated stock based compensation cost associated with these grants is $6.4 million, of which $1.7 million was expensed immediately based on the options that vested immediately on the grant dates.  The remaining cost of $4.7 million shall be charged to earnings over the vesting period with a corresponding credit to stock based compensation.In addition to the stock based compensation charges totalling $1.7 million (2010 - $4.5 million) relating to options granted during the year that vested immediately on the grant dates as detailed above, additional stock based compensation charges totalling $4.8 million (2010 - $3.5 million) relating to the vesting period accruals for all unexpired option grants have been charged to operations.  The total aggregate stock based compensation charge for the current year is $6.5 million (2010 - $7.6 million).The fair value of each option is estimated on the date of grant based on the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants:  20112010  Expected volatility60%63%  Risk-free interest rate1.10%1.96%  Expected lives3.7 Years3.3 Years  Pre-vest forfeiture rate4.8%2.3%  Dividend yieldNilNil   The Black-Scholes and other option pricing models require the input of highly subjective assumptions. The expected life of the options is based upon the average length of time similar option grants in the past have remained outstanding prior to exercise. Volatility was estimated based upon historical price observations over the expected life of the options. Changes in the subjective input can materially affect the fair value estimate and therefore do not necessarily provide a reliable measure of the fair value of the Company’s stock options.As at December 31, 2011, there are 0.5 million stock options available for granting (2010 – 1.7 million) in accordance with the provisions in the Company’s stock option plan.   
 Aurizon Mines Ltd. Page 312011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated)19.           EXPENSES BY NATURE    December 31, 2011December 31, 2010        Cost of sales:        Operating costs  $   77,814$   69,569  Depreciation and amortization expense relating to operations  38,92734,060  Employee wages and benefits included in cost of sales  10,9849,094Total cost of sales  $ 127,725$ 112,723        Exploration costs (1):        Exploration  $ 25,082$ 14,916  Employee wages and benefits  1,386727Total exploration costs:  $ 26,468$ 15,643        General and administrative costs:        Employee wages and benefits (2)  $   6,577$  4,219  Professional and regulatory fees  1,8291,329  Donations  497472  Office and administration costs  2,5001,592  Marketing and corporate development  1,6181,774  Share-based compensation  6,5267,564Total general and administration costs  $ 19,547$16,950 (1) Net of refundable and non-refundable tax credits; (2) Employee wages and benefits within general and administrative costs include charges relating to fluctuations in the fair value of estimated future costs associated with an employee incentive plan (note 17b) for the discovery and acquisition of Casa Berardi totalling $0.5 million (2010 - $nil). 20.           FINANCE INCOME AND COSTS      December 31, 2011December 31, 2010          Finance income        Interest income on cash and short-term investments    $  1,538 $  719           Finance costs        ARO liability accretion     $ (427)$ (750)Standby fees – revolving credit facility    (150)-  Amortization of deferred finance costs    (344)-  Total finance costs    $ (921)$ (750)          Other derivative gains  (losses)        Realized derivative losses    $ (192)$ (13,013)Non-cash derivative gains (losses)    357 8,611 Total other derivative gains (losses)    $ 165 $ (4,402) Cash earns interest at floating rates based on daily bank deposit rates. Short-term investments comprise treasury bills and bankers’ acceptance notes with maturities at the date of acquisition of less than three months, bearing interest at rates between 0.74% and 1.08% (2010: Treasury bills and bankers’ acceptance notes bearing interest between 0.91% and 1.03%).   
