Exhibit
99.1





















































JAGUAR
MINING INC.








Consolidated
Financial Statements





December
31, 2008 and 2007













































AUDITORS'
REPORT TO THE SHAREHOLDERS OF JAGUAR MINING INC.




We have
audited the consolidated balance sheets of Jaguar Mining Inc. as at
December 31, 2008 and 2007 and the consolidated statements of operations
and comprehensive loss, and shareholders’ equity and cash flows for each of the
years in the three year period ended December 31, 2008.  These
financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
financial statements based on our audits.




We
conducted our audits in accordance with Canadian generally accepted auditing
standards.  Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.




In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2008 and
2007 and the results of its operations and its cash flows for each of the years
in the three year period ended December 31, 2008 in accordance with Canadian
generally accepted accounting principles.











Chartered
Accountants, Licensed Public Accountants


Toronto,
Canada


March
23, 2009








MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL REPORTING




The
accompanying consolidated financial statements of Jaguar Mining Inc. and all the
information contained in this annual report are the responsibility of management
and have been approved by the Board of Directors.  These financial
statements and all other information have been prepared by management in
accordance with accounting principles generally accepted in
Canada.  Some amounts included in the financial statements are based
on management’s best estimates and have been derived with careful
judgment.  In fulfilling its responsibilities, management has
developed and maintains a system of internal controls.  These controls
ensure that transactions are authorized, assets are safeguarded from loss or
unauthorized use, and financial records are reliable for the purpose of
preparing financial statements.  The Board of Directors carries out
its responsibilities for the financial statements through the Audit
Committee.  The Audit Committee periodically reviews and discusses
financial reporting matters with the Company’s auditors, KPMG LLP, as well as
with management.  These financial statements have been audited by KPMG
LLP, Chartered Accountants, on behalf of the shareholders.







Daniel
      R. Titcomb
            
            James
      M. RollerPresident
      and CEO
            
            Chief
      Financial Officer







March
23, 2009






1
 
 graphic
              KPMG
      LLP
              Telephone
              (416)
      777-8500Chartered
      Accountants
              Fax
              (416)
      777-8818Suite
      3300 Commerce Court West
              Internet
              www.kpmg.caPO
      Box 31 Stn Commerce CourtToronto
      ON M5L 1B2Canada
 
   REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To
the Board of Directors of Jaguar Mining Inc.
  We
have audited Jaguar Mining Inc. (the  Company )'s internal control
over financial reporting as of December 31, 2008, based on the criteria
established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management 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 the accompanying Management s
Annual Report on Internal Control over Financial Reporting and Attestation
Report of Registrant s Public Accounting Firm within its Form 40-F. Our
responsibility is to express an opinion the Company's internal control over
financial reporting based on our audit.
  We
conducted our audit 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. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
  A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
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 (3) 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.
   
 KPMG
LLP, a Canadian limited liability partnership is the Canadian
 member
firm of KPMG International, a Swiss cooperative.
  2
 
   Page
2
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
criteria established in Internal Control  Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
  We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
the Company as of December 31, 2008 and the related consolidated statements of
operations and comprehensive loss, cash flows and shareholders  equity
for the year ended December 31,2008, and our report dated March 23, 2009
expressed an unqualified opinion on thoseconsolidatedfinancial
statements.
    KPMG LOGO
  Chartered
Accountants, Licensed Public Accountants
  Toronto,
Canada
 March
23, 2009
   
 3
 
 
 graphic
              KPMG
      LLP
              Telephone
              (416)
      777-8500Chartered
      Accountants
              Fax
              (416)
      777-8818Suite
      3300 Commerce Court West
              Internet
              www.kpmg.caPO
      Box 31 Stn Commerce CourtToronto
      ON M5L 1B2
 
   REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To
the Board of Directors of Jaguar Mining Inc.
  We
have audited the accompanying consolidated balance sheets of Jaguar Mining Inc.
(the  Company ) as of December 31, 2008 and December 31, 2007 and the
related consolidated statements of operations and comprehensive loss, cash flows
and shareholders  equity for each of the years in the three-year
period ended December 31, 2008. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
  We
conducted our audits in accordance with Canadian generally accepted auditing
standards. With respect to the consolidated financial statements for the year
ended December 31, 2008, we also conducted our audit 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 the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
  In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2008 and December 31, 2007 and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2008 in conformity with Canadian generally accepted accounting
principles.
   
  Chartered
Accountants, Licensed Public Accountants
  Toronto,
Canada
 March
23, 2009
   KPMG
LLP, a Canadian limited liability partnership is the Canadian
 member
firm of KPMG International, a Swiss cooperative.







4








JAGUAR
      MINING INC.Consolidated
      Balance Sheet(Expressed
      in thousands of U.S. dollars)December
      31,
                      2008
                    
                    
                    December
      31,
                      2007AssetsCurrent
      assets:Cash
      and cash equivalents (Note 17)
                    
                    $
                    20,560
                    
                    
                    $
                    45,711Cash
      in trust (Note 13(b))
                    
                    
                    -
                    
                    
                    
                    837Inventory
      (Note 3)
                    
                    
                    19,946
                    
                    
                    
                    10,724Prepaid
      expenses and sundry assets (Note 4)
                    
                    
                    5,351
                    
                    
                    
                    11,897Unrealized
      foreign exchange gains (Note 5(a)(ii))
                    
                    
                    -
                    
                    
                    
                    1,680Forward
      purchases derivative asset (Note 5(a)(i))
                    
                    
                    -
                    
                    
                    
                    92445,857
                    
                    
                    
                    71,773Prepaid
      expenses and sundry assets (Note 4)
                    
                    
                    26,164
                    
                    
                    
                    13,913Net
      smelter royalty (Note 6)
                    
                    
                    1,006
                    
                    
                    
                    1,225Restricted
      cash (Note 7)
                    
                    
                    3,106
                    
                    
                    
                    3,102Property,
      plant and equipment (Note 8)
                    
                    
                    148,422
                    
                    
                    
                    82,945Mineral
      exploration projects (Note 9)
                    
                    
                    79,279
                    
                    
                    
                    61,273$
                    303,834
                    
                    
                    $
                    234,231Liabilities
      and Shareholders' EquityCurrent
      liabilities:Accounts
      payable and accrued liabilities
                    
                    $
                    13,416
                    
                    
                    $
                    12,993Notes
      payable (Note 10)
                    
                    
                    4,319
                    
                    
                    
                    11,699Income
      taxes payable
                    
                    
                    8,626
                    
                    
                    
                    3,519Asset
      retirement obligations (Note 11)
                    
                    
                    1,337
                    
                    
                    
                    269Forward
      sales derivative liability (Note 5(a)(i))
                    
                    
                    -
                    
                    
                    
                    9,844Unrealized
      foreign exchange losses (Note 5(b)(ii))
                    
                    
                    2,421
                    
                    
                    
                    -30,119
                    
                    
                    
                    38,324Forward
      sales derivative liability (Note 5(a)(i))
                    
                    
                    -
                    
                    
                    
                    5,580Deferred
      compensation liability (Note 14)
                    
                    
                    434
                    
                    
                    
                    -Notes
      payable (Note 10)
                    
                    
                    69,729
                    
                    
                    
                    83,920Future
      income taxes (Note 12)
                    
                    
                    -
                    
                    
                    
                    2,182Asset
      retirement obligations (Note 11)
                    
                    
                    6,828
                    
                    
                    
                    2,706Total
      liabilities
                    
                    
                    107,110
                    
                    
                    
                    132,712Shareholders'
      equityCommon
      shares  (Note 13(a))
                    
                    
                    245,067
                    
                    
                    
                    141,316Warrants  (Note
      13(b))
                    
                    
                    -
                    
                    
                    
                    245Stock
      options (Note 13(c))
                    
                    
                    19,059
                    
                    
                    
                    19,218Contributed
      surplus
                    
                    
                    1,167
                    
                    
                    
                    1,153Deficit
                    
                    
                    (68,569
                    )
                    
                    
                    (60,413
                    )196,724
                    
                    
                    
                    101,519Commitments
      (Notes 5,8, 9, and 19)Subsequent
      events (Note 20)$
                    303,834
                    
                    
                    $
                    234,231





See
      accompanying notes to consolidated financial statements.On
      behalf of the Board:





Gary
      E. German
                DirectorDaniel
      R. Titcomb
                Director








5








JAGUAR
      MINING INC.Consolidated
      Statements of Operations and Comprehensive Loss(Expressed
      in thousands of U.S. dollars, except per share amounts)Year
      Ended
                  December
      31,
                  2008
                
                
                Year
      Ended
                  December
      31,
                  2007
                
                
                Year
      Ended
                  December
      31,
                  2006Gold
      sales
                
                $
                93,657
                
                
                $
                47,834
                
                
                $
                21,179Production
      costs
                
                
                (50,355
                )
                
                
                (25,172
                )
                
                
                (13,195
                )Other
      cost of goods sold
                
                
                (3,255
                )
                
                
                (3,141
                )
                
                
                (447
                )Stock-based
      compensation (Notes 13(c) and 14)
                
                
                (24
                )
                
                
                -
                
                
                
                -Depletion
      and amortization
                
                
                (12,669
                )
                
                
                (5,232
                )
                
                
                (2,376
                )Gross
      profit
                
                
                27,354
                
                
                
                14,289
                
                
                
                5,161Operating
      expenses:Exploration
                
                
                3,536
                
                
                
                2,365
                
                
                
                183Stock-based
      compensation (Note 13(c) and 14)
                
                
                1,238
                
                
                
                10,750
                
                
                
                5,990Administration
                
                
                12,571
                
                
                
                9,617
                
                
                
                6,334Management fees
      (Note 16(a))
                
                
                854
                
                
                
                747
                
                
                
                739Amortization
                
                
                264
                
                
                
                -
                
                
                
                -Accretion
      expense (Note 11)
                
                
                490
                
                
                
                138
                
                
                
                27Other
                
                
                379
                
                
                
                2,782
                
                
                
                1,527Total
      operating expenses
                
                
                19,332
                
                
                
                26,399
                
                
                
                14,800Income
      (loss) before the following
                
                
                8,022
                
                
                
                (12,110
                )
                
                
                (9,639
                )Loss
      on forward derivatives (Note 5(a)(i))
                
                
                318
                
                
                
                9,908
                
                
                
                6,823Loss
      (gain) on forward foreign exchange derivatives (Note
    5(a)(ii))
                
                
                2,623
                
                
                
                (3,690
                )
                
                
                (1,555
                )Foreign
      exchange gain
                
                
                (2,477
                )
                
                
                (2,280
                )
                
                
                (1,871
                )Amortization
      of deferred financing expense
                
                
                -
                
                
                
                -
                
                
                
                698Interest
      expense
                
                
                11,584
                
                
                
                11,170
                
                
                
                270Interest
      income
                
                
                (3,850
                )
                
                
                (4,601
                )
                
                
                (1,582
                )Gain
      on disposition of property (Note 9(a))
                
                
                (452
                )
                
                
                (381
                )
                
                
                -Other
      non-operating expenses
                
                
                -
                
                
                
                230
                
                
                
                -Total
      other expenses
                
                
                7,746
                
                
                
                10,356
                
                
                
                2,783Income
      (loss) before income taxes
                
                
                276
                
                
                
                (22,466
                )
                
                
                (12,422
                )Income
      taxes  (Note 12)Current
      income taxes
                
                
                6,172
                
                
                
                3,519
                
                
                
                591Future
      income taxes (recovered)
                
                
                (1,640
                )
                
                
                1,675
                
                
                
                (267
                )Total
      income taxes
                
                
                4,532
                
                
                
                5,194
                
                
                
                324Net
      loss and comprehensive loss for the year
                
                
                (4,256
                )
                
                
                (27,660
                )
                
                
                (12,746
                )Basic
      and diluted net loss per share (Note 15)
                
                $
                (0.07
                )
                
                $
                (0.52
                )
                
                $
                (0.30
                )Weighted
      average number of common shares outstanding (Note15)
                
                
                62,908,676
                
                
                
                53,613,175
                
                
                
                43,114,563





See
      accompanying notes to consolidated financial statements.








