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Exhibit 99.2

Baja Mining Corp. Consolidated Financial StatementsDecember 31, 2010 and 2009(expressed in thousands of Canadian dollars)


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Managements Responsibility for Financial Reporting The accompanying consolidated financial statements of Baja Mining Corp. (Baja) are the responsibility of management. The consolidated financial statements have been prepared within reasonable limits of materiality and in accordance with Canadian generally accepted accounting principles. Since a precise determination of many assets and liabilities is dependent on future events, the preparation of financial statements necessarily involves the use of estimates and approximations. These have been made using careful judgment and with all information available up to March 31, 2011. To meet its responsibility for reliable and accurate financial statements, management has established systems of internal control which are designed to provide reasonable assurance that financial information is relevant, reliable and accurate, and that assets are safeguarded and transactions are executed in accordance with managements authorization. Management has assessed the effectiveness of the Companys internal control over financial reporting as at December 31, 2010. In making its assessment, management has used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal ControlIntegrated Framework. Based on our assessment, utilizing those criteria, management concluded that the Companys internal control over financial reporting was effective as at that date. The consolidated financial statements and internal controls over financial reporting have been audited by PricewaterhouseCoopers LLP on behalf of the shareholders. Their responsibility is to express a professional opinion on the fair presentation of the consolidated financial statements in accordance with Canadian generally accepted accounting principles and to express an opinion on the effectiveness of internal controls over financial reporting. The Independent Auditors Report outlines the scope of their examination and sets forth their opinion. The Audit Committee of the Board of Directors, composed of three independent directors, meets periodically and has reviewed these statements with management and the Auditors and has recommended their approval to the Board of Directors. The Board of Directors has approved the consolidated financial statements of Baja. /s/ John Greenslade
     /s/ Rowland WalleniusJohn Greenslade
     Rowland WalleniusPresident and Chief Executive Officer
     Chief Financial Officer
  Vancouver, B.C.
March 31, 2011


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Independent Auditors Report To the Shareholders of Baja Mining Corp. We have completed integrated audits of Baja Mining Corp.s 2010 and 2009 consolidated financial statements and its internal control over financial reporting as at December 31, 2010. Our opinions, based on our audits, are presented below. Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Baja Mining Corp. which comprise the consolidated balance sheets as at December 31, 2010 and 2009 and consolidated statements of operations and comprehensive loss, consolidated statements of changes in shareholders equity and consolidated statements of cash flows, for the years then ended, and the related notes including a summary of significant accounting policies. Managements responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.


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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 consolidated financial statements. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Baja Mining Corp. as at December 31, 2010 and December 31, 2009 and the results of its operations and cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. Report on internal control over financial reporting We have also audited Baja Mining Corp.s internal control over financial reporting as at December 31, 2010, 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 reporting Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, as included in Managements Responsibility for Financial Reporting. Auditors responsibility Our 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 opinion on the companys internal control over financial reporting.


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Definition of internal control over financial reporting A 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. Inherent limitations Because 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. Opinion In our opinion, Baja Mining Corp. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2010 based on criteria established in Internal Control - Integrated Framework issued by COSO. /s/ PricewaterhouseCoopers Chartered AccountantsVancouver, British Columbia March 31, 2011


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Baja Mining Corp.Consolidated Balance SheetsAs at December 31, 2010 and 2009(expressed in thousands of Canadian dollars, unless stated otherwise)
  2010
     
     2009AssetsCurrent assetsCash and cash equivalents
     48,144
     
     6,255Short term deposits
     -
     
     16,349Other receivables
     3,338
     
     904Deposits and prepaid expenses
     782
     
     9052,264
     
     23,598Restricted cash(note 3)
     102,786
     
     -Other receivables
     480
     
     -Deferred financing costs(note 4)
     32,482
     
     6,602Mineral properties(note 5)
     203,222
     
     149,045Property, plant and equipment(note 6)
     7,078
     
     1,687398,312
     
     180,932LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities
     14,888
     
     3,846Current portion of environmental liabilities (note 7)
     328
     
     352Income taxes payable (note 13)
     -
     
     85015,216
     
     5,048Environmental liabilities(note 7)
     462
     
     472Subordinated long-term debt(note 9)
     79,073
     
     46,202Derivative liabilities(note 10)
     72,337
     
     -167,088
     
     51,722Shareholders EquityShare capital(note 11(b))
     297,876
     
     109,979Share purchase warrants(note 11(c))
     20,068
     
     16,077Contributed surplus(note 11(f))
     82,772
     
     91,924Deficit
     (169,492
     )
     (88,770
     )231,224
     
     129,210398,312
     
     180,932Senior long-term debt facilities(note 8)Commitments and contingencies(note 15)Subsequent events(note 20)
  On behalf of the Board /s/ Robert Mouat
     Director
     /s/ C. Thomas Ogryzlo
     Director
  See accompanying notes to the consolidated financial statements.


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Baja Mining Corp.Consolidated Statements of Operations and Comprehensive LossFor the years ended December 31, 2010 and 2009(expressed in thousands of Canadian dollars, unless stated otherwise)
  2010
     
     2009ExpensesAmortization and accretion
     918
     
     792General and administration
     1,743
     
     922Management and directors fees (note 12)
     1,180
     
     294Professional and consulting fees
     1,759
     
     828Research
     651
     
     238Shareholders information
     993
     
     509Stock-based compensation expense (note 11(e))
     948
     
     1,583Wages and subcontracting
     3,846
     
     2,204Loss before other items
     (12,038
     )
     (7,370
     )Loss on disposal of property, plant & equipment
     -
     
     (1,454
     )Finance and development costs expensed
     -
     
     (1,033
     )Foreign exchange gain
     2,253
     
     1,412Net interest income and other
     400
     
     139Change in estimate  refundable deposit liability (note 9(c))
     1,165
     
     -Fair value adjustment related to derivative instruments (note 10)
     (72,337
     )
     -Loss before income tax
     (80,557
     )
     (8,306
     )Income tax (note 13)
     (165
     )
     386Loss and comprehensiveloss for the year
     (80,722
     )
     (7,920
     )Basic and diluted loss pershare for the year
     (0.48
     )
     (0.06
     )Weighted average number of sharesoutstanding  basic and diluted
     169,750,830
     
     143,196,227
  See accompanying notes to the consolidated financial statements.


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Baja Mining Corp.Consolidated Statements of Changes in Shareholders EquityFor the years ended December 31, 2010 and 2009(expressed in thousands of Canadian dollars, unless stated otherwise)
  2010
     
     2009Share capitalBalance  beginning of period
     109,979
     
     109,611Shares issued in bought deal financings
     201,558
     
     -Share issuance costs
     (11,038
     )
     -Shares issued on exercise of stock options
     583
     
     116Fair value of Louis Dreyfus put option (note 11(b)(iii))
     (3,726
     )
     -Fair value of stock options exercised
     520
     
     252Balance  end of period
     297,876
     
     109,979Share purchase warrantsBalance  beginning of period
     16,077
     
     16,077Broker warrants issued
     297
     
     -Warrants issued for equity cost overrun facility (note 11(b)(iii))
     3,726
     
     -Warrants expired during the period
     (32
     )
     -Balance  end of period
     20,068
     
     16,077Contributed SurplusBalance  beginning of period
     91,924
     
     89,349Fair value of stock options granted
     1,452
     
     2,827Fair value of stock options exercised
     (520
     )
     (252
     )Fair value of warrants expired
     32
     
     -Modification of loans from non-controlling interest
     (10,116
     )
     -Balance  end of period
     82,772
     
     91,924DeficitBalance  beginning of period
     (88,770
     )
     (80,850
     )Loss and comprehensive loss for the period
     (80,722
     )
     (7,920
     )Balance  end of period
     (169,492
     )
     (88,770
     )Total Shareholders Equity
     231,224
     
     129,210
  See accompanying notes to the consolidated financial statements.


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Baja Mining Corp.Consolidated Statements of Cash FlowsFor the years ended December 31, 2010 and 2009(expressed in thousands of Canadian dollars, unless stated otherwise)
  2010
     
     2009Cash flows from operating activitiesLoss for the year
     (80,722
     )
     (7,920
     )Items not affecting cashAmortization and accretion
     918
     
     792Stock-based compensation expense
     948
     
     1,583Unrealized foreign exchange
     (730
     )
     (7,954
     )Finance and development costs expensed
     -
     
     1,033Loss on disposal of property, plant & equipment
     -
     
     1,454Income tax recovery
     165
     
     (386
     )Change in estimate  refundable deposit liability
     (1,165
     )
     -Fair value adjustment related to derivative instruments
     72,337
     
     -(8,249
     )
     (11,398
     )Income tax paid
     (850
     )
     -Special warrants liability payment
     (354
     )
     (406
     )Reclamation funding undertaken in the period
     -
     
     (517
     )Net changes in working capital balances:Other receivables
     (2,434
     )
     2,433Deposits and prepaids
     (692
     )
     199Accounts payable and accrued liabilities
     1,541
     
     (329
     )(11,038
     )
     (10,018
     )Cash flows from investing activitiesRedemption of (investment in) short term deposits
     16,349
     
     (15,349
     )Expenditure on mineral properties
     (44,911
     )
     (32,038
     )Acquisition of property, plant and equipment
     (4,717
     )
     (242
     )Disposal of property, plant & equipment
     -
     
     1,898Increase in restricted cash
     (105,300
     )
     -Other long-term receivables
     (480
     )
     -(139,059
     )
     (45,731
     )Cash flows from financing activitiesNet proceeds from issuance of common shares
     191,400
     
     116Expenditure on deferred financing costs
     (24,052
     )
     (356
     )Loans from non-controlling interest (note 9(d))
     24,638
     
     3,009191,986
     
     2,769Increase (decrease) in cash and cash equivalents
     41,889
     
     (52,980
     )Cash and cash equivalents - Beginning of year
     6,255
     
     59,235Cash and cash equivalents - End of year
     48,144
     
     6,255Supplemental cash flow information(note 16)
  See accompanying notes to the consolidated financial statements.


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  1
     Nature of operations and significant events
  Baja Mining Corp. (the Company) was incorporated on July 15, 1985 under the Company Act of British Columbia. The Companys primary focus is the development of the El Boleo copper-cobalt-zinc-manganese deposit (the Boleo Project) located near Santa Rosalia, Baja California Sur, Mexico. The Company is a reporting issuer in British Columbia and trades on the Toronto Stock Exchange, OTCQX International and the Frankfurt Stock Exchange. The Companys common shares have been registered in the United States through the filing of a Form 20-F Registration Statement with the United States Securities and Exchange Commission (SEC), effective 2007. On May 29, 2007, the Company received the results of the Definitive Feasibility Study (DFS), prepared by Bateman Engineering Inc. (Bateman) on the economic and technical viability of the Boleo Project and, due to the positive results of the DFS, the Project has moved from the exploration stage to the development stage. On June 30, 2008 the Company entered into an agreement with a Korean Consortium, whereby a 30% interest in Minera y Metalurgica del Boleo, S.A. de C.V. (MMB) was transferred to a Korean Consortium. In exchange the Company obtained cash proceeds of $91,538 and other contingent consideration, thus securing a portion of the funding required for the Boleo Project capital costs (notes 8 and 9). In April 2009 the Company appointed a leading engineering firm on the revised scope of work tender for an Engineering, Procurement and Construction Management (EPCM) contract basis for the Boleo Project. The first phase of their scope included a revised capital cost estimate (open book) and a revised project construction schedule, the results of which were announced by the Company on January 15, 2010. On August 13, 2010 the Company completed a bought deal equity offering of 21,875,000 common shares for gross proceeds of $17,500 (note 11 (b)(ii)). On September 28, 2010, MMB finalized and signed project financing facilities to the amount of US$858,000. This includes senior long-term debt facilities and subordinated debt to the amount of US$823,000 with a group of export credit agencies that include the Export-Import Bank of the United States (US Exim), Export Development Canada (EDC), the Korean Development Bank (KDB) and a group of commercial banks (note 8). In addition, the Company finalized a US$35,000 equity cost overrun support facility in connection with an off-take arrangement with Louis Dreyfus Commodities Metals Suisse S.A. (Louis Dreyfus) (notes 8 and 11(b)(iii)). On November 23, 2010, the Company completed a cross-border bought deal equity financing for gross proceeds of $184,058 (note 11(b)(iv)). The net proceeds from the offering, combined with the senior and subordinated debt facilities, provide all the estimated funding requirement to complete the engineering, construction and commissioning of the Boleo Project and allowed full release of the EPCM Contractor. During 2010, the Company and its subsidiaries underwent an internal restructuring in order to align its legal, finance and tax structure with its business objectives. Pursuant to this restructuring, two Luxembourg private limited liability companies, Baja International S.à r.l. (Baja International) and Boleo International S.à r.l. (Boleo International), were incorporated and now hold the Company's ownership interest in MMB. 2


