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Exhibit 99.2

Baja Mining Corp. Consolidated Financial StatementsDecember 31, 2011
    (expressed in thousands of US dollars)


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Management’s Responsibility for Financial Reporting The accompanying consolidated financial statements of Baja Mining Corp. (“Baja” or the “Company”) are the responsibility of management. The consolidated financial statements have been prepared within reasonable limits of materiality and in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. 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 30, 2012. 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, 2011. 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 International Financial Reporting Standards 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, 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 30, 2012


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Independent Auditor’s Report To the Shareholders of Baja Mining Corp. We have completed an integrated audit of Baja Mining Corp.’s 2011 consolidated financial statements and its internal control over financial reporting as at December 31, 2011, and an audit of its 2010 consolidated financial statements. Our opinions, based on our audits, are presented below. Report on the consolidated financial statementsWe have audited the accompanying consolidated financial statements of Baja Mining Corp., which comprise the consolidated balance sheet as at December 31, 2011, December 31, 2010 and January 1, 2010 and the consolidated statement of operations, consolidated statement of comprehensive income, consolidated statement of changes in equity, and consolidated statement of cash flows for the years ended December 31, 2011 and 2010, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Management’s responsibility for the consolidated financial statementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibilityOur responsibility is to express an opinion on these 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 also 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. 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.


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OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Baja Mining Corp. as at December 31, 2011, December 31, 2010 and January 1, 2010 and its financial performance and its cash flows for the years ended December 31, 2011 and 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Report on internal control over financial reportingWe have also audited Baja Mining Corp.’s internal control over financial reporting as at December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s responsibility for internal control over financial reportingManagement is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Responsibility for Internal Control over Financial Reporting. Auditor’s responsibilityOur responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on the company’s internal control over financial reporting. Definition of internal control over financial reportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


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Inherent limitationsBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. OpinionIn our opinion, Baja Mining Corp. maintained, in all material respects, effective internal control over financial reporting as at December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by COSO. /s/ PricewaterhouseCoopers Chartered AccountantsVancouver, British Columbia March 30, 2012


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Baja Mining Corp.Consolidated Balance SheetAs at December 31, 2011, December 31, 2010 and January 1, 2010(expressed in thousands of US dollars, unless stated otherwise)
  December 31,
        
        December 31,
        
        January 1,2011
        
        2010
        
        2010(note 22)
        
        (note 22)ASSETSCash and cash equivalents
        39,625
        
        48,151
        
        5,969Short-term deposits
        33,068
        
        -
        
        15,608Other current assets (note 5)
        21,646
        
        4,036
        
        942Current assets
        94,339
        
        52,187
        
        22,519Restricted cash (note 6)
        31,150
        
        103,342
        
        -Deposits
        2,501
        
        483
        
        -Inventory (note 7)
        3,451
        
        -
        
        -Deferred financing costs (note 8)
        24,810
        
        30,648
        
        5,881Property, plant and equipment (note 9)
        605,038
        
        200,824
        
        143,252Derivative asset (note 13(a))
        5,695
        
        3,746
        
        -Total assets
        766,984
        
        391,230
        
        171,652LIABILITIES AND EQUITYAccounts payable and accrued liabilities
        49,452
        
        14,571
        
        3,644Income taxes payable
        -
        
        -
        
        804Current portion of environmental liabilities (note 10)
        352
        
        328
        
        337Current portion of subordinated debt (note 12)
        9,360
        
        -
        
        -Current portion of senior debt (note 11)
        152,018
        
        -
        
        -Current portion of derivative liabilities (note 13(b))
        42,890
        
        -
        
        -Current liabilities
        254,072
        
        14,899
        
        4,785Environmental liabilities (note 10)
        15,762
        
        359
        
        443Subordinated long-term debt (note 12)
        233,797
        
        75,087
        
        21,144Derivative liabilities (note 13(b))
        6,818
        
        72,730
        
        -Other long-term liabilities
        2,336
        
        -
        
        -Total liabilities
        512,785
        
        163,075
        
        26,372Share capital (note 14)
        289,755
        
        284,029
        
        97,191Contributed surplus
        109,168
        
        102,147
        
        125,271Deficit
        (135,250
        )
        (146,762
        )
        (77,182
        )Accumulated other comprehensive income (loss)
        5,157
        
        11,877
        
        -Equity attributable to shareholders of the Company
        268,830
        
        251,291
        
        145,280Non-controlling interests
        (14,631
        )
        (23,136
        )
        -Total equity
        254,199
        
        228,155
        
        145,280Total liabilities and equity
        766,984
        
        391,230
        
        171,652
 Commitments(note 19) Subsequent events(note 23) Approved by the Board and authorized for issue on March 27, 2012. /s/ John Greenslade
        Director
        /s/ Graham Thody
        Director
 The accompanying notes form an integral part of these consolidated financial statements. 1


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Baja Mining Corp.For the years ended December 31, 2011 and 2010(expressed in thousands of US dollars, unless stated otherwise)
  Consolidated Statement of OperationsYears ended December 31,2011
        
        2010(note 22)ExpensesGeneral and administration (note 15)
        19,336
        
        10,579Research
        730
        
        627Other
        2,746
        
        -Loss before other items
        (22,812
        )
        (11,206
        )Foreign exchange gain (loss)
        3,967
        
        (9,896
        )Fair value adjustment on derivative instruments (note 13)
        40,732
        
        (72,730
        )Finance income
        800
        
        385Finance costs
        (189
        )
        -Change in estimate – refundable deposit liability (note 12(c))
        -
        
        1,113Income (loss) before tax
        22,498
        
        (92,334
        )Taxation expense (note 17)
        (2,477
        )
        (382
        )Income (loss) for the year
        20,021
        
        (92,716
        )Income (loss) for the year attributable to:Shareholders of the Company
        11,512
        
        (69,580
        )Non-controlling interests
        8,509
        
        (23,136
        )Earnings (loss) per share –Basic
        0.03
        
        (0.41
        )Diluted
        0.03
        
        (0.41
        )Weighted average number of shares outstanding –Basic
        336,951,773
        
        169,750,830Diluted
        343,541,820
        
        169,750,830Consolidated Statement of Comprehensive Income (Loss)Years ended December 31,2011
        
        2010(note 22)Income (loss) for the period
        20,021
        
        (92,716
        )Other comprehensive (loss) incomeCurrency translation adjustment
        (6,724
        )
        11,877Total comprehensive income (loss)
        13,297
        
        (80,839
        )Total comprehensive income (loss) attributable to:Shareholders of the Company
        4,792
        
        (57,703
        )Non-controlling interests
        8,505
        
        (23,136
        )
 The accompanying notes form an integral part of these consolidated financial statements. 2


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Baja Mining Corp.Consolidated Statement of Changes in Equity(expressed in thousands of US dollars, unless stated otherwise)
  Accumulatedother
        
        
        
        
        Non-Share capital
        Contributed
        
        
        
        comprehensive
        
        
        
        
        controllingNumber
        Amount
        surplus
        
        Deficit
        
        income (loss)
        
        Total
        
        
        interests
        
        TotalBalance – January 1, 2010
        143,394,337
        97,191
        125,271
        
        (77,182
        )
        -
        
        145,280
        
        
        -
        
        145,280Loss for the year
        -
        -
        -
        
        (69,580
        )
        -
        
        (69,580
        )
        
        (23,136
        )
        (92,716
        )Currency translation adjustment
        -
        -
        -
        
        -
        
        11,877
        
        11,877
        
        
        -
        
        11,877Bought deal financing, net of share issuance costs of $10,717
        189,200,000
        185,767
        -
        
        -
        
        -
        
        185,767
        
        
        -
        
        185,767Exercise of stock options
        1,578,750
        1,071
        (505
        )
        -
        
        -
        
        566
        
        
        -
        
        566Stock-based compensation expense
        -
        -
        1,432
        
        -
        
        -
        
        1,432
        
        
        -
        
        1,432Fair value of warrants issued
        -
        -
        3,901
        
        -
        
        -
        
        3,901
        
        
        -
        
        3,901Fair value differential of loans from non-controlling interests
        -
        -
        5,810
        
        -
        
        -
        
        5,810
        
        
        -
        
        5,810Modification of loans from non-controlling interests
        -
        -
        (33,762
        )
        -
        
        -
        
        (33,762
        )
        
        -
        
        (33,762
        )Balance – December 31, 2010
        334,173,087
        284,029
        102,147
        
        (146,762
        )
        11,877
        
        251,291
        
        
        (23,136
        )
        228,155Income for the year
        -
        -
        -
        
        11,512
        
        -
        
        11,512
        
        
        8,509
        
        20,021Currency translation adjustment
        -
        -
        -
        
        -
        
        (6,720
        )
        (6,720
        )
        
        (4
        )
        (6,724
        )Exercise of stock options
        4,503,750
        5,523
        (3,633
        )
        -
        
        -
        
        1,890
        
        
        -
        
        1,890Stock-based compensation expense
        -
        -
        8,012
        
        -
        
        -
        
        8,012
        
        
        -
        
        8,012Exercise of warrants
        101,813
        203
        (99
        )
        -
        
        -
        
        104
        
        
        -
        
        104Fair value differential of loans from non-controlling interests
        -
        -
        (1,321
        )
        -
        
        -
        
        (1,321
        )
        
        -
        
        (1,321
        )Fair value differential of Baja funding loan
        -
        -
        4,062
        
        -
        
        -
        
        4,062
        
        
        -
        
        4,062Balance – December 31, 2011
        338,778,650
        289,755
        109,168
        
        (135,250
        )
        5,157
        
        268,830
        
        
        (14,631
        )
        254,199
 The accompanying notes form an integral part of these consolidated financial statements. 3


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Baja Mining Corp.Consolidated Statement of Cash flowsFor the years December 31, 2011 and 2010(expressed in thousands of US dollars, unless stated otherwise)
  Years ended December 31,2011
        
        2010(note 22)Cash flows from operating activitiesIncome (loss) for the year
        20,021
        
        (92,716
        )Items not affecting cashDepreciation and accretion
        1,670
        
        394Stock-based compensation expense
        5,457
        
        974Unrealized foreign exchange
        (6,235
        )
        9,580Fair value adjustment on derivative instruments
        (40,732
        )
        72,730Impairment charges
        2,746
        
        -Income tax provision
        2,477
        
        382Change in estimate – refundable deposit liability
        -
        
        (1,113
        )(14,596
        )
        (9,769
        )Income tax paid
        -
        
        (804
        )Special warrants liability payment
        (333
        )
        (333
        )Net changes in working capital balancesOther current assets
        498
        
        (1,271
        )Accounts payable and accrued liabilities
        (786
        )
        2,703(15,217
        )
        (9,474
        )Cash flows from investing activities(Investment in) redemption of short term deposits
        (34,023
        )
        15,860Acquisition of property, plant and equipment
        (339,599
        )
        (47,638
        )Increase in value-added tax recoverable
        (18,213
        )
        (1,796
        )Reduction of (increase in) restricted cash
        72,175
        
        (103,316
        )Increase in other long-term liabilities
        646
        
        -Increase in long-term deposits
        (2,029
        )
        (466
        )Increase in inventory
        (3,451
        )
        -(324,494
        )
        (137,356
        )Cash flows from financing activitiesNet proceeds from issuance of common shares
        1,994
        
        186,488Expenditure on deferred financing costs
        (4,511
        )
        (23,179
        )Proceeds from subordinated debt
        163,867
        
        24,270Proceeds from senior debt
        169,674
        
        -331,024
        
        187,579Effect of exchange rate changes on cash and cash equivalents
        161
        
        1,433(Decrease) increase in cash and cash equivalents
        (8,526
        )
        42,182Cash and cash equivalents - Beginning of year
        48,151
        
        5,969Cash and cash equivalents - End of year
        39,625
        
        48,151Supplemental cash flow information(note 20)
 The accompanying notes form an integral part of these consolidated financial statements. 4