6








JAGUAR
      MINING INC.Consolidated
      Statements of Cash Flows(Expressed
      in thousands of U.S. dollars)Year
      Ended
                    December
      31,
                    2008
                  
                  
                  Year
      Ended
                    December
      31,
                    2007
                  
                  
                  Year
      Ended
                    December
      31,
                    2006Cash
      provided by (used in):Operating
      activities:Net
      loss and comprehensive loss for the year
                  
                  $
                  (4,256
                  )
                  
                  $
                  (27,660
                  )
                  
                  $
                  (12,746
                  )Items
      not involving cash:Unrealized
      foreign exchange (gain) loss
                  
                  
                  (3,471
                  )
                  
                  
                  7,907
                  
                  
                  
                  (97
                  )Stock-based
      compensation
                  
                  
                  1,262
                  
                  
                  
                  10,750
                  
                  
                  
                  5,990Amortization of
      deferred financing costs
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  698Non-cash
      interest expense
                  
                  
                  1,982
                  
                  
                  
                  2,953
                  
                  
                  
                  -Accretion
      expense
                  
                  
                  490
                  
                  
                  
                  138
                  
                  
                  
                  27Future
      income taxes (recovered)
                  
                  
                  (1,640
                  )
                  
                  
                  1,675
                  
                  
                  
                  (267
                  )Depletion and
      amortization
                  
                  
                  12,933
                  
                  
                  
                  5,232
                  
                  
                  
                  2,376Amortization of
      net smelter royalty
                  
                  
                  219
                  
                  
                  
                  310
                  
                  
                  
                  -Interest on
      loans receivable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (102
                  )Unrealized loss
      on forward sales derivatives
                  
                  
                  -
                  
                  
                  
                  4,284
                  
                  
                  
                  6,823Unrealized loss
      (gain) on foreign exchange contracts
                  
                  
                  4,102
                  
                  
                  
                  (972
                  )
                  
                  
                  (709
                  )Gain on
      disposition of property
                  
                  
                  -
                  
                  
                  
                  (381
                  )
                  
                  
                  -Reclamation
      expenditure
                  
                  
                  -
                  
                  
                  
                  (157
                  )
                  
                  
                  (105
                  )Change
      in non-cash operating working capitalAccounts
      receivable
                  
                  
                  -
                  
                  
                  
                  1,742
                  
                  
                  
                  (1,161
                  )Inventory
                  
                  
                  (4,361
                  )
                  
                  
                  (2,624
                  )
                  
                  
                  (2,193
                  )Prepaid
      expenses and sundry assets
                  
                  
                  (14,200
                  )
                  
                  
                  (11,659
                  )
                  
                  
                  (8,041
                  )Accounts
      payable and accrued liabilities
                  
                  
                  423
                  
                  
                  
                  6,991
                  
                  
                  
                  1,269Current
      taxes payable
                  
                  
                  5,107
                  
                  
                  
                  2,928
                  
                  
                  
                  591(1,410
                  )
                  
                  
                  1,457
                  
                  
                  
                  (7,647
                  )Financing
      activities:Issuance of
      common shares, special warrants and warrants, net
                  
                  
                  105,803
                  
                  
                  
                  30,138
                  
                  
                  
                  56,102Shares
      purchased for cancellation
                  
                  
                  (6,381
                  )
                  
                  
                  (2,089
                  )
                  
                  
                  (4
                  )Settlement of
      forward derivatives
                  
                  
                  (14,500
                  )
                  
                  
                  -
                  
                  
                  
                  -Increase in
      restricted cash
                  
                  
                  (4
                  )
                  
                  
                  2,925
                  
                  
                  
                  (6,027
                  )Repayment of
      debt
                  
                  
                  (18,654
                  )
                  
                  
                  (6,086
                  )
                  
                  
                  (2,078
                  )Increase in
      debt
                  
                  
                  3,848
                  
                  
                  
                  64,604
                  
                  
                  
                  14,96570,112
                  
                  
                  
                  89,492
                  
                  
                  
                  62,958Investing
      activitiesMineral
      exploration projects
                  
                  
                  (37,087
                  )
                  
                  
                  (27,233
                  )
                  
                  
                  (24,663
                  )Purchase of
      property, plant and equipment
                  
                  
                  (52,210
                  )
                  
                  
                  (35,859
                  )
                  
                  
                  (25,422
                  )(89,297
                  )
                  
                  
                  (63,092
                  )
                  
                  
                  (50,085
                  )Effect
      of foreign exchange on
      non-U.S. dollar denominatedcash and cash
      equivalents
                  
                  
                  (4,556
                  )
                  
                  
                  3,095
                  
                  
                  
                  -Increase
      (decrease) in cash and cash equivalents
                  
                  
                  (25,151
                  )
                  
                  
                  30,952
                  
                  
                  
                  5,226Cash
      and cash equivalents, beginning of year
                  
                  
                  45,711
                  
                  
                  
                  14,759
                  
                  
                  
                  9,533Cash
      and cash equivalents, end of year
                  
                  $
                  20,560
                  
                  
                  $
                  45,711
                  
                  
                  $
                  14,759





Supplemental
      cash flow information (Note 17)See
      accompanying notes to consolidated financial statements.








7








JAGUAR
      MINING INC.Consolidated
      Statements of Shareholders' Equity(Expressed
      in thousands of U.S. dollars)Common
      Shares
                                                                      
                                                                      
                                                                      Warrants
                                                                      
                                                                      
                                                                      Stock
      Options
                                                                      
                                                                      
                                                                      Contributed
                                                                        Surplus
                                                                      
                                                                      
                                                                      Deficit
                                                                      
                                                                      
                                                                      Total#
                                                                      
                                                                      
                                                                      $
                                                                      
                                                                      
                                                                      
                                                                      #
                                                                      
                                                                      
                                                                      $
                                                                      
                                                                      
                                                                      
                                                                      #
                                                                      
                                                                      
                                                                      
                                                                      $
                                                                      
                                                                      
                                                                      
                                                                      $
                                                                      
                                                                      
                                                                      
                                                                      $
                                                                      
                                                                      
                                                                      
                                                                      $Balance,
      December 31, 2005
                                                                      
                                                                      
                                                                      33,346,337
                                                                      
                                                                      
                                                                      
                                                                      48,013
                                                                      
                                                                      
                                                                      
                                                                      9,259,385
                                                                      
                                                                      
                                                                      
                                                                      6,554
                                                                      
                                                                      
                                                                      
                                                                      4,425,300
                                                                      
                                                                      
                                                                      
                                                                      4,026
                                                                      
                                                                      
                                                                      
                                                                      117
                                                                      
                                                                      
                                                                      
                                                                      (18,711
                                                                      )
                                                                      
                                                                      
                                                                      39,999Public
      offering
                                                                      
                                                                      
                                                                      11,435,000
                                                                      
                                                                      
                                                                      
                                                                      47,363
                                                                      
                                                                      
                                                                      
                                                                      343,050
                                                                      
                                                                      
                                                                      
                                                                      584
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      47,947Shares
      acquired under normal course issuer bid and cancelled (Note
      13(a)(ii))
                                                                      
                                                                      
                                                                      (1,000
                                                                      )
                                                                      
                                                                      
                                                                      (2
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (2
                                                                      )
                                                                      
                                                                      
                                                                      (4
                                                                      )Exercise
      of purchase and compensation warrants
                                                                      
                                                                      
                                                                      1,965,335
                                                                      
                                                                      
                                                                      
                                                                      9,303
                                                                      
                                                                      
                                                                      
                                                                      (1,965,335
                                                                      )
                                                                      
                                                                      
                                                                      (2,053
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      7,250Warrants
      expired
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (1,895,800
                                                                      )
                                                                      
                                                                      
                                                                      (1,013
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      1,013
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Options
      granted (Note 13(c))
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      3,045,000
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Stock
      based compensation
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      6,399
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      6,399Exercise
      of stock options
                                                                      
                                                                      
                                                                      1,171,236
                                                                      
                                                                      
                                                                      
                                                                      1,357
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (1,839,300
                                                                      )
                                                                      
                                                                      
                                                                      (1,252
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      105Options
      expired
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (200,000
                                                                      )
                                                                      
                                                                      
                                                                      (316
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (316
                                                                      )Vested
      options expired upon termination
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (13,000
                                                                      )
                                                                      
                                                                      
                                                                      (19
                                                                      )
                                                                      
                                                                      
                                                                      19
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Unvested
      options expired upon termination
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (149,000
                                                                      )
                                                                      
                                                                      
                                                                      (93
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (93
                                                                      )Repayment
      of share loan
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      800
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      800Interest
      income -share purchase loans
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      34
                                                                      
                                                                      
                                                                      
                                                                      34Net
      loss
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (12,746
                                                                      )
                                                                      
                                                                      
                                                                      (12,746
                                                                      )Balance
      December 31, 2006
                                                                      
                                                                      
                                                                      47,916,908
                                                                      
                                                                      
                                                                      
                                                                      106,834
                                                                      
                                                                      
                                                                      
                                                                      5,741,300
                                                                      
                                                                      
                                                                      
                                                                      4,072
                                                                      
                                                                      
                                                                      
                                                                      5,269,000
                                                                      
                                                                      
                                                                      
                                                                      8,745
                                                                      
                                                                      
                                                                      
                                                                      1,149
                                                                      
                                                                      
                                                                      
                                                                      (31,425
                                                                      )
                                                                      
                                                                      
                                                                      89,375Balance,
      December 31, 2006
                                                                      
                                                                      
                                                                      47,916,908
                                                                      
                                                                      
                                                                      
                                                                      106,834
                                                                      
                                                                      
                                                                      
                                                                      5,741,300
                                                                      
                                                                      
                                                                      
                                                                      4,072
                                                                      
                                                                      
                                                                      
                                                                      5,269,000
                                                                      
                                                                      
                                                                      
                                                                      8,745
                                                                      
                                                                      
                                                                      
                                                                      1,149
                                                                      
                                                                      
                                                                      
                                                                      (31,425
                                                                      )
                                                                      
                                                                      
                                                                      89,375Adjustment
      to opening deficit (Note 2(a)(xvi))
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      165
                                                                      
                                                                      
                                                                      
                                                                      165Private
      placement (Note 10(g))
                                                                      
                                                                      
                                                                      2,156,250
                                                                      
                                                                      
                                                                      
                                                                      10,851
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      10,851Shares
      acquired under normal course issuer bid and cancelled (Note
      13(a)(ii))
                                                                      
                                                                      
                                                                      (236,400
                                                                      )
                                                                      
                                                                      
                                                                      (596
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (1,493
                                                                      )
                                                                      
                                                                      
                                                                      (2,089
                                                                      )Warrants
      forced out
                                                                      
                                                                      
                                                                      67,211
                                                                      
                                                                      
                                                                      
                                                                      72
                                                                      
                                                                      
                                                                      
                                                                      (225,403
                                                                      )
                                                                      
                                                                      
                                                                      (152
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (80
                                                                      )Exercise
      of purchase warrants
                                                                      
                                                                      
                                                                      5,670,297
                                                                      
                                                                      
                                                                      
                                                                      23,678
                                                                      
                                                                      
                                                                      
                                                                      (5,366,721
                                                                      )
                                                                      
                                                                      
                                                                      (3,671
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      20,007Warrants
      expired
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (5,095
                                                                      )
                                                                      
                                                                      
                                                                      (4
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      4
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Options
      granted (Note 13(c))
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      2,808,500
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Stock
      based compensation
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      10,792
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      10,792Exercise
      of stock options
                                                                      
                                                                      
                                                                      160,134
                                                                      
                                                                      
                                                                      
                                                                      477
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (216,842
                                                                      )
                                                                      
                                                                      
                                                                      (277
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      200Unvested
      options expired
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (55,000
                                                                      )
                                                                      
                                                                      
                                                                      (42
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (42
                                                                      )Net
      loss
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (27,660
                                                                      )
                                                                      
                                                                      
                                                                      (27,660
                                                                      )Balance
      December 31, 2007
                                                                      
                                                                      
                                                                      55,734,400
                                                                      
                                                                      
                                                                      
                                                                      141,316
                                                                      
                                                                      
                                                                      
                                                                      144,081
                                                                      
                                                                      
                                                                      
                                                                      245
                                                                      
                                                                      
                                                                      
                                                                      7,805,658
                                                                      
                                                                      
                                                                      
                                                                      19,218
                                                                      
                                                                      
                                                                      