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  1
     Nature of operations and significant events(continued)
  Also as a result of the restructuring, Mintec Processing Ltd. was amalgamated with the Company and Invebaja S.A. de C.V., a wholly owned Mexican subsidiary of the Company, was merged into MMB. These consolidated financial statements are presented in thousands of Canadian dollars, unless stated otherwise, and have been prepared in accordance with Canadian generally accepted accounting principles. As described in note 19, accounting principles accepted in Canada differ in certain respects from the accounting principles generally accepted in the United States. 2
     Summary of significant accounting policies
  a)
     Principles of consolidation
  These consolidated financial statements include the accounts of the Company and its subsidiaries. Baja holds 100% of Baja International which in turn holds 100% of Boleo International. Boleo International holds a 70% interest in MMB, which holds the mineral property rights to the Boleo Project. MMB holds a 70% interest in both Desarrollos y Servicios Costeros, SA de CV (Costeros) and Servicios y Desarrollos Meseta Central, SA de CV (Meseta). All significant inter-company transactions and balances have been eliminated. b)
     Use of estimates
  These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from these estimates. Significant estimates include the recoverable amount of mineral properties and related deferred costs, amortization rates, fair value of refundable deposit liability, fair value of special warrant liability, asset retirement obligations, fair value of loans from non-controlling interest, fair value of warrants issued on private placements, fair value of derivative liabilities, fair value of instruments included in the Louis Dreyfus equity cost overrun facility, stock based compensation, income taxes and future income taxes. c)
     Deferred financing costs
  Deferred financing costs are recognized in connection with proposed corporate transactions which are specifically identified in that the form of debt or equity issuances is known and completion of the transaction is probable. As the corporate transactions are recognized, the deferred financing costs would be allocated to the carrying value of the debt or equity recognized. Deferred financing costs include only those costs which are incremental and directly attributable to the proposed corporate transaction and any overhead costs are expensed as incurred. In the event that the transaction is abandoned, previously capitalized deferred financing costs are expensed through the statement of operations. 3


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  2
     Summary of significant accounting policies(continued)
  d)
     Mineral properties
  The Company is in the process of developing its mineral properties and has capitalized the acquisition costs for its property rights and mining concessions. The Company has adopted the policy of expensing mineral exploration costs incurred prior to the completion of an economic feasibility study and defers directly related costs once the economic feasibility study is complete. On May 29, 2007 the DFS was completed for the Boleo Project. When the Company incurs debt directly related to the construction of a qualifying asset, the related financing costs are capitalized during the construction period of the particular asset. Capitalized costs for a producing project are amortized on a unit-of-production method based on the estimated life of ore reserves, while capitalized costs for prospects abandoned or impaired are written off. Ownership of mineral properties involves certain inherent risks due to the difficulties of determining and obtaining clear title to claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristics of many mineral properties. The Company has investigated ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing. e)
     Impairment of long-lived assets
  Management reviews and evaluates the carrying value of its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the related asset may not be recoverable. If the total estimated future operating cash flows on an undiscounted basis are less than the carrying amount of the asset, an impairment loss is recognized and assets are written down to fair value, which is normally determined using the discounted value of future cash flows. Where estimates of future net cash flows are not available and where other conditions suggest impairment, management assesses whether the carrying value can be recovered by considering alternative methods of determining fair value. f)
     Property, plant and equipment and amortization
  Property, plant and equipment are recorded at cost and amortization begins when the asset is substantially put into service. Amortization of assets is calculated using the straight-line method over the following estimated useful life: Office equipment and furniture
     five yearsLeasehold improvements
     ten yearsComputer equipment
     three yearsVehicles
     five yearsSoftware
     two yearsBuildings
     twenty yearsMining machinery and equipment
     five yearsTransportation equipment
     four years
  4


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  2
     Summary of significant accounting policies(continued)
  g)
     Cash and cash equivalents
  Cash and cash equivalents include cash on hand, term deposits and short term highly liquid investments with the original term to maturity of three months or less, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of changes in value. h)
     Short-term deposits
  Short term deposits include term deposits and short term highly liquid investments with the original term to maturity of greater than three months but less than one year. i)
     Financial instruments
  The Company classifies financial instruments as either held-to-maturity, available-for-sale, held for trading, loans and receivables or other financial liabilities. At the respective balance sheet dates, the Companys financial instruments consisted of cash and cash equivalents, short-term deposits, other receivables, deposits, restricted cash, accounts payable and accrued liabilities, the special warrant liability included in environmental liabilities, refundable deposit liability, loans from non-controlling interest and derivative liabilities. Financial assets held-to-maturity, loans and receivables and financial liabilities other than those held for trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with the unrealized gains and losses recognized in other comprehensive income. Instruments classified as held for trading are measured at fair value with the unrealized gains and losses recognized in the statement of operations. The following is a summary of the categories the Company has elected to apply to each of its significant financial instruments: Financial instrument
     CategoryCash and cash equivalents
     Held for tradingShort-term deposits
     Held for tradingRestricted cash
     Loans and receivablesOther receivables
     Loans and receivablesDeposits
     Loans and receivablesAccounts payable and accrued liabilities
     Other financial liabilitiesSpecial warrant liability
     Other financial liabilitiesRefundable deposit liability
     Other financial liabilitiesLoans from non-controlling interest
     Other financial liabilitiesDerivative liability
     Held for trading
  The carrying values of other receivables, deposits, accounts payable and accrued liabilities approximates their fair values due to the short-term nature of these balances. 5


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  2
     Summary of significant accounting policies(continued)
  i)
     Financial instruments (continued)
  The Company may, from time to time, use derivative instruments to manage its exposure to commodity prices and foreign exchange movements. Derivative instruments, including embedded derivatives, are recorded at fair value. The Company does not apply hedge accounting and consequently all changes in the fair value of derivatives are recognized in the Statement of Operations. Derivatives embedded in non-derivative contracts are recognized separately unless closely related to the host contract. j)
     Asset retirement obligations
  The Company recognizes a liability for legal obligations relating to the retirement of property, plant and equipment and obligations arising from the acquisition, construction, development, or normal operation of those assets. Such asset retirement costs are recognized at fair value, when a reasonable estimate of fair value can be made, in the period in which the liability is incurred. A corresponding increase to the carrying amount of the related asset, where one is identifiable, is recorded and amortized over the life of the asset. The liability is accreted to the full value over time, applying the interest rate that was used in the initial measurement of the fair value and the corresponding asset is amortized over its expected life. The amount of the liability is subject to re-estimation at each reporting period. The estimates are based principally on legal and regulatory requirements. It is possible that the Companys estimate of its ultimate reclamation liabilities could change as a result of changes in contractual requirements, laws or regulations, the extent of environmental remediation required or completed, the means of reclamation or changes in cost estimates. Changes in estimates are accounted for prospectively commencing in the period the estimate is revised. k)
     Foreign currency translation
  The Companys functional currency is the Canadian dollar. Foreign operations are integrated with the parent company and, consequently, the financial statements of foreign subsidiaries are translated into Canadian dollars using the temporal method. Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates of exchange in effect at the date of the balance sheet. Non-monetary assets, liabilities and other items are translated at historical rates. Revenue and expenses are translated at average rates of exchange prevailing during the year. Exchange gains or losses arising from these translations are included in income (loss) for the year. References to thousand United States dollars are denoted as US$. 6


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  2
     Summary of significant accounting policies(continued)
  l)
     Income taxes
  The Company follows the liability method of accounting for income taxes. Under this method, current income taxes are recognized for the estimated income taxes payable for the current year. Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes. These future income tax assets and liabilities are measured using the substantively enacted income tax rates that will be in effect when the temporary differences are expected to reverse. Future income tax assets are evaluated and if realization is not considered more likely than not, a valuation allowance is provided. m)
     Stock options and warrants
  The Company accounts for stock options and warrants at the fair value determined at the measurement date. Compensation expense for options granted is determined based on the estimated fair value of the options at the measurement date using the Black-Scholes option pricing model. The compensation expense for options vesting immediately is recognized in the period of the grant. Compensation expense for options which vest over time is recognised on a graded vesting basis over the vesting periods. The compensation expense is either expensed to administration or recorded in exploration or development costs when grants are to individuals working directly on mineral projects. Consideration paid by the option holder, at the time options are exercised, is recorded as an increase to share capital. Warrant grants are recorded at the estimated fair value using the Black-Scholes option pricing model. n)
     Basic and diluted earnings (loss) per share
  Basic earnings (loss) per share are computed by dividing the earnings (loss) for the year by the weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated using the treasury stock method. Since the Company has losses, the exercise of outstanding stock options and warrants has not been included in this calculation as it would be anti-dilutive. o)
     Comparative figures
  Certain of the comparative figures have been reclassified to conform to the presentation of the current year. p)
     New accounting pronouncements not yet effective
  In February 2008 the Canadian Accounting Standards Board (AcSB) announced that January 1, 2011 is the changeover date for publicly-listed companies to commence reporting under the International Financial Reporting Standards (IFRS). Accordingly, the Company will commence reporting on this basis from January 1, 2011, restating comparative information as at January 1, 2010 and for all quarters ended during 2010. 7


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Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  
 
  3
     Restricted cash
  At December 31, 2010, restricted cash consisted of the following:Baja equity account (note 3(a)(i))
     
     98,468Reclamation fund (note 3(a)(ii))
     
     3,481Amounts restricted through operating credit facilities (note 3(b))
     
     837102,786
  a)
     As required under the Senior debt arrangement signed on September 28, 2010, the Company set up certain trust accounts for project funding:
  i)
     Following the cross-border bought deal equity financing completed on November 23, 2010 (note 11(b)(iv)), the Company deposited US$99,003 into the Baja equity account. Funds from this account may be drawn on a monthly basis and applied only for use in the Boleo Project.ii)
     The Company deposited US$3,500 into a Reclamation and Closing Account. The funds from this account are to be used solely for the payment of approved closure and reclamation costs of the Boleo Project.
  b)
     The Company has provided a letter of credit (LC) related to a tenant improvement allowance in the amount of $757. The LC obligation will reduce evenly over the 10 year lease beginning after the second year of the lease. In addition, the Company obtained certain operating credit facilities for which it provided $80 in security deposits.
  4
     Deferred financing costs
  The financing costs capitalized on the Boleo Project are as follows:2010
     
     
     2009Opening balance
     
     6,602
     
     
     6,858Additions at cost
     
     26,408
     
     
     356Transfer to share issuance costs (note 11 (b))
     
     (528
     )
     
     -Finance costs expensed
     
     -
     
     
     (612
     )Closing balance
     
     32,482
     
     
     6,602
  8


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  5
     Mineral properties
  The acquisition and deferred costs capitalized on the Boleo Project are as follows: 2010
     
     
     2009Land
     
     1,761
     
     
     735Mining concessions
     
     640
     
     
     281Deferred development costs:Stock based compensation
     
     2,674
     
     
     2,170Accretion of special warrant liability
     
     319
     
     
     277Accretion of loans from non-controlling interest
     
     632
     
     
     435Amortization
     
     1,011
     
     
     611Asset retirement obligation capitalized
     
     903
     
     
     619Engineering
     
     54,434
     
     
     32,821Site work
     
     39,694
     
     
     36,713Construction in progress  Acid plant
     
     15,635
     
     
     14,902Construction in progress  Equipment
     
     40,344
     
     
     35,956Construction in progress  Other
     
     15,831
     
     
     9,012Salary, consulting, financing and other costs
     
     29,344
     
     
     14,513Total at cost
     
     203,222
     
     
     149,045
  6
     Property, plant and equipment
  2010AccumulatedCost
     
     
     amortization
     
     
     NetComputer equipment and software
     
     1,713
     
     
     (651
     )
     