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  1
      Nature of OperationsBaja Mining Corp. 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 Canada and the United States and trades on the Toronto Stock Exchange, the Frankfurt Stock Exchange and the OTC:QX International. The Company is domiciled in Canada and its registered office is 500 – 200 Burrard Street, Vancouver, British Columbia, V6C 3L6.These consolidated financial statements include the accounts of Baja Mining Corp. and its subsidiaries. The Company’s significant subsidiaries are Baja International, S.à r.l. (“Baja Luxembourg”) and its wholly owned subsidiary Boleo International, S.à r.l. (“Boleo Luxembourg”). Boleo Luxembourg holds a 70% interest in Minera y Metalúrgica del Boleo, S.A. de C.V. (“MMB”), which holds the mineral property rights to the Boleo Project. In addition, MMB holds a 100% interest in Desarrollos y Servicios Costeros, S.A. de C.V. (“Costeros”) and Servicios y Desarrollos Meseta Central, S.A. de C.V. (“Meseta”).During 2010, the Company commenced construction of a mine at its Boleo Project after completion of project financing (notes 11 and 12). During 2011, the Company commenced surface and underground mining activities.These consolidated financial statements have been prepared on a going concern basis, which contemplates, the realization of assets and settlement of liabilities in the normal course of business.2
      Basis of preparation and adoption of International Financial Reporting StandardsThe Company prepares its financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”) as defined in the Handbook of the Canadian Institute of Chartered Accountants (“CICA Handbook”). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (“IFRS”) and to require publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, these are the Company’s first annual consolidated financial statements prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). In these financial statements, the term “Canadian GAAP” refers to Canadian GAAP before the adoption of IFRS. 
          These consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. Subject to certain transition elections and exceptions disclosed in note 22, the Company has consistently applied the accounting policies used in the preparation of its opening IFRS balance sheet at January 1, 2010 throughout all periods presented, as if these policies had always been in effect. Note 22 discloses the impact of the transition to IFRS on the Company’s reported balance sheets as at January 1, 2010 and December 31, 2010, and results of operations and cash flows for the year ended December 31, 2010, including the nature and effect of significant changes in accounting policies from those used in the Company’s consolidated financial statements for the year ended December 31, 2010 prepared in accordance with Canadian GAAP. 5


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policiesa)
      Basis of preparationThese consolidated financial statements have been prepared on a historic cost basis, except for certain financial instruments which are measured at fair value.b)
      Principles of consolidationThese consolidated financial statements include the accounts of Baja Mining Corp. and its subsidiaries. The Company’s significant subsidiaries are Baja International, S.à r.l. (“Baja Luxembourg”) and its wholly owned subsidiary Boleo International, S.à r.l. (“Boleo Luxembourg”). Boleo Luxembourg holds a 70% interest in Minera y Metalúrgica del Boleo, S.A. de C.V. (“MMB”), which holds the mineral property rights to the Boleo Project. In addition, MMB holds a 100% interest in Desarrollos y Servicios Costeros, S.A. de C.V. (“Costeros”) and Servicios y Desarrollos Meseta Central, S.A. de C.V. (“Meseta”).Subsidiaries are all entities the Company controls, either directly or indirectly, where control is defined as the power to govern the financial and operating policies and generally accompanies a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date on which control ceases.All significant inter-company transactions and balances have been eliminated.c)
      Foreign currency translationFunctional currency, as described in IAS 21 The effects of changes in foreign exchange rates(“IAS 21”),is the currency of the primary economic environment in which the Company operates. The functional currency of Baja Mining Corp. is the Canadian dollar, the functional currencies of MMB, Baja Luxembourg and Boleo Luxembourg is the US dollar, while the functional currency of Costeros and Meseta is the Mexican Peso.The Company changed its presentation currency from Canadian dollars (“Cdn$”) to US dollars effective January 1, 2011. In accordance with IAS 1 Presentation of financial statements(“IAS 1”),comparative information is also presented in US dollars.The assets and liabilities and results of Baja Mining Corp., Costeros and Meseta have been translated to US dollars as follows: assets and liabilities using the exchange rate at period end; and income, expenses and cash flow items using the rate that approximates the exchange rates at the dates of the transactions (i.e. the average rate for the period). All resulting exchange differences arising from the translation of the entities with a functional currency other than the US dollar are reported within accumulated other comprehensive income (“AOCI”), as a separate component of equity. 6


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)c)
      Foreign currency translation (continued)In preparing the financial results of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each balance sheet date, monetary assets and liabilities denominated in currencies other than the functional currency of the individual entities are translated using the period end foreign exchange rate. Non-monetary assets and liabilities and equity are translated using the historical rate on the date of the transaction. All gains and losses on translation of these foreign currency transactions are included in profit or loss.d)
      Financial instruments(i)
      Cash and cash equivalentsCash 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 are subject to an insignificant risk of changes in value. Cash and cash equivalents exclude cash subject to restrictions (note 6). Cash and cash equivalents and restricted cash are designated as loans and receivables.(ii)
      Short-term depositsShort-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. Short-term deposits are designated as loans and receivables.(iii)
      Other receivables and depositsOther receivables and deposits are classified as loans and receivables and accordingly are measured initially at fair value, net of transaction costs incurred, and subsequently at amortized cost using the effective interest method.(iv)
      Accounts payable and accrued liabilities and debtAccounts payable and accrued liabilities and debt are classified as other financial liabilities and are initially recognized at fair value, net of transaction costs incurred, and are subsequently stated at amortized cost. Any difference between the amounts originally received, net of transaction costs, and the redemption value is recognized in profit or loss over the period to maturity using the effective interest method.The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expenses over the corresponding period. The effective interest rate is the rate that exactly discounts estimated future cash payments over the expected life of the financial liability, or, where appropriate, a shorter period. 7


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)




3
      Summary of significant accounting policies(continued)d)
      Financial instruments (continued)(v)
      Derivative financial instrumentsThe Company may enter into forward sales, forward purchases and metal options from time to time to preserve and enhance future cash flow streams. Forward exchange contracts may be entered into from time to time to hedge anticipated future transactions. Derivatives embedded in non-derivative contracts are recognized separately unless closely related to the host contract.Derivative financial instruments, including embedded derivatives, are initially recognized at fair value on the date the contract is entered into and are subsequently re-measured at their fair value. Fair values of derivative instruments are determined using valuation techniques, with assumptions based on market conditions existing at the balance sheet date. Changes in fair value are recognized in profit or loss as the Company does not currently apply hedge accounting.Derivative instruments are classified as current or non-current assets or liabilities, depending on their maturity dates.(vi)
      Financial assets – impairmentsFinancial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each period end. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.Objective evidence of impairment may include the following:significant financial difficulty of the issuer or counterparty;default or delinquency in interest or principal payments; orit has become probable that the borrower will enter bankruptcy or financial reorganization.For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate.


e)
      Share purchase warrantsShare purchase warrants issued by the Company with an exercise price denominated in the Company’s functional currency are considered to be equity instruments, with the consideration received reflected as contributed surplus. Upon exercise, the original consideration is reallocated from contributed surplus to share capital along with the associated exercise price.


8

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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)f)
      InventoriesInventories are comprised of stockpiled ore and consumables. Stockpiled ore is valued at the lower of cost and net realizable value. Cost is determined using the weighted average method and includes direct mining expenditures, as well as an allocation of indirect mining costs. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Consumables are valued at the lower of cost and net realizable value, with replacement cost used as the best available measure of net realizable value. If carrying value exceeds the net realizable amount, a write down is recognized. The write-down may be reversed in a subsequent period if the circumstances which caused it no longer exist.g)
      Deferred financing costsDeferred financing costs in connection with proposed debt or equity issuances that are probable are recorded as assets. As the corporate transactions occur, the deferred financing costs are 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 issuance and any overhead costs are expensed as incurred. In the event that the issuance is abandoned, previously capitalized deferred financing costs are expensed through the statement of operations.h)
      Property, plant and equipmentMineral propertiesAcquisition costs for property rights and mining concessions are capitalized. Exploration and evaluation costs are expensed in the period incurred. Development costs are capitalized once a development decision is made based on consideration of project economics, including future metal prices, reserves and resources and estimated operating and capital costs.A decision to develop the Boleo Project was made following the completion of the Definitive Feasibility Study on the economic and technical feasibility of the project in May 2007. From that point forward, all costs directly attributable to mine and project development are capitalized until such a time as individual mines or components of the project are capable of operating in the manner intended by management. 
          Capitalized costs of each component of a producing project are amortized on a unit-of-production basis over estimated ore reserves. Plant and equipment and construction in progress
          Plant and equipment are recorded at historical cost less accumulated depreciation. Historical costs include expenditures that are directly attributable to bringing the asset to a location and condition necessary to operate in a manner intended by management. Such costs are accumulated as construction in progress until the asset is available for use, at which point the asset is classified as plant and equipment. 9


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)h)
      Property, plant and equipment (continued)Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of a replaced component is derecognized. All other costs are charged to the Consolidated Statement of Operations during the period in which they are incurred.Assets available for use are depreciated to their residual values over their estimated useful lives.Generally, the process plant and mining machinery and equipment are depreciated using the unit-of- production method. The process plant is depreciated over estimated ore reserves and mining machinery and equipment are depreciated over the expected useful life of the asset in hours. Depreciation of other plant and equipment is calculated using the straight-line method over the following estimated useful lives: Computer software and equipment
        two to three yearsProcess mobile equipment
        three to ten yearsTransportation equipment
        four yearsOffice equipment, furniture and vehicles
        five yearsLeasehold improvements
        ten yearsBuildings
        twenty years
 Both the estimated useful lives and residual values of assets are reviewed at least annually. i)
      Borrowing costsBorrowing costs on funds directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of the asset until such time as substantially all the activities necessary to prepare the asset for its intended use or sale are complete. A qualifying asset is one that takes a substantial period of time to prepare for its intended use.Where funds have been borrowed specifically to finance an asset, the amount capitalized is the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, interest is capitalized based on the weighted-average interest rate applicable to general borrowings outstanding during the period of construction. The amount of borrowing costs capitalized during the period cannot exceed the actual amount of borrowing costs incurred during the period. Capitalized borrowing costs are amortized over the useful life of the related asset.Borrowing costs include commitment fees on the undrawn and uncancelled amount of senior debt facilities. All other borrowing costs are expensed as incurred. 10


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)j)
      Impairment of assetsAssets that have an indefinite useful life are not subject to depreciation and are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to depreciation or amortization are tested for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognized in profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows (“cash-generating units”).In assessing value in use, the estimated future cash flows are discounted to their present value using a pre- tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.An impairment loss is reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.k)
      LeasesLeases where the lessee assumes substantially all of the benefits and risks of ownership are classified as finance leases. Finance leases are capitalized at the lower of the estimated present value of the underlying lease payments and the fair value of the asset. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the balance outstanding. The obligations, net of finance charges, are included in subordinated long-term debt, except for those which are due within 12 months of the reporting date, which are classified as current liabilities. 
          The interest element is included as a finance charge in profit or loss over the lease period. The property, plant and equipment acquired under finance leasing contracts is depreciated in terms of the group accounting policy, limited to the lease contract term.Leases of assets under which substantially all the benefits and risks of ownership are effectively retained by the lessor are classified as operating leases. The lease expenses are charged to profit or loss on a straight line basis over the life of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place. 11


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)l)
      Provisions(i)
      General provisionsProvisions are recorded when a present legal or constructive obligation exists as a result of past events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the period end, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.(ii)
      Environmental liabilitiesThe Company recognizes liabilities for constructive and legal obligations associated with the retirement of property, plant and equipment that result from the acquisition, construction, development or normal operation of the assets. Such environmental liabilities are recognized based on the discounted estimated future cash flows. The Company has considered all risks relating to the liabilities in the cash flow estimates and, as such, applies a risk-free discount rate. Environmental liabilities are adjusted at each reporting period for changes to factors, including the expected amount of the cash flows required to discharge the liability, the timing of such cash flows and the risk-free discount rate. The net present value of future reclamation cost estimates is capitalized to mineral properties and is depreciated on the same basis as mineral properties.The Company’s estimates of reclamation costs could change as a result of changes in regulatory requirements and assumptions regarding the amount and timing of the future expenditures. These changes are recorded directly to property, plant and equipment with a corresponding entry to the asset retirement obligation. The Company’s estimates are reviewed at the end of each reporting period for changes in regulatory requirements, effects of inflation and changes in estimates. m)
      Stock-based compensationThe Company’s share option plan provides for the granting of stock options to directors, officers, employees and service providers, which allows them to purchase common shares of the Company. The Company grants such options on a graded vesting basis for periods of up to five years at prices equal to or greater than the closing market price on the day preceding the date the options were granted.The fair value of the options issued to employees, or those providing services similar to employees, are measured at the grant date, using the Black-Scholes option pricing model, and is recognized over the period that the employees earn the options. The fair value is either recognized as general and administration expense or as property, plant and equipment when grants are to individuals working directly on mineral projects. A corresponding increase is then recognized in equity.The amount recognized is adjusted to reflect the number of share options expected to vest. Stock options issued to non-employees are recognized based on the fair value of the goods or services received. 12