                                                                      1,153
                                                                      
                                                                      
                                                                      
                                                                      (60,413
                                                                      )
                                                                      
                                                                      
                                                                      101,519Balance,
      December 31, 2007
                                                                      
                                                                      
                                                                      55,734,400
                                                                      
                                                                      
                                                                      
                                                                      141,316
                                                                      
                                                                      
                                                                      
                                                                      144,081
                                                                      
                                                                      
                                                                      
                                                                      245
                                                                      
                                                                      
                                                                      
                                                                      7,805,658
                                                                      
                                                                      
                                                                      
                                                                      19,218
                                                                      
                                                                      
                                                                      
                                                                      1,153
                                                                      
                                                                      
                                                                      
                                                                      (60,413
                                                                      )
                                                                      
                                                                      
                                                                      101,519Public
      offering (Note 13(a)(i))
                                                                      
                                                                      
                                                                      8,250,000
                                                                      
                                                                      
                                                                      
                                                                      103,891
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      103,891Shares
      acquired under normal course issuer bid and cancelled (Note
      13(a)(ii))
                                                                      
                                                                      
                                                                      (647,300
                                                                      )
                                                                      
                                                                      
                                                                      (2,481
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (3,900
                                                                      )
                                                                      
                                                                      
                                                                      (6,381
                                                                      )Exercise
      of compensation warrants
                                                                      
                                                                      
                                                                      144,081
                                                                      
                                                                      
                                                                      
                                                                      998
                                                                      
                                                                      
                                                                      
                                                                      (144,081
                                                                      )
                                                                      
                                                                      
                                                                      (245
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      753Options
      granted (Note 13(c))
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      130,000
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Stock
      based compensation
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      916
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      916Exercise
      of stock options
                                                                      
                                                                      
                                                                      501,100
                                                                      
                                                                      
                                                                      
                                                                      1,343
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (699,645
                                                                      )
                                                                      
                                                                      
                                                                      (1,020
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      323Vested
      options expired upon termination
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (10,000
                                                                      )
                                                                      
                                                                      
                                                                      (14
                                                                      )
                                                                      
                                                                      
                                                                      14
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -Unvested
      options expired upon termination
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (165,000
                                                                      )
                                                                      
                                                                      
                                                                      (41
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (41
                                                                      )Net
      loss
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (4,256
                                                                      )
                                                                      
                                                                      
                                                                      (4,256
                                                                      )Balance,
      December 31, 2008
                                                                      
                                                                      
                                                                      63,982,281
                                                                      
                                                                      
                                                                      
                                                                      245,067
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      7,061,013
                                                                      
                                                                      
                                                                      
                                                                      19,059
                                                                      
                                                                      
                                                                      
                                                                      1,167
                                                                      
                                                                      
                                                                      
                                                                      (68,569
                                                                      )
                                                                      
                                                                      
                                                                      196,724











8





JAGUAR
MINING INC.





Notes
      to Consolidated Financial
Statements


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





Years
      ended December 31, 2008 and
2007








1.
            Nature
      of Business:




The
activities of Jaguar Mining Inc. (the "Company") are directed towards developing
and operating mineral projects in Brazil.




2.
            Significant
      Accounting Policies:




(a)
            Existing
      Accounting Policies:




(i)
            Consolidation:




These
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries; Mineração Serras do Oeste Ltda. (“MSOL”) and
Mineração Turmalina Ltda. (“MTL”).  All significant intercompany
accounts and transactions have been eliminated on consolidation.




(ii)
            Cash
      and cash equivalents:




The
Company considers deposits in banks, certificates of deposit and short-term
investments with remaining maturities of three months or less at the time of
acquisition to be cash and cash equivalents.  Cash held on deposit as
security is classified as restricted cash (Note 7).




(iii)
            Inventory:




Gold in
process and ore in stockpiles are stated at the lower of the average total
production cost or net realizable value.  Production costs include
direct labour, benefits, direct material and other direct product costs
including depletion and amortization.  Net realizable value represents
estimated selling price in the ordinary course of business less any further
costs expected to be incurred to completion.




Raw
materials and mine operating supplies are stated at the lower of cost, on a
first-in first-out basis, or net realizable value. Net realizable value
represents replacement cost.




The
nature of the leaching process inherently limits the ability to precisely
monitor inventory levels.  As a result, the metallurgical balancing
process is constantly monitored and the engineering estimates are refined based
on actual results over time.  The ultimate recovery of gold from a
leach pad will not be known until the leaching process is
concluded.




(iv)
            Net
      smelter royalty:




The
Company records its net smelter royalty at cost.  Amortization of the
net smelter royalty is calculated on a unit of production
basis.  Royalty revenue is recognized when the Company has reasonable
assurance with respect to measurement and collectability.




(v)
            Property,
      plant and equipment:




The
Company’s property, plant and equipment are recorded at cost and are amortized
over the useful life of the asset as follows:







Processing
      plants
              -
              over
      the life of the plant, straight lineVehicles
              -
              5
      years, straight lineEquipment
              -
              5-10
      years, straight lineLeasehold
      improvements
              -
              over
      term of lease, straight lineMining
      properties
              -
              unit
      of production methodbased
      upon the mine’sestimated
      economicallyproven
      and probable reserves





(vi)
            Impairment:




The
carrying value of all categories of property, plant and equipment and net
smelter royalty are reviewed for impairment whenever events or circumstances
indicate the recoverable value may be less than the carrying
amount.  The net recoverable amount is based on estimates of
undiscounted future net cash flows expected to be recovered from specific assets
or groups of assets through use or future disposition.




Impairment
charges are recorded in the reporting period in which determination of
impairment is made by management.





9





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007








2.
            Significant
      Accounting Policies (continued):




(a)
            Existing
      Accounting Policies (continued):




(vii)
            Mineral
      exploration projects:




The
Company considers its exploration costs to have the characteristics of property,
plant and equipment.  As such, the Company defers all exploration
costs, including acquisition costs, field exploration and field supervisory
costs relating to specific properties until those properties are brought into
production, at which time, they will be amortized on a unit of production basis
based on their estimated economic life or until the properties are abandoned,
sold, or considered to be impaired in value, at which time an appropriate charge
will be made.  After a mine property has been brought into commercial
production the related costs will be transferred to property, plant and
equipment.




The
recoverability of the amounts shown for mining interests is dependent on the
existence of economically recoverable reserves, the ability to obtain financing
to complete the development of such reserves and meet obligations under various
agreements, and the success of future operations or dispositions.




(viii)
            Income
      taxes:




The
Company accounts for income taxes under the asset and liability
method.  Under this method of tax allocation, future income and mining
tax assets and liabilities are determined based on differences between the
financial statement carrying values and their respective income tax bases
(temporary differences).  Future income tax assets and liabilities are
measured using the rates expected to be in effect when the temporary differences
are likely to reverse.  The effect on future income tax assets and
liabilities of a change in tax rates is included in income in the period in
which the change is substantively enacted.  The amount of future
income tax assets recognized is limited to the amount that is more likely than
not to be realized.




The tax
basis of the Company's Brazilian assets converted at period-end exchange rates
results in temporary differences.




(ix)
            Reclamation
      costs:




The
Company recognizes the liability arising from legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development and/or normal operation of a long-lived
asset.  The fair value of a liability for an asset retirement
obligation is recorded in the period in which it is incurred.  When
the liability is initially recorded, the cost is capitalized by increasing the
carrying amount of the related long-lived asset.  The Company
amortizes the amount added to the asset using the depreciation method
established for the related asset.  The amortization expense is
included in the statement of operations and accounted for in accumulated
amortization.  An accretion expense in relation with the discounted
liability over the remaining life of the mining properties is accounted for in
the statement of operations and added to the asset retirement
obligation.  The liability is adjusted at the end of each period to
reflect the passage of time and changes in the estimated future cash flows
underlying the obligation.  Upon settlement of the liability, a gain
or loss is recorded.




(x)
            Foreign
      currency translation:




The
U.S. dollar is considered to be the functional currency of the Company and of
its subsidiaries.  Monetary assets and liabilities of the Company's
Brazilian operations, including future income taxes, are translated into U.S.
dollars at the rate of exchange in effect at the balance sheet date, and
non-monetary assets and liabilities are translated at the historical rate of
exchange.  Transactions in foreign currencies are translated at the
actual rates of exchange.  Foreign currency gains and losses are
recognized in income.















10





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007








2.
              Significant
      Accounting Policies
(continued):




(a)
            Existing
      Accounting Policies (continued):




(xi)
            Revenue
      recognition:




The Company produces gold doré which is
further refined by a third party and sold to international
banks.  Revenue is recognized when title is transferred, delivery is
effected to the international banks, and when the Company has reasonable
assurance with respect to measurement and collectability.




(xii)
            Stock-based
      compensation:




The
Company has stock-based compensation plans, which are described in Notes 13(c)
and 14.  The Company accounts for all stock-based payments using the
fair value based method using the Black-Scholes model.  Under the fair
value based method, compensation cost attributable to options granted is
measured at fair value at the grant date and amortized on a straight line basis
over the vesting period.  No compensation cost is recognized for
options that employees forfeit if they fail to satisfy the service requirement
for vesting.




The
Company treats awards that call for settlement in cash, including share
appreciation rights and performance awards, as liabilities. The value of these
liabilities is re-measured at each reporting period based on the changes in the
intrinsic values of the awards.  Any gains or losses on re-measurement
are recorded in the statement of operations.  For any forfeiture of
the awards, the accrued compensation cost will be adjusted by decreasing
compensation cost in the period of the forfeiture.




(xiii)
            Net
      loss per share:




Basic
loss per share is computed by dividing loss available to common shareholders by
the weighted average number of common shares outstanding during the
period.  The treasury stock method is used to calculate diluted income
per share.  Diluted income per share is similar to basic income per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding assuming that options
and warrants with an average market price for the period greater than their
exercise price are exercised and the proceeds are used to repurchase common
shares.




(xiv)
            Use
      of estimates:




The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
particularly valuation of mineral properties, recoverable taxes, future tax
liabilities, asset retirement obligations and measurement of inventories and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenue and expenses during the
periods.  Actual results could differ from those
estimates.




(xv)
            Stripping
      costs:




Costs
associated with the removal of overburden and other mine waste materials that
are incurred in the production phase of mining operations are included in the
cost of the inventory produced in the period in which they are incurred, except
when the charges represent a betterment to the mineral
property.  Charges represent a betterment to the mineral property when
the stripping activity provides access to reserves that will be produced in
future periods that would not have been accessible without the stripping
activity.  The Company capitalizes costs related to a betterment of
the mineral property.  The charges are amortized over the reserve
accessed by the stripping activity usingthe unit of production
method.




(xvi)
            Financial
      instruments- recognition and
measurement




Effective
January 1, 2007 the Company adopted the new CICA Handbook Standards relating to
financial instruments.  These new standards were adopted on a
prospective basis with no restatement of prior period financial
statements.















11





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007









2.
              Significant
      Accounting Policies
(continued):




(a)
            Existing
      Accounting Policies (xvi)
(continued):




The
Company has elected to account for transaction costs related to the issuance of
financial instruments as a reduction of the carrying value of the related
financial instruments.  The adoption of this new section resulted in
an adjustment to the carrying value of the Company’s previously recognized
financial liabilities and a reduction of $165,000 to the opening deficit, a
reduction of $2.1 million to deferred financing fees, and a reduction to notes
payable of $2.3 million as at January 1, 2007.




The
      Company classifies all financial instruments as either held to maturity,
      available for sale, held-for-trading or loans and
    receivables.




•
            Held-to-maturity
      financial assets are initially recognized at their fair values and
      subsequently measured at amortized cost using the effective interest
      method. Impairment losses are charged to net earnings in the period in
      which they arise.




•
            Held-for-trading
      financial instruments are carried at fair value with changes in fair value
      charged or credited to the statement of operations in the period in which
      they arise.




•
            Loans
      and receivables are initially recognized at their fair values, with any
      resulting premium or discount from the face value being amortized to
      income or expense using the effective interest
      method.  Impairment losses are charged to net earnings in the
      period in which they arise.




•
            Available-for-sale
      financial instruments are carried at fair value with changes in the fair
      value charged or credited to other comprehensive
      income.  Impairment losses relating to an other than temporary
      impairment are charged to net earnings in the period in which they
      arise.