 Aurizon Mines Ltd. Page 322011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 21.           COMPENSATION OF KEY MANAGEMENT PERSONNEL The remuneration of directors and members of key management personnel during the year was as follows:    December 31, 2011December 31, 2010        Wages and short-term benefits  $  2,555$  2,040Share-based compensation  3,5654,730    $  6,120$  6,770 22.           EARNINGS PER SHARE a) BasicBasic earnings per share (EPS) is calculated by dividing the net profit (loss) for the year attributable to equity owners of the Company by the weighted average number of common shares outstanding during the year. The calculation excludes out-of-the money stock options that are anti-dilutive and could potentially dilute EPS calculations in the future.  December 31, 2011December 31, 2010      Net profit (excluding OCI)$ 43,931$ 17,240Weighted average number of common shares outstanding (thousands)162,623160,250Basic earnings per share$ 0.27$ 0.10 b) DilutedDiluted EPS is calculated by adjusting the weighted average number of common shares outstanding for dilutive instruments and is computed using the treasury stock method. The Company’s potentially dilutive instruments comprise stock options granted to employees. The calculation excludes out-of-the money stock options that are anti-dilutive and could potentially dilute EPS calculations in the future.  December 31, 2011December 31, 2010      Net profit (excluding OCI)$ 43,931$ 17,240Weighted average number of common shares outstanding (thousands)162,623160,250Adjustments for:    - Stock Options1,7511,900Weighted average number of common shares for diluted earnings per share (thousands)164,374162,150Diluted earnings per share$ 0.26$ 0.10   
 Aurizon Mines Ltd. Page 332011 Annual Financial Statements     Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 23.           CASH FLOW INFORMATIONa) Analysis of other operating activities    December 31,2011December 31, 2010        Accretion charges on asset retirement obligations  $    427 $   750 Recognition of fair value of future employee incentives  506 -   Non-cash inventory adjustments  (778)106 Loss on sale of property, plant and equipment  171 74 Amortization of deferred finance costs  150 -   Workers’ compensation adjustments  117 (140)Mineral property write-down  25 -   Inventory adjustment for obsolete items  459 117     $  1,077$  907  b)       Analysis of change in non-cash working capital items    December 31, 2011December 31,2010        Current provincial resource taxes payable  $  13,267 ($  3,752)Non-refundable tax assets  8,968 (10,673)Current income taxes payable  5,071 -   Accounts payable and accrued liabilities  3,379 1,422 Refundable tax assets  (1,781)862 Accounts receivable, prepaid expenses, and advances  (1,071)(2,432)Supplies inventory  (1,230)(369)Gold inventory  769 181 Non-cash adjustment to workers’ compensation receivable  -   301 Decrease (increase) in non-cash working capital items  $27,372 $  (14,460)  c)       Analysis of other investing activities    December 31,2011December 31,2010        Reclamation deposits  ($  418)($  284)Marketable securities  (500)(750)Project deposit – Hydro Quebec  -   (330)    ($  918)($  1,364) d)       Non-cash investing activitiesDuring 2011, the Company did not incur any significant non-cash investing activities.  In 2010, the Company issued 214 thousand common shares at a fair market value of $1.6 million to Alexandria Minerals Corporation (“Alexandria”), in accordance with the provisions of the property option agreement in respect of the Alexandria claims within the Joanna property.   
 Aurizon Mines Ltd. Page 342011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 24.           FINANCIAL INSTRUMENTSClassification of Financial InstrumentsThe Company has classified cash and cash equivalents, accounts receivable and other receivables, and reclamation and other deposits as loans and receivables which are measured at amortized cost.  Accounts payable and accrued liabilities are classified as other liabilities which are measured at amortized cost.  Derivative instruments are classified as fair value through profit and loss and marketable securities are classified as available for sale, both of which are recorded in the balance sheet at fair value.  The carrying values of cash and cash equivalents, reclamation and other deposits, accounts receivable and other receivables, accounts payable and accrued liabilities approximate fair value due to the short periods until settlement.Fair Value HierarchyFinancial instruments recognized at fair value on the Balance Sheet must be classified in one of the following three fair value hierarchy levels:·  Level 1 – measurement based on quoted prices (unadjusted) observed in active markets for identical assets or liabilities;·  Level 2 – measurement based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly;·  Level 3 – measurement based on inputs that are not observable (supported by little or no market activity) for the asset or liability.The only items recognized at fair value on the Balance Sheets were derivative instruments and marketable securities. The fair value of derivative instruments is based on quoted market prices for comparable contracts and represents the amount the Company would have received from, or paid to, a counterparty to unwind the contract at the market rates in effect at the balance sheet dates and therefore derivative instruments are classified within Level 2 of the fair value hierarchy. As at December 31, 2011 derivative assets were recorded on the balance sheet for $357 thousand (December 31, 2010 - nil).  The fair value of marketable securities is based on quoted market prices of the instrument at the balance sheet date and therefore are classified within Level 1 of the fair value hierarchy.  As at December 31, 2011 marketable securities totalling $864 thousand were recorded on the balance sheet (December 31, 2010 - $1,129 thousand).Financial risk factorsThe Company’s activities expose it to a variety of financial risks: market risk (including price risk, interest rate risk, and foreign currency risk), credit risk and liquidity risk. Risk management is carried out by management under policies approved by the board of directors. Management identifies and evaluates the financial risks in co-operation with the Company’s operating units. The board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity. The Company’s overall risk management program seeks to minimize potential adverse effects on the Company’s financial performance.a) Price riskThe Company is subject to price risk for fluctuations in the market price of gold. Gold prices are affected by numerous factors beyond the Company’s control, including central bank sales, the relative exchange rate of the US dollar with other major currencies, global and regional demand and political and economic conditions. Worldwide gold production levels also affect prices, and the price of gold is occasionally subject to rapid short-term changes due to speculative activities. The Company has elected not to actively manage its exposure to gold price risk at this time. From time to time, the Company may use commodity price contracts to manage its exposure to fluctuations in the price of gold.Other price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices.