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)n)
      Income taxesIncome tax comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case the income tax is also recognized directly in equity.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted, at the end of the reporting period, and any adjustments to tax payable in respect of previous years.Deferred 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. Deferred tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are reviewed at each reporting period and recognized to the extent that it is probable that future taxable profits will be available against which they can be utilized.Deferred tax assets and liabilities of the same taxable entity are offset when they relate to taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities. Deferred tax assets and liabilities are presented as non-current.o)
      Earnings (loss) per shareBasic earnings (loss) per share is computed by dividing the earnings (loss) for the year attributable to shareholders of the Company by the weighted average number of common shares outstanding during the year.Diluted earnings (loss) per share is calculated giving effect to the potential dilution that would occur if outstanding stock options and warrants were exercised and converted to common shares. The weighted average number of diluted shares is calculated in accordance with the treasury stock method, whereby dilution is calculated based upon the number of common shares issued should “in-the-money” stock options and warrants be exercised and the proceeds used to repurchase common shares of the Company at the average market price during the period.p)
      Segment reportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. 13


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)q)
      Adoption of new or revised IFRSs and IFRSs not yet effectiveThe Company has not applied the following new and revised IFRSs that have been issued but are not yet effective:(i)
      IFRS 9 – Financial InstrumentsIn October 2010, the IASB added the requirements for financial liabilities in the previously issued IFRS 9 Financial Instruments(“IFRS 9”). This standard is effective for annual periods beginning on or after January 1, 2015 and replaces the parts of IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”) that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortized cost. The determination is made at initial recognition and the classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, IFRS 9 retains most of the IAS 39 requirements. The main difference is that, in cases where the fair value option is taken for financial liabilities, the past of the a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early.(ii)
      IFRS 10 – ConsolidationIn May 2011, the IASB issued IFRS 10 Consolidation(“IFRS 10”), which replaces IAS 27 Consolidated and Separate Financial Statementsand SIC-12 Consolidation – Special Purpose Entities. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. This standard is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early.(iii)
      IFRS 11 – Joint ArrangementsIn May 2011, the IASB issued IFRS 11 Joint Arrangements(“IFRS 10”), which replaces IAS 31 *Interests* in Joint Venturesand SIC-13 Jointly Controlled Entities – Non-monetary Contributions byVenturers. IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method whereas for a joint operation the venturer will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. Under existing IFRS, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. This standard is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early. 14


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)q)
      Adoption of new or revised IFRSs and IFRSs not yet effective (continued)(iv)
      IFRS 12 – Disclosure of Interests in Other EntitiesIn May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities(“IFRS 12”), which establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities. This standard is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early.(v)
      IFRS 13 – Fair Value MeasurementIn May 2011, the IASB issued IFRS 13 Fair Value Measurement(“IFRS 13”), which is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. This standard is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early.(vi)
      Amendments to Other StandardsIn addition, the IASB has made amendments to existing standards, including IAS 27 and IAS 28 Investments in Associates and Joint Ventures(“IAS 28”). IAS 27 has been amended for the issuance of IFRS 10 but retains the current guidance for separate financial statements. IAS 28 has been amended to include joint ventures in its scope and for conforming changes based on the issuance of IFRS 10 and IFRS 11. This standard is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early.(vii)
      Amendments to IAS 1 – Presentation of Financial StatementsThe IASB has amended IAS 1 Presentation of Financial Statements(“IAS 1”) to require entities to separate items presented in other comprehensive income (“OCI”) into two groups, based on whether or not items may be recycled in the future. Entities that choose to present OCI items before tax will be required to show the amount of tax related to the two groups separately. The amendment is effective for annual periods beginning on or after July 1, 2012 with earlier application permitted. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early. 15


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  3
      Summary of significant accounting policies(continued)q)
      Adoption of new or revised IFRSs and IFRSs not yet effective (continued)(viii)
      *IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine***IFRIC 20 *Stripping Costs in the Production Phase of a Surface Mine*(“IFRIC 20”), sets out the accounting for overburden waste removal (stripping) costs in the production phase of a surface mine. Stripping activity may result in two types of benefits: i) inventory produced and ii) improved access to ore. Stripping costs associated with inventory production should be accounted for as a current production cost in accordance with IAS 2 Inventories, and those associated with improved access to ore should be accounted for as an addition to, or enhancement of, an existing asset. This standard is effective for annual periods beginning on or after January 1, 2013. The Company has not yet assessed the impact of this standard on its financial statements or determined whether it will adopt this standard early. 4
      Critical accounting estimate and judgementsa)
      Critical accounting estimates and assumptionsThe preparation of the consolidated financial statements requires that the Company’s management make assumptions and estimates of effects of various future events on the carrying amounts of the Company’s assets and liabilities at the end of the reporting period. Actual results may differ from those estimates. 
        Estimates are reviewed on an ongoing basis using historic experience and other factors that are considered relevant given the circumstances. Revisions to estimates and the resulting effects on the carrying amounts of the Company’s assets and liabilities are accounted for prospectively. 
        The significant assumptions about the future and other major sources of estimation uncertainty at the end of the reporting period are as follows:(i)
      Estimated environmental liabilitiesThe Company’s asset retirement obligation represents management’s best estimate of the present value of the future cash outflows required to settle the liability. The provision includes estimates of future costs, inflation, assumptions of risks associated with the future cash outflows, and the applicable risk free interest rate for discounting the future cash outflows. Changes in these factors could result in a change in the provision recognized by the Company.(ii)
      Fair value of loans from non-controlling interestsThe loans from non-controlling interests meet the definition of financial liabilities and are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method (note 12(d)). The Company applied valuation techniques to estimate the fair value of loans from non-controlling interests, and any changes in the assumptions used could result in a change in the fair value of the financial liability. These estimates include management’s best estimate of the probable amount and timing of cash flows. 16


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)




4
      Key sources of estimation uncertainty and critical accounting judgements(continued)a)
      Critical accounting estimates and assumptions (continued)(iii)
      Fair value of derivative instrumentsThe Company’s derivative instruments are measured at fair value using valuation techniques, and as a result, any changes in assumptions used to estimate the fair value could result in a change in fair value of the derivative instruments. The Company’s derivative instruments include:The Company’s cost overrun facility represents a purchased put option (note 13(a));Zero cost collar copper hedges (note 13(b)(i)); andMandatory prepayment options on the Baja funding loan (note 13(b)(ii)) and on the Export- Import Bank of the United States (“US Exim”) facility (note 13(b)(iii)).


(iv)
      Fair value of the US Exim facilityThe US Exim facility (note 11(a)) meets the definition of a financial liability and is initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. The Company applied valuation techniques to estimate the fair value of the US Exim facility, and any changes in the assumptions used could result in a change in the fair value of the financial liability. These estimates include management’s best estimate of the probable amount and timing of cash flows.(v)
      Fair value of the funding loanThe funding loan from Korea Resources Corporation, LS Nikko Copper, Inc., Hyundai Hysco Co. Ltd., SK Networks Co. Ltd. and Iljin Materials Co. Ltd. (collectively “the Korean Consortium”) (note 12(b)) meets the definition of a financial liability and is initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. The Company applied valuation techniques to estimate the fair value of the funding loan, and any changes in the assumptions used could result in a change in the fair value of the financial liability. These estimates include management’s best estimate of the probable amount and timing of cash flows.(vi)
      Income taxesIn assessing the probability of realizing income tax assets, management makes estimates related to expectations of future taxable income, applicable tax opportunities, expected timing of reversals of temporary differences and the likelihood that tax positions taken will be sustained upon examination by applicable tax authorities.Estimates of future taxable income are based on forecasted cash flows and the application of tax laws in each jurisdiction. The Company does not currently have cash flows from operations causing uncertainty that future taxable income will be available to utilize its deferred tax assets. Management reassesses unrecognized deferred tax assets at the end of each reporting period.


17

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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  4
        Key sources of estimation uncertainty and critical accounting judgements(continued)
  b)
      Critical judgements in applying accounting policies The critical judgements made by the Company’s management in the process of applying the Company’s accounting policies, apart from those involving estimation (note 4(a)), which have the most significant effect on the amounts recognized in the Company’s consolidated financial statements are as follows: (i)
      Economic recoverability and probability of future economic benefits of exploration, evaluation and development costs Management has determined that the exploration, evaluation and development costs that have been capitalized are economically recoverable. Management uses several criteria to assess economic recoverability and probability of future economic benefit including geological and metallurgic information, scoping and feasibility studies, existing permits and life of mine plans. 5
        Other current assets
  December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Deposits
        
        -
        
        
        679
        
        
        38Prepaid expenses
        
        247
        
        
        533
        
        
        19Value-added tax recoverable
        
        20,801
        
        
        2,588
        
        
        775Other receivables
        
        598
        
        
        236
        
        
        11021,646
        
        
        4,036
        
        
        942
  The Company expects to fully recover its receivables, including its value-added tax recoverable and therefore, no allowance has been recorded against these receivables. 18


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  6
        Restricted cash
  December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Construction funds (a)(i)
        
        24,271
        
        
        99,003
        
        
        -Reclamation fund (a)(ii)
        
        4,900
        
        
        3,500
        
        
        -Amounts restricted through credit facilities (b)
        
        1,979
        
        
        839
        
        
        -31,150
        
        
        103,342
        
        
        -
  a)
      As required under the senior debt arrangement signed on September 28, 2010 (note 11), the Company set up certain trust accounts for project funding: (i)
      Funds from this account may be drawn on a monthly basis, based on approved cash flow projections, and used only on the Boleo Project.(ii)
      The Company has deposited $4,900 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 for $750 (Cdn$757). The LC will reduce evenly over the 10 year lease beginning after the second year. In addition, the Company obtained certain operating credit facilities for which it provided $79 (Cdn$80) in security deposits. The Company also provided LC’s of $1,150 as collateral for agreements related to the construction and/or acquisition of equipment and other assets, which form part of the development of the Boleo Project. 7
        Inventory
  December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Stockpiled ore
        
        814
        
        
        -
        
        
        -Development consumables
        
        2,637
        
        
        -
        
        
        -3,451
        
        
        -
        
        
        -
  Stockpile ore inventory represents ore that has been extracted and is available for further processing. The processing plant is not scheduled for completion in the next twelve months and as a result, stockpiled ore has been classified as long-term inventory. 8
        Deferred financing costs
  Balance – January 1, 2010
        
        5,881Additions
        
        25,209Transfer to share issuance costs
        
        (512
        )Foreign exchange adjustment
        
        70Balance – December 31, 2010
        
        30,648Additions
        
        11,627Transfer to senior debt (notes 11(a) - (d))
        
        (13,539
        )Transfer to subordinated debt (notes 12(a) and 12(b))
        
        (3,591
        )Foreign exchange adjustment
        
        (335
        )Balance – December 31, 2011
        
        24,810
  19


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  9
        Property, plant and equipment
  Plant and
        
        
        Construction
        
        
        Mineralequipment
        
        
        in progress
        
        
        properties
        
        
        TotalCostBalance – January 1, 2010
        
        3,039
        
        
        52,887
        
        
        88,771
        
        
        144,697Additions
        
        6,098
        
        
        10,894
        
        
        37,591
        
        
        54,583Borrowing costs capitalized
        
        -
        
        
        -
        
        
        2,834
        
        
        2,834Share-based payments capitalized
        
        -
        
        
        -
        
        
        458
        
        
        458Asset retirement obligation change in estimate
        
        -
        
        
        -
        
        
        194
        
        
        194Disposals
        
        -
        
        
        -
        
        
        -
        
        
        -Foreign currency translation
        
        164
        
        
        -
        
        
        138
        
        
        302Balance – December 31, 2010
        
        9,301
        
        
        63,781
        
        
        129,986
        
        
        203,068Additions
        
        24,155
        
        
        306,878
        
        
        40,647
        
        
        371,680Borrowing costs capitalized
        
        -
        
        
        -
        
        
        22,708
        
        
        22,708Share-based payments capitalized
        
        -
        
        
        -
        
        
        2,555
        
        
        2,555Asset retirement obligation change in estimate
        
        -
        
        
        -
        
        
        15,490
        
        
        15,490Transfer between categories
        
        24,485
        
        
        (24,485
        )
        
        -
        
        
        -Disposals
        
        (297
        )
        
        -
        
        
        -
        
        
        (297
        )Impairment
        
        (2,746
        )
        
        -
        
        
        -
        
        
        (2,746
        )Foreign currency translation
        
        (111
        )
        
        -
        
        
        (197
        )
        
        (308
        )Balance – December 31, 2011
        
        54,787
        
        
        346,174
        
        
        211,189
        
        
        612,150Accumulated depreciationBalance – January 1, 2010
        
        (1,445
        )
        
        -
        
        
        -
        
        
        (1,445
        )Depreciation
        
        (754
        )
        