•
            Other
      financial liabilities are initially measured at cost, net of transaction
      costs, or at amortized cost depending upon the nature of the instrument
      with any resulting premium or discount from the face value being amortized
      to income or expense using the effective interest
  method.




•
            Deferred
      stock-based compensation liabilities are measured at their intrinsic value
      on the reporting date.  The expense and related liability is
      recognized over the service or vesting
period.




•
            All
      derivative financial instruments meeting certain recognition criteria are
      carried at fair value with changes in fair value charged or credited to
      income or expense in the period in which they
  arise.




The
      following is a summary of the financial instruments outstanding and
      classifications as at December 31,
2008:







Cash
      and cash equivalents
              Held-for-tradingRestricted
      cash
              Held-for-tradingAccounts
      receivable
              Loans
      and receivablesForward
      foreign exchange derivative asset
              Held-for-tradingForward
      purchase derivative asset
              Held-for-tradingCall
      option derivative asset re notes payable
              Held-for-tradingAccounts
      payable and accrued liabilities
              Other
      liabilitiesForward
      foreign exchange derivative liability
              Held-for-tradingForward
      sales derivative liability
              Held-for-tradingDeferred
      compensation liability
              Other
      liabilitiesNotes
      payable
              Other
      liabilities








12





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007







2.
                Significant
      Accounting Policies
(continued):
  (a)
              Existing
      Accounting Policies (continued):
  (xvii)
              Derivative
      financial instruments:
 The
Company has used certain derivative financial instruments, principally forward
sales contracts, to manage commodity price exposure on gold sales and forward
foreign exchange contracts, to manage the Company’s exposure to changes in
foreign exchange rates.  Derivative financial instruments are used for
risk management purposes and not for generating trading
profits.  Derivative financial instruments are not accounted for as
hedges.  Unrealized gains and losses on the derivative financial
instruments are recognized in the statement of operations.  Unrealized
gains and losses on forward sales contracts are a result of the
difference between the forward spot price of the gold and the forward sales
contract price.  Unrealized gains and losses on forward foreign
exchange contracts are a result of the difference between the forward currency
contract price and the spot price of the Brazilian reais (R$).
  (b)
              New
      Accounting Policies:
  Effective
      January 1, 2008 the Company adopted the following new CICA Handbook
      Standards:
  (i)
              Financial
      instruments disclosure and
presentation:
  In
December 2006, the CICA published Section 3862 Financial Instruments-
Disclosures and Section 3863, Financial Instruments- Presentation. These
standards introduce disclosure and presentation requirements that will enable
financial statements’ users to evaluate, and enhance their understanding of, the
significance of financial instruments for the entity’s financial position,
performance and cash flows, and the nature and extent of risks arising from
financial instruments to which the entity is exposed, and how those risks are
managed. (Note 5)
  (ii)
              Capital
      disclosures:
  In
December 2006, the CICA published Section 1535 of the Handbook, Capital
Disclosures, which requires disclosure of (i) an entity’s objectives, policies
and processes for managing capital; (ii) quantitative data about what the entity
regards as capital; (iii) whether the entity has complied with any capital
requirements; and (iv) the consequences of non-compliance in the event the
entity has not complied.  This information will enable financial
statements’ users to evaluate the entity’s objectives, policies and processes
for managing capital. (Note 18)
  (iii)
              Inventories:
  In
January 2007, the CICA published Section 3031 of the Handbook, Inventories,
which prescribes the accounting treatment for inventories.  Section
3031 provides guidance on determination of costs and its subsequent recognition
as an expense, and provides guidance on the cost formulas used to assign costs
to inventories.  The new standard did not impact the current or the
prior year financial statements.
  (c)
              Accounting
      Principles Issued but not yet
Implemented:
  (i)
              Adoption
      of International Financial Reporting
Standards:
  In
January 2006, the Accounting Standards Board announced its decision to require
all publicly accountable enterprises to report under International Financial
Reporting Standards (“IFRS”) for years beginning on or after January 1, 2011.
These changes reflect a global shift to IFRS and they are intended to facilitate
capital flows and bring greater clarity and consistency to financial reporting
in the global marketplace.  The Company is in the process of completing the
scoping phase of its conversion plan, which has a timeline for assessing
resources, training, analyzing key differences and selecting accounting policies
under IFRS.
   13
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 2.
                Significant
      Accounting Policies
(continued):
  (c)
              Accounting
      Principles Issued but not yet Implemented
  (continued):
 
 (ii)
              Goodwill
      and intangible assets:
 
 In
February 2008 the CICA issued Section 3064, “Goodwill and Intangible Assets”,
replacing Section 3062, “Goodwill and Other Intangible Assets”, and Section
3450, “Research and Development Costs”. The new Section will be applicable to
financial statements relating to fiscal years beginning on or after October 1,
2008. Accordingly, the Company will adopt the new standards for its fiscal year
beginning January 1, 2009. Section 3064 establishes standards for the
recognition, measurement, presentation and disclosure of goodwill subsequent to
its initial recognition and of intangible assets by profit-oriented enterprises.
Standards concerning goodwill are unchanged from the standards included in the
previous Section 3062. This standard is not expected to have a material impact
on the Company’s financial statements.
 
 (iii)
              Credit
      risk and fair value of financial assets and financial
      liabilities:
 
 In
January 2009, the CICA issued the Emerging Issues Committee (EIC) Abstract
EIC-173, “Credit Risk and the Fair Value of Financial Assets and Financial
Liabilities,” effective for interim and annual financial statements ending on or
after January 20, 2009. Earlier adoption of this abstract is permitted. EIC-173
provides further information on the determination of the fair value of financial
assets and financial liabilities under Section 3855, “Financial Instruments -
Recognition and Measurement.” It states that an entity's own credit and the
credit risk of the counterparty should be taken into account in determining the
fair value of financial assets and financial liabilities, including derivative
instruments. EIC-173 should be applied retrospectively, without restatement of
prior periods, to all financial assets and liabilities measured at fair value.
The Company will adopt this abstract during the first quarter of the 2009 fiscal
year. This standard is not expected to have a material impact on the Company’s
financial statements.
 
 (iv)
              Business
      combinations:
 
 In
January 2009, the CICA issued the new handbook Section 1582, “Business
Combinations,” effective for fiscal years beginning on or after January 1,
2011.  Earlier adoption of Section 1582 is permitted. This
pronouncement further aligns Canadian GAAP with US GAAP and IFRS and changes the
accounting for business combinations in a number of areas.  It
establishes principles and requirements governing how an acquiring company
recognizes and measures in its financial statements identifiable assets
acquired, liabilities assumed, any non-controlling interest in the acquiree, and
goodwill acquired.  The section also establishes disclosure
requirements that will enable users of the acquiring company’s financial
statements to evaluate the nature and financial effects of its business
combinations.  Although the Company is considering the impact of
adopting this pronouncement on the consolidated financial statements, it will be
limited to any future acquisitions beginning in fiscal 2011.
 
 (v)
              Consolidated
      financial statements and non-controlling
  interests:
 
 In
January 2009, the CICA issued the new handbook Section 1601, “Consolidated
Financial Statements,” and Section 1602, “Non-Controlling Interests,” effective
for fiscal years beginning on or after January 1, 2011. Earlier adoption of
these recommendations is permitted. These pronouncements further align Canadian
GAAP with US GAAP and IFRS. Sections 1601 and 1602 change the accounting and
reporting for ownership interests in subsidiaries held by parties other than the
parent.  Non-controlling interests are to be presented in the
consolidated statement of financial position within equity but separate from the
parent’s equity. The amount of consolidated net income attributable to the
parent and to
  14
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007




2.
                Significant
      Accounting Policies
(continued):
  (c)
              Accounting
      Principles Issued but not yet Implemented (v)
  (continued):
 
 the
non-controlling interest is to be clearly identified and presented on the face
of the consolidated statement of income. In addition, these pronouncements
establish standards for a change in a parent’s ownership interest in a
subsidiary and the valuation of retained non-controlling equity investments when
a subsidiary is deconsolidated.  They also establish reporting
requirements for providing sufficient disclosures that clearly identify and
distinguish between the interests of the parent and the interests of the
non-controlling owners. The Company is currently considering the impact of
adopting these pronouncements on its consolidated financial statements in fiscal
2011 in connection with the conversion to IFRS.
 
 3.
              Inventory:
  Inventory
      is comprised of the following:
  2008
                                          
                                          
                                          2007Raw
      materials
                                          
                                          $
                                          1,937
                                          
                                          
                                          $
                                          1,013Mine
      operating supplies
                                          
                                          
                                          4,188
                                          
                                          
                                          
                                          2,646Ore
      stockpiles
                                          
                                          
                                          4,643
                                          
                                          
                                          
                                          1,967Gold
      in process
                                          
                                          
                                          9,178
                                          
                                          
                                          
                                          5,098$
                                          19,946
                                          
                                          
                                          $
                                          10,724Depletion
      and amortization costs included in inventoryOre
      stockpiles
                                          
                                          $
                                          1,212
                                          
                                          
                                          $
                                          475Gold
      in process
                                          
                                          
                                          2,334
                                          
                                          
                                          
                                          1,100$
                                          3,546
                                          
                                          
                                          $
                                          1,575Stock
      compensation costs included in inventoryOre
      stockpiles
                                          
                                          $
                                          14
                                          
                                          
                                          $
                                          -Gold
      in process
                                          
                                          
                                          36
                                          
                                          
                                          
                                          -$
                                          50
                                          
                                          
                                          $
                                          -
  
   15
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 4.
                Prepaid
      Expenses and Sundry Assets:
  2008
                                        
                                        
                                        2007Balance
      is made up of:Advances
      to suppliers
                                        
                                        $
                                        488
                                        
                                        
                                        $
                                        506Recoverable
      taxes (a)
                                        
                                        
                                        27,978
                                        
                                        
                                        
                                        24,593Sundry
      receivables from related parties (b)
                                        
                                        
                                        174
                                        
                                        
                                        
                                        185Call
      option derivative asset re notes payable (c)
                                        
                                        
                                        1,367
                                        
                                        
                                        
                                        73Other
                                        
                                        
                                        1,508
                                        
                                        
                                        
                                        45331,515
                                        
                                        
                                        
                                        25,810Less:Long
      term recoverable taxes
                                        
                                        
                                        24,635
                                        
                                        
                                        
                                        13,893Long term other
      prepaid expenses
                                        
                                        
                                        -
                                        
                                        
                                        
                                        20Sundry receivables
      from related parties (b)
                                        
                                        
                                        162
                                        
                                        
                                        
                                        -Call option
      derivative asset re notes payable (c)
                                        
                                        
                                        1,367
                                        
                                        
                                        
                                        -26,164
                                        
                                        
                                        
                                        13,913Current
      portion of prepaid expenses and sundry assets
                                        
                                        $
                                        5,351
                                        
                                        
                                        $
                                        11,897
  (a)
                The
      Company is required to pay certain taxes in Brazil, based on
      consumption.  These taxes are recoverable from the Brazilian tax
      authorities through various methods.  The recoverable taxes
      denominated in Brazilian reais (R$) amount to R$64.8 million (2007 -
      R$43.3 million).
  (b)
                Sundry
      receivables are due from Prometálica Centro Oeste Mineração Ltda (“PCO”)
      and Brazilian Resources Inc. (“BZI”) related parties (Notes 16(c) and
      (d)).  BZI is a founding shareholder of the Company and PCO is
      controlled by IMS Empreendimentos Ltda (”IMS”), a founding shareholder of
      the Company.
  (c)
                The
      call option derivative asset relates to an option to redeem the private
      placement notes at a premium prior to maturity (Note
    10(g)).
  5.
              Risk
      Management Policies:
  (a)
              Derivative
      Financial Instruments
  (i)
              Forward
      sales and purchase contracts:
  During
2008, the Company paid RMB International (Dublin) Limited (“RMB”) $22.1 million
to close the forward sales contracts.
  During
2008, the Company closed the outstanding forward purchase contracts realizing a
gain of $7.4 million, effectively reducing the net loss on the forward contracts
to $14.8 million, of which $14.5 million was recorded as of December 31,
2007.
  (ii)
              Forward
      foreign exchange contracts:
  As at
December 31, 2008, the Company has forward foreign exchange contracts to
purchase Brazilian reais at a weighted average rate of 1.873 as
follows:
 