     1,062Leasehold improvements
     
     2,099
     
     
     (122
     )
     
     1,977Machinery and equipment
     
     812
     
     
     (439
     )
     
     373Office equipment and furniture
     
     1,047
     
     
     (129
     )
     
     918Transportation equipment
     
     1,423
     
     
     (578
     )
     
     845Buildings
     
     2,033
     
     
     (130
     )
     
     1,9039,127
     
     
     (2,049
     )
     
     7,078
  9


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  6
     Property, plant and equipment(continued)
  2009AccumulatedCost
     
     
     amortization
     
     
     NetComputer equipment and software
     
     614
     
     
     (551
     )
     
     63Leasehold improvements
     
     149
     
     
     (115
     )
     
     34Machinery and equipment
     
     636
     
     
     (326
     )
     
     310Office equipment and furniture
     
     226
     
     
     (142
     )
     
     84Transportation equipment
     
     963
     
     
     (338
     )
     
     625Buildings
     
     659
     
     
     (88
     )
     
     5713,247
     
     
     (1,560
     )
     
     1,687
  7
     Environmental liabilities
  2010
     
     
     2009Special warrants liability (note 7(a))
     
     328
     
     
     653Asset retirement obligation (note 7(b))
     
     462
     
     
     171790
     
     
     824Less  current portion
     
     (328
     )
     
     (352
     )Long-term balance
     
     462
     
     
     472
  a)
     Special warrants liability
  On January 9, 2007, the Company reached an agreement with the Commission of Natural Protected Areas (CONANP), Bank Monex, and Ecobanca, a Mexican non-profit organization, to establish a trust fund to support environmental conservation measures within the El Vizcaino Biosphere. The Companys Boleo Project property is located within the Buffer Zone of this Biosphere. The Company paid US$100 on January 31, 2007, and issued three Special Warrants on January 9, 2007, for an aggregate of 180,000 common shares of the Company. The remaining Special Warrant will mature on February 2011. Each Special Warrant may be converted, in whole or in part, at any time prior to maturity into 60,000 common shares of the Company. 10


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  7
     Environmental liabilities(continued)
  a)
     Special warrants liability (continued)
  In addition, the trustee of the Special Warrants can require the Company to repurchase any or all of the Special Warrants represented by a certificate at a price of US$5.555 per underlying common share at any time within 30 days of the Maturity Date of each such Special Warrant. The fair value of the special warrants granted on January 9, 2007 was estimated at $48, using the Black-Scholes pricing model. The weighted average assumptions applied included a risk free interest rate of 4.19%, a dividend yield of nil%, an expected volatility of 91% and an expected life of the warrants of three years. The total repurchase liability of US$1,000 has been recorded. The liability has been discounted using an interest rate of 15%. On February 1, 2011, the Company made the final of three payments of US$333 under the above agreement. Amount
     
     
     Discounted
     
     
     DiscountedUS$
     
     
     US$
     
     
     Cdn$Balance  December 31, 2008
     
     1,000
     
     
     877
     
     
     1,074Accretion of discounted liability for the period
     
     -
     
     
     80
     
     
     91Unrealized foreign exchange gain for the period
     
     -
     
     
     -
     
     
     (106
     )Less  Repayment
     
     (333
     )
     
     (333
     )
     
     (406
     )Balance  December 31, 2009
     
     667
     
     
     624
     
     
     653Accretion of discounted liability for the period
     
     -
     
     
     40
     
     
     42Unrealized foreign exchange gain for the period
     
     -
     
     
     -
     
     
     (13
     )Less  Repayment
     
     (333
     )
     
     (333
     )
     
     (354
     )Balance  December 31, 2010
     
     334
     
     
     331
     
     
     328Less  current portion
     
     (334
     )
     
     (331
     )
     
     (328
     )Long term balance  December 31, 2010
     
     -
     
     
     -
     
     
     -
  The accretion charges recognized during the year has been capitalized to mineral properties as it is considered to form part of the acquisition costs of the project. 11


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  7
     Environmental liabilities(continued)
  b)
     Asset retirement obligation
  Balance  December 31, 2008
     834Accretion of discounted liability for the period
     67Reclamation funding activities undertaken during the period
     (517
     )Change in estimated cash flows
     (213
     )Balance  December 31, 2009
     171Accretion of discounted liability for the period
     7Change in estimated cash flows
     284Balance  December 31, 2010
     462
  Based upon an agreed funding schedule with Senior lenders, the Company funded US$3,500 during December 2010 for reclamation costs (note 3(a)(ii)). The Company estimated, as at December 31, 2010, that the undiscounted closure costs would amount to $843, taking into account an estimated inflation rate of 5%. In assessing the initial carrying amount for the asset retirement obligation, the Company applied a risk-free discount rate of 3.48% since the entire obligation is fully funded, resulting in an asset retirement obligation of $462. The estimate of the closure costs is subject to change based on the future planned development of the Boleo Project, as well as future amendments to laws and regulations that may affect the Companys obligations. However, the Company is not able to determine the impact on its financial position, if any, of environmental laws and regulations that may be enacted in the future. 8
     Senior long-term debt facilities
  On September 28, 2010 the Company finalized and signed the following senior debt facilities, which are collateralized by a first mortgage over the Companys assets and a several guarantee which was provided by the Korean Consortium for 30% of the debt. The proceeds from the facilities are to be used exclusively for the construction, development, financing (being interest and fees) and working capital costs of the Boleo Project. Each of the above facilities are to be drawn down pro-rata (subject to eligibility requirements associated with the US Exim facilities), following the injection and spending of the required contributions by the Company and the Korean Consortium, as well as compliance with a number of standard conditions precedent which includes the implementation of a hedging program (note 10). 12


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  8
     Senior long-term debt facilities(continued)
  Under the terms of the facilities, 35% of excess free cash flows available after debt servicing are required to be used to reduce the amounts outstanding under the facilities (cash sweeps), while the amounts needed for up to six months of debt servicing are required to be maintained in a separate Debt Service Reserve Account. Furthermore, the Company is allowed to make voluntary prepayments on the facilities without any penalty. For the purpose of the senior long-term debt facilities, any reference to Adjusted LIBOR refers to the London Interbank Offered Rate for any particular interest period, multiplied by the relevant statutory reserve rate for that period. a)
     Senior debt  US EXIM
  US Exim approved a debt facility of US$419,612 which includes accrued interest and the capitalized exposure fee of US$22,579. The loan bears interest at a fixed rate of 3.02% per annum (note 20). Such interest will be accrued and added to the principal outstanding, until the final economic completion date of the project (as defined in the lending agreement). The exposure fee will be added to the principal proportionately on each draw. The total indebtedness will be repayable in 23 equal instalments, every six months beginning December 18, 2013, subject to cash sweeps. In addition, the Company may elect to make voluntary minimum prepayments of US$5,000 on any instalment date. During the construction period, interest will be accrued as part of the facility. Once the Project reaches economic completion, interest will be payable at least every three months. In addition, from November 26, 2010, the Company will accrue commitment fees on the facility in the amount of 0.5% per annum on the uncancelled and undrawn amount of the facility. The accrued commitment fees will be payable every six months starting on June 18, 2011. b)
     Senior debt  EDC
  EDC has provided the Company with a debt facility of up to US$150,000, which includes accrued interest. The loan will bear interest at Adjusted LIBOR plus a margin which will vary between 3.75% and 4.5% at various periods of the loan. The facility shall be repayable in 23 instalments, every six months beginning on December 18, 2013, subject to cash sweeps. On each of the specified repayment dates, required principal repayments range from 1.25% to 6.25% of the principal amount then outstanding. Notwithstanding, the Company may also elect to make voluntary minimum prepayments of US$1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2013. During the construction period, interest will be accrued and added to the principal outstanding. Once the Project reaches final economic completion, interest will be payable at least every three months. In addition, the Company will accrue commitment fees on the facility in the amount of 1.4% per annum on the uncancelled and undrawn amount of the facility, which will be repayable every three months. 13


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  8
     Senior long-term debt facilities(continued)
  c)
     Senior debt  KDB
  KDB has provided the Company with a debt facility of up to US$90,000. The debt facility will bear interest at Adjusted LIBOR plus a margin which will vary between 3.65% and 4.1% at various periods of the loan. The facility shall be repayable in 19 instalments, every six months beginning on December 18, 2013, subject to cash sweeps. On each of the specified repayment dates, required principal repayments range from 0.5% to 10.25% of the principal amount then outstanding. Notwithstanding, the Company may also elect to make voluntary minimum prepayments of US$1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2013. Interest accrued on these facilities will be payable at least every three months. In addition, the Company will accrue commitment fees on the facility in the amount of 1.4% per annum on the uncancelled and undrawn amount of the facility, which will be repayable every three months. d)
     Senior debt  Commercial banks
  A group of commercial banks will be contributing the following amounts to senior debt to the Company: Barclays Bank Plc
     US$13,750Standard Bank Plc
     US$8,750Standard Chartered Bank
     US$13,750UniCredit Bank AG
     US$5,000WestLB AG, New York Branch
     US$8,750US$50,000
  The loan will bear interest at Adjusted LIBOR plus a margin which will vary between 3.8% and 4% at various periods of the loan. The facility shall be repayable in 15 instalments, every six months beginning on December 18, 2013, subject to cash sweeps. On each of the specified repayment dates, required principal repayments range from 0.5% to 10.25% of the principal amount then outstanding. Notwithstanding, the Company may also elect to make voluntary minimum prepayments of US$1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2013. Interest accrued on these facilities will be payable at least every three months. In addition, the Company will accrue commitment fees on the facility in the amount of 1.4% per annum on the uncancelled and undrawn amount of the facility, which will be repayable every three months. 14


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  8
     Senior long-term debt facilities(continued)
  e)
     Cost overrun facility  Commercial banks
  As part of the project debt facility, the Company was required to arrange a US$100,000 cost overrun facility. The Company and the Korean Consortium will proportionately provide US$50,000 of which the Company has satisfied its US$35,000 contribution through an equity cost overrun facility agreed to with Louis Dreyfus (notes 1 and 11(b)(iii)). The Korean Consortium has guaranteed to supply its US$15,000. The remaining US$50,000 of the cost overrun facility was obtained proportionately from the same group of Commercial banks (note 8(d)). In the event that the Company would draw on the cost overrun facility from the Commercial banks, it would be subject to the above cash sweep provisions and will bear interest at Adjusted LIBOR plus 4.75%, repayable at least every three months. It shall be repayable in 11 instalments, every six months beginning on December 18, 2013, subject to cash sweeps. On each of the specified repayment dates, required principal repayments range from 2% to 11% of the principal amount then outstanding. Notwithstanding, the Company may also elect to make voluntary minimum prepayments of US$1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2015. In addition, the Company will accrue commitment fees on the facility in the amount of 1.8% per annum on the uncancelled and undrawn amount of the facility, which will be repayable every three months. 9
     Subordinated long-term debt facilities
  The Companys subordinated long-term debt consists of the following balances and facilities: 2010
     2009Refundable deposit liability (note 9(c))
     8,709
     9,786Loans from non-controlling interest (note 9(d))
     70,364
     36,41679,073
     46,202
  a)
     Subordinated loan - KDB
  KDB has provided the Company with a debt facility of up to US$64,000, including accrued interest. This facility will rank subordinate with all other senior debt in right of payment and security and will bear interest at LIBOR plus a margin which will vary between 3.95% and 4.3% at various periods of the loan. The facility will be repayable within one year of the repayment of the senior debt facilities, subject to voluntary prepayments and cash sweeps. Accrued interest will be payable six months in arrears. In addition, the Company will accrue commitment fees of 0.75% per annum on the uncancelled and undrawn amount of the facility, which will be repayable on the last day of every six-month period ending on June 30 or December 31 of each year. 15