        -
        
        
        -
        
        
        (754
        )Disposals
        
        -
        
        
        -
        
        
        -
        
        
        -Foreign currency translation
        
        (45
        )
        
        -
        
        
        -
        
        
        (45
        )Balance – December 31, 2010
        
        (2,244
        )
        
        -
        
        
        -
        
        
        (2,244
        )Depreciation
        
        (5,208
        )
        
        -
        
        
        -
        
        
        (5,208
        )Disposals
        
        297
        
        
        -
        
        
        -
        
        
        297Foreign currency translation
        
        43
        
        
        -
        
        
        -
        
        
        43Balance – December 31, 2011
        
        (7,112
        )
        
        -
        
        
        -
        
        
        (7,112
        )Net carrying valueAt January 1, 2010
        
        1,594
        
        
        52,887
        
        
        88,771
        
        
        143,252At December 31, 2010
        
        7,057
        
        
        63,781
        
        
        129,986
        
        
        200,824At December 31, 2011
        
        47,675
        
        
        346,174
        
        
        211,189
        
        
        605,038
  20


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  10
        Environmental liabilities
  December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Special warrants liability (a)
        
        -
        
        
        328
        
        
        623Asset retirement obligation (b)
        
        16,114
        
        
        359
        
        
        15716,114
        
        
        687
        
        
        780Current balance
        
        352
        
        
        328
        
        
        337Long-term balance
        
        15,762
        
        
        359
        
        
        443
  a)
      Special warrants liability On February 1, 2011, the Company made the final of four payments to the Commission of Natural Protected Areas (CONANP), Bank Monex and Ecobanca. Total payments were $1,100. Total Amount
        
        
        DiscountedBalance – January 1, 2010
        
        667
        
        
        623Accretion of discounted liability for the period
        
        -
        
        
        38Less – Repayment
        
        (333
        )
        
        (333
        )Balance – December 31, 2010
        
        334
        
        
        328Accretion of discounted liability for the period
        
        -
        
        
        6Less – Repayment
        
        (334
        )
        
        (334
        )Balance – December 31, 2011
        
        -
        
        
        -
  b)
      Asset retirement obligation Balance – January 1, 2010
        
        157Accretion of discounted liability for the period
        
        8Change in estimate – estimated cash flows (i)
        
        194Balance – December 31, 2010
        
        359Accretion of discounted liability for the period
        
        168Change in estimate – estimated cash flows (i)
        
        15,490Change in estimate – discount rate (ii)
        
        97Balance – December 31, 2011
        
        16,114Current balance
        
        352Long-term balance
        
        15,762
  (i)
      Additional surface disturbance during the period caused an increase in the expected amount of the remediation liability.(ii)
      The Company has adjusted its asset retirement obligation for a change in the risk-free discount rate, which was 2.49% at December 31, 2011 (December 31, 2010 – 3.48%). 21


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  10
        Environmental liabilities(continued)
  b)
      Asset retirement obligation (continued) The Company estimated as at December 31, 2011 that the undiscounted closure costs would amount to $29,404 over an estimated remaining project life in excess of 24 years. 11
        Senior long-term debt facilities
  On September 28, 2010 the Company finalized and signed the senior debt facilities outlined below, which are collateralized by a first mortgage over the Company’s assets and severally guaranteed by the Korean Consortium for their portion of the debt. The proceeds from the facilities are to be used exclusively for the construction, development, financing (consisting of interest and fees) and working capital costs of the Boleo Project. Following the injection of spending of the required contributions by the Company and the Korean Consortium, as well as compliance with a number of standard conditions precedent, which included the implementation of a hedging program (note 13(b)(i)), each of the facilities may be drawn down pro-rata subject to eligibility requirements associated with the US Exim facilities. The Company satisfied all conditions precedent in the fourth quarter of 2011 and completed its first two draws from the senior debt facilities. 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 permitted to make voluntary prepayments on the facilities. December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Export-Import Bank of the United States (a)
        
        103,916
        
        
        -
        
        
        -Export Development Canada (b)
        
        24,935
        
        
        -
        
        
        -Korean Development Bank (c)
        
        14,882
        
        
        -
        
        
        -Commercial Banks (d)
        
        8,285
        
        
        -
        
        
        -Cost Overrun Facility (e)
        
        -
        
        
        -
        
        
        -152,018
        
        
        -
        
        
        -Current balance
        
        152,018
        
        
        -
        
        
        -Long-term balance
        
        -
        
        
        -
        
        
        -
  Due to an administrative error, the commitment fees that were due to the US Exim on December 18, 2011 were paid in January 2012. By payment of the commitment fees in January 2012, the Company remedied the error and was able to subsequently draw from the remainder of the senior debt facilities (note 23(b)). As at December 31, 2011, the matter was continuing and IAS 1 paragraphs 69 and 74 contains a specific requirement that liabilities be presented as current in the event that the Company does not have the unconditional right to defer settlement of these balances for at least twelve months. 22


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  11
        Senior long-term debt facilities(continued)
  As a result, due to the provisions in the senior debt loan agreements, the Company is required to present the US Exim loan balance and mandatory prepayment derivative, along with all other senior debt loan balances and the hedge liability as current liabilities at December 31, 2011 (note 13). Based on the resolution of this matter in January 2012, management estimates that the loans will be repaid in accordance with the repayment terms set out below, rather than within 12 months. Other than this administrative error, the Company was in compliance with all covenants associated with these facilities at December 31, 2011. a)
      Senior debt – Export-Import Bank of the United States US Exim approved a debt facility of $419,612, which includes accrued interest and the capitalized exposure fee of $22,579. The loan bears interest at a fixed rate of 3.02% per annum. Such interest is 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 is 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 $5,000 on any instalment date. During the construction period, interest is accrued as part of the facility. Once the Project reaches economic completion, interest will be payable at least every six months. In addition, from November 26, 2010, the Company accrues commitment fees of 0.5% per annum on the uncancelled and undrawn amount of the facility. The accrued commitment fees are payable every six months starting on June 18, 2011. The mandatory cash sweep mechanism included in the US Exim loan represents an embedded derivative, which has been separated from the host instrument (note 13(b)(iii)). Face value
        
        
        AmountrecognizedBalance - December 31, 2010
        
        -
        
        
        -Contributions
        
        126,002
        
        
        113,679Financing costs (note 8)
        
        -
        
        
        (10,625
        )Capitalized interest
        
        375
        
        
        375Interest accrued
        
        141
        
        
        141Accretion of discounted liability for the year
        
        -
        
        
        346Balance – December 31, 2011
        
        126,518
        
        
        103,916
  At December 31, 2011, the Company estimated the fair value of the US Exim senior debt at $86,419, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.41% which took into account an element of the cost of borrowing and the marginal rates charged on similar senior debt instruments that are repayable over a similar time period. 23


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  11
        Senior long-term debt facilities (continued)
  b)
      Senior debt – Export Development Canada (“EDC”) EDC has provided the Company with a debt facility of up to $150,000, which includes accrued interest. The loan bears interest at Adjusted LIBOR plus a margin that 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. The Company may also elect to make voluntary minimum prepayments of $1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2013. The Company may elect interest periods of one, two, three or six months. Until the earlier of June 30, 2013 and economic completion, interest is accrued and added to the principal outstanding. Once the Project reaches economic completion, interest will be payable every three months, or at the end of the interest period if less than three months. In addition, the Company accrues commitment fees of 1.4% per annum on the uncancelled and undrawn amount of the facility, which are repayable every three months. Face value
        
        
        AmountrecognizedBalance - December 31, 2010
        
        -
        
        
        -Contributions
        
        26,106
        
        
        26,106Financing costs (note 8)
        
        -
        
        
        (1,480
        )Interest accrued
        
        238
        
        
        238Amortization of financing costs
        
        -
        
        
        71Balance – December 31, 2011
        
        26,344
        
        
        24,935
  At December 31, 2011, the Company estimated the fair value of the EDC senior debt at $21,500, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.49% which took into account an element of the cost of borrowing and the marginal rates charged on similar senior debt instruments that are repayable over a similar time period. c)
      Senior debt – Korean Development Bank (“KDB”) KDB has provided the Company with a debt facility of up to $90,000. The debt facility bears interest at Adjusted LIBOR plus a margin that 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. The Company may also elect to make voluntary minimum prepayments of $1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2013. The Company may elect interest periods of one, two, three or six months and interest is payable every three months, or at the end of the interest period if less than three months. In addition, the Company accrues commitment fees of 1.4% per annum on the uncancelled and undrawn amount of the facility, which are repayable every three months. 24


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  11
        Senior long-term debt facilities(continued)
  c)
      Senior debt – Korean Development Bank (continued) Face value
        
        
        AmountrecognizedBalance - December 31, 2010
        
        -
        
        
        -Contributions
        
        15,664
        
        
        15,664Financing costs (note 8)
        
        -
        
        
        (934
        )Interest accrued
        
        140
        
        
        140Amortization of financing costs
        
        -
        
        
        12Balance – December 31, 2011
        
        15,804
        
        
        14,882
  At December 31, 2011, the Company estimated the fair value of the KDB senior debt at $12,591, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.29% which took into account an element of the cost of borrowing and the marginal rates charged on similar senior debt instruments that are repayable over a similar time period. d)
      Senior debt – Commercial Banks A group of commercial banks (“Commercial Banks”) agreed to provide $50,000 of senior debt to the Company. The debt facility bears interest at Adjusted LIBOR plus a margin that 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. The Company may also elect to make voluntary minimum prepayments of $1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2013. The Company may elect interest periods of one, two, three or six months and interest is payable every three months, or at the end of the interest period if less than three months. In addition, the Company accrues commitment fees of 1.4% per annum on the uncancelled and undrawn amount of the facility, which are repayable every three months. Face value
        
        
        AmountrecognizedBalance - December 31, 2010
        
        -
        
        
        -Contributions
        
        8,702
        
        
        8,702Financing costs (note 8)
        
        -
        
        
        (500
        )Interest accrued
        
        76
        
        
        76Amortization of financing costs
        
        -
        
        
        7Balance – December 31, 2011
        
        8,778
        
        
        8,285
  25


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  11
        Senior long-term debt facilities(continued)
  d)
      Senior debt – Commercial Banks (continued) At December 31, 2011, the Company estimated the fair value of the Commercial Banks senior debt at $7,010, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.17% which took into account an element of the cost of borrowing and the marginal rates charged on similar senior debt instruments that are repayable over a similar time period. e)
      Cost overrun facility – Commercial Banks As part of the project debt facility, the Company was required to arrange a $100,000 cost overrun facility. The Company and the Korean Consortium have agreed to proportionately provide $50,000 of which the Company has satisfied its $35,000 contribution through an equity cost overrun facility agreed to with Louis Dreyfus (note 13(a)). The Korean Consortium has guaranteed to supply its $15,000. The remaining $50,000 of the cost overrun facility was obtained proportionately from the Commercial Banks. 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. The Company may also elect to make voluntary minimum prepayments of $1,000 at any time subsequent to the earlier of economic completion of the Boleo Project, or June 30, 2015. In addition, the Company accrues commitment fees of 1.8% per annum on the uncancelled and undrawn amount of the facility, which are repayable every three months. 12
        Subordinated long-term debt facilities
  December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Subordinated loan - KDB (a)
        
        49,301
        
        
        -
        
        
        -Funding loan - Korean Consortium (b)
        
        42,269
        
        
        -
        
        
        -Refundable deposit liability (c)
        
        9,360
        
        
        8,756
        
        
        9,350Loans from non-controlling interest (d)
        
        142,227
        
        
        66,331
        
        
        11,794243,157
        
        
        75,087
        
        
        21,144Current balance
        
        9,360
        
        
        -
        
        
        -Long-term balance
        
        233,797
        
        
        75,087
        
        
        21,144
  26


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  12
        Subordinated long-term debt facilities(continued)
  a)
      Subordinated loan – KDB KDB has provided the Company with a debt facility of up to $64,000, including accrued interest. This facility ranks subordinate to all senior debt in right of payment and security and bears interest at LIBOR plus a margin that varies between 3.95% and 4.3% at various periods of the loan. The facility is repayable within one year of the repayment of the senior debt facilities, subject to voluntary prepayments and mandatory cash sweeps. Accrued interest is payable six months in arrears. In addition, the Company accrues commitment fees of 0.75% per annum on the uncancelled and undrawn amount of the facility, which are repayable on the last day of every six-month period ending June 30 or December 31 of each year. Face value
        
        
        AmountrecognizedBalance - December 31, 2010
        
        -
        
        
        -Contributions
        
        50,000
        
        
        50,000Financing costs (note 8)
        