  Aurizon Mines Ltd. Page 352011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 24.       FINANCIAL INSTRUMENTS (continued)Financial risk factors (continued)b)  Interest rate riskThe Company’s cash and cash equivalents bear interest at fixed rates and have maturities as described in Note 5.  The risk of investing cash equivalents into fixed interest rate investments is mitigated by the short terms in which the investments mature.  This way, the Company can adapt its investment strategy in the event of any large fluctuations in the prevailing market rates.Based on the interest rates in effect on all cash and cash equivalents balances as at December 31, 2011, a decrease in interest rates of 100 basis points, or 1%, would cause a decrease in cash flows totalling $1.8 million (2010: $1.2 million) over the next twelve months.  An increase in interest rates of 100 basis points, or 1%, would cause an increase in cash flows totalling $2.1 million (2010: $1.3 million) over the next twelve months.  The difference between the fluctuation downward and upward is due to the fact that certain cash balances held by the Company earned interest at a rate of less than 1% as at December 31, 2011.c)  Foreign currency riskThe Company’s revenues are received in United States dollars (USD), and as such, is subject to foreign currency risk which increases or decreases based on the currency exchange rate between the USD and the Canadian dollar.  The Company may, from time to time, enter into short-term currency forward contracts to benefit from a guaranteed exchange rate on certain portions of its revenue.As at December 31, 2011, the Company is exposed to foreign currency risk with cash held in US dollars of $14,057 (December 31, 2010: US dollars $10,329). Based on the exposure as at December 31, 2011, and assuming all other variables remain constant, an appreciation or depreciation of 10% of the Canadian dollar against the U.S. dollar would result in a gain or loss of $1.4 million in the Company’s profit before income taxes (2010: $1.0 million).d)  Credit riskCredit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument.  Financial instruments that are potentially exposed to credit risk consist of cash and cash equivalents, and accounts receivable.  The Company mitigates credit risk by investing its cash and cash equivalents with Schedule I banks in Canada.  Schedule I banks are domestic banks and are authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corporation.  As at Dec 31, 2011, approximately 46% of the Company's cash and cash equivalents are held with one financial institution (2010: 69%). The Company considers this to be its only significant credit risk exposure.The Company sells gold via bullion traders and as such, incurs a credit risk related to a two day collection period between delivery of bullion and receipt of funds.e)  Liquidity risk managementThe Company has established a liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate working capital, obtaining borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.As at December 31, 2011 the Company’s accounts payable and accrued liabilities totalled $25.8 million, all of which fall due for payment within one year of the balance sheet date.   