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  9
     Subordinated long-term debt facilities(continued)
  b)
     Funding loan  Korean Consortium
  As part of the transaction with the Korean Consortium (note 1), the Korean Consortium is to provide a funding loan of US$50,000 to MMB, which is to be considered as part of the Companys share of the equity residual to be funded. This facility will rank subordinate with all other senior debt and the above KDB subordinated loan in right of payment and security and will bear interest at the six-month average LIBOR plus 3.5%. Amounts outstanding after the repayment of senior debt facilities will accrue interest at the six-month average LIBOR plus 5.5%.The facility will be repayable by September 7, 2020, subject to mandatory cash sweeps and voluntary prepayments from distributions available to the shareholders of MMB. Accrued interest will be added to the principal until economic completion whereafter interest would become payable six months in arrears, but only from funds available for distribution to the MMB shareholders. c)
     Refundable deposit liability
  Included in the cash proceeds received from the transaction with the Korean Consortium (note 1), is a refundable deposit liability of US$10,000, which is refundable to the Korean Consortium should a decision be made not to produce manganese from the Boleo Project. Alternatively, additional consideration may be paid to the Company of approximately US$13,000 upon a positive decision related to the production of manganese. This decision must be made by the Company on the later of final economic completion of the Boleo Project or May 30, 2011. During the year, the Company reviewed the latest available information with regards to its progress on reaching a manganese production decision and it was determined that the production decision will likely only be made subsequent to May 30, 2011. Based on a weighted probability assessment, it was estimated that the manganese production decision could likely be made on or earlier than December 31, 2012. As such the amortized cost of the liability has been remeasured at May 31, 2010, assuming a remaining life of 31 months, applying an estimated discount rate of 6.73%. As a result, the amortized cost of the refundable deposit liability as at May 31, 2010 was estimated at $8,810 (US$8,421) and consequently a reduction in the liability of $1,165 was recognized as a change in estimate in the statement of operations and comprehensive loss. 16


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  9
     Subordinated long-term debt facilities(continued)
  c)
     Refundable deposit liability (continued)
  Face value
     Amount
     
     Amountrecognized
     
     recognizedUS$
     US$
     
     Cdn$Balance - December 31, 2008
     10,000
     8,923
     
     10,904Accretion of discounted liability for the year
     -
     427
     
     487Unrealized foreign exchange gain for the year
     -
     -
     
     (1,605
     )Balance - December 31, 2009
     10,000
     9,350
     
     9,786Accretion of discounted liability for the period
     -
     519
     
     534Unrealized foreign exchange gains for the period
     -
     -
     
     (446
     )Change in estimate
     -
     (1,113
     )
     (1,165
     )Balance  December 31, 2010
     10,000
     8,756
     
     8,709
  At December 31, 2010, the Company estimated the fair value of the refundable deposit liability at $8,471 (face value of US$10,000) based on an estimated discount rate of 8.36% applied through the remaining 24 months to December 31, 2012. The discount rate was estimated by management taking into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments which are repayable within three years. The exchange rate applied in the valuation at December 31, 2010 was US$1.0054/$1.00. d)
     Loans from non-controlling interest
  As part of the sale of 30% of the Companys interest in MMB to the Korean Consortium, the Korean Consortium has agreed to fund 30% of the historic and future development costs of the project. During November 2010, the Company confirmed revised terms on all of MMBs shareholder loans (including those from the Company). Under the revised terms, the loans will be repayable within ten years, but only from distributions available to the shareholders of MMB, and accrue ordinary interest at ten percent per annum. To date, the Korean Consortium funded $14,124 (US$13,867) in historical development costs and contributed US$55,089 in subsequent development costs. Prior to the modification of the terms of the loans, the funding of historical development costs of $14,124 had been deemed to have occurred at arms length, while subsequent contributions by the Korean Consortium were recognized as related party transactions. However, following the modification, all loans from the Korean Consortium are considered related party loans since the revised terms were agreed between related parties. Management determined that the modifications to the terms were substantial and accounted for the modification as an extinguishment of the existing debt, and the incurrence of new debt, recognising an increase in the loans from non-controlling interest of $10,116 (US$9,701) through contributed surplus. 17


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  9
     Subordinated long-term debt facilities(continued)
  d)
     Loans from non-controlling interest (continued)
  Face value
     Amount
     Amountrecognized
     recognizedUS$
     US$
     Cdn$Historic Expenditure funding(i)Balance  December 31, 2008
     13,867
     3,716
     4,542Accretion of discounted liability for the period
     -
     260
     296Unrealized foreign exchange gain for the period
     -
     -
     (676
     )Balance  December 31, 2009
     13,867
     3,976
     4,162Accretion of discounted liability for the period
     -
     190
     197Modification of loans from non-controlling interest
     -
     9,701
     10,116Accrued interest
     443
     443
     441Unrealized foreign exchange gain for the period
     -
     -
     (684
     )Balance  December 31, 2010
     14,310
     14,310
     14,232Contribution to development costs(ii)Balance  December 31, 2008
     28,029
     28,029
     34,812Additional contributions to construction costs
     2,790
     2,790
     3,009Unrealized foreign exchange gain for the period
     -
     -
     (5,567
     )Balance  December 31, 2009
     30,819
     30,819
     32,254Additional contributions to construction costs
     24,270
     24,270
     24,638Accrued interest
     1,349
     1,349
     1,341Unrealized foreign exchange gain for the period
     -
     -
     (2,101
     )Balance  December 31, 2010
     56,438
     56,438
     56,132Balance  December 31, 2010
     70,748
     70,748
     70,364
  At December 31, 2010, the Company estimated the fair value of loans from non-controlling interest at $60,520 (face value of US$70,748), based on: managements estimate of the probable timing of the repayment of the debt and interest. For this purpose, management considered cash flow forecasts for the Boleo Project which takes into account a weighted probability assessment regarding current and longer-term copper prices;the application of a discount rate of 11.05% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments which are repayable over ten years;an exchange rate at December 31, 2010 of US$1.0054/$1.00 18


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  10
     Derivative liabilities
  In order to satisfy a condition precedent to the senior debt facilities (note 8), the Company entered into a zero cost collar copper hedging program with the Commercial Banks for approximately 50% of the estimated Copper production during 2014, 2015 and 2016. The details of the hedging instruments are as follows: 000s
     Put price
     Call price
     Fair value
     Fair valuelbs
     US$ per lb
     US$ per lb
     US$
     $33,716
     2.40
     3.96
     (13,761)
     (13,686)130,146
     2.40
     3.97
     (49,566)
     (49,300)17,637
     2.40
     4.01
     (5,812)
     (5,780)11,097
     2.40
     4.02
     (3,591)
     (3,571)192,596
     2.40
     3.97
     (72,730)
     (72,337)
  During the period, the Company recognized a fair value adjustment related to the derivative instruments of $72,337 (US$72,730) in the Companys Statement of Operations. The exchange rate applied in determining the fair value of the derivative liability at December 31, 2010 was US$1.0054/$1.00. 11
     Share capital
  a)
     Authorized
  Unlimited common shares without par value b)
     Details of share capital activity are as follows:
  Shares
     Amount$Balance  December 31, 2008
     143,064,337
     109,611Shares issued on exercise of stock options
     330,000
     116Fair value of options exercised (note 11(f))
     -
     252Balance  December 31, 2009
     143,394,337
     109,979Shares issued in bought deal financings
     189,200,000
     201,558Share issuance costs
     -
     (11,038
     )Shares issued on exercise of stock options
     1,578,750
     583Fair value of Louis Dreyfus put option (note 11(b)(iii))
     -
     (3,726
     )Fair value of options exercised (note 11(f))
     -
     520Balance  December 31, 2010
     334,173,087
     297,876
  19


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  11
     Share capital(continued)
  b)
     Details of share capital activity (continued)
  i)
     On April 19, 2010, the Company filed a short form base shelf prospectus which allows the Company to make offerings of any combination of common shares, debt securities, warrants, share purchase contracts and subscriptions receipts for up to $500,000.ii)
     On August 13, 2010, the Company completed a bought deal offering of 21,875,000 common shares at a price of $0.80 per share for gross proceeds of $17,500. As part of the offering, the Company granted 1,093,750 brokers warrants which are exercisable at a price of $0.88 per warrant for a period of 18 months after the closing of the offering. These warrants were valued at $297, using the Black-Scholes pricing model. The weighted average assumptions applied included a risk free rate of 1.36%, a dividend yield of nil%, an expected volatility of 79% based on an expected life of the warrants of one and one half years. Along with the brokers warrants, the share issuance costs also included 5% commission paid to the underwriters as well as legal fees and other professional fees, all of which totalled $1,298. Of this amount $230 had been previously recognized in deferred financing costs (note 4).iii)
     On September 28, 2010, the Company agreed the terms of an off-take arrangement with Louis Dreyfus (note 8(e)) to satisfy the requirement under the senior long-term debt facilities (note 8) to enter into off-take agreements for at least 70% of copper and cobalt production for the first 10 years of production. As a result, Louis Dreyfus participated in the Companys equity offerings (see note 11(b)(iv) below). In addition, Louis Dreyfus also provided an equity cost overrun facility of up to an aggregate amount of US$35,000 in the form of an irrevocable letter of credit. Should the Company utilize this equity cost overrun facility, Louis Dreyfus will be issued common shares of the Company to the equivalent value of the amounts drawn under the facility, based on a per share value $1.10 per common share.In consideration of Louis Dreyfus providing the cost overrun facility, the Company granted bonus warrants to Louis Dreyfus to acquire 7,408,727 common shares at an exercise price of $1.375 per share. The warrants, which expire after five years, will vest proportionately for any undrawn amount of the facility which is cancelled. The fair value of the warrants was estimated at the grant date at $3,726 based on managements estimate of the weighted probability amount of the facility which the Company does not expect to utilize. The volatility rate and risk free rate applied in determining the fair value was 77.78% and 2.14% respectively.The cost overrun facility itself represents a purchase put option and the equivalent fair value of $3,726 was recognized as a debit to share capital.iv)
     On November 23, 2010, the Company completed a cross-border bought deal equity financing, issuing 167,325,000 common shares for aggregate gross proceeds of $184,058, including a subscription of 36,000,000 common shares by Louis Dreyfus (note 11(b)(iii) above) for $39,600. Underwriters, legal and other fees amounted to $9,443, of which $298 had previously been recognized in deferred financing costs. 20


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  11
     Share capital(continued)
  c)
     Details of share purchase warrant activity are as follows:
  Sharespurchasewarrants
     
     
     Amount$Balance  December 31, 2008
     
     30,997,993
     
     
     16,077Warrants expired during the period
     
     (5,951,015
     )
     
     -Balance  December 31, 2009
     
     25,046,978
     
     
     16,077Brokers warrants (note 11(a))
     
     1,093,750
     
     
     297Warrants issued for equity cost overrun facility (note 11(b)(iii)
     
     7,408,727
     
     
     3,726Warrants expired during the period
     
     (110,000
     )
     
     (32
     )Balance  December 31, 2010
     
     33,439,455
     
     
     20,068
  d)
     Warrants
  During the year ended December 31, 2010, 110,000 of the Companys share purchase warrants expired, while the Company issued 1,093,750 brokers warrants as part of the underwriters compensation in the bought deal financing (note 11(b)(ii)) and 7,408,727 bonus warrants (note 11(b)(iii). No share purchase warrants were exercised during the period. The fair value of warrants granted during the period was estimated using the Black-Scholes option-pricing model . Volatility of 79%, expected life of 1.5 years and a risk-free rate of 1.4% were assumed. The following table summarizes information about share purchase warrants outstanding at December 31, 2010: Number ofwarrants
     Weightedoutstanding
     average
     WeightedRange of
     and
     contractual
     averageprices
     exercisable
     life
     exercise price$
     
     (years)
     $0.00 to 0.49
     60,000
     0.09
     -0.49 to 0.99
     1,170,937
     1.07
     0.881.00 to 1.49
     16,040,518
     2.23
     1.081.50 to 2.50
     16,168,000
     1.73
     2.4933,439,455
     1.94
     1.75
  21


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  11
     Share capital(continued)
  e)
     Stock options
  A summary of the Companys stock options at December 31, 2010 and the changes during the period are as follows: WeightedaverageNumber of
     
     
     exerciseoptions
     
     
     price$Balance  December 31, 2009
     
     13,075,000
     
     
     0.43Granted
     
     13,815,000
     
     
     1.16Exercised
     
     (1,578,750
     )
     