  16
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
 5.
              Risk
      Management Policies (continued):
 
 Settlement
      Date
                Amount
                Settlement
                  amount
      in
                  thousands
      of
                  $Reais28-Jan-09
                $
      1,000
                R$
      1,88330-Jan-09
                1,000
                1,78525-Feb-09
                1,000
                1,89327-Feb-09
                1,000
                1,79531-Mar-09
                1,000
                1,80531-Mar-09
                1,000
                1,80730-Apr-09
                1,000
                1,84230-Apr-09
                1,000
                2,00429-May-09
                1,000
                1,86029-May-09
                1,000
                2,05030-Jun-09
                1,000
                1,880$11,000
                R$20,604
  The
terms of the contract require a percentage of the funds to be held on deposit as
collateral to cover the contracts.  At December 31, 2008 and December
31, 2007, $3.0 million of cash was restricted for this purpose.
  At
December 31, 2008, current liabilities include $2.4 million of unrealized
foreign exchange losses (December 31, 2007 current assets include $1.7 million
of unrealized foreign exchange gains).  Included in the statement of
operations are the following amounts of unrealized and realized gains or losses
on foreign exchange derivatives:
 2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006Unrealized
      loss (gain)
                                        
                                        
                                        4,099
                                        
                                        
                                        
                                        (972
                                        )
                                        
                                        
                                        (709
                                        )Realized
      gain
                                        
                                        
                                        (1,476
                                        )
                                        
                                        
                                        (2,718
                                        )
                                        
                                        
                                        (846
                                        )Total
                                        
                                        
                                        2,623
                                        
                                        
                                        
                                        (3,690
                                        )
                                        
                                        
                                        (1,555
                                        )
  (b)
              Financial
      Instruments
  (i)
              Credit
      risk:
  Credit
risk arises from cash held with banks, derivative financial instruments (foreign
exchange forward contracts with positive fair values) and credit exposure to
customers. The credit risk is limited to the carrying amount on the balance
sheet. The Company’s cash and cash equivalents are held through large financial
institutions in Brazil, Canada and the US. The Company manages its credit risk
by entering into transactions with high credit quality counterparties, limiting
the amount of exposure to each counterparty where possible and monitoring the
financial condition of the counterparties.
  The
Company is exposed to credit-related losses in the event of non-performance by
counterparties to derivative financial instruments, but does not expect any
counterparties to fail to meet their obligations.  The Company deals
with only highly rated counterparties, normally major financial
institutions.  The Company is exposed to credit risk when there is a
positive fair value of derivative financial instruments at a reporting
date.
  The
Company’s exposure for the sale of gold is limited because a sales receipt from
a large financial institution must be received prior to shipment of the
gold.
  
  17
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
  5.
              Risk
      Management Policies (continued):
  (ii)
              Liquidity
      risk:
  Liquidity
risk is the risk the Company will not be able to meet the obligations associated
with its financial liabilities. The Company manages liquidity risk through the
management of its capital structure as outlined in Note 18.  The
Company has $24.3 million of working capital at December 31,
2008.  Accounts payable and accrued liabilities, current portion of
notes payable, and current taxes payable are due within the current operating
period.  The Company’s financial liabilities and other commitments are
listed in Note 19.
  (iii)
              Currency
      risk:
  The
Company is exposed to the financial risk related to the fluctuation of foreign
exchange rates. The Company operates in Brazil, Canada and the United States.
Financial instruments that impact the Company’s net earnings due to currency
fluctuations include: Brazilian reais and Canadian dollar denominated cash and
cash equivalents, accounts receivable, recoverable taxes, accounts payable and
accrued liabilities, notes payable and taxes payable.
  The
table below summarizes a sensitivity analysis for significant unsettled currency
risk exposure with respect to the Company’s financial instruments as at December
31, 2008 with all other variables held constant. It shows how net income would
have been affected by changes in the relevant risk variable that were reasonably
possible at that date.
 
 Exchange
      Rates
                    Change
      for Sensitivity Analysis
                    Impact
      of change to 2008 Gross Profit less Operating Expenses:U.S.
      dollar per Brazilian
                      reais
                    10%
      change in Brazilian
                      reais
                    1,861U.S.
      dollar per Canadian
                      dollar1
                    10%
      change in Canadian
                      dollar
                    5,827
  1
              The
      financial instruments denominated in Canadian dollars includes Cdn.$86.3
      million in private placement notes which results in a Canadian dollar
      denominated net liability.
  (iv)
                Interest
      rate risk:
  The
Company is exposed to interest rate risk on its outstanding borrowings and short
term investments. Interest on the Company’s short-term and long-term debt is
based on both fixed and variable interest rates. The Company managed its risk by
entering into long-term agreements with fixed interest rates on 98% of its debt
with interest rates ranging from 0% to 10.5% per annum.
  (v)
              Price
      risk:
  The
Company is exposed to price risk with respect to gold prices and has no forward
gold production hedged.
  (vi)
              Stock
      based compensation risk:
  The
Company is exposed to the risk of increased compensation expense due to the
increase in the Company’s share price.
  The
Company’s compensation expense is subject to volatility due to the movement of
share price and its impact on the value of certain stock-based compensation
programs.  These programs, as described in Note 14 include Deferred
Stock Units (“DSUs”), Restricted Stock Units (“RSUs”) and share appreciation
rights (“SARs”).  Under the program, the DSUs and RSUs represent
rights to receive cash settlement from the Company equivalent to the market
price of the common shares on the date of exercise.  The SARs
represent rights to receive cash settlement from the Company equivalent to the
amount by which the market price of the Company’s common shares at the time of
exercise
  18
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
  5.
                Risk
      Management Policies
(vi)(continued):
  exceeds
the market price of such shares at the time of grant.  For the year
ended December 31, 2008 a strengthening or weakening of $1.00 in the price of
the Company’s common shares would have had an unfavourable or favourable impact
of approximately $150,000 in net income, respectively.
  (vii)
              Fair
      value estimation:
  The
following summarizes the significant methods and assumptions used in estimating
the fair value of the Company’s financial instruments.
  Cash
and cash equivalents, cash in trust, restricted cash, accounts payable and
accrued liabilities approximate their fair values due to their immediate or
short terms of maturity.
  The
fair value of the private placement notes is measured using the Black-Karasinski
model.
  The
fair value of the other notes payable is determined by discounting the future
cash liabilities at the current market rate of interest available to the
Company.
  The
carrying value of the call option derivative asset relating to the private
placement notes approximates fair value.  Fair value of the call
feature is measured using the Black-Karasinski model.
  The
fair value of forward exchange contracts is based on their listed market price,
if available. If a listed market price is not available, then fair value is
estimated by discounting the difference between the contractual forward price
and the current forward price for the residual maturity of the contract using a
risk-free interest rate (based on government bonds).
  The
carrying value of deferred stock-based compensation liabilities approximates
their fair values. Fair Value is measured using the intrinsic value of the
awards and is recognized over the service or vesting period.
 
 2008
                              
                              
                              2007Carrying
                                Value
                              
                              
                              Fair
                                Value
                              
                              
                              Carrying
                                Value
                              
                              
                              Fair
                                ValueCash
      and cash equivalents
                              
                              $
                              20,560
                              
                              
                              $
                              20,560
                              
                              
                              $
                              45,711
                              
                              
                              $
                              45,711Cash
      in trust
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              837
                              
                              
                              
                              837Restricted
      cash
                              
                              
                              3,106
                              
                              
                              
                              3,106
                              
                              
                              
                              3,102
                              
                              
                              
                              3,102Forward
      contractsAssets
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,604
                              
                              
                              
                              2,604Liabilities
                              
                              
                              (2,421
                              )
                              
                              
                              (2,421
                              )
                              
                              
                              (15,424
                              )
                              
                              
                              (15,424
                              )Call
      option derivative asset re notes payable
                              
                              
                              1,367
                              
                              
                              
                              1,367
                              
                              
                              
                              73
                              
                              
                              
                              73Notes
      payable
                              
                              
                              (74,048
                              )
                              
                              
                              (63,160
                              )
                              
                              
                              (95,619
                              )
                              
                              
                              (96,120
                              )Accounts
      payable and accrued liabilities
                              
                              
                              (16,858
                              )
                              
                              
                              (16,858
                              )
                              
                              
                              (14,426
                              )
                              
                              
                              (14,426
                              )Deferred
      compensation liabilities
                              
                              
                              (434
                              )
                              
                              
                              (475
                              )
                              
                              
                              -
                              
                              
                              
                              -
   
   19
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
  6.
              Net
      Smelter Royalty:
  2008
                              
                              
                              2007Prometálica
      Mineração Ltda. (“PML”)
                              
                              $
                              1,225
                              
                              
                              $
                              1,535Less:
      Accumulated amortization
                              
                              
                              (219
                              )
                              
                              
                              (310
                              )Net
                              
                              $
                              1,006
                              
                              
                              $
                              1,225
  On
March 20, 2006, the Company entered into an agreement with Prometálica Mineração
Ltda (“PML“) whereby it exchanged a loan receivable from PML for a 1.5% Net
Smelter Royalty ("NSR") on its Monte Cristo project for a term of 4.5 years,
which is the expected life of the project.The NSR was recorded at the carrying
amount of the receivable from PML, plus accrued interest through March 20, 2006.
In connection with the agreement, PML had the right to buy out the NSR for $1.63
million which was not exercised.
  During
2008 the Company received royalty income of approximately $30,000 (2007 - $0.3
million, 2006 - $nil)(Note 16(c)). The royalty income and the related
amortization are netted in other operating expenses in the statement of
operations.  PML’s controlling shareholders are BZI and IMS, the
founding shareholders of the Company.
  On
August 11, 2008, PML filed a judicial restructuring in Belo Horizonte, state of
Minas Gerais, Brazil.  At this time the financial impact of this
action is indeterminate.  Prior to the filing, the primary
shareholders of PML, BZI and IMS, provided a guarantee of PML’s obligation to
Mineração Serras do Oeste Ltda (“MSOL”), a 100% owned subsidiary of the
Company.  This guarantee will ensure the recovery of the Net Smelter
Royalty due from PML if PML is unable to pay the Company.  As at
December 31, 2008 the amount of the obligation is approximately $1.0
million.
  7.
              Restricted
      Cash:
  At
December 31, 2008 $3.0 million was restricted as collateral for the foreign
exchange contracts (December 31, 2007 - $3.0 million) (Note
5(a)(ii)).  In addition $106,000 was held in a Certificate of Deposit
as collateral for an expense credit line (December 31, 2007 -
$102,000).
  8.
              Property,
      Plant and Equipment:
 
 2008AccumulatedCost
                                    
                                    
                                    Amortization
                                    
                                    
                                    NetProcessing
      plant
                                    
                                    $
                                    12,830
                                    
                                    
                                    $
                                    (2,729
                                    )
                                    
                                    $
                                    10,101Vehicles
                                    
                                    
                                    5,497
                                    
                                    
                                    
                                    (1,868
                                    )
                                    
                                    
                                    3,629Equipment
                                    
                                    
                                    82,365
                                    
                                    
                                    
                                    (11,256
                                    )
                                    
                                    
                                    71,109Leasehold
      improvements
                                    
                                    
                                    275
                                    
                                    
                                    
                                    (84
                                    )
                                    
                                    
                                    191Assets
      under construction
                                    
                                    
                                    11,330
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    11,330Mining
      Properties
                                    
                                    
                                    67,691
                                    
                                    
                                    
                                    (15,629
                                    )
                                    
                                    
                                    52,062$
                                    179,988
                                    
                                    
                                    $
                                    (31,566
                                    )
                                    
                                    $
                                    148,422
 
 2007AccumulatedCost
                                    
                                    
                                    Amortization
                                    
                                    
                                    NetProcessing
      plant
                                    
                                    $
                                    9,037
                                    
                                    
                                    $
                                    (1,761
                                    )
                                    
                                    $
                                    7,276Vehicles
                                    
                                    
                                    3,418
                                    
                                    
                                    
                                    (1,014
                                    )
                                    
                                    
                                    2,404Equipment
                                    
                                    
                                    35,541
                                    
                                    
                                    