 Aurizon Mines Ltd. Page 362011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 25.           CAPITAL MANAGEMENTThe Company’s capital management objectives are to safeguard its ability to continue as a going concern in order to pursue the operation of its producing property as well as the development of its other mineral properties.  Capital management consists of optimizing the debt and equity balances to maximize returns for stakeholders.  The capital structure of the Company consists of equity components consisting of capital stock, stock based compensation and contributed surplus.  To maintain or adjust the capital structure, the Company may attempt to issue new shares or enter into new debt arrangements.  The Company is currently subject to covenants on the revolving credit facility described in Note 12.During the year ended December 31, 2011 there has been no change in the overall capital management strategy employed by the Company.26.           TRANSITION TO IFRSFor all years up to and including the year ended December 31, 2010, the Company prepared its financial statements in accordance with Canadian generally accepted accounting principles (“CGAAP”). These financial statements for the year ended December 31, 2011, are the first annual financial statements prepared by the Company in accordance with IFRS as issued by the IASB.Exemptions appliedIFRS 1 allows first-time adopters certain exemptions from the general principal of retrospective restatement. The Company has elected to use the following exemptions:·  IFRS 2 Share-based payments - The Company has elected to use the transition exemption available to not retrospectively apply the IFRS 2 calculation method to any share options granted after November 7, 2002 and vested before January 1, 2010.·  The Company has elected to apply the exemption from full retrospective application of decommissioning provisions as allowed under IFRS 1. As such, the Company has re-measured the provisions as at January 1, 2010 under IAS 37 Provisions, contingent liabilities and contingent assets, estimated the amount to be included in the cost of the related asset by discounting the liability to the date at which the liability first arose using best estimates of the historical risk-adjusted discount rates, and recalculated the accumulated depreciation, amortization and amortization under IFRS up to the transition date.·  IAS 23 (R) ‘Borrowing Costs’ – The Company has elected to apply the exemption from full retrospective application.IFRS transition statementsFor comparative purposes, the Company has prepared IFRS transition statement reconciliations from CGAAP to IFRS presented in this note for the opening balance sheet on January 1, 2010, and the year ended December 31, 2010. There were no IFRS transition adjustments that affected the comparative information in the statement of cash flows for the year ended December 31, 2010. The first, second and third quarter IFRS transition statement reconciliations from CGAAP to IFRS for the 2010 comparatives were presented in each of the respective quarterly financial statements filed throughout 2011.Following these statements are explanatory notes to the principal adjustments made by the Company in restating its previous CGAAP statements into IFRS.   
 Aurizon Mines Ltd. Page 372011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 26.           TRANSITION TO IFRS (Continued)Transition to IFRS – Reconciliation of Balance Sheet as at January 1, 2010(Expressed in thousands ofCanadian dollars)Note
Previous CGAAP
IFRS  Reclassification
IFRS   Adjustment
IFRSASSETS          Current assets            Cash and cash equivalents  $ 113,098 $           - $           - $ 113,098   Inventories  11,897 - - 11,897   Accounts receivable and prepaid expenses  4,825 - - 4,825   Derivative instrument assets  5,274 - - 5,274   Tax credits receivable  2,587 - - 2,587 Total current assets  137,681 - - 137,681               Non-current assets            Property, plant and equipmentii, vi53,691 115,008 (4,723)163,976   Mineral propertiesvi117,370 (115,008)- 2,362   Other assets  14,551 - - 14,551 Total non-current assets  185,612 - (4,723)180,889 TOTAL ASSETS  $ 323,293 $          - ($ 4,723)$ 318,570               LIABILITIES AND EQUITY                      Current liabilities            Accounts payable and accrued liabilities  $ 16,451 $           - $           - $ 16,451   Derivative instrument liabilities  13,885 - - 13,885   Current portion of long-term obligations  652 - - 652   Current provincial resource taxes payablevii3,752 (3,752) - -   Current tax liabilitiesvii- 3,752 - 3,752   Current portion of future income and resource tax liabilityiii1,275 (1,275)- - Total current liabilities  36,015 (1,275)- 34,740               Non-current liabilities            Long-term obligations  705 - - 705   Asset retirement obligationvii21,816 (21,816)- -   Provisionsii- 21,816 1,439 23,255   Future income and resource tax liabilitiesiii29,120 (29,120)- -   Deferred tax liabilitiesiii- 30,395 (2,245)28,150 Total non-current liabilities  51,641 1,275 (806)52,110 Total liabilities  87,656 - (806)86,850                Shareholders’ equity                Issued capitaliv, v247,365 6,509 - 253,874   Contributed surplus  979 - - 979   Stock-based compensationi10,178 - 336 10,514   Deficiti, ii, iii, iv, v(22,885)(6,509)(4,253)(33,647)Total shareholders’ equity  235,637 - (3,917)231,720 TOTAL LIABILITIES AND EQUITY  $ 323,293 $           - ($ 4,723)$ 318,570    
 