     0.37Forfeited
     
     (62,500
     )
     
     0.87Balance  December 31, 2010
     
     25,248,750
     
     
     0.83
  The following table summarizes information about stock options outstanding and exercisable at December 31, 2010: Weighted
     Weighted
     
     WeightedNumber of
     average
     average
     Number of
     averageRange of
     outstanding
     years to
     exercise
     exercisable
     exerciseprices
     options
     expiry
     price
     options
     price$
     
     
     $
     
     $0.35 to 0.49
     9,198,750

     1.54
     0.40
     9,076,563
     0.400.50 to 0.99
     2,435,000
     3.43
     0.59
     1,726,250
     0.581.00 to 1.49
     13,615,000
     4.90
     1.17
     -
     -25,248,750
     3.54
     0.83
     10,802,813
     0.43
  The Companys stock option plan (the plan) allows the Company to grant stock options up to a maximum of ten percent of the number of issued shares of the Company. At December 31, 2010, the Company has reserved 33,597,308 common shares under the plan. Options granted under the Plan will vest with the right to exercise one-quarter of the options upon conclusion of every six months subsequent to the grant date, unless the specified contract length is a shorter period. 22


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  11
     Share capital(continued)
  e)
     Stock options (continued)
  The fair value of the options granted during the year was estimated at each measurement date using the Black-Scholes option-pricing model. During the year, the Company granted 13,815,000 five-year stock options to consultants and employees, with a fair value of $8,743 attributed to these options. The total stock-based compensation recorded during the period on all vesting options was $1,452 (2009  $2,827). This has been recognized and charged (based upon the work carried out by the employee or consultant) to either administration ($948; 2009 - $1,583) or to mineral properties ($504; 2009 - $1,244), with the offsetting amount recorded as a credit to contributed surplus. The fair value of stock options granted during the period was estimated at each measurement date based on the Black-Scholes option-pricing model, using the following weighted average assumptions: 2010
     
     
     2009Dividend yield
     
     0%
     
     
     0%Expected volatility
     
     82%
     
     
     85%Expected stock option life
     
     3 years
     
     
     3 yearsWeighted average forfeiture rate
     
     0.0%
     
     
     5.4%Weighted average fair value of stock options granted
     $
     0.63
     
     $
     0.32
  f)
     Contributed surplus
  Details are as follows: Balance  December 31, 2008
     
     89,349Fair value of options vested
     
     2,827Fair value of options exercised
     
     (252
     )Balance  December 31, 2009
     
     91,924Fair value of options vested
     
     1,452Fair value of options exercised
     
     (520
     )Fair value of warrants expired
     
     32Modification to subordinated long-term debt (note 9(d))
     
     (10,116
     )Balance  December 31, 2010
     
     82,772
  23


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  12
     Related party transactions
  The Company entered into the following transactions with directors or officers of the Company or with companies with directors or officers in common: 2010
     
     
     2009Directors fees  administration
     
     85
     
     
     72Management fees  administration
     
     1,095
     
     
     222Management fees  mineral properties
     
     517
     
     
     3871,696
     
     
     681
  The above transactions, and the Korean Consortiums contributions (note 9(d)), occurred in the normal course of operations, are measured at the exchange amount, which is the consideration established and agreed to by the related parties. 13
     Income taxes
  a)
     The Income tax provision included in the consolidated statements of operations and comprehensive loss consists of the following:
  2010
     
     
     2009Current income tax expense
     
     -
     
     
     850Withholding taxes accrued
     
     396
     
     
     -Future income tax recovery
     
     (231
     )
     
     (1,236
     )Income tax
     
     165
     
     
     (386
     )
  During the year, the Company recognized future income tax liabilities related to mineral properties in the amount of $231. In accordance with the Companys accounting policy on capitalization of mineral property costs, the corresponding income tax expense was capitalized to mineral properties. However, since the Company had previously unrecognized future income tax assets available, the Company was able to reduce the recognized future income tax liability to zero, which resulted in a future income taxes recovery in the statement of operations and comprehensive loss. 24


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  13
     Income taxes(continued)
  b)
     The Company operates in Canada and Mexico, and is subject to varying rates of taxation. In addition, the Company has various non-capital tax losses and deferred exploration expenditures that are available for carry forward to reduce taxable income of future years. Details of income tax expense for the years ended December 31 are as follows:
  2010
     
     
     2009Loss before income tax
     
     80,557
     
     
     8,306Statutory rate
     
     28.50
     %
     
     30.00
     %Expected recovery
     
     22,959
     
     
     2,492Non-deductible expenses
     
     (177
     )
     
     (630
     )Foreign tax rate differential
     
     (1,018
     )
     
     (753
     )Foreign exchange and other
     
     662
     
     
     1,33822,426
     
     
     2,447Change in valuation allowance
     
     (22,591
     )

     
     (2,061
     )Income tax
     
     (165
     )
     
     386
  c)
     Future income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Companys future income tax assets as at December 31 are as follows:
  2010
     
     
     2009Future income tax assetsNon-capital loss carry-forwards
     
     17,436
     
     
     16,691Capital losses
  
  446
  
  
  -Property, plant and equipment
     
     786
     
     
     711Share issuance costs
     
     2,244
     
     
     315Accounts payable
     
     -
     
     
     83Derivative liabilities
     
     20,332
     
     
     -41,244
     
     
     17,800Valuation allowance
     
     (39,155
     )
     
     (16,564
     )2,089
     
     
     1,236Future income tax liabilitiesMineral properties
     
     (2,089
     )
     
     (1,236
     )Net Future income tax liability
     
     -
     
     
     -
  25


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  13
     Income taxes(continued)
  d)
     During the year ended December 31, 2010, the Company utilized non-capital losses of $5,425 and as at December 31, 2010, the Company has cumulative non-capital losses for income tax purposes of $64,709 (2009 - $61,343) in Canada and Mexico, which may be used to reduce future taxable income. The income tax benefits, if any, of these losses have not been recorded in these consolidated financial statements because of uncertainty of their recovery. These losses will expire as follows:
  2014
     6542015
     1,1222016
     7,586Thereafter
     55,34764,709
  If utilized, these losses are expected to be utilized at substantively enacted future tax rates ranging from 25% to 28%. 14
     Segmented information
  The Company has one operating segment, being the exploration and development of mineral properties, which is carried out in Mexico. The breakdown by geographic segment for the year ended December 31, 2010 is as follows: Canada
     
     
     Mexico
     
     
     ConsolidatedNon-current assets
     
     109,894
     
     
     236,154
     
     
     346,048Current assets
     
     40,845
     
     
     11,419
     
     
     52,264Total assets
     
     150,739
     
     
     247,573
     
     
     398,312
  The breakdown by geographic segment for the year ended December 31, 2009 is as follows: Canada
     
     
     Mexico
     
     
     ConsolidatedNon-current assets
     
     5,276
     
     
     152,058
     
     
     157,334Current assets
     
     20,535
     
     
     3,063
     
     
     23,598Total assets
     
     25,811
     
     
     155,121
     
     
     180,932
  No revenues were earned in either of the geographic segments. 26


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  15
     Commitments and contingencies
  a)
     The Company has entered into numerous contracts regarding development of the Boleo Project. Total contractual obligations entered at December 31, 2010 are estimated to be $117,478 (December 31, 2009 - $1,961), the payments for which are all expected in 2011 and 2012.b)
     The Company has a number of management and consulting agreements. The future commitments under these contracts as at December 31, 2010 amount to $193 (December 31, 2009 - $630).c)
     The Company has a new operating lease for office space in Vancouver, expiring September 2020. The new lease commits the Company to a 10 year period at an average monthly lease of $53 per month. In addition to the monthly lease payments, the Company has provided a security deposit of $480, as well as a LC, related to the tenant improvement allowance, of $757 (note 3(b)). The LC obligation will reduce evenly over the 10 year lease beginning after the second year of the lease. The remaining future minimum lease payments on this lease amount to $6,102 (December 31, 2009 - $78): 2011
     $6262012
     6262013
     6262014
     626Thereafter
     3,598$6,102
  d)
     As required by the terms of the senior long-term debt facilities, the Company has agreed to terms of an off- take arrangement with Louis Dreyfus (notes 1 and 11(b)(iii)) whereby the Company committed to sell 70% of the Copper and Cobalt that is expected to be produced during the first ten years of the Boleo Projects operations, at commercial terms. As part of the sale of 30% of the Companys interest to the Korean Consortium in 2008, the Company entered into an off-take agreement with the Korean Consortium for the remaining 30% of the production from the Boleo Project, also at commercial terms.e)
     Under the terms of the senior long-term debt facilities, the Company is required to fund a project reclamation funding account to cover the costs of unscheduled reclaiming of plant and surface infrastructure. In accordance with these terms, the Company has deposited US$3,500 (note 3(a)(ii)) and has committed to deposit additional funds of US$9,900 into the project reclamation funding account before December 31, 2013. 2011
     US$1,4002012
     US$4,9002013
     US$3,600US$9,900
  f)
     Due to the nature of its business, the Company may be subject to numerous regulatory investigations, claims, lawsuits and other proceedings in the ordinary course of its business. The results of these legal proceedings cannot be predicted with certainty. There can be no assurances that these matters will not have a material adverse effect on the Companys business. 27


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  16
     Supplemental cash flow information
  The following are the non-cash investing and financing activities of the Company:2010
     
     2009Increase (decrease) in accounts payable and accrued liabilities related to mineral properties, deferred financing costs and property, plant & equipment
     9,014
     
     (7,857)Decrease (increase) in deposits and prepaid expenses related to mineral property and deferred development costs
     -
     
     5,452Accretion of special warrant liability and historical expenditure funding contribution included in mineral property and deferred development costs
     239
     
     387Stock-based compensation included in mineral property and deferred development costs
     504
     
     1,244Other supplemental information:Interest received
     84
     
     139Realized foreign exchange gains (losses)
     1,724
     
     (2,818)Unrealized foreign exchange losses on cash
     (201)
     
     (3,724)Cash and cash equivalents, for the purposes of the consolidated Statements of Cash Flows only, comprise of:Cash in bank
     10,087
     
     865Term deposits with maturities of less than three months
     38,057
     
     5,39048,144
     
     6,255
 28


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  17
     Management of capital risk
 It is the Companys objective when managing capital to safeguard the Companys ability to continue as a going concern, in order to pursue the development of the mineral property for its stakeholders. The Company has historically relied on a combination of equity sources for capital (common shares, options and warrants), special warrants and funding from the Korean Consortium (notes 9(b), (c) and (d)). During the year, the Company expanded its sources of capital to include senior and subordinated project debt facilities to the amount of US$823,000 (note 1). The net proceeds from the current year offerings, combined with the Companys senior and subordinated debt facilities, provides all the estimated funding requirement to complete the engineering, construction and commissioning of the Boleo Project. The Company manages the capital structure and makes appropriate adjustments to it based upon changes in economic conditions and the risk characteristics of the underlying assets and subject to the restrictions of the debt facilities agreement, which restricts project cash release or dividends until economic completion. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue new debt, acquire or dispose of assets. The Companys short-term operating budgets, project capital budgets and forecasted project operating budgets are reviewed and updated annually and as necessary depending on various factors, including successful capital deployment and general industry conditions. Following the completion of the revised Project Capital Cost estimate, issued January 15, 2010, the Company updated the project capital budget, as well as the economic model for the Boleo Project. These budgets and models were approved by the Board of Directors, and formed the foundation for the project financing completed during the year. 18
     Management of financial risk
 Foreign Currency Risk:The Company operates internationally with offices and operations in Canada, Luxembourg and Mexico, which gives rise to the risk that its financial instruments may be adversely impacted by exchange rate fluctuations. A significant portion of its expenses are also incurred in US dollars and Mexican Pesos and to a lesser extent other foreign currencies. A significant change in the currency exchange rates between the Canadian dollar relative to the Mexican peso or US dollar could have an effect on the Companys results of operations, financial position or cash flows. The Company has not entered into foreign currency contracts to hedge its risk against foreign currency fluctuations. However, as many of the Companys obligations are denominated in US dollars, the impact of foreign exchange differences on US dollar denominated financial assets would be naturally hedged to an extent. A 10% fluctuation in the foreign exchange rate (either way, over or under) based on the Companys foreign financial instruments as at December 31, 2010 would result in a foreign exchange gain or loss of approximately $4,979 (2009 - $2,727). 29