        -
        
        
        (1,796
        )Interest accrued
        
        821
        
        
        821Amortization of financing costs
        
        -
        
        
        276Balance – December 31, 2011
        
        50,821
        
        
        49,301
  At December 31, 2011, the Company estimated the fair value of the KDB subordinated loan at $40,026, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 10.23% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments that are repayable over a similar time period. b)
      Funding loan – Korean Consortium As part of its acquisition of 30% of MMB in 2008, the Korean Consortium was required to provide a funding loan (the “Baja funding loan”) of $50,000 to MMB, which is considered part of the Company’s share of the project funding. This facility ranks subordinate in right of payment and security to all senior debt and the KDB subordinated loan (notes 11 and 12(a)), and bears interest at the six-month average LIBOR plus 3.5%. Amounts outstanding after repayment of the senior debt facilities, will accrue interest at the six-month average LIBOR plus 5.5%. The facility is repayable by September 7, 2020, subject to mandatory cash sweeps and voluntary prepayments from distributions available to shareholders of MMB. Accrued interest is added to the principal until economic completion after which interest would become payable six months in arrears, but only from funds available to MMB shareholders. 27


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  12
        Subordinated long-term debt facilities(continued)
  b)
      Funding loan – Korean Consortium (continued) The mandatory cash sweep mechanism included in the Baja funding loan represents an embedded derivative, which has been separated from the host instrument (note 13(b)(ii)). Face value
        
        
        AmountrecognizedBalance - December 31, 2010
        
        -
        
        
        -Contributions
        
        50,000
        
        
        42,583Financing costs (note 8)
        
        -
        
        
        (1,795
        )Interest accrued
        
        946
        
        
        946Accretion of discounted liability for the year
        
        -
        
        
        535Balance – December 31, 2011
        
        50,946
        
        
        42,269
  The Company estimated the fair value of the funding loan at recognition based on: The application of a discount rate of 8.49% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments that are repayable over ten years. At December 31, 2011, the Company estimated the fair value of funding loan to be $35,314, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.51% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments that are repayable over ten years. c)
      Refundable deposit liability A refundable deposit liability of $10,000 was included in the cash proceeds received from the sale of 30% of the Company’s interest in MMB to the Korean Consortium in 2008. This deposit is refundable to the Korean Consortium should a decision be made not to produce manganese from the Boleo Project by the later of May 31, 2013 and economic completion. Alternatively, additional consideration may be paid to the Company by the Korean Consortium of approximately $13,000 upon a positive decision related to the production of manganese being made by the time of economic completion of the Boleo Project. During 2010, the Company reviewed the latest available information with regards to its progress on reaching a manganese production decision and it was estimated based on a weighted probability assessment that the manganese production decision could likely be made on or earlier than December 31, 2012. There has been no change in this estimate as of December 31, 2011. The amortized cost of the liability was re-measured 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 $8,421 and consequently a reduction in the liability of $1,113 was recognized as a change in estimate in the Consolidated Statement of Operations. 28


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  12
        Subordinated long-term debt facilities(continued)
  c)
      Refundable deposit liability (continued) Face value
        
        
        AmountrecognizedBalance – January 1, 2010
        
        10,000
        
        
        9,350Change in estimate
        
        -
        
        
        (1,113
        )Accretion of discounted liability for the year
        
        -
        
        
        519Balance - December 31, 2010
        
        10,000
        
        
        8,756Accretion of discounted liability for the year
        
        -
        
        
        604Balance – December 31, 2011
        
        10,000
        
        
        9,360Current balance
        
        10,000
        
        
        9,360Long-term balance
        
        -
        
        
        -
  At December 31, 2011, the Company estimated the fair value of the refundable deposit liability to be $9,169, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.06% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments that are repayable over a similar period. d)
      Loans from non-controlling interests In November 2010, the Company confirmed revised terms on all of MMB’s shareholder loans, including those from the Company. Under the revised terms, these loans are repayable within ten years from the initial distributions available to the shareholders of MMB, and accrue ordinary interest at 10% per annum. Management determined that the modifications to the terms were substantial and accounted for the modification as an extinguishment of the existing debt, recognizing an increase in the loans from non-controlling interests of $33,762 in contributed surplus. Face value
        
        
        AmountrecognizedBalance – January 1, 2010
        
        44,686
        
        
        11,794Contributions
        
        24,270
        
        
        18,460Modification of loan terms
        
        -
        
        
        33,762Interest accrued
        
        1,835
        
        
        1,835Accretion of discounted liability for the year
        
        -
        
        
        480Balance – December 31, 2010
        
        70,791
        
        
        66,331Contributions
        
        63,867
        
        
        65,188Interest accrued
        
        11,617
        
        
        11,617Accretion of liability premium for the year
        
        -
        
        
        (909
        )Balance – December 31, 2011
        
        146,275
        
        
        142,227
  29


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  12
        Subordinated long-term debt facilities(continued)
  d)
      Loans from non-controlling interests (continued) At December 31, 2011, the Company estimated the fair value of loans from non-controlling interests at $137,963, based on: A discounted cash flow with management’s estimate of the probable timing of the repayment of the principal and interest.The application of a discount rate of 9.28% which took into account an element of the cost of borrowing and the marginal rates charged on similar subordinated, unsecured instruments that are repayable over ten years.The estimated fair value of the voluntary prepayment option of $7,832. The fair value was estimated using a receiver swap option model, applying a risk-free yield curve and a credit-spread that appropriately reflects the credit risk of the Company. 13
        Derivative instruments
  December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Louis Dreyfus put option (a)
        
        5,695
        
        
        3,746
        
        
        -Derivative assets
        
        5,695
        
        
        3,746
        
        
        -Hedge liability (b)(i)
        
        29,966
        
        
        72,730
        
        
        -Mandatory prepayment – Baja funding loan (b)(ii)
        
        6,818
        
        
        -
        
        
        -Mandatory prepayment – US Exim facility (b)(iii)
        
        12,924
        
        
        -
        
        
        -Derivative liabilities
        
        49,708
        
        
        72,730
        
        
        -Current balance
        
        42,890
        
        
        -
        
        
        -Long-term balance
        
        6,818
        
        
        72,730
        
        
        -
  The Company is required to present the US Exim mandatory prepayment and the hedge liability as current liabilities at December 31, 2011 as a result of the administrative error related to the late payment of US Exim commitment fees and the provisions in the senior debt loan agreements (note 11). Based on the resolution of this matter in January 2012, management estimates that the loans will be repaid in accordance with the repayment terms set out in note 11, rather than within 12 months. 30


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  13
        Derivative instruments(continued)
  a)
      Derivative assets The Company satisfied its contribution to the cost overrun facility (note 11(d)) through a $35,000 equity cost overrun facility, agreed to with Louis Dreyfus 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 value of Cdn$1.10 per common share, translated at the prevailing exchange rate. The cost overrun facility represents a purchase put option that does not meet the definition of equity. Consequently, the Company has recorded a non-current derivative financial asset on its balance sheet. The Company used the Black Scholes model, applying management’s estimate of the weighted probability amount of the facility, which the Company expects to utilize. The resulting fair value gain of $2,032 for the year ended December 31, 2011 was recognized in the Consolidated Statement of Operations. There was no fair value adjustment recognized during the year ended December 31, 2010, as the cost overrun facility was not in place until the fourth quarter of 2010. The volatility rate, risk free rate and foreign exchange forward rate applied in determining the fair value were 69%, 1.2% and $1.03, respectively. b)
      Derivative liabilities i)
      Hedge liability In order to satisfy the conditions precedent to the senior long-term debt facilities (note 11), the Company entered into a zero cost collar copper hedging program during 2010 with the Commercial Banks for 50% of the estimated Copper production during 2014, 2015 and 2016. The details of the hedging instruments at December 31, 2011 and 2010 are as follows: Production
        
        
        Put price
        
        
        Call price
        
        
        Fair value‘000’s lbs
        
        
        $ per lb
        
        
        $ per lb
        
        
        December 31,
        
        
        December 31,2011
        
        
        201033,716
        
        
        2.40
        
        
        3.96
        
        
        (5,390
        )
        
        (13,761
        )130,146
        
        
        2.40
        
        
        3.97
        
        
        (20,383
        )
        
        (49,566
        )17,637
        
        
        2.40
        
        
        4.01
        
        
        (2,604
        )
        
        (5,812
        )11,097
        
        
        2.40
        
        
        4.02
        
        
        (1,589
        )
        
        (3,591
        )192,596
        
        
        2.40
        
        
        3.97
        
        
        (29,966
        )
        
        (72,730
        )
  The Company values its hedge liabilities using an option valuation model. The primary inputs in the valuation model are copper price, copper price volatility and interest rates. The Company recognized fair value gains in the Consolidated Statement of Operations of $42,764 during the year ended December 31, 2011 and fair value losses of $72,730 during the year ended December 31, 2010. 31


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  13
        Derivative instruments(continued)
  b)
      Derivative liabilities (continued) ii)
      Mandatory prepayment on Baja funding loan The Baja funding loan (note 12(b)) contains a cash sweep mechanism, which requires that 11% of excess free cash flows available after debt servicing be used to reduce the amounts outstanding on that facility. This mandatory prepayment represents an embedded derivative, which has been separated from the host contract. The mandatory prepayment was initially recognized against contributed surplus at an estimated fair value of $3,355. The fair value at December 31, 2011 of $6,818 was determined based on: Management’s estimate of the probable timing of the repayment of the principal and interest under the cash sweep mechanism;The application of a discount rate of 9.51% which took into account an element of the cost of borrowing and the marginal rates charged on similar instruments. The Company recognized a fair value loss in the Consolidated Statement of Operations of $3,463 during the year ended December 31, 2011 and $nil during the year ended December 31, 2010, as the Baja funding loan had not been drawn at that time. iii)
      Mandatory prepayment on US Exim facility The US Exim facility (note 11(a)) contains a cash sweep mechanism, which requires that a portion of excess free cash flows available after debt servicing be used to reduce the amounts outstanding on that facility. This mandatory prepayment represents an embedded derivative, which has been separated from the host contract. The mandatory prepayment option was initially recognized against the carrying value of the loan at an estimated fair value of $12,323. The fair value of the mandatory prepayment at December 31, 2011 of $12,924 was determined based on: Management’s estimate of the probable timing of the repayment of the principal and interest under the cash sweep mechanism;The application of a discount rate of 9.41% which took into account an element of the cost of borrowing and the marginal rates charged on similar instruments. The Company recognized a fair value loss in the Consolidated Statement of Operations of $601 during the year ended December 31, 2011 and $nil during the year ended December 31, 2010, as the US Exim facility had not been drawn at that time. 32


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  14
        Share capital
  a)
      Authorized share capital The Company has been authorized to issue an unlimited number of common shares without par value. b)
      Warrants Details of share purchase warrant activity is as follows: Warrants outstanding – January 1, 2010
        
        25,046,978Brokers’ warrants
        
        1,093,750Warrants issued for equity cost overrun facility
        
        7,408,727Warrants expired during the period
        
        (110,000
        )Warrants outstanding – December 31, 2010
        
        33,439,455Warrants exercised during the period
        
        (101,813
        )Warrants expired during the period
        
        (8,667,165
        )Warrants outstanding – December 31, 2011
        
        24,670,477
  The following table summarizes information about share purchase warrants outstanding at December 31, 2011: Number of warrants
        
        
        Weighted average
        
        
        Weighted averageRange of prices
        
        outstanding and
        
        
        contractual life
        
        
        exercise price(Cdn$ per warrant)
        
        exercisable
        
        
        (years)
        
        
        (Cdn$ per warrant)0.50 to 0.99
        
        1,093,750
        
        
        0.12
        
        
        0.881.00 to 1.49
        
        7,408,727
        
        
        3.50
        
        
        1.381.50 to 2.50
        
        16,168,000
        
        
        0.73
        
        
        2.4924,670,477
        
        
        1.54
        
        
        2.08
 At December 31, 2011, there were 23,576,727 (2010 - nil) potentially dilutive shares related to share purchase warrants that have not been included in the diluted earnings per share calculation for the year presented because their effect is anti-dilutive.  33


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  14
        Share capital(continued)
  c)
      Stock options Details of the Company’s stock option activity are as follows: Number of
        
        
        Weighted averageoptions
        
        
        exercise price(Cdn$ per option)Stock options outstanding – January 1, 2010
        
        13,075,000
        
        
        0.43Granted
        
        13,815,000
        
        
        1.16Exercised
        
        (1,578,750
        )
        
        0.37Forfeited
        
        (62,500
        )
        
        0.87Stock options outstanding – December 31, 2010
        
        25,248,750
        
        
        0.83Granted
        
        7,750,000
        
        
        1.02Exercised
        
        (4,503,750
        )
        