                                    (4,750
                                    )
                                    
                                    
                                    30,791Leasehold
      improvements
                                    
                                    
                                    163
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    163Assets
      under construction
                                    
                                    
                                    22,128
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    22,128Mining
      Properties
                                    
                                    
                                    26,706
                                    
                                    
                                    
                                    (6,523
                                    )
                                    
                                    
                                    20,183$
                                    96,993
                                    
                                    
                                    $
                                    (14,048
                                    )
                                    
                                    $
                                    82,945
 
 
  20
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
  
 8.
              Property,
      Plant and Equipment (continued):
  During
2007 the Company determined that mining properties in production should be
classified in Property, Plant and Equipment (“PPE”).  In previous
periods all mining properties including those in production were grouped with
Mineral Exploration Projects.  Effective December 31, 2006 the Sabará
property, which has been in production since 2004, was reclassified to
PPE.  Effective January 1, 2007 the Turmalina property, which
commenced production in 2007, was reclassified to PPE.  Effective July
1, 2008 the Paciência plant and Santa Isabel mine commenced production and were
reclassified to PPE.  See Note 9 for a breakdown of costs
reclassified.
  Mining
properties include the following three properties which are in production,
Sabará, Turmalina and Santa Isabel:
  (a)
              Sabará:
  The
Sabará property is subject to a 1% Net Smelter Royalty
(“NSR”).  Production beganin the SabaráRegion in December
2003.
  (b)
              Turmalina:
  In
September 2004, the Company entered into an agreement whereby the Company
acquired 100% of the quota shares of MTL, which holds certain mineral
rights.  The purchase price was $1,350,000 of which $600,000 was paid
in September 2004 and  $400,000 in January 2006.  The note
payable was due on demand and non-interest bearing.  The balance of
$350,000 was satisfied during 2007 by the transfer of Sabará Zone C property
(“Zone C”) to AngloGold Ashanti Brasil Mineração Ltda.
(“AngloGold”).
  The
terms of the acquisition of MTL include a royalty payable by the Company to an
unrelated third party.  The royalty is a net revenue interest of 5% of
annual net revenue up to $10 million and 3% thereafter.
  (c)
              Paciência
      Project - Santa Isabel mine:
  The
Company has an agreement with AngloGold to pay a sliding scale NSR, from 1.5% to
4.5% of gross revenue, on gold and other precious metals produced from the Santa
Isabel property, based on precious metal prices at the time of
production.  (See (Notes 9(a),17)
  21
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
  9.     Mineral
Exploration Projects:
 Balance
                                                                                                                    December
      31,
                                                                                                                    2006
                                                                                                                  
                                                                                                                  
                                                                                                                  Additions
                                                                                                                  
                                                                                                                  
                                                                                                                  Write-off
      fully
                                                                                                                    amortized
                                                                                                                    property
                                                                                                                  
                                                                                                                  
                                                                                                                  Reclassify
      to
                                                                                                                    Different
                                                                                                                    Project
                                                                                                                  
                                                                                                                  
                                                                                                                  Reclassify
      to
                                                                                                                    PPE
                                                                                                                  
                                                                                                                  
                                                                                                                  Balance
                                                                                                                    December
      31,
                                                                                                                    2007
                                                                                                                  
                                                                                                                  
                                                                                                                  Additions
                                                                                                                  
                                                                                                                  
                                                                                                                  Reclassify
      to
                                                                                                                    PPE
                                                                                                                  
                                                                                                                  
                                                                                                                  Balance
                                                                                                                    December
      31,
                                                                                                                    2008Sabará:Acquisition of
      property
                                                                                                                  
                                                                                                                  $
                                                                                                                  3,195
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  39
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  (3,234
                                                                                                                  )
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -Mine
      development expenditures,exploration and
      carrying costs
                                                                                                                  
                                                                                                                  
                                                                                                                  3,908
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3,970
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,570
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (4,123
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (2,185
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Asset
      retirement obligations
                                                                                                                  
                                                                                                                  
                                                                                                                  452
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  5
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (66
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (72
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (320
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Accumulated
      amortization
                                                                                                                  
                                                                                                                  
                                                                                                                  (5,239
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (256
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  1,636
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  20
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3,839
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -2,316
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3,758
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (4,175
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,900
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Paciência
      Project (Rio De Peixe):Acquisition of
      mineral rights to theproperty
                                                                                                                  
                                                                                                                  
                                                                                                                  1,266
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  63
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,329
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Exploration
      expenditures and carryingcosts
                                                                                                                  
                                                                                                                  
                                                                                                                  16
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  58
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (74
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -1,282
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  121
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,403
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Caeté
      Project (Pilar):Acquisition of
      property
                                                                                                                  
                                                                                                                  
                                                                                                                  1,114
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (64
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,050
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Mine
      development expenditures,exploration and
      carrying costs
                                                                                                                  
                                                                                                                  
                                                                                                                  8,469
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  2,736
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (472
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (10,733
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Asset
      retirement obligations(Note 11)
                                                                                                                  
                                                                                                                  
                                                                                                                  247
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (107
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (140
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Accumulated
      amortization
                                                                                                                  
                                                                                                                  
                                                                                                                  (579
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  579
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -9,251
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  2,672
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (11,923
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Paciência
      Project (a):Acquisition of
      properties
                                                                                                                  
                                                                                                                  
                                                                                                                  818
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  264
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1,706
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  2,788
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,178
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  1,610Mine
      development expenditures,exploration and
      carrying costs
                                                                                                                  
                                                                                                                  
                                                                                                                  13,985
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  10,486
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (113
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (6,999
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  17,359
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  15,393
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (22,905
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  9,847Accumulated
      amortization
                                                                                                                  
                                                                                                                  
                                                                                                                  (187
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  113
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  74
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Asset
      retirement obligations(Note 11)
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  3,971
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (3,971
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -14,616
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  10,750
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (5,219
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  20,147
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  19,364
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (28,054
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  11,457Turmalina
      (b):Acquisition of
      properties
                                                                                                                  
                                                                                                                  
                                                                                                                  1,883
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  7
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,890
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1,197
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1,197Mine
      development expenditures,exploration and
      carrying costs
                                                                                                                  
                                                                                                                  
                                                                                                                  11,925
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,899
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (14,504
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  2,320
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,029
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  6,349Asset
      retirement obligations(Note 11)
                                                                                                                  
                                                                                                                  
                                                                                                                  964
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (964
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Accumulated
      amortization
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (394
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  394
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Reclassification
      to plant and equipment
                                                                                                                  
                                                                                                                  
                                                                                                                  (141
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  141
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -14,631
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,512
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (16,823
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  2,320
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  5,226
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  7,546Caeté
      Expansion Project (c):Acquisition of
      property
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  8,522
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  1,175
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  9,696
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  4,953
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  14,649Mine
      development expenditures,exploration and
      carrying costs
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  7,544
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  21,427
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  28,971
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  16,456
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (17
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  45,410Asset
      retirement obligations(Note 11)
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  212
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  212
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  96
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  308Accumulated
      amortization
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (94
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (94
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  (68
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (162
                                                                                                                  )-
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  16,066
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  22,720
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  38,785
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  21,437
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (17
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  60,205Faina
      and PontalMine
      development expenditures,exploration and
      carrying costs
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  21
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  21
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  50
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  71-
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  21
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  21
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  50
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  71Balance
      December 31 as reported
                                                                                                                  
                                                                                                                  
                                                                                                                  42,096
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  37,900
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (18,723
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  61,273
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  46,077
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  (28,071
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  79,279Less:
      Sabará property reclassified to PPE
                                                                                                                  
                                                                                                                  
                                                                                                                  (1,666
                                                                                                                  )
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  
                                                                                                                  -Total
      Mineral Exploration Projects
                                                                                                                  
                                                                                                                  $
                                                                                                                  40,430
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  37,900
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  -
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  (18,723
                                                                                                                  )
                                                                                                                  
                                                                                                                  $
                                                                                                                  61,273
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  46,077
                                                                                                                  
                                                                                                                  
                                                                                                                  $
                                                                                                                  (28,071
                                                                                                                  )
                                                                                                                  
                                                                                                                  $
                                                                                                                  79,279
 
 
  22
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
 9.
              Mineral
      Exploration Projects (continued):
  (a)
                Paciência
      Project
  Effective
July 1, 2008 the Paciência plant and Santa Isabel mine commenced production and
were reclassified to PPE.
  The
Paciência project includes the following properties, Santa Isabel, Morro do
Adao, Rio de Peixe, Palmital, Ouro Fino, Marzagão, Bahu, Monges and
Ajuda.
  In
November 2003 the Company closed on a property acquisition agreement dated April
17, 2003 whereby the Company acquired certain mineral rights from AngloGold for
$818,000.  The mineral rights acquired relate to the following
properties in the Paciência project, Santa Isabel, Morro do Adão, Bahu and
Marzagão and the following properties in the Caeté expansion project, Catita and
Camará. The Company will also pay a sliding scale NSR, from 1.5% to 4.5% of
gross revenue, on gold and other precious metals produced from the properties,
based on precious metal prices at the time of production.
  If the
Company discovers, on a concession basis, in excess of 750,000 ounces of gold
over the measured and indicated resources used in the agreement, AngloGold has
the right to buy-in up to 70% of that concession for a predetermined
price.  If this were to occur, the Company would retain a 30% interest
and would receive the same sliding scale NSR payment from AngloGold as the one
mentioned above.
  On
November 21, 2007 the Company reached an agreement with AngloGold whereby it
transferred Zone C to AngloGold for an agreed upon value of $8.1 million. 
Part of the purchase price was satisfied by the settlement of $350,000 in
existing liabilities payable by MSOL to AngloGold.  The remaining balance
will be paid through a reduction of future royalty payments on the sliding scale
NSR for the properties purchased from AngloGold in 2003.  MSOL will not be
required to make royalty payments on the equivalent of approximately 280,000
ounces of gold.  As at December 31, 2007 the Company recorded a gain of
$381,000 based on the difference between the carrying value of Zone C and the
amount of the liabilities settled in the transaction.  Since the future
royalty payments are contingent on the production and sale of gold at the
related properties, the Company is recognizing additional gains over the life of
the mine as royalty expense is reduced.  During 2008 additional gains
of $452,000 were recognized relating to this property (Notes 8(b)(c),
17).
  (b)
                Turmalina
  The
costs relate to the Satinoco property adjacent to the Turmalina plant and
mine.  The property is subject to a royalty payable to a third party
(Note 8 (b)).
  (c)
              Caeté
      Expansion Project
  The
project includes the following properties, Pilar-sulphide, Catita-sulphide,
Camara, Roça  Grande and Serra Paraiso -sulphide, Juca Vieira and
Trindade.
  (i)
                Pilar
  Pursuant
to a property acquisition agreement dated November 19, 2003, the Company
acquired the Santa Bárbara (Pilar) gold property from Companhia Vale do Rio Docê
(“CVRD”).  The purchase price was $1.1 million for the actual known
measured and indicated gold resources at that time.
   23
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
 9.      Mineral
Exploration Projects (c)(i)(continued):
  For any
additional resources determined to be measured or indicated by the Company’s
exploration program on the property prior to November 2005, CVRD was to be paid
$7.48 per ounce of additional gold resource identified.  In September
2007 it was determined that the Company owed CVRD an additional $1.3 million
which was paid in December 2007.
  (ii)   Roça
Grande
  In 2005
the Company acquired an option from CVRD for the Roça Grande Properties (Note
10(h)).
  10.
              Notes
      Payable:
 
 2008
                                  
                                  
                                  2007(a)(i)   Due
      to ABN AMRO
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  135(a)(ii)  Due
      to ABN AMRO
                                  
                                  
                                  -
                                  
                                  
                                  
                                  600(b)      Due
      to Banco Volkswagen
                                  
                                  
                                  123
                                  
                                  
                                  
                                  349(c)(i)   Due
      to Banco Itaú S.A.,formerly Bank Boston
                                  
                                  
                                  -
                                  
                                  
                                  
                                  14(c)(ii)  Due
      to Banco Itaú S.A.
                                  