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  18
     Management of financial risk(continued)
 Foreign Currency Risk(continued) As at December 31, 2010, the Company had the following foreign denominated financial assets and liabilities, which are recorded at the Canadian dollar amount and are subject to foreign exchange risk: Foreign
     
     Canadiancurrency
     
     dollaramount
     
     amountCash and cash equivalents in United States dollars
     
     9,480
     
     9,429Cash and cash equivalents in Mexican pesos
     
     6,121
     
     509Cash and cash equivalents in Euros
     
     17
     
     23Restricted cash in United States dollars
     
     102,503
     
     101,949Other receivables in Mexican pesos
     
     32,234
     
     2,678Deposits in United States dollars
     
     28
     
     28Deposits in Mexican pesos
     
     8,465
     
     703Deposits in Euros
     
     8
     
     11Accounts payable in United States dollars
     
     10,321
     
     10,265Accounts payable in Mexican pesos
     
     35,725
     
     2,969Accounts payable in Euros
     
     108
     
     144Special warrants liability (note 7(a))
     
     331
     
     328Refundable deposit liability (note 9(c))
     
     8,756
     
     8,709Loans from non-controlling interest (note 9(d))
     
     70,748
     
     70,364Derivative liabilities (note 10)
     
     72,730
     
     72,337
 As at December 31, 2009, the Company had the following foreign denominated financial assets and liabilities, which are recorded at the Canadian dollar amount and are subject to foreign exchange risk: Foreign
     
     Canadiancurrency
     
     dollaramount
     
     amountCash and cash equivalents in United States dollars
     
     5,711
     
     5,983Cash and cash equivalents in Mexican pesos
     
     3,014
     
     244Short-term deposits in United States dollars
     
     15,300
     
     16,023Other receivables in Mexican pesos
     
     10,420
     
     843Deposits in United States dollars
     
     27
     
     28Deposits in Mexican pesos
     
     635
     
     51Accounts payable in United States dollars
     
     2,285
     
     2,416Accounts payable in Mexican pesos
     
     6,932
     
     561Accounts payable in Euros
     
     326
     
     517Special warrants liability (note 7 (a))
     
     624
     
     653Refundable deposit liability (note 9(c))
     
     9,350
     
     9,786Loans from non-controlling interest (note 9(d))
     
     34,795
     
     36,416
 30


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  18
     Management of financial risk(continued)
 Liquidity risk: This refers to the risk that the Company will not be able to meet its financial obligations as they fall due. The Company manages liquidity risk through the management of its capital structure and financial leverage as outlined in note 17 to the consolidated financial statements. The following table summarizes the Company`s known undiscounted obligations and commitments as at December 31, 2010: Contractual Obligations
     
     Payments due by period (Thousands of Canadian dollars)Total
     
     Less than 1
     
     1-3 years
     
     3-5 years
     
     Moreyear
     
     
     
     
     
     than 5yearsAccounts payable
     $
     14,888
     $
     14,888
     $
     Nil
     $
     Nil
     $
     NilOperating lease obligations
     $
     6,102
     $
     626
     $
     1,878
     $
     1,252
     $
     2,346Contract and purchase commitments
     $
     117,671
     $
     102,143
     $
     15,528
     $
     Nil
     $
     NilReclamation funding
     $
     9,847
     $
     1,392
     $
     8,455
     $
     Nil
     $
     NilRefundable deposit liability
     $
     9,946
     $
     Nil
     $
     9,946
     $
     Nil
     $
     NilLoans from non-controlling interest
     $
     70,364
     $
     Nil
     $
     Nil
     $
     Nil
     $
     70,364Environmental obligations
     $
     1,175
     $
     332
     $
     Nil
     $
     Nil
     $
     843Total
     $
     229,993
     $
     119,381
     $
     35,807
     $
     1,252
     $
     73,553
 Commodity price risk:The value of the Companys mineral properties is related to the short and long term price of copper, cobalt and zinc sulphate. The price of copper has historically fluctuated widely and is affected by numerous factors outside of the Companys control, including, but not limited to, industrial and retail demand, levels of worldwide production, short-term changes in supply and demand related to speculative activities, central bank lending, forward sales by producers and speculators, and other factors. The Companys hedge program (note 10) secures cash flows from 50% of the Companys anticipated copper production during 2014, 2015 and 2016. At the same time, the hedge program may give rise to significant fluctuation in the Companys earnings (loss) as the Company is required to mark the hedge instruments to market at every reporting date. In the event of non-production, the derivative liability as recognized on the balance sheet will actualize. Credit risk:Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. The Companys investment policy is to invest its available cash in Canadian chartered bank guaranteed deposits at fixed or variable interest rates established at the time of investment. Boleo Project funds have been segregated. Remaining funds are available for project and corporate objectives. The Companys cash and cash equivalents and short-term investments are composed of financial instruments issued by a Chartered Bank in Canada. These investments mature at various dates over the current operating period. The Companys other receivables consist of general sales tax due from the Federal Governments of Mexico and Canada, as well as advances to employees. The carrying amount of financial assets recorded in the financial statements (excluding cash and cash equivalents and short-term deposits) represents the Companys maximum exposure to credit risk. 31


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  18
     Management of financial risk(continued)
 Interest rate risk: The interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Companys exposure to changes to net loss or other comprehensive loss (as a result of changes in interest rates) is limited since: short-term deposits are accruing interest at fixed and variable rates and are realizable within 30 days of year- end.other financial liabilities such as refundable deposit and the special warrants liability are carried at amortized costs. The impact on net loss of a 1% change in interest rates would amount to approximately $1,509 (2009 - $226). During the year the Company finalized and signed various senior - and subordinated project financing facilities (notes 8 and 9) which provide the Company access to a combination of fixed  and variable rate debt instruments. The fair value of fixed rate debt instruments will fluctuate with changes in market interest rates, but the resulting cash flows will not. Conversely, cash flows from the variable rate debt instruments will fluctuate with changes in market interest rates, but the fair values will not. Subsequent to the drawn down of the facilities, the impact of fluctuations in market interest rates on net loss or other comprehensive are expected to be limited as these liabilities will be carried at amortized cost and not at fair value. Fair value measurements:Certain of the Companys financial assets and liabilities are measured or disclosed at fair value on a recurring basis and classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There are three levels of fair value hierarchy that prioritize the inputs to valuation techniques used to measure fair value, with level 1 inputs having the highest priority. The levels and the valuation techniques used to value the Companys financial assets and liabilities are described below: Level 1  Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 2  Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. Level 3  Unobservable inputs (supported by little or no market activity). The fair values of our financial assets and liabilities at December 31, 2010 are summarized in the following table: Fair Value Quoted in
     
     Fair Value -active
     
     Significant
     
     Fair Value -markets
     
     other
     
     Significantfor identical
     
     observable
     
     unobservableassets
     
     inputs
     
     inputs
     
     Fair Value -(Level 1)
     
     (Level 2)
     
     (Level 3)
     
     Total
     
     Book ValueHeld for tradingCash and cash equivalents
     
     -
     
     48,144
     
     -
     
     48,144
     
     48,144Restricted cash
     
     -
     
     102,786
     
     -
     
     102,786
     
     102,786Derivative liabilities
     
     -
     
     -
     
     (72,337)
     
     (72,337)
     
     (72,337)
 32


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)
 These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada (Canadian GAAP). Except as set out below, these financial statements also comply, in all material aspects, with accounting principles generally accepted in the United States (US GAAP). The following differences have been identified between Canadian GAAP and US GAAP as it applies to the Company: (i)
      Measurement of Loans from Non-controlling interest: Following the sale of 30% of the Companys interest in MMB to the Korean Consortium, the Korean Consortium funded loans to MMB to the amount of US$70,748, all of which is considered to be related party loans. Under Canadian GAAP, financial liabilities payable to related parties are to be recognized at face value, while US GAAP requires such payables to be recognized at fair value. As a result, under US GAAP, the difference between the fair value of the instruments and the face value is recognized in contributed surplus, and the fair value is accreted back to the face value of the instrument over the expected life of the instrument. The accretion of these payables during the period was capitalized to mineral properties in accordance with the Companys accounting policy for capitalization of financing costs, which is consistent for both Canadian GAAP and US GAAP. As a result of initially recognizing the loans from non-controlling interest at fair value (under US GAAP), as opposed to face value (under Canadian GAAP), the loan is recognized at a discounted US dollar-denominated value. As such, subsequent re-measurement to a Canadian dollar equivalent yielded a lower foreign exchange gain (loss) during the period. During the year, the Company agreed to revised terms on all of MMBs Shareholder loans (including the Shareholder loans from the Korean Consortium (note 9(d)). Under the revised terms, the Shareholder loans will be repayable after ten years, but only from distributions available to the shareholders of MMB, and accrue ordinary interest at ten percent per annum. Management determined that the modifications to the terms were substantial and accounted for the modification as an extinguishment of the existing debt. Therefore the difference between the carrying value of the related party loans under previous terms ($13,900), and the fair value of the debt as estimated at September 8, 2010, is to be recognized in contributed surplus under US GAAP. 33


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)(continued)
  (i)
      Measurement of Loans from Non-controlling interest(continued) The fair value of the related party loans under the modified terms was estimated at $49,195 (US$47,177) based on: managements estimate of the probable timing of the repayment of the debt and interest. For this purpose, management considered cash flow forecasts for the Boleo Project which takes into account a weighted probability assessment regarding current and longer-term copper prices;the application of a discount rate of 10.36% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments which are repayable over ten years;an exchange rate at September 8, 2010 of US$0.959/$1.00 Therefore the Company recognized an increase in the loans from non-controlling interest of $35,295 (US$33,847) in contributed surplus under US GAAP. Conversely, under Canadian GAAP, an increase of $10,116 (US$9,701) was recognized in contributed surplus (note 9(d)). (ii)
      Recognition of changes in estimate related to refundable deposit liability: As per note 9(c), the Company re-estimated the amortized cost of the refundable deposit liability during the period. As a result, the Company recognized a reduction in the amortized cost of the liability, with a gain of $1,165 included in the statement of operations and comprehensive loss in accordance with Canadian GAAP. However, under US GAAP, the amortized cost of the liability is not adjusted, rather the change in estimate is recognized in the statement of operations and comprehensive loss prospectively through reduced accretion expenses as the amortized cost continues to be accreted to the face value of the liability, however over the new extended estimated life of the liability. Since the amortized cost of the US$-denominated liability is not adjusted under US GAAP, the effect of changes in foreign currency rates is different from those under the Canadian GAAP treatment. (iii)
      Recognition of Non-controlling interest: Under US GAAP, SFAS-160 - Non-controlling Interests in Consolidated Financial Statements (SFAS-160) losses attributed to non-controlling interests may exceed their interest. That is, the non-controlling interest shall continue to be attributed its share of losses, even if that results in a deficit non-controlling interest balance. The non-controlling interest is presented in equity. 34


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)(continued)
  (iv)
      Louis Dreyfus equity cost overrun facility: Under Canadian GAAP it was determined that the cost overrun facility with Louis Dreyfus (note 11(b)(iii)) includes both a purchase put option (which allows the Company to issue shares to Louis Dreyfus at a fixed price of $1.10 per share) and a written call (which allows Louis Dreyfus, in the event of cancellation of the facility, to exercise bonus warrants at a fixed price of $1.375 per share). Under Canadian GAAP, both these instruments were determined to meet the definition of equity. However, under US GAAP, it was determined that neither the purchase put option or the written call meets the definition of equity and as such the Company recorded a non-current derivative financial asset and non-current derivative financial liability in the balance sheet. The fair values of the derivative asset and derivative liability was based on unobservable inputs (Level 3 within the fair value hierarchy). a)
      The impact of the above differences between Canadian and US GAAP on the loss for the year ended, as reported, is as follows: December 31, 2010
        
        December 31, 2009Loss and comprehensive loss for the year - Canadian GAAP
        (80,722
        )
        (7,920
        )Adjustment to accretion expense (ii)
        237
        