        0.41Forfeited
        
        (507,500
        )
        
        1.06Stock options outstanding – December 31, 2011
        
        27,987,500
        
        
        0.95 The following table summarizes information about stock options outstanding and exercisable at December 31, 2011: WeightedNumber of
        
        
        average
        
        
        Weighted
        
        
        Number of
        
        
        Weightedoutstanding
        
        
        years to
        
        
        average
        
        
        exercisable
        
        
        averageRange of prices
        
        options
        
        
        expiry
        
        
        exercise price
        
        
        options
        
        
        exercise price(Cdn$ per option)
        
        
        
        
        
        
        
        (Cdn$ per option)
        
        
        
        
        
        (Cdn$ per option)0.40 to 0.49
        
        4,860,000
        
        
        1.28
        
        
        0.40
        
        
        4,860,000
        
        
        0.400.50 to 0.99
        
        4,370,000
        
        
        3.65
        
        
        0.71
        
        
        2,170,000
        
        
        0.591.00 to 1.49
        
        18,757,500
        
        
        4.02
        
        
        1.15
        
        
        8,085,000
        
        
        1.1627,987,500
        
        
        3.48
        
        
        0.95
        
        
        15,115,000
        
        
        0.83
  At December 31, 2011, there were 18,757,500 (2010 - nil) potentially dilutive shares related to share stock options that have not been included in the diluted earnings per share calculation for the year presented because their effect is anti-dilutive. The Company’s stock option plan (“the plan”) allows the Company to grant stock options up to a maximum of 10% of the number of issued shares of the Company. At December 31, 2011, the Company has reserved 28,913,558 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. Subsequent to December 31, 2011, the Company modified its stock option plan in order to limit the options available to be granted to non-executive directors to 1% of the Company’s outstanding shares (note 23(a)).  34


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  14
        Share capital(continued)  c)
      Stock options (continued) The fair value of the options granted during the period was estimated at each measurement date using the Black-Scholes option-pricing model. During the year, the Company granted 7,750,000 five-year stock options to consultants and employees, with a fair value of $4,061 (Cdn$4,014) attributed to these options. The total stock-based compensation recorded during the year ended December 31, 2011 on all vested options was $8,012 (2010 – $1,432). This has been recognized, based upon the work carried out by the employee or consultant, to either general and administration expense (2011 - $5,457; 2010 - $974) or to property, plant and equipment (2011 - $2,555; 2010 - $458), with the offsetting amount recorded as a credit to contributed surplus. The weighted average share price during the year was $1.08 (2010 - $1.02). 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: 2011
        
        
        2010Risk-free interest rate
        
        1.69%
        
        
        1.95%Dividend yield
        
        0%
        
        
        0%Expected volatility
        
        78.15%
        
        
        82%Expected stock option life
        
        3.35 years
        
        
        3.16 yearsWeighted average forfeiture rate
        
        1.41%
        
        
        0%Weighted average exchange rates during the period (US$/Cdn$1)
        
        $1.0117
        
        
        $0.9709Weighted average fair value of stock options granted
        
        $1.03
        
        
        $0.61 15
        General and administration expense
  Years ended December 31,2011
        
        
        2010Office and administration
        
        2,769
        
        
        1,685Management and directors fees
        
        1,081
        
        
        1,176Wages
        
        4,950
        
        
        3,723Professional and consulting fees
        
        2,649
        
        
        1,671Stock-based compensation (note 14(c))
        
        5,457
        
        
        974Shareholders information
        
        880
        
        
        964Depreciation
        
        1,550
        
        
        38619,336
        
        
        10,579
  Compensation of key management personnel Key management personnel are those persons that have the authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly. Key management personnel of the Company include executive officers, other senior members of the management team and the board of directors. 35


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  15
        General and administration expense (continued)
  The following compensation has been provided to key management personnel: Years ended December 31,2011
        
        
        2010Salaries and short-term employee benefits
        
        2,889
        
        
        2,236Stock-based compensation
        
        4,577
        
        
        6477,466
        
        
        2,883
  Upon resignation at the Company’s request, executive officers are entitled to termination benefits, which can be up to the lesser of salary for 24 months or the period remaining until age 65. 16
        Related party transactions
  The Company entered into the following related party transactions with directors or officers of the Company or with companies with directors or officers in common: Years ended December 31,2011
        
        
        2010Directors fees – administration
        
        313
        
        
        82Management fees – administration
        
        768
        
        
        1,094Management fees – property, plant and equipment
        
        544
        
        
        5011,625
        
        
        1,677
  The Company also recognized $207 (2010 - $126) of office and administration cost recoveries from a company with directors and officers in common. The above transactions occurred at commercial terms. The loans from the Korean Consortium also represent related party transactions. The terms and conditions of these loans are described in notes 11 and 12. 17
      Income taxes Years ended December 31,2011
        
        
        2010Withholding taxes accrued
        2,354
        
        
        391Current income tax
        123
        
        
        (9
        )Income tax expense
        2,477
        
        
        382 35


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  17
      Income taxes (continued) A reconciliation between tax expense and the product of accounting income or loss multiplied by the Company’s statutory tax rate is as follows: Years ended December 31,2011
        
        
        2010Income (loss) before income tax
        22,498
        
        
        (92,334
        )Statutory tax rate
        26.5%
        
        
        28.5%Expected (expense) recovery at statutory tax rate
        (5,962
        )
        
        26,315Effect of foreign tax rates
        (1,015
        )
        
        1,160Effect of change in future tax rates
        (544)
        
        
        (1,786
        )Effect of difference between functional and tax reporting currency
        4,405
        
        
        (8,553
        )Effect of inflation adjustments in foreign tax jurisdiction
        (2,629
        )
        
        (2,133
        )Foreign withholding taxes
        (2,354
        )
        
        (391
        )Non-deductible expenses
        (1,365
        )
        
        (1,568
        )Other
        (236
        )
        
        2,261(9,700
        )
        
        15,305Change in unrecognized deferred tax assets
        7,223
        
        
        (15,687
        )Income tax expense at effective tax rate of 1.4% (2010: -0.4%)
        (2,477
        )
        
        (382
        )
 The significant components of deferred income tax assets and deferred income tax liabilities are as follows: December 31,
        
        December 31,
        
        January 1,2011
        
        2010
        
        2010Non-capital loss carry-forwards
        49,691
        
        15,340
        
        15,455Deferred financing costs
        4,395
        
        -
        
        -Intercompany receivables
        210
        
        72Capital contributions
        5,179
        
        4,498
        
        10,128Share issuance costs
        1,981
        
        2,575
        
        255Accounts payable
        74
        
        -
        
        -Derivative liabilities
        12,135
        
        19,428
        
        -Environmental liabilities
        4,535
        
        125
        
        19378,200
        
        42,038
        
        26,031Unrecognized deferred tax assets
        (23,611
        )
        (30,834
        )
        (15,147
        )Deferred tax assets
        54,589
        
        11,204
        
        10,884Deferred financing cost
        -
        
        (247
        )
        (156
        )Property, plant and equipment
        (47,903
        )
        (9,911
        )
        (1,077
        )Senior and subordinated debt
        (6,686
        )
        (1,046
        )
        (9,651
        )Deferred tax liabilities
        (54,589
        )
        (11,204
        )
        (10,884
        )Net deferred tax asset (liability)
        -
        
        -
        
        - 36


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  17
      Income taxes(continued)  At December 31, 2011, that Company had unrecognized non-capital losses for income tax purposes of $179,889 (2010 - $65,118) that may be used to offset future taxable income as follows: December 31, 2011Local
        
        
        USD
        
        
        Expirycurrency
        
        
        equivalent
        
        
        dateNon-capital lossesCanadian dollar
        CAD
        
        22,972
        
        
        22,589
        
        
        2031Mexican peso
        MXP
        
        2,198,773
        
        
        157,300
        
        
        2021179,889 18
      Segmented information The Company’s only business activity is the development of mineral properties, which is carried out in Mexico. The breakdown by geographic area as at December 31, 2011 is as follows: Canada
        
        
        Mexico
        
        
        ConsolidatedNon-current assets
        
        18,986
        
        
        653,659
        
        
        672,645Current assets
        
        34,781
        
        
        59,558
        
        
        94,339Total assets
        
        53,767
        
        
        713,217
        
        
        766,984Total liabilities
        
        14,301
        
        
        498,484
        
        
        512,785
 The breakdown by geographic region as at December 31, 2010 is as follows: Canada
        
        
        Mexico
        
        
        ConsolidatedNon-current assets
        
        114,234
        
        
        224,809
        
        
        339,043Current assets
        
        41,056
        
        
        11,131
        
        
        52,187Total assets
        
        155,290
        
        
        235,940
        
        
        391,230Total liabilities
        
        2,253
        
        
        160,822
        
        
        163,075
 No revenues were earned in either of the geographic areas.
 37


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  19
      Commitments a)
      The Company has entered into numerous contracts regarding development and operations of the Boleo Project. Total contractual obligations entered at December 31, 2011 are estimated to be $321,021, the payments for which are expected as follows: 2012
        
        318,3482013
        
        1,6802014
        
        2582015
        
        184Thereafter
        
        551321,021
  b)
      The Company has a number of management and consulting agreements. The future commitments under these contracts as at December 31, 2011 amount to $1,229, the payments are expected as follows: 2012
        
        5702013
        
        5432014
        
        1161,229
  c)
      The Company entered into a 10 year office lease at a new location in 2010 at an average monthly lease expense of $53 (Cdn$53) per month. In addition to the monthly lease payments, the Company has provided a security deposit of $472 (Cdn$480), and has provided a letter of credit (“LC”), related to the tenant improvement allowance, of $750 (Cdn$757) prior to occupancy (note 6(b)). The LC obligation will reduce evenly over the 10 year lease beginning after the second year of the lease. The Company’s future minimum lease payments under these leases are as follows: 2012
        
        6152013
        
        6152014
        
        6152015
        
        615Thereafter
        
        2,9025,362 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 whereby the Company committed to sell, on commercial terms, 70% of the copper and cobalt that is expected to be produced during the first 10 years of the Boleo Project’s operations.
 38


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  19
      Commitments(continued)  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 $4,900 and has committed to deposit an additional $8,500 into the project reclamation funding account before December 31, 2013, for a total of $13,400. 2012
        
        4,9002013
        
        3,6008,500
  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. 20
      Supplemental cash flow information Cash and cash equivalents comprise: December 31,
        
        
        December 31,
        
        
        January 1,2011
        
        
        2010
        
        
        2010Cash in bank
        
        39,174
        
        
        9,888
        
        
        819Term deposits with maturity of less than three months
        
        451
        
        
        38,263
        
        
        5,15039,625
        
        
        48,151
        
        
        5,969
 The non-cash investing and financing activities of the Company include the following: December 31,
      
      
      December 31,2011
      
      
      2010Increase in accounts payable and accrued liabilities related to property, plant and equipment
      
      37,362
      
      
      6,311(Decrease) increase in accounts payable and accrued liabilities related to deferred financing costs
      
      (1,828
      )
      
      1,474Borrowing costs
      
      16,298
      
      
      2,834Stock-based compensation
      
      2,555
      
      
      458Other supplemental information:Interest received
      
      539
      
      
      82Interest paid
      
      -
      
      
      - 39


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  21
      Financial risk management objectives and policies a)
      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 relies on funding from a combination of equity sources (common shares, options and warrants) and debt sources (senior and subordinated debt) for capital (notes 11 and 12). These sources are expected to provide the Company with all of the estimated funding required to complete the engineering, construction and commissioning of the Boleo Project. Other than the administrative error associated with the late payment of commitment fees to US Exim (note 11), the Company was in compliance with all debt covenants at December 31, 2011. The Company paid the outstanding fees in January 2012 and subsequently drew additional funding from its other senior debt facilities in January 2012 (note 23(b)). 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 and only from funds available to MMB shareholders. 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. b)
      Management of financial risk i)
      Market risk Foreign exchange risk The Company operates internationally with offices and operations in Canada, the United States, 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 the Company’s expenses are incurred in Mexican Pesos and to a lesser extent other foreign currencies. A significant change in the currency exchange rates between the US dollar relative to the Mexican peso (“MXP”) or Canadian 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. The functional currency of Baja is the Canadian dollar, thus significant foreign exchange gains and losses arise in converting Baja’s US-based investment in the Boleo Project to Canadian dollars. 40