 Aurizon Mines Ltd. Page 382011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 26.           TRANSITION TO IFRS (Continued) Transition to IFRS – Reconciliation of Balance Sheet as at December 31, 2010(Expressed in thousands ofCanadian dollars)Note
Previous CGAAP
IFRS  Reclassification
IFRS  Adjustment
IFRSASSETS          Current assets            Cash and cash equivalents  $ 139,341$           - $           - $ 139,341   Marketable securities  1,129 - - 1,129   Inventories  12,085 - - 12,085   Accounts receivable and prepaid expenses  7,258 - - 7,258   Derivative instrument assets  - - - -   Tax credits receivable  12,398 - - 12,398 Total current assets  172,211 - - 172,211               Non-current assets            Property, plant and equipmentii, vi40,841 115,314 (4,142) 152,012   Mineral propertiesvi119,534 (115,314)- 4,220   Other assets  8,100 - - 8,100 Total non-current assets  168,475 - (4,142) 164,332 TOTAL ASSETS  $ 340,686 $          - $ (4,142) $ 336,543               LIABILITIES AND EQUITY                      Current liabilities            Accounts payable and accrued liabilities  $ 18,905 $           - $           - $ 18,905   Derivative instrument liabilities  - - - -   Current portion of long-term obligations  756 - - 756   Current provincial resource taxes payable  - - - -   Current tax liabilities  - - - -   Current portion of future income and resource tax liabilityiii3,389 (3,389)- - Total current liabilities  23,050 (3,389)- 19,661               Non-current liabilities            Long-term obligations  - - - -   Asset retirement obligationii11,532 (11,532)- -   Provisionsii- 11,532 1,582 13,114   Future income and resource tax liabilitiesiii34,488 (34,488)- -   Deferred tax liabilitiesiii- 37,877 (2,499)35,378 Total non-current liabilities  46,020 3,389 (917) 48,492 Total liabilities  69,069 - (917) 68,153                Shareholders’ equity                Issued capitaliv, v263,168 6,509 -269,677   Contributed surplus  1,022 - -1,022   Stock-based compensationi13,800 - (81)13,719   Accumulated OCI  379 - - 379   Deficiti, ii, iii, iv, v(6,752)(6,509) (3,145)(16,407)Total shareholders’ equity  271,617 - (3,226)268,390               TOTAL LIABILITIES AND EQUITY  $ 340,686 $          - ($ 4,142)$ 336,543    
 

 Aurizon Mines Ltd. Page 392011 Annual Financial Statements   Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 26.           TRANSITION TO IFRS (Continued)Transition to IFRS – Reconciliation of Statement of Comprehensive IncomeFor the year ended December 31, 2010 (Expressed in thousands of Canadian dollars unless otherwise stated)  Note
Previous GAAP
IFRS  Reclassifications
IFRS  Adjustments
IFRS            Revenue    $ 178,743 $          - $          - $ 178,743     Costs of sales  vii- (112,873)150 (112,723)  Gross profit    178,743(112,873)150 66,020                       Less:                Operating  vii78,663 (78,663)- -     Depreciation, amortization and accretion  vii35,434 (35,434)- -     Other income  vii- - - -     Exploration  vii15,643 - - 15,643     General and administration costs  i, vii17,177 188 (415)16,950     Loss on derivative financial instruments  vii4,402 (4,402)- -     Foreign exchange gain/loss  vii(1,541)1,541 - -     Capital taxes  vii(343)343 - -     Non-refundable tax credits  vii- -   - -     Other gains or losses (net)  vii(991)(1,166)- (2,157)  Net operating income before finance and taxation    30,299 (4,719)56535,584                   Add:              Finance income  vii- 719 -719   Finance costs  ii, vii- (5,438)286 (5,152)  Net income before income tax    30,299 - 851 31,151                     Current provincial resource taxes  vii(6,684)6,684 - -     Future provincial resource taxes  vii(7,482)7,482 - -     Future income taxes  vii- - - -     Income tax expense  vii- (14,166) 256(13,911)   NET INCOME FOR THE YEAR    $ 16,133 $          - $ 1,107 $ 17,240                   Other comprehensive Income              Unrealized gain on marketable securities    379 - - 379   NET COMPREHENSIVE INCOME FOR THE YEAR    $ 16,512 $          - $ 1,107 $ 17,619      