        -Adjustment of foreign exchange differences (i), (ii)
        (176
        )
        (4,270
        )Adjustment to change in estimate  refundable deposit liability (ii)
        (1,165
        )
        -Loss for the year - US GAAP
        (81,826
        )
        (12,190
        )Less: Loss (income) attributable to non-controlling interest  US GAAP (iii)
        20,411
        
        (3,305
        )Loss for the period attributable to shareholders  US GAAP
        (61,415
        )
        (15,495
        )Basic and diluted earnings (loss) per share  US GAAP
        (0.48
        )
        (0.09
        )
 35


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)(continued)
  b)
      The impact of the above differences between Canadian and US GAAP on the Statements of Changes in Shareholders Equity, as reported, is as follows: December 31, 2010
        
        December 31, 2009Shareholders equity - Canadian GAAP
        231,224
        
        129,210Fair value adjustment recognized in contributed surplus (i)
        32,737
        
        25,111Adjustment to accretion expense (ii)
        237
        
        -Adjustment to foreign exchange differences (i), (ii)
        (438
        )
        (262
        )Adjustment to change in estimate  refundable deposit liability(ii)
        (1,165
        )
        -Adjustment to modification of loans from non-controlling interest (i)
        (25,179
        )
        -Accumulated income attributed to non-controlling interest (iii)
        17,106
        
        (3,305
        )Shareholders equity attributable to shareholders  US GAAP
        254,522
        
        150,754Shareholders equity attributable to non-controlling interest
        (17,106
        )
        3,305Total Shareholders equity - US GAAP
        237,416
        
        154,059
  c)
      The impact of the above differences between Canadian and US GAAP on the balance sheets, as reported, is as follows: December 31, 2010
        
        December 31 ,2009Total assets - Canadian GAAP
        398,312
        
        180,932Derivative asset related to Louis Dreyfus purchase put option (iv)
        3,726
        
        -Accretion recognized in mineral properties (i)
        1,388
        
        776Total assets - US GAAP
        403,426
        
        181,708Total liabilities - Canadian GAAP
        167,088
        
        51,722Fair value adjustment recognized in contributed surplus
        (32,737
        )
        (25,111
        )Adjustment to accretion recognized (i), (ii)
        1,151
        
        776Adjustments to foreign exchange differences (i), (ii)
        438
        
        262Adjustment to change in estimate  refundable deposit liability (ii)
        1,165
        
        -Adjustment to modification of loans from non-controlling interest (i)
        25,179
        
        -Derivative liability related to Louis Dreyfus written call (iv)
        3,726Total liabilities - US GAAP
        166,010
        
        27,649
 36


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)(continued)
  d)
      There was no impact on the statement of cash flows between Canadian and US GAAP.e)
      Development Stage Company The Company meets the definition of a development stage enterprise under Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises, and as such is required to include additional disclosures. Effective April 20, 2004, pursuant to a share exchange agreement, the Company acquired all the issued and outstanding shares of Mintec International Corporation (Mintec) by issuing 40,000,000 common shares of the Company. The transaction resulted in a change of control and therefore, the transaction was treated as a reverse takeover for accounting purposes whereby Mintec was identified as the acquirer. In accordance with the principles of reverse takeover accounting, consolidated financial statements are considered a continuation of the financial statements of the legal subsidiary, Mintec. As such, the cumulative results presented include the results of Mintec for all periods prior to April 20, 2004. The following additional disclosures are required under SFAS No. 7: Consolidated Statements of Operations and Comprehensive Loss Expenses
        **Cumulative from inception to December 31, 2010**Amortization and accretion
        2,321Exploration
        66,174General and administration
        7,625Management and directors fees
        2,436Professional and consulting fees
        5,343Research
        951Shareholders information
        3,729Stock-based compensation expense
        7,537Wages and subcontracting
        8,968Loss before other items
        (105,084
        )Loss on disposal of property, plant & equipment
        (1,137
        )Finance and development costs expensed
        (2,733
        )Foreign exchange gain
        6,142Fair value adjustment related to derivative instruments
        (72,337
        )Net interest income and other
        4,070Loss before Income tax
        (171,079
        )Income tax
        221Loss after Income tax
        (170,858
        )Earnings attributable to non-controlling interest
        17,106Deficit attributable to shareholders
        (153,752
        )
 37


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)(continued)
  e)
      Development Stage Company (continued) In accordance with the principles of reverse takeover accounting, the authorized share capital and number of common shares issued are those of the legal parent (the Company). The changes in share capital proceeds, to the date of the reverse takeover, represents the change in share capital of Mintec and is not related to the issuance of the shares by Baja. Since Mintecs share capital remained unchanged from inception until 2000 and the only other change in Shareholders Equity relates to the cumulative deficit, for practical purposes, the Companys Statements of Changes in Shareholders Equity as required by FAS7, is presented from 2000, rather than from inception. Consolidated Statements of Changes in Shareholders Equity IssuePrice PerUnit
        
        
        Shares(number)
        
        
        Shares($'000)
        
        
        Warrants($'000)
        
        
        ContributedSurplus($'000)
        
        
        Deficit($'000)
        
        
        Total($'000)Balance - December 31, 2000 (from Inception)
        
        
        
        
        13,269,020
        
        
        146
        
        
        -
        
        
        -
        
        
        (30,820
        )
        
        (30,674
        )Loss for the year
        
        
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        (691
        )
        
        (691
        )Special warrants exercised
        
        0.15
        
        
        1,636,666
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Capitalization of debt owing to related parties
        
        
        
        
        -
        
        
        31,432
        
        
        -
        
        
        -
        
        
        -
        
        
        31,432Stock option exercised
        
        0.17
        
        
        30,000
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Warrants exercised
        
        0.18
        
        
        224,000
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Balance - December 31, 2001
        
        
        
        
        15,159,686
        
        
        31,578
        
        
        -
        
        
        -
        
        
        (31,511
        )
        
        67
 38


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
        United States generally accepted accounting principles (GAAP)(continued)
  e)
      Development Stage Company (continued) Consolidated Statements of Changes in Shareholders Equity(continued) IssuePrice PerUnit
        
        
        Shares(number)
        
        
        Shares($'000)
        
        
        Warrants($'000)
        
        
        ContributedSurplus($'000)
        
        
        Deficit($'000)
        
        
        Total($'000)Balance  January 1, 2002
        
        
        
        
        15,159,686
        
        
        31,578
        
        
        -
        
        
        -
        
        
        (31,511
        )
        
        67Income for the year
        
        
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        481
        
        
        481Stock option exercised
        
        0.11
        
        
        148,500
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Warrants exercised
        
        0.11
        
        
        245,000
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Special warrants exercised
        

        0.15
        
        
        980,000
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Cancellation of escrow shares
        
        
        
        
        (274,807
        )
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Share consolidation (16:1)
        
        
        
        
        (15,242,230
        )
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Balance - December 31, 2002
        
        
        
        
        1,016,149
        
        
        31,578
        
        
        -
        
        
        -
        
        
        (31,030
        )
        
        548Loss for the year
        
        
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        (404
        )
        
        (404
        )Private placement
        
        0.10
        
        
        5,000,000
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Warrants exercised
        
        0.13
        
        
        137,450
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Share entitlement correction
        
        
        
        
        5
        
        
        -
        
        
        -
        
        
        -
        
        
        -
        
        
        -Balance - December 31, 2003
        
        
        
        
        6,153,604
        
        
        31,578
        
        
        -
        
        
        -
        
        
        (31,434
        )
        
        144
 39


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  e)
     Development Stage Company (continued)
 Consolidated Statements of Changes in Shareholders Equity(continued) Issue
     
     
     
     
     
     
     
     
     
     
     
     ContributedPrice Per
     
     
     Shares
     
     
     Shares
     
     
     Warrants
     
     
     Surplus
     
     
     Deficit
     
     
     TotalUnit
     
     
     (number)
     
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )Balance -- January 1, 2004
     
     
     
     
     6,153,604
     
     
     31,578
     
     
     -
     
     
     -
     
     
     (31,434
     )
     
     144Loss for the year
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (5,392
     )
     
     (5,392
     )Warrants exercised
     
     
     
     
     600,000
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     -Shares issued in reverse takeover
     
     
     
     
     40,000,000
     
     
     46
     
     
     -
     
     
     -
     
     
     -
     
     
     46Private placements
     
     0.67
     
     
     13,410,702
     
     
     8,941
     
     
     -
     
     
     -
     
     
     -
     
     
     8,941Stock-based Compensation
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     1,397
     
     
     -
     
     
     1,397Stock options exercised
     
     0.20
     
     
     20,000
     
     
     4
     
     
     -
     
     
     -
     
     
     -
     
     
     4Fair value of options exercised
     
     
     
     
     -
     
     
     6
     
     
     -
     
     
     (6
     )
     
     -
     
     
     0Warrants exercised
     
     0.13
     
     
     52,000
     
     
     7
     
     
     -
     
     
     -
     
     
     -
     
     
     7Balance - December 31, 2004
     
     
     
     
     60,236,306
     
     
     40,582
     
     
     -
     
     
     1,391
     
     
     (36,826
     )
     
     5,147Loss for the year
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (7,397
     )
     
     (7,397
     )Private placement (Non-brokered)
     
     0.37
     
     
     3,505,249
     
     
     1,006
     
     
     286
     
     
     -
     
     
     -
     
     
     1,292Private placement (Brokered)
     
     0.41
     
     
     8,255,715
     
     
     2,675
     
     
     674
     
     
     -
     
     
     -
     
     
     3,349Agents warrants
     
     
     
     
     -
     
     
     -
     
     
     162
     
     
     -
     
     
     -
     
     
     162Share issue costs
     
     
     
     
     -
     
     
     (577
     )
     
     -
     
     
     -
     
     
     -
     
     
     (577
     )Warrants exercised
     
     0.14
     
     
     4,243,550
     
     
     585
     
     
     -
     
     
     -
     
     
     -
     
     
     585Stock-based Compensation
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     1,354
     
     
     -
     
     
     1,354Options exercised
     
     0.22
     
     
     40,000
     
     
     9
     
     
     -
     
     
     -
     
     
     -
     
     
     9Fair value of options exercised
     
     
     
     
     -
     
     
     5
     
     
     -
     
     
     (4
     )
     
     -
     
     
     1Balance - December 31, 2005
     
     
     
     
     76,280,820
     
     
     44,285
     
     
     1,122
     
     
     2,741
     
     
     (44,223
     )
     
     3,925
 40


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  e)
     Development Stage Company (continued)
 Consolidated Statements of Changes in Shareholders Equity(continued) Issue
     
     
     
     
     
     
     
     
     
     
     
     ContributedPrice Per
     
     
     Shares
     
     
     Shares
     
     
     Warrants
     
     
     Surplus
     
     
     Deficit
     
     
     TotalUnit
     
     
     (number
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )Balance  January 1, 2006
     
     
     
     
     76,280,820
     
     
     44,284
     
     
     1,122
     
     
     2,741
     
     
     (44,223
     )
     
     3,924Loss for the year
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (23,222
     )
     
     (23,222
     )Private placement
     
     0.90
     
     
     25,555,556
     
     
     17,635
     
     
     5,365
     
     
     -
     
     
     -
     
     
     23,000Brokers warrants
     
     
     
     
     -
     
     
     -
     
     
     1,341
     
     
     -
     
     
     -
     
     
     1,341Share issue costs
     
     
     
     
     -
     
     
     (2,076
     )
     
     (631
     )
     
     -
     
     
     -
     
     
     (2,707
     )Warrants exercised
     
     0.74
     
     
     4,092,641
     
     
     3,023
     
     
     -
     
     
     -
     
     
     -
     
     
     3,023Fair value of warrants exercised
     
     
     
     
     -
     
     
     700
     
     
     (700
     )
     
     -
     
     
     -
     
     
     -Stock-based Compensation
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     5,240
     
     
     -
     
     
     5,240Options exercised
     
     0.35
     
     
     1,955,000
     
     
     684
     
     
     -
     
     
     -
     
     
     -
     
     
     684Fair value of options exercised
     
     
     
     
     -
     
     
     1,008
     
     
     -
     
     
     (1,008
     )
     
     -
     
     
     -Balance - December 31, 2006
     
     
     