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  21
      Financial risk management objectives and policies(continued) b)
      Management of financial risk (continued) i)
      Market risk (continued) A 1% appreciation or depreciation in the CAD/USD foreign exchange rate would result in an additional foreign exchange gain or loss of approximately $2,817 (2010 - $403) and an additional currency translation gain or loss in other comprehensive income of $3,002 (2010 - $973). A 10% appreciation or depreciation in the MXP/USD foreign exchange rate would result in an additional foreign exchange gain or loss of approximately $1,559 (2010 - $121) and an additional currency translation loss or gain in other comprehensive income of $11 (2010 - $227). As at December 31, 2011, the Company had the following foreign denominated financial assets and liabilities, which are subject to foreign exchange risk: Baja Mining Corp.
        Foreign currency amount
        Functionalcurrency amountUSD
        MXP
        CADCash and cash equivalents
        152
        -
        155Intercompany credit facility
        248,043
        -
        252,260Other current assets
        264
        -
        269Minera y Metalúrgica del
        Foreign currency amount
        FunctionalBoleo, S.A. de C.V.
        
        
        currency amountCAD
        MXP
        USDCash and cash equivalents
        1,715
        23,425
        3,362Other current assets
        -
        290,760
        20,801Accounts payable
        2,809
        34,279
        5,215
 As at December 31, 2010, the Company had the following foreign denominated financial assets and liabilities, which are recorded in the Company’s functional currency and are subject to foreign exchange risk: Baja Mining Corp.
        Foreign currency amount
        Functionalcurrency amountUSD
        MXP
        CADCash and cash equivalents
        1,882
        -
        1,872Restricted cash
        99,003
        -
        98,468Intercompany credit facility
        149,265
        -
        147,938 41


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  21
      Financial risk management objectives and policies(continued) b)
      Management of financial risk (continued) i)
      Market risk (continued)  Minera y Metalúrgica del
        Foreign currency amount
        FunctionalBoleo, S.A. de C.V.
        
        
        currency amountCAD
        MXP
        USDCash and cash equivalents
        61
        1,906
        215Other current assets
        -
        31,978
        2,588Accounts payable
        1,170
        28,707
        3,487
 Interest rate risk 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 the risk of changes in market interest rates relates primarily to the Company’s variable-rate debt obligations; however, the Company has secured the largest portion of its debt facilities at fixed interest rates to mitigate its exposure to interest rate fluctuations. The impact of a 1% (100 basis points) increase in interest rates on the Company’s debt instruments would amount to approximately $2,630 (2010 - $nil) loss. The Company has not entered into any contracts to hedge its risk against interest rate fluctuations. The Company considers the fluctuation in interest rates when selecting an interest period for its variable-rate debt. The Company’s hedge program (note 13(b)(i)) 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 value at every reporting date. In the event of non-production, the derivative liability as recognized on the balance sheet will become payable. One of the valuation inputs in the hedge valuation is market interest rates. The impact on net loss of a 1% (100 basis points) increase or decrease in market interest rates would amount to approximately $1,074 (2010 - $1,762) additional loss or gain, respectively. 42


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  21
      Financial risk management objectives and policies(continued) b)
      Management of financial risk (continued) i)
      Market risk (continued) 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 primary valuation inputs in the Company’s hedge valuation are copper price and volatility of copper prices. The impact on net loss of a 1% (100 basis points) increase or decrease in copper prices would amount to approximately $3,443 (2010 - $4,570) additional loss or gain, respectively. The impact on net loss of a 1% (100 basis points) increase or decrease in copper price volatility would amount to approximately $10,880 (2010 - $16,860) additional loss or gain, respectively. ii)
      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 believes its maximum exposure to credit risk is its carrying value of cash and cash equivalents, short-term deposits, restricted cash and derivative assets. The Company’s investment policy is to invest its available cash and project funds in instruments with ratings ranging from AA to AAA, earning investment income at fixed or variable interest rates established at the time of the investment. The 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. While the Company is exposed to credit losses due to the non-performance of counterparties, management does not consider this to be a significant risk. iii)
      Liquidity risk Liquidity risk is 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 21(a) to these consolidated financial statements. 43


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  21
      Financial risk management objectives and policies(continued) b)
      Management of financial risk (continued) iii)
      Liquidity risk (continued) The Company is required to present the US Exim loan balance and mandatory prepayment derivative, along with all other senior debt loan balances and the hedge liability, as current liabilities at December 31, 2011 as a result of the administrative error related to the late payment of US Exim commitment fees and the provisions in the senior debt loan agreements (note 11). Based on the resolution of this matter in January 2012, management estimates that the loans will be repaid in accordance with the repayment terms set out in note 11, rather than within 12 months (as presented in the table below). The following table summarizes the Company`s undiscounted obligations and commitments as at December 31, 2011: December 31, 2011Less than 1
        
        1 – 3 years
        
        3 – 5 years
        
        More than 5
        
        Totalyear
        
        
        
        
        
        yearsAccounts payable
        49,452
        
        -
        
        -
        
        -
        
        49,452Operating lease obligations
        615
        
        1,230
        
        1,230
        
        2,287
        
        5,362Contract and purchase commitments
        318,348
        
        1,937
        
        368
        
        368
        
        321,021Reclamation funding
        4,900
        
        3,600
        
        -
        
        -
        
        8,500Environmental liabilities
        360
        
        -
        
        -
        
        29,077
        
        29,437Senior long-term debt
        177,444
        
        30,518
        
        25,690
        
        14,386
        
        248,038Subordinated long-term debt
        10,000
        
        -
        
        85,914
        
        332,913
        
        428,827561,119
        
        37,285
        
        113,202
        
        379,031
        
        1,090,637
 The above table does not include any commitments arising from commitment fees on available facilities related to the Company’s senior debt facilities. c)
      Fair value measurements Certain of the Company’s financial assets and liabilities are measured or disclosed at fair value on a recurring basis and are classified 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 used to value the Company’s financial assets and liabilities are described below and valuation techniques are described in note 13. Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly, i.e. as prices, or indirectly, i.e. derived from prices.Level 3 – Inputs for the asset or liability that are not based on an observable market, i.e. unobservable inputs. 44


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  21
      Financial risk management objectives and policies(continued) c)
      Fair value measurements (continued) The fair values of our financial assets and financial liabilities measured at fair value on a recurring basis are summarized as follows: December 31, 2011Fair valueLevel 1
        
        Level 2
        
        Level 3
        
        TotalFinancial assets – derivative instruments
        -
        
        -
        
        5,695
        
        5,695Financial liabilities – derivative instrumentsHedge liability
        -
        
        29,966
        
        -
        
        29,966Mandatory prepayment – funding loan
        -
        
        -
        
        6,818
        
        6,818Mandatory prepayment – US Exim facility
        -
        
        -
        
        12,924
        
        12,924
  December 31, 2010Fair valueLevel 1
        
        Level 2
        
        Level 3
        
        TotalFinancial assets – derivative instruments
        -
        
        -
        
        3,746
        
        3,746Financial liabilities – derivative instrumentsHedge liability
        -
        
        72,730
        
        -
        
        72,730
  22
      Transition to IFRS IFRS employs a conceptual framework that is similar to Canadian GAAP. However, significant differences exist in certain matters of recognition, measurement and disclosure. While adoption of IFRS has not changed the Company’s actual cash flows, it has resulted in changes to the Company’s reported balance sheets and statements of operations. In order to allow the users of the financial statements to better understand these changes, the Company’s Canadian GAAP Consolidated Balance Sheets as at January 1 and December 31, 2010, including a reconciliation of equity, and the Consolidated Statement of Operations and the Consolidated Statement of Comprehensive Loss for the year ended December 31, 2010 have been reconciled to IFRS, with the resulting differences explained. IFRS 1 sets forth guidance for the initial adoption of IFRS. Under IFRS 1 the standards are applied retrospectively at the transitional balance sheet date, with the exception of certain mandatory and optional exemptions, with all adjustments to assets and liabilities taken to deficit. 45


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) The following mandatory exceptions and optional exemptions to retrospective application are applicable to the Company: Mandatory Exceptions (a)
      Estimates In accordance with IFRS 1, an entity’s estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under previous GAAP, unless there is objective evidence that those estimates were in error. The Company’s IFRS estimates as of January 1, 2010 are consistent with its Canadian GAAP estimates for the same date. (b)
      Non-controlling interests IAS 27 requires that total comprehensive income is attributed to the owners of the parent and to non-controlling interests having a deficit balance. IFRS 1 permits the application of this requirement prospectively for first-time adopters. The Company has applied these provisions of IAS 27 on a prospective basis from the date of transition in accordance with IFRS 1. Optional Exemptions (c)
      Business Combinations IFRS 1 indicates that a first-time adopter may elect not to apply IFRS 3 Business Combinations(“IFRS 3”) retrospectively to business combinations that occurred before the date of transition to IFRS. The Company has taken advantage of this election and will apply IFRS 3 to business combinations that occurred on or after January 1, 2010. (d)
      Cumulative translation differences The Company has chosen to apply the IFRS 1 election that allows a first-time adopter to set the currency translation adjustment, which is included in AOCI, to zero at January 1, 2010 and adjust deficit by the same amount. If, subsequent to adoption, a foreign operation is disposed of, the translation differences that arose before the date of transition to IFRS will not affect the gain or loss on disposal. (e)
      Share-based payment transactions IFRS 1 does not require first-time adopters to apply IFRS 2 Share-based Payment(“IFRS 2”) to equity instruments that were granted on or before November 7, 2002, or equity instruments that were granted subsequent to November 7, 2002 and vested before the date of transition to IFRS. The Company has elected to apply this exemption to awards that vested prior to January 1, 2010. Reconciliations of assets, liabilities, equity, operations and comprehensive loss from those the Company reported under Canadian GAAP to IFRS follow below, with an explanation of the significant differences between Canadian GAAP and the current IFRS accounting policies applied by the Company. These differences result in the adjustments included in the tables that follow. 46


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) (f)
      Functional currency Under Canadian GAAP, the functional currency of MMB was the Canadian dollar, and under IFRS, the Company concluded that the functional currency of MMB is the US dollar. Under IFRS, the foreign currency non-monetary assets and liabilities of MMB are translated into the presentation currency at their historical rates. As a result of the change in functional currency of MMB on transition to IFRS from Canadian dollars to US dollars, the Company has changed its presentation currency to US dollars. The currency translation adjustment arising from Baja Mining Corp., Costeros and Meseta having a different functional currency than the presentation currency of the consolidated group is recognized in other comprehensive income. (g)
      Mineral properties The adjustments to environmental liabilities (note 22(i)), were recognized against the carrying value of mineral properties in accordance with IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities(“IFRIC 1”). As a result of the recognition of the subordinated loans from related parties at fair value and subsequently at amortized cost (note 22(j)), subsequent accretion amounts (which are considered to be borrowing costs) have been capitalized to the carrying value of mineral properties in accordance with IAS 23 Borrowing Costs(“IAS 23”). Furthermore, the refundable deposit liability (note 12(c)) was determined to represent general borrowings as contemplated in IAS 23. As a result, the accretion expense related to the refundable deposit liability, which was previously recognized in accumulated deficit, was capitalized to mineral properties as at January 1, 2010 and continues to be capitalized under IFRS, based on the application of a weighted average capitalization rate. Under Canadian GAAP, the Company recognized a deferred tax liability related to share-based payment amounts capitalized to mineral properties. The corresponding deferred tax expense was capitalized to mineral properties. However, IFRS prohibits the recognition of the deferred tax liability related to capitalized share-based payments as it does not stem from a business combination nor does it affect accounting or taxable income at the time. Therefore, the deferred tax expense previously capitalized to mineral properties has been derecognized. (h)
      Share-based payment IFRS requires measurement of share-based payments to non-employees to be based on the fair value of the goods or services received. However, the definition of an employee under IFRS is much broader as it also includes “others who perform services similar to those rendered by employees”. 47


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) (h)
      Share-based payment (continued) Canadian GAAP requires that share-based payments to non-employees are based on the most reliable measure of either, (i) the stock options (based on a recognized valuation technique such as the Black Scholes model), or (ii) the fair value of the goods or services. The Company’s non-employee share-based payments were measured based on the fair value of the stock options as determined using the Black Scholes valuation model. Canadian GAAP also requires that stock options granted to non-employees are measured at the earliest of (i) the date that the counterparty’s performance is complete, (ii) the date at which a performance commitment is reached, or (iii) in the case of fully vested options, the grant date. (i)
      Environmental liabilities Under IFRS, estimates of provisions are to be revisited at each reporting date. This includes re-assessing the appropriateness of assumptions used in estimating the carrying value of the provisions, including assumptions related to the discount rate used in determining the present value of the obligation. In accordance with IFRIC 1 (and similar to Canadian GAAP), changes resulting from the re-measurement of provisions are to be recognized against the value of the corresponding asset. Changes that reflect the passage of time (accretion) are recognized as finance costs. Under Canadian GAAP, environmental liabilities are not adjusted for changes in the discount rate and accretion was recognized as part of operating expenses. (j)
      Measurement of subordinated debt from non-controlling interests Under Canadian GAAP, the subordinated loans from the Korean Consortium received subsequent to the historical development costs, which were at arm’s length, are related party transactions and were recorded at face value (note 12(d)). IFRS does not contain separate measurement criteria for related party transactions. As such, the subordinated loans from the Korean Consortium are measured in accordance with IAS 39, which requires that these loans be recognized initially at fair value and thereafter at amortized cost. This has resulted in additional borrowing costs being capitalized to mineral properties in accordance with IAS 23, as the loans from non-controlling interests are specific to the development of the Boleo Project. (k)
      Other comprehensive income (loss) Other comprehensive income (loss) consists of the change in the currency translation adjustment. As described in note 22(f), a currency translation adjustment did not arise under Canadian GAAP.  48