 Aurizon Mines Ltd. Page 402011 Annual Financial Statements  Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 26.           TRANSITION TO IFRS (Continued)Restatement Notes(i)  IFRS 2 adjustment Share options issued by the Company have a specific vesting schedule which is treated differently under IFRS compared to Canadian GAAP.  The Company has reviewed the Canadian GAAP share-based compensation calculation methods and adjusted the methods to take into account the required IFRS compliant changes. The Company has also elected to use the transition exemption available under IFRS 1 to not retrospectively apply the new calculation method to any share option tranche that was granted after November 7, 2002 and which vested before January 1, 2010.(ii)  Asset retirement obligation (“ARO”) adjustment Canadian GAAP calculates ARO using current credit-adjusted, risk-free rates for upward adjustments, and the original credit-adjusted, risk free rate for downward revisions. The original liability was not adjusted for changes in current discount rates. IFRS however, calculates ARO using a current pre-tax discount rate, (which reflects current market assessment of the time value of money and the risk specific to liability) and is revised every reporting year to reflect changes in assumptions or discount rates. To calculate the ARO liability and long-lived asset under IFRS, the Company has elected to apply the exemption available from full retrospective application as allowed under IFRS 1. As such, the Company has re-measured the rehabilitation liability as at January 1, 2010 and subsequent change in obligations under IAS 37 Provisions, contingent liabilities and contingent assets, estimating the amount to be included in the related asset by discounting the liability to the date of first disturbance in which the liability arose, using best estimates of the historical risk-free discount rates, and recalculating the accumulated depreciation and amortization under IFRS. In addition, under Canadian GAAP, the unwinding of the discount was presented within the depreciation and amortization expense, and has now been reclassified to finance costs as required under IFRS.(iii)  Deferred tax Under Canadian GAAP, deferred taxation assets were classified between current and non-current based on the classification of the underlying asset and liabilities that gave rise to the differences. IAS 12 Income taxes requires that all deferred taxation amounts be classified as non-current. Deferred taxes have also been adjusted for the changes to accounting base values arising as a result of the adjustments for first time adoption of IFRS.(iv)  Flow-through shares Flow-through shares are a unique Canadian income tax incentive which were subject to specific guidance under Canadian GAAP and US GAAP; however, there is no equivalent IFRS guidance. In the absence of specific guidance, the Company has adopted the approach to account for flow-through shares such that amounts resulting from the renunciation of flow-through expenditures will no longer be reflected as a reduction of share capital.(v)  Share issuance costs Under IFRS, any private placements undertaken require the amount credited to share capital to be the net amount of cash that has been raised, plus the value of any tax benefit. The Company has reviewed all prior private placements, share issuance costs and effective annual tax rates, and calculated an IFRS adjustment for the value of the tax benefit previously recorded to deficit under Canadian GAAP.   
 Aurizon Mines Ltd. Page 412011 Annual Financial Statements    Aurizon Mines Ltd.Notes to Financial StatementsFor the year ended December 31, 2011(Expressed in thousands of Canadian dollars, unless otherwise stated) 26.           TRANSITION TO IFRS (Continued)Restatement notes (continued)(vi) Property, plant and equipment  Upon transition to IFRS, producing mineral properties are now presented in property, plant and equipment in accordance with IAS 16 Property, plant and equipment. Exploration and evaluation assets continue to be classified as mineral properties as per the requirements of IFRS 6 Exploration for and evaluation of mineral resources. (vii) Presentation changes The transition to IFRS resulted in numerous financial statement presentation changes (‘reclassifications’), most noticeably on the statement of comprehensive income when compared to the previous Canadian GAAP statement of earnings. These reclassifications have been identified in the reconciliations contained within this note and have no impact on the final equity position of the Company. To help our shareholders understand these presentation changes easily we have provided an additional analysis below:·  Expenses by function – the statement of comprehensive income now presents expenses by function. Accordingly, depreciation and amortization is no longer presented as a separate line item but is included in cost of sales;·  Cost of sales – is presented above the line with revenue to show a gross profit for operations;·  Other losses (gains) – includes items the Company considers part of the operations of our business such as loss (gain) on sale of property, plant and equipment, foreign exchange gains, capital taxes and royalty income;·  Finance income – as required by IFRS, includes interest received from investments and is now presented after operating profit;·  Finance expenses – as required by IFRS, includes accretion, amortization of deferred finance costs, and finance charges;·  Other derivative gains -  realized and non-cash derivative gains and losses are now presented after operating profit;·  Income tax expense – is now presented as one line item. Disclosure of the individual components is included in note 17.   
 

 Aurizon Mines Ltd. Page 422011 Annual Financial Statements