     
     107,884,017
     
     
     65,258
     
     
     6,497
     
     
     6,973
     
     
     (67,445
     )
     
     11,283Loss for the year
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (11,112
     )
     
     (11,112
     )Private placements
     
     1.86
     
     
     24,215,000
     
     
     32,613
     
     
     12,427
     
     
     
     
     
     
     
     
     45,040Share issue costs
     
     
     
     
     -
     
     
     (1,498
     )
     
     (534
     )
     
     -
     
     
     -
     
     
     (2,032
     )Agents warrants issued
     
     
     
     
     -
     
     
     -
     
     
     736
     
     
     -
     
     

     -
     
     
     736Special warrants issued
     
     
     
     
     -
     
     
     -
     
     
     48
     
     
     -
     
     
     -
     
     
     48Warrants exercised
     
     0.79
     
     
     6,324,497
     
     
     5,017
     
     
     -
     
     
     -
     
     
     -
     
     
     5,017Fair value of warrants exercised
     
     
     
     
     -
     
     
     1,975
     
     
     (1,975
     )
     
     -
     
     
     -
     
     
     -Options exercised
     
     0.37
     
     
     2,275,000
     
     
     845
     
     
     -
     
     
     -
     
     
     -
     
     
     845Fair value of options exercised
     
     
     
     
     -
     
     
     1,631
     
     
     -
     
     
     (1,631
     )
     
     -
     
     
     -Stock-based Compensation
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     1,403
     
     
     -
     
     
     1,403Balance - December 31, 2007
     
     
     
     
     140,698,514
     
     
     105,841
     
     
     17,199
     
     
     6,745
     
     
     (78,557
     )
     
     51,228
 41


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  e)
     Development Stage Company (continued)
 Consolidated Statements of Changes in Shareholders Equity(continued) Issue
     
     
     
     
     
     
     
     
     
     
     
     ContributedPrice Per
     
     
     Shares
     
     
     Shares
     
     
     Warrants
     
     
     Surplus
     
     
     Deficit
     
     
     TotalUnit
     
     
     (number
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )Balance  January 1, 2008
     
     
     
     
     140,698,514
     
     
     105,841
     
     
     17,199
     
     
     6,745
     
     
     (78,557
     )
     
     51,228Income for the year
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     1,715
     
     
     1,715Warrants exercised
     
     1.20
     
     
     2,035,823
     
     
     2,450
     
     
     -
     
     
     -
     
     
     -
     
     
     2,450Fair value of warrants exercised
     
     
     
     
     -
     
     
     1,122
     
     
     (1,122
     )
     
     -
     
     
     -
     
     
     -Options exercised
     
     0.35
     
     
     330,000
     
     
     116
     
     
     
     
     
     
     
     
     
     
     
     116Fair value of options exercised
     
     
     
     
     -
     
     
     82
     
     
     -
     
     
     (82
     )
     
     -
     
     
     -Stock-based Compensation
  
  
  
  
  -
  
  
  -
  
  
  -
  
  
  1,542
  
  
  
  
  
  1,542Contribution relating to funding obligation
  
  
  
  
  -
  
  
  -
  
  
  -
  
  
  69,380
  
  
  -
  
  
  69,380Contribution relating to refundable deposit liability
  
  
  
  
  -
  
  
  -
  
  
  -
  
  
  1,387
  
  
  -
  
  
  1,387Contribution relating to historical expenditure
  
  
  
  
  -
  
  
  -
  
  
  -
  
  
  10,377
  
  
  -
  
  
  10,377Contribution relating to loans from non-controlling interest
  
  
  
  
  -
  
  
  -
  
  
  -
  
  
  22,361
  
  
  -
  
  
  22,361Balance - December 31, 2008
     
     
     
     
     143,064,337
     
     
     109,611
     
     
     16,077
     
     
     111,710
     
     
     (76,842
     )
     
     160,556
 42


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  e)
     Development Stage Company (continued)
 Consolidated Statements of Changes in Shareholders Equity(continued) Non-Issue
     
     
     
     
     
     
     
     
     
     
     
     Contributed
     
     
     
     
     
     controllingPrice Per
     
     
     Shares
     
     
     Shares
     
     
     Warrants
     
     
     Surplus
     
     
     Deficit
     
     
     Interest
     
     
     TotalUnit
     
     
     (number
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     **($'000**
     **)**
     
     ($'000
     )
     
     ($'000
     )Balance  January 1, 2009
     
     
     
     
     143,064,337
     
     
     109,611
     
     
     16,077
     
     
     111,710
     
     
     (76,842
     )
     
     -
     
     
     160,556Loss for the period attributed to shareholders
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (15,495
     )
     
     -
     
     
     (15,495
     )Profit for the period attributed to non-controlling interest
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     3,305
     
     
     3,305Options exercised
     
     0.35
     
     
     330,000
     
     
     116
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     116Fair value of options exercised
     
     
     
     
     -
     
     
     252
     
     
     -
     
     
     (252
     )
     
     -
     
     
     -
     
     
     -Stock-based Compensation
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     2,827
     
     
     -
     
     
     -
     
     
     2,827Contribution relating to loans from non-controlling interest
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     2,750
     
     
     -
     
     
     -
     
     
     2,750Balance  December 31, 2009
     
     
     
     
     143,394,337
     
     
     109,979
     
     
     16,077
     
     
     117,035
     
     
     (92,337
     )
     
     3,305
     
     
     154,059
 43


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  e)
     Development Stage Company (continued)
 Consolidated Statements of Changes in Shareholders Equity(continued) Non-Issue
     
     
     
     
     
     
     
     
     
     
     
     Contributed
     
     
     
     
     
     controllingPrice Per
     
     
     Shares
     
     
     Shares
     
     
     Warrants
     
     
     Surplus
     
     
     Deficit
     
     
     Interest
     
     
     TotalUnit
     
     
     (number
     )
     
     ($'000
     )
     
     ($'000
     )
     
     ($'000
     )
     
     **($'000**
     **)**
     
     ($'000
     )
     
     ($'000
     )Balance  January 1, 2010
     
     
     
     
     143,394,337
     
     
     109,979
     
     
     16,077
     
     
     117,035
     
     
     (92,337
     )
     
     3,305
     
     
     154,059Loss for the period attributed to shareholders
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (61,415
     )
     
     -
     
     
     (61,415
     )Loss for the period attributed to non-controlling interest
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (20,411
     )
     
     (20,411
     )Shares issued in bought deal financing
     
     1.10
     
     
     167,325,000
     
     
     184,058
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     184,058Shares issued in bought deal financing
     
     0.80
     
     
     21,875,000
     
     
     17,500
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     17,500Share issuance costs
     
     
     
     
     -
     
     
     (11,038
     )
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     (11,038
     )Brokers warrants
     
     
     
     
     -
     
     
     -
     
     
     297
     
     
     -
     
     
     -
     
     
     -
     
     
     297Warrants expired
     
     
     
     
     -
     
     
     -
     
     
     (32
     )
     
     32
     
     
     -
     
     
     -
     
     
     -Options exercised
     
     0.35
     
     
     1,065,000
     
     
     374
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     374Options exercised
     
     0.40
     
     
     501,250
     
     
     202
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     202Options exercised
     
     0.57
     
     
     12,500
     
     
     7
     
     
     -
     
     
     -
     
     
     -
     
     
     -
     
     
     7Fair value of options exercised
     
     
     
     
     -
     
     
     520
     
     
     -
     
     
     (520
     )
     
     -
     
     
     -
     
     
     -Stock-based Compensation
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     1,452
     
     
     -
     
     
     -
     
     
     1,452Contribution relating to loans from non-controlling interest
     
     
     
     
     -
     
     
     -
     
     
     -
     
     
     (27,669
     )
     
     -
     
     
     -
     
     
     (27,669
     )Balance  December 31, 2010
     
     
     
     
     334,173,087
     
     
     301,602
     
     
     16,342
     
     
     90,330
     
     
     (153,752
     )
     
     (17,106
     )
     
     237,416
 44


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  e)
     Development Stage Company (continued)
 Consolidated Statements of Cash Flows Cumulative frominception toDecember 31, 2010Cash flows from operating activitiesLoss for the period
     
     (170,858
     )Items not affecting cashAmortization and accretion
     
     3,448Gain on disposal of property, plant & equipment
     
     1,137Consulting fees settled by sale of subsidiary
     
     27Stock-based compensation expense
     
     12,541Unrealized foreign exchange
     
     (602
     )Impairment of property, plant and equipment
     
     125Finance and development costs expensed
     
     2,733Income tax provision
     
     (221
     )Fair value adjustment related to derivative instruments
     
     72,337(79,333
     )Income tax paid
     
     (850
     )Special Warrants Liability payment
     
     (760
     )Reclamation activities undertaken during the period
     
     (517
     )Net changes in working capital balancesOther receivables
     
     (1,419
     )Deposits and prepaids
     
     453Accounts payable and accrued liabilities
     
     3,129(79,297
     )Cash flows from investing activitiesExpenditure on mineral properties, net
     
     (193,568
     )Acquisition of property, plant and equipment
     
     (8,675
     )Disposal of property, plant & equipment
     
     2,258Proceeds of merger
     
     81Increase in restricted cash
     
     (105,300
     )Investment in long-term receivable
     
     (480
     )(305,684
     )Cash flows from financing activitiesAdvances from related parties
     
     31,439Net proceeds from issuance of common shares
     
     282,948Contribution relating to funding of mineral property costs
     
     69,380Refundable deposit received from sale of property interest
     
     10,186Increase in deferred financing costs
     
     (32,265
     )Loans from non-controlling interest
     
     71,437433,125Cash and cash equivalents - End of period
     
     48,144
 45


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  f)
     Accounts payable and accrued liabilities
 The following additional information would have been presented if these consolidated  financial statements were presented in accordance with US GAAP: December 31,
        
        
        December 31,2010
        
        
        2009Operating payables
        
        2,680
        
        
        652Payables related to property, plant & equipment
        
        1,337
        
        
        -Payables related to deferred financing costs
        
        1,828
        
        
        -Payables related to mineral properties
        
        9,043
        
        
        3,19414,888
        
        
        3,846
  g)
     Stock-based compensation
 The following additional information would have been presented with regards to stock-based compensation if these consolidated  financial statements were presented in accordance with US GAAP: WeightedNumber of
     
     
     averageoptions
     
     
     fair value$Non-vested  December 31, 2009
     
     3,688,750
     
     
     0.44Granted
     
     13,815,000
     
     
     0.67Vested
     
     (2,995,312
     )
     
     0.48Forfeited
     
     (62,500
     )
     
     0.45Non vested  December 31, 2010
     
     14,445,938
     
     
     0.66
 The intrinsic value of all outstanding stock options as at December 31, 2010 was estimated at $8,032 based on a closing share price of $1.13. The unrecognized stock based compensation (related to future services) at December 31, 2010 was estimated at $7,995 which is expected to be recognized over a weighted-average period of 0.74 years. 46


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsFor the year ended December 31, 2010(expressed in thousands of Canadian dollars, unless stated otherwise)
  19
     United States generally accepted accounting principles (GAAP)(continued)
  h)
     New accounting pronouncements under US GAAP
 ASU Topic 820 Improving Disclosures about Fair Value Measurements The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10 and now requires a reporting entity to use judgment in determining the appropriate classes of assets and liabilities and to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The current year adoption did not have an impact on the Company’s consolidated financial position and results of operations. In February 2010, the FASB issued an accounting standard that amended certain recognition and disclosure requirements related to subsequent events. The accounting standard requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement that an SEC filer disclose the date through which subsequent events have been evaluated. This guidance was effective upon issuance. The adoption of this standard had no effect on the Companys condensed consolidated financial position or results of operations. i)
     As permitted by the Securities Exchange Commission, the Company will not provide reconciliations between local generally accepted accounting principles and US GAAP, following the adoption of IFRS for periods starting on January 1, 2011.
  20
     Subsequent events
  a)
     On February 1, 2011, the Company paid the current portion of the special warrant liability of US$333 to CONANP (note 7(a)).b)
     On January 18, 2011, the Company announced that it had substantially completed all conditions precedent to the senior and subordinated debt facilities allowing it to fix the interest rate of the US-Exim Senior loan to 3.02% (notes 8 and 9).
 47


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