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) (l)
      Non-controlling interests Under IFRS, non-controlling interests are to be presented as part of equity. In addition, total comprehensive loss is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. However, since the Company will apply the requirements of IFRS 3 to future business combinations (without revisiting past business combinations) (note 22(c)), the latter provision of IAS 27 shall only be applied prospectively from January 1, 2010. Under Canadian GAAP, the Company did not early adopt the provisions of CICA Handbook Section 1602 Non-controlling interests, and thus, did not recognize a loss from non-controlling interests. The Company applied CICA Handbook Section 1600 Consolidated Financial Statements, which prohibited the recognition of non-controlling interests with a deficit balance. (m)
      Derivative asset The Company’s purchased put option (note 13(a)) was treated as an equity instrument within share capital in accordance with Canadian GAAP. This put option is a derivative asset under IFRS, recognized at fair value through profit or loss. (n)
      Cash flows The adoption of IFRS has had no impact on the net cash flows of the Company. The changes made to the consolidated balance sheets and consolidated statements of operations have resulted in reclassification of various amounts on the statements of cash flows. As there have been no changes to the net cash flows, no reconciliations have been prepared. (o)
      Reclassifications As permitted by IFRS, the Company reclassified certain balances on the balance sheet to combine groupings and to present the income statement by nature. 49


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) The January 1, 2010 Canadian GAAP Consolidated Balance Sheet has been reconciled to IFRS as follows: Note
        
        Canadian
        
        
        Effect of
        
        
        Reclass-
        
        
        IFRSGAAP
        
        
        **transition to**
        
        
        ificationsIFRSASSETSCash and cash equivalents
        
        
        5,969
        
        
        -
        
        
        -
        
        
        5,969Short term deposits
        
        
        15,608
        
        
        -
        
        
        -
        
        
        15,608Other receivables
        (o)
        
        856
        
        
        -
        
        
        (856
        )
        
        -Deposits and prepaid expenses
        (o)
        
        86
        
        
        -
        
        
        (86
        )
        
        -Other current assets
        (o)
        
        -
        
        
        -
        
        
        942
        
        
        942Current assets
        
        
        22,519
        
        
        -
        
        
        -
        
        
        22,519Deferred financing costs
        (f)
        
        6,261
        
        
        (380
        )
        
        -
        
        
        5,881Mineral properties
        (f)-(j)(o)
        
        141,041
        
        
        617
        
        
        (141,658
        )
        
        -Property, plant and equipment
        (f)(o)
        
        1,598
        
        
        (4
        )
        
        141,658
        
        
        143,252Total assets
        
        
        171,419
        
        
        233
        
        
        -
        
        
        171,652LIABILITIES AND EQUITYAccounts payable and accrued liabilities
        
        
        3,644
        
        
        -
        
        
        -
        
        
        3,644Current portion of environmental liabilities
        
        
        337
        
        
        -
        
        
        -
        
        
        337Income taxes payable
        
        
        804
        
        
        -
        
        
        -
        
        
        804Current liabilities
        
        
        4,785
        
        
        -
        
        
        -
        
        
        4,785Environmental liabilities
        (i)
        
        449
        
        
        (6
        )
        
        -
        
        
        443Subordinated long-term debt
        (j)
        
        44,146
        
        
        (23,002
        )
        
        -
        
        
        21,144Total liabilities
        
        
        49,380
        
        
        (23,008
        )
        
        -
        
        
        26,372Share capital
        
        
        97,191
        
        
        -
        
        
        -
        
        
        97,191Share purchase warrants
        (o)
        
        15,638
        
        
        -
        
        
        (15,638
        )
        
        -Contributed surplus
        (h)(j)(o)
        
        85,956
        
        
        23,677
        
        
        15,638
        
        
        125,271Deficit
        (d)(f)(g)
        
        (72,423
        )
        
        (4,759
        )
        
        -
        
        
        (77,182
        )Accumulated other comprehensive (loss) income
        (d)(f)
        
        (4,323
        )
        
        4,323
        
        
        -
        
        
        -Total equity
        
        
        122,039
        
        
        23,241
        
        
        -
        
        
        145,280Total liabilities and equity
        
        
        171,419
        
        
        233
        
        
        -
        
        
        171,652
 50


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) The December 31, 2010 Canadian GAAP Consolidated Balance Sheet has been reconciled to IFRS as follows: Note
        
        Canadian
        
        
        Effect of
        
        
        Reclass-
        
        
        IFRSGAAP
        
        ****
        **transition to**
        
        
        ificationsIFRSASSETSCash and cash equivalents
        
        
        48,151
        
        
        -
        
        
        -
        
        
        48,151Other receivables
        (o)
        
        3,272
        
        
        -
        
        
        (3,272
        )
        
        -Deposits and prepaid expenses
        (o)
        
        764
        
        
        -
        
        
        (764
        )
        
        -Other current assets
        (o)
        
        -
        
        
        -
        
        
        4,036
        
        
        4,036Current assets
        
        
        52,187
        
        
        -
        
        
        -
        
        
        52,187Restricted cash
        
        
        103,342
        
        
        -
        
        
        -
        
        
        103,342Deposits
        
        
        483
        
        
        -
        
        
        -
        
        
        483Deferred financing costs
        (f)
        
        31,718
        
        
        (1,070
        )
        
        -
        
        
        30,648Mineral properties
        (f)-(j)(o)
        
        197,638
        
        
        (3,871
        )
        
        (193,767
        )
        
        -Property, plant and equipment
        (f)(o)
        
        6,998
        
        
        59
        
        
        193,767
        
        
        200,824Derivative asset
        (m)
        
        -
        
        
        3,746
        
        
        -
        
        
        3,746Total assets
        
        
        392,366
        
        
        (1,136
        )
        
        -
        
        
        391,230LIABILITIES AND EQUITYAccounts payable and accrued liabilities
        
        
        14,571
        
        
        -
        
        
        -
        
        
        14,571Current portion of environmental liabilities
        
        
        328
        
        
        -
        
        
        -
        
        
        328Current liabilities
        
        
        14,899
        
        
        -
        
        
        -
        
        
        14,899Environmental liabilities
        (i)
        
        462
        
        
        (103
        )
        
        -
        
        
        359Subordinated long-term debt
        (j)
        
        79,504
        
        
        (4,417
        )
        
        -
        
        
        75,087Derivative liability
        
        
        72,730
        
        
        -
        
        
        -
        
        
        72,730Total liabilities
        
        
        167,595
        
        
        (4,520
        )
        
        -
        
        
        163,075Share capital
        
        
        280,283
        
        
        3,746
        
        
        -
        
        
        284,029Share purchase warrants
        (o)
        
        19,508
        
        
        -
        
        
        (19,508
        )
        
        -Contributed surplus
        (h)(j)(o)
        
        77,191
        
        
        5,448
        
        
        19,508
        
        
        102,147Deficit
        (d)(f)(g)(j)
        
        (153,298
        )
        
        6,536
        
        
        -
        
        
        (146,762
        )Accumulated other comprehensive (loss) income
        (d)(f)
        
        1,087
        
        
        10,790
        
        
        -
        
        
        11,877Shareholders’ equity
        
        
        224,771
        
        
        26,520
        
        
        -
        
        
        251,291Non-controlling interest
        (l)
        
        -
        
        
        (23,136
        )
        
        -
        
        
        (23,136
        )Total equity
        
        
        224,771
        
        
        3,384
        
        
        -
        
        
        228,155Total liabilities and equity
        
        
        392,366
        
        
        (1,136
        )
        
        -
        
        
        391,230
 51


---

Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  22
      Transition to IFRS(continued) The Statement of Operations for the year ended December 31, 2010 under Canadian GAAP has been reconciled to IFRS as follows: Note
        
        Canadian
        
        
        Effect of
        
        
        Reclass-
        
        
        IFRSGAAP
        
        
        transition to
        
        
        ificationsIFRSExpensesOffice and administration
        (o)
        
        1,685
        
        
        -
        
        
        8,894
        
        
        10,579Wages and subcontractors
        (o)
        
        3,723
        
        
        -
        
        
        (3,723
        )
        
        -Stock-based compensation
        (h)(o)
        
        921
        
        
        53
        
        
        (974
        )
        
        -Depreciation
        (g)(i)(o)
        
        905
        
        
        (519
        )
        
        (386
        )
        
        -Management and directors fees
        (o)
        
        1,176
        
        
        -
        
        
        (1,176
        )
        
        -Professional and consulting fees
        (o)
        
        1,671
        
        
        -
        
        
        (1,671
        )
        
        -Research
        
        
        627
        
        
        -
        
        
        -
        
        
        627Shareholders information
        (o)
        
        964
        
        
        -
        
        
        (964
        )
        
        -Loss before other items
        
        
        (11,672
        )
        
        466
        
        
        -
        
        
        (11,206
        )Foreign exchange gain (loss)
        (f)
        
        2,187
        
        
        (12,083
        )
        
        -
        
        
        (9,896
        )Fair value adjustment on derivative instruments
        
        
        (72,730
        )
        
        -
        
        
        -
        
        
        (72,730
        )Finance income
        
        
        385
        
        
        -
        
        
        -
        
        
        385Change in estimate – refundable deposit liability
        
        
        1,113
        
        
        -
        
        
        -
        
        
        1,113Loss before income tax
        
        
        (80,717
        )
        
        (11,617
        )
        
        -
        
        
        (92,334
        )Income tax expense
        (g)
        
        (158
        )
        
        (224
        )
        
        -
        
        
        (382
        )Loss for the year
        
        
        (80,875
        )
        
        (11,841
        )
        
        -
        
        
        (92,716
        )Loss for the period attributable to:Shareholders of the Company
        
        
        (80,875
        )
        
        11,295
        
        
        -
        
        
        (69,580
        )Non-controlling interests
        (l)
        
        -
        
        
        (23,136
        )
        
        -
        
        
        (23,136
        )Basic and diluted loss per share
        
        
        (0.48
        )
        
        0.07
        
        
        -
        
        
        (0.41
        )
 The Consolidated Statement of Comprehensive Loss for the year ended December 31, 2010 under Canadian GAAP has been reconciled to IFRS as follows: Note
        
        Canadian
        
        
        Effect of
        
        
        IFRSGAAP
        
        
        transition toIFRSLoss for the year
        (f)-(i)
        
        (80,875
        )
        
        (11,841
        )
        
        (92,716
        )Other comprehensive incomeCurrency translation adjustment
        (f)
        
        5,410
        
        
        6,467
        
        
        11,877Total comprehensive loss
        
        
        (75,465
        )
        
        (5,374
        )
        
        (80,839
        )Total comprehensive loss attributable to:Shareholders of the Company
        
        
        (75,465
        )
        
        17,762
        
        
        (57,703
        )Non-controlling interests
        (l)
        
        -
        
        
        (23,136
        )
        
        (23,136
        )
 52


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Baja Mining Corp.Notes to the Consolidated Financial StatementsDecember 31, 2011(expressed in thousands of US dollars, unless stated otherwise)
  23
      Subsequent events a)
      On January 12, 2012, the Company announced that it would amend its Stock Option Plan, subject to shareholder approval, to make it compliant with International Shareholder Services guidelines. The Amended Stock Option Plan stipulates that non-executive directors as a group may not be granted options exercisable for more than 1% of the Company’s issued and outstanding shares. Amendments to the Company’s stock option plan will be submitted for shareholder approval at the Company’s next general meeting of shareholders. b)
      On January 17, 2012 and March 28, 2012, the Company drew an additional $100 million and $80 million, respectively, from its senior debt facilities. This brings the total debt drawn, including capitalized interest, to $408 million. Senior and subordinated debt facilities total $823 million. The funds will be used to continue construction and development of the Boleo Project. 53


---