                                  
                                  -
                                  
                                  
                                  
                                  179(d)      Due
      to Banco Itaú S.A.
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,200(e)      Due
      to RMB International
                                  
                                  
                                  -
                                  
                                  
                                  
                                  8,762(f)(i)    Due
      to Banco Bradesco
                                  
                                  
                                  58
                                  
                                  
                                  
                                  217(f)(ii)   Due
      to Banco Bradesco
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,000(f)(iii)  Due
      to Banco Bradesco
                                  
                                  
                                  144
                                  
                                  
                                  
                                  -(f)(iv)  Due
      to Banco Bradesco
                                  
                                  
                                  585
                                  
                                  
                                  
                                  -(g)     Private
      placement notes
                                  
                                  
                                  60,124
                                  
                                  
                                  
                                  74,707(h)     Due
      to CVRD
                                  
                                  
                                  11,908
                                  
                                  
                                  
                                  6,956(i)(i)   Due
      to Banco Santander
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,500(i)(ii)  Due
      to Banco Santander
                                  
                                  
                                  729
                                  
                                  
                                  
                                  -(i)(iii) Due
      to Banco Santander
                                  
                                  
                                  377
                                  
                                  
                                  
                                  -Total
                                  
                                  
                                  74,048
                                  
                                  
                                  
                                  95,619Less:  Current
      portion
                                  
                                  
                                  4,319
                                  
                                  
                                  
                                  11,699Long term portion
                                  
                                  $
                                  69,729
                                  
                                  
                                  $
                                  83,920
 
 Principal
      repayments over the next 4 years:2009
                                                        
                                                        $
                                                        4,6802010
                                                        
                                                        
                                                        10,3962011
                                                        
                                                        
                                                        1922012
                                                        
                                                        
                                                        70,431Total
                                                        
                                                        
                                                        85,699Less:
      Unamortized discounts
                                                        
                                                        
                                                        (11,651
                                                        )Net
                                                        
                                                        $
                                                        74,048
  (a)
              Due
      to ABN AMRO
  (i)
              Related
      to a secured credit facility for the purpose of purchasing equipment which
      was repaid during the year.  As at December 31, 2007 R$239,000
      ($135,000) was outstanding.  The loan bore interest at TJLP
      (Brazilian government rate) plus 4% (10.25% at December 31,
      2007).  The loan was secured by the equipment
      purchased.
  (ii)
              Related
      to secured notes payable of $600,000 for general working capital which was
      repaid during the year.  The advance on export contracts bore
      interest at 6.5% per annum.  The note was secured by future gold
      sales.
  24
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
 10.
              Notes
      Payable (continued):
  (b)
              Due
      to Banco Volkswagen
  Relates
to secured notes payable of R$288,000 ($123,000) at December 31, 2008 for the
purpose of purchasing trucks.  R$619,000 ($349,000) was outstanding at
December 31, 2007. The loans bear interest at TJLP (Brazilian government rate)
plus 3.0% (9.25% at December 31, 2008 (as at December 31, 2007 the notes bore
interest at TJLP plus 2.99% (9.24%)) and are repayable over 48
months.  The loans are secured by the trucks purchased.
  (c)
              Due
      to Banco Itaú S.A. formerly Bank
Boston
  (i)
              Related
      to a secured credit facility of R$2.5 million (approximately $1.1 million)
      for the purpose of purchasing equipment.  As at December 31,
      2007 R$24,000 ($14,000) was outstanding.  The loan bore interest
      at TJLP (Brazilian government rate) plus 3% (9.25% at December 31, 2007)
      and was repaid during the year.  The loan was secured by the
      equipment purchased.
  (ii)
              Related
      to a part of the secured credit facility of R$2.5 million (Note 10 (c)(i))
      for the purpose of purchasing equipment of which R$317,000 ($179,000) was
      outstanding on December 31, 2007.  The loan bore interest at
      TJLP (Brazilian government rate) plus 2.7% per annum (8.95% at December
      31, 2007) and has subsequently been repaid during 2008.  The
      loan was secured by the equipment
purchased.
  (d)
              Due
      to Banco Itaú S.A.
  Related
to secured notes payable of $1.2 million for general working
capital.  The loan bore interest at 11% per annum and was repaid on
January 21, 2008.  The note was secured by personal guarantees of
certain officers of MSOL.
  (e)
              Due
      to RMB International
  Relates
to a loan facility agreement with an original principal amount of $14
million.  At December 31, 2007 $4.2 million had been repaid and $9.8
million remained outstanding.  The loan was recorded at the net
carrying value of $8.8 million on December 31, 2007 ($9.8 million principal
outstanding less the unamortized discount of $1.0 million.) The loan bore
interest at U.S. LIBOR plus 4% per annum (8.7% at December 31, 2007). The loan
was secured by all of the assets of MTL, including an escrow agreement regarding
the cash sweep accounts (through which all Turmalina and Sabará related cash
transactions must flow), a pledge by MSOL of its quota shares in MTL, the assets
of Sabará, a limited recourse guarantee by MSOL, a guarantee by Jaguar, and a
negative pledge by Jaguar against disposing or encumbering their quota shares in
MSOL.  The arrangement fee included a cash fee of $280,000, issuance
of 350,000 listed Jaguar warrants and 1,093,835 unlisted warrants.300,000
unlisted warrants were also issued to consultants involved in the
financing.  These warrants, valued at $1.7 million, were issued in
association with the credit facility.  The cost of warrants and
arrangement fees were included in the carrying value of the loan and were being
amortized over the life of the loan using the effective interest
method.  The terms of the loan required hedging strategies for
gold price and currency protection.  The terms of the loan required
that financial covenants (primarily in relation to anticipated future cash flows
and additional financial indebtedness) be maintained.  At December 31,
2007 the Company was in compliance with these financial covenants.
 
 On
March 13, 2008 the Company paid RMB $9.8 million plus $181,000 accrued interest
to repay the loan facility agreement.  Unamortized debt issuance costs
relating to the loan and previously recorded as a reduction to the loan amount
were expensed during 2008.  Included in interest expense is a non-cash
charge of $1.0 million relating to these debt issuance costs.
   25
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007


10.
              Notes
      Payable (continued):
  (f)
              Due
      to Banco Bradesco
  (i)
              Relates
      to a secured credit facility of R$1.5 million ($648,000) for the purpose
      of purchasing equipment of which R$137,000 ($58,000) (December 31, 2007 -
      R$384,000 ($217,000)) is outstanding.  The equipment loans bear
      interest at TJLP (Brazilian government rate) plus 2.8% (9.05% at December
      31, 2008 and December 31, 2007) and are repayable over 36
      months.  The loans are secured by the equipment
      purchased.
  (ii)
              Related
      to secured notes payable of $1.0 million for general working
      capital.  The advance on export contracts bore interest at 6.4%
      per annum and was repaid on July 29, 2008.  The note was secured
      by future gold sales.
  (iii)
              Relates
      to secured credit facility of R$336,000 ($144,000) ($nil - December 31,
      2007) for the purchase of purchasing equipment. The equipment loan bears
      interest at TJLP (Brazilian government rate) plus 1.9% (8.15% at December
      31, 2008) and is repayable over 36 months.  The loan is secured
      by the equipment purchased.
  (iv)
              Relates
      to secured credit facility of R$1.4 million ($585,000) ($nil - December
      31, 2007) for the purchase of equipment. The equipment loan bears interest
      at TJLP (Brazilian government rate) plus 3.02% (9.27% at December 31,
      2008) and is repayable over 36 months.  The loan is secured by
      the equipment purchased.
  (g)
              Private
      placement notes
  Relates
to notes payable issued in a private placement of 86,250 units on March 22, 2007
for gross proceeds of Cdn.$86.3 million ($74.5 million).  Each unit is
comprised of a secured note in the principal amount of Cdn.$1,000, bearing a
coupon of 10.5%, payable semi-annually in arrears, and 25 common shares of
Jaguar.  The notes are secured by shares of MSOL, which holds all of
the operating assets of the Company, and are repayable on March 23, 2012. At the
option of the Company, the notes may be redeemed in whole or in part after March
22, 2010 at 102% of the principal amount, and at 101% of the principal amount
after March 22, 2011.  In addition, the notes may be redeemed in whole
prior to March 23, 2010 at 102% of the principal amount should a change of
control occur.
  The
Company allocated a portion of the private placement proceeds to common shares
based on the share price of the common shares on March 8, 2007.  The
following is a summary of the allocation of the proceeds from private placement
notes and reconciliation to the carrying value outstanding:
 
 2008
                                            
                                            
                                            2007Gross
      proceeds
                                            
                                            $
                                            74,508
                                            
                                            
                                            $
                                            74,508Allocation
      to common shares
                                            
                                            
                                            (11,362
                                            )
                                            
                                            
                                            (11,362
                                            )Allocation
      to call option
                                            
                                            
                                            74
                                            
                                            
                                            
                                            74Finance
      fees
                                            
                                            
                                            (2,842
                                            )
                                            
                                            
                                            (2,842
                                            )Net
      March 2007
                                            
                                            
                                            60,378
                                            
                                            
                                            
                                            60,378Accretion
      of finance fees
                                            
                                            
                                            3,994
                                            
                                            
                                            
                                            1,720Period
      end foreign exchange adjustment
                                            
                                            
                                            (4,248
                                            )
                                            
                                            
                                            12,609Net
      carrying value of private placement notes
                                            
                                            $
                                            60,124
                                            
                                            
                                            $
                                            74,707
  
  26
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
 
 10.
              Notes
      Payable (continued):
  (h)
              Due
      to CVRD
  Relates
to purchase of mineral rights for the Roça Grande property.  The note
payable is non-interest bearing and is expected to be repaid by
2010.
  The
Company acquired an option to obtain mineral rights at the Roça Grande gold
property from CVRD under an agreement dated November 28, 2005 for 3.5% of the
market value of CVRD’s estimated resources plus 2.5% of any additional resources
determined by Jaguar less expenses associated with the transfer.  During
2007 Jaguar completed an audit of CVRD’s resource estimate and exercised its
option to purchase the mineral rights for approximately $7.8
million.  On April 8, 2008, the Company agreed to pay an additional
$5.5 million for a total of $13.3 million, based upon additional resources
discovered during a final review of the estimated mineral resources
available.  The timing of these payments is dependant upon CVRD’s
registration of the mineral rights transfer with the Departamento Nacional de
Producao Mineral.  The Company expects to execute the final transfer
agreement and pay $3.3 million of the purchase price in the second quarter of
2009 and the remaining balance of $10.0 million in 2010.
  CVRD
retains certain iron ore exploration rights on the properties and retains a 70%
back-in right if the Company has more than five million ounces of gold reserves
on the properties by November 2010.  The contract grants corresponding
rights for CVRD to explore a property owned by the Company for iron and to
acquire iron mineral rights on the property until November 2008.
  According
to CICA Handbook Section 3855 the note payable was recognized at its fair value
and the discount is being amortized using the effective interest
method.
 (i)
                Due
      to Banco Santander
  (i)
              Relates
      to secured notes payable of $1.5 million for general working capital which
      was repaid December 11, 2008.  The advance on export contracts
      was extended from June 27, 2008, and bore interest at 5.87% per annum
      (December 31, 2007 - 6.8%).  The note was secured by future gold
      sales.
  (ii)
              Relates
      to a secured credit facility of $729,000 for the purpose of purchasing
      equipment. The equipment loan bears interest at LIBOR plus 3.85% (5.27% at
      December 31, 2008) and is repayable on April 17, 2009. The loan is secured
      by the equipment purchased.
  (iii)
              Relates
      to a secured credit facility of $377,000 for the purpose of purchasing
      equipment. The equipment loan bears interest at LIBOR plus 3.90% (5.32% at
      December 31, 2008) and is repayable over 36 months. The loan is secured by
      the equipment purchased.
   27
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
   11.
                Asset
      Retirement Obligations:
  2008
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2007Balance,
      beginning of year
                                                  
                                                  
                                                  $
                                                  2,975
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  1,669Increase
      in reclamation obligationsSabará
      Plant and Zone A (a)
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  433Turmalina
      (b)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  892Paciência
      (c)
                                                  
                                                  
                                                  4,413
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Serra
      Paraíso (d)
                                                  
                                                  
                                                  191
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Pilar
      Sulphide (e)
                                                  
                                                  
                                                  96
                                                  
                                                  
                                                  
                                                  4,700
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,325Reclamation
      expenditures
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (157
                                                  )Accretion
      expense
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  490
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  138Balance,
      end of year
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  8,165
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2,975Less:  current
      portion
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  1,337
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  269$
                                                  6,828
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  2,706
  The asset retirement obligations relate to the following:
  (a)
              Sabará
      Plant and Zone A:
  The
Company expects to spend approximately $833,0001 between
2009 and 2015 to reclaim land that has been disturbed as a result of mining
activity.
  (b)
              Turmalina
      Plant and Mine:
  The
company expects to spend approximately $3.11 million
between 2014 and 2019 to reclaim land that has been disturbed as a result of the
mining activity.
  (c)
              Paciência
      Plant and Mine development:
  The
company expects to spend approximately $5.41million
between 2013 and 2016 to reclaim land that has been disturbed as a result of the
mining activity.
  (d)
              Serra
      Paraíso Mine:
  The
company expects to spend approximately $200,0001 between
2009 and 2012 to reclaim land that has been disturbed as a result of the mining
activity.
  (e)
              Pilar
      Sulphide:
  The
company expects to spend approximately $150,0001 between
2019 and 2021 to reclaim land that has been disturbed as a result of the mining
activity.
 (f)
                Sabará
      Zone B:
  The
Company expects to spend approximately $140,0001 in 2009
to reclaim land that has been disturbed as a result of the mining
activity.
  (g)
              Caeté
      Plant:
  The
Company expects to spend approximately $110,0001 in 2013
relating to plant closure costs.
  (h)
              Pilar
      Oxide:
  The
Company expects to spend approximately $129,0001 in 2009
to reclaim land that has been disturbed as a result of mining
activity.
  The
      credit adjusted risk free rate at which the estimated future cash flows
      have been discounted is 10% and the inflation rate used to determine
      future expected cost ranges is 3.7% to 6.2% per
  annum.
  1These
      figures have not been discounted or adjusted for
  inflation.
  
  28
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 12.
                Income
      taxes:
  The
Company is subject to income taxes in both Canada and Brazil.
  The
recovery of income taxes varies from the amounts that would be computed by
applying the combined Canadian federal and provincial statutory rate of
approximately 33.5% (2007-36.12%, 2006 - 36.12%) to loss before income taxes as
follows:
 2008
                                              
                                              
                                              2007
                                              
                                              
                                              2006Expected
      income tax recovery (expense) using statutory income tax
    rate
                                              
                                              $
                                              (93
                                              )
                                              
                                              $
                                              8,114
                                              
                                              
                                              $
                                              4,395Increase
      (decrease) in tax recovery resulting from:Foreign
      exchange
                                              
                                              
                                              14,542
                                              
                                              
                                              
                                              824
                                              
                                              
                                              
                                              262Stock
      based compensation
                                              
                                              
                                              (445
                                              )
                                              
                                              
                                              (3,883
                                              )
                                              
                                              
                                              (2,164
                                              )Loss on
      forward sales derivatives
                                              
                                              
                                              (2,170
                                              )
                                              
                                              
                                              (3,910
                                              )
                                              
                                              
                                              (2,464
                                              )Non-deductible
      interest expense
                                              
                                              
                                              5
                                              
                                              
                                              
                                              (497
                                              )
                                              
                                              
                                              -Interest
      income-share purchase loans
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (12
                                              )Capital
      gains tax on expired warrants
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              (183
                                              )Impact
      of future changes in enacted tax rates
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (2,403
                                              )
                                              
                                              
                                              -Other
      non-deductible expenses
                                              
                                              
                                              (77
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Withholding tax
      on inter-company interest
                                              
                                              
                                              (1,397
                                              )
                                              
                                              
                                              (915
                                              )
                                              
                                              
                                              -Valuation
      allowance
                                              
                                              
                                              (14,897
                                              )
                                              
                                              
                                              (2,523
                                              )
                                              
                                              
                                              (158
                                              )Income
      tax expense
                                              
                                              $
                                              (4,532
                                              )
                                              
                                              $
                                              (5,194
                                              )
                                              
                                              $
                                              (324
                                              )
  The tax
effects of temporary differences that give rise to significant portions of
future tax assets and liabilities as at December 31 are as follows:
   
   
   
   
   
   29
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
  12.
                Income
      taxes (continued):
  2008
                                                                    
                                                                    
                                                                    2007Future
      Tax AssetsCanadaNon-Capital
      losses (a)
                                                                    
                                                                    $
                                                                    5,109
                                                                    
                                                                    
                                                                    $
                                                                    5,831Stock
      issuance costs and financing fees
                                                                    
                                                                    
                                                                    2,234
                                                                    
                                                                    
                                                                    
                                                                    1,510Cumulative
      eligible capital
                                                                    
                                                                    
                                                                    141
                                                                    
                                                                    
                                                                    
                                                                    174Unrealized gain
      on forward sales derivatives
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (268
                                                                    )Unrealized
      (gain) loss on foreign exchange
                                                                    
                                                                    
                                                                    (4,341
                                                                    )
                                                                    
                                                                    
                                                                    4,050BrazilPre-production
      costs
                                                                    
                                                                    
                                                                    208
                                                                    
                                                                    
                                                                    
                                                                    -Unrealized loss
      on foreign exchange
                                                                    
                                                                    
                                                                    19,061
                                                                    
                                                                    
                                                                    
                                                                    -Non-Capital
      losses (b)
                                                                    
                                                                    
                                                                    3,912
                                                                    
                                                                    
                                                                    
                                                                    1,403Amounts
      not deductible until paid (realized)
                                                                    
                                                                    
                                                                    1,269
                                                                    
                                                                    
                                                                    
                                                                    1,24027,593
                                                                    
                                                                    
                                                                    
                                                                    13,940Valuation
      Allowance
                                                                    
                                                                    
                                                                    (23,832
                                                                    )
                                                                    
                                                                    
                                                                    (11,301
                                                                    )3,761
                                                                    
                                                                    
                                                                    
                                                                    2,639Future
      Tax LiabilitiesBrazilAcquisition of
      mineral propertySabará
                                                                    
                                                                    
                                                                    (19
                                                                    )
                                                                    
                                                                    
                                                                    (70
                                                                    )Rio de
      Peixe
                                                                    
                                                                    
                                                                    (452
                                                                    )
                                                                    
                                                                    
                                                                    (599
                                                                    )Acquistion of
      Caeté Plant
                                                                    
                                                                    
                                                                    (10
                                                                    )
                                                                    
                                                                    
                                                                    (37
                                                                    )Net
      smelter royalty amortization
                                                                    
                                                                    
                                                                    (64
                                                                    )
                                                                    
                                                                    
                                                                    -Capitalized
      pre-stripping cost
                                                                    
                                                                    
                                                                    (3,088
                                                                    )
                                                                    
                                                                    
                                                                    (1,476
                                                                    )Engineering
      costs capitalized
                                                                    
                                                                    
                                                                    (128
                                                                    )
                                                                    
                                                                    
                                                                    (145
                                                                    )Unrealized
      foreign exchange gain
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    (2,494
                                                                    )(3,761
                                                                    )
                                                                    
                                                                    
                                                                    (4,821
                                                                    )New
      Future Tax Liabilities
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    (2,182
                                                                    )
  Canada
  (a)
              The
      Company has non-capital losses carried forward of approximately $17.6
      million that are available for tax purposes. The losses expire as
      follows:
 
 Year
                            
                            Amount
      in
                              Thousands
      of US$2010
                            
                            
                            1,8392014
                            
                            
                            3,0672015
                            
                            
                            4,6892026
                            
                            
                            1,3272027
                            
                            
                            4,9682028
                            
                            
                            1,729
  None
      of the Canadian non-capital loss carry-forwards have been included in
      future tax assets.
  
  30
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 
  12.
                Income
      taxes (continued):
  Brazil
  (b)
              The
      Company has non-capital loss carry-forwards of approximately $11.5 million
      which can be carried forward indefinitely, however, only 30% of the
      taxable income in one year can be applied against the loss carry-forward
      balance. None of the Brazilian non-capital loss carry-forwards have been
      recognized in future tax assets.
  13.
                Capital
      Stock:
  (a)
              Common
      shares:
  The
Company is authorized to issue an unlimited number of common
shares.
  (i)
              On
      February 21, 2008 the Company completed an equity financing underwritten
      by a syndicate of underwriters and issued 8,250,000 common shares at
      Cdn.$13.40 per share for gross proceeds of Cdn.$110.6 million ($109.6
      million). Pursuant to the underwriting agreement, the underwriters were
      paid an underwriters fee equal to four and one-half percent (4.5%) of the
      gross proceeds of the offering.
  (ii)
                In
      August 2006, Jaguar received approval from the TSX for a normal course
      issuer bid to purchase up to the lesser of 2,291,655 common shares, being
      5% of the issued and outstanding common shares of Jaguar at that time, or
      the number of common shares equal to a maximum aggregate purchase price of
      $1 million.  The normal course issuer bid commenced on August
      25, 2006 and terminated on August 24, 2007.  During 2006, Jaguar
      purchased 1,000 common shares at an average price of Cdn.$4.65 per common
      share.  During 2007 the Company purchased an additional 62,400
      shares at an average price of Cdn.$5.80 per common share.  These
      shares have been cancelled.
  In
August 2007, Jaguar received approval from the TSX for a second normal course
issuer bid to purchase up to the lesser of 2,760,224 common shares, being 5% of
the issued and outstanding common shares of Jaguar at that time, or the number
of common shares equal to a maximum aggregate purchase price of Cdn.$5.25
million.  The normal course issuer bid commenced on August 30, 2007
and terminated on August 29, 2008.  In June 2008, the Company received
approval from the TSX for an amendment to the second normal course issuer bid to
purchase additional shares up to the lesser of 2,242,924 common shares, or the
number of common shares equal to a maximum aggregate purchase price of Cdn.$10.0
million.  The normal course issuer bid commenced on July 2, 2008 and
terminated on August 29, 2008.  During 2007 the Company purchased
174,000 of its common shares at an average price of Cdn.$9.92.  During
2008 the Company purchased 647,300 shares at an average price of Cdn.$9.98 per
common share. These shares have been cancelled.
  In
November 2008, Jaguar received approval from the TSX for a third normal course
issuer bid to purchase up to the lesser of 3,119,114 common shares, being 5% of
the issued and outstanding common shares of Jaguar at that time, or the number
of common shares equal to a maximum aggregate purchase price of Cdn.$7.0
million.  No purchases have been made under the third normal course
issuer bid.
  The
share purchases were recorded as a reduction in the common share balance
equivalent to the average cost basis of the shares purchased, and an adjustment
to shareholders’ equity.  During 2008 common stock was reduced by $2.5
million (2007 - $596,000), and the excess paid over the average cost basis in
the amount of $3.9 million (2007 - $1.5 million, 2006 - $2,000) was charged to
deficit.
  31
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 13.
                Capital
      Stock (continued):
  (a)
              Common
      shares (continued):
  Shareholder
Rights Plan
  On
January 31, 2007 the Company adopted a Shareholder Rights Plan (“Rights Plan”)
to ensure the fair treatment of shareholders in connection with any take-over
bid for common shares of Jaguar.  Rights issued under the Rights Plan
will become exercisable upon the announcement of an intention to acquire
beneficial ownership of 20% or more of the outstanding shares of the Company
without complying with the Permitted Bid provisions in the Rights Plan or
without approval of the Board.  These rights will entitle shareholders
to purchase additional common shares at a substantial discount to the market
price at that time.  The Rights Plan has beenapproved by the Toronto
Stock Exchange and was ratified by the shareholders on May 10,
2007.
  (b)
              Warrants:
 
 On
February 27, 2007, the Company filed a final short form prospectus to issue up
to 340,090 common shares to the holders of 5,398,250 common share purchase
warrants, upon early exercise of its listed warrants.  Each warrant
entitled the holder to acquire one common share of the Company at a price of
Cdn.$4.50 on or before December 31, 2007.  Under the early exercise
program the holder could acquire an additional 0.063 of one common share in the
event that such holder exercised the warrants during the 30-day early exercise
period that commenced on February 28, 2007 and ended on March 30,
2007.
  As of
March 30, 2007, 4,818,852 warrants were exercised for gross proceeds of $18.8
million in exchange for 5,122,428 shares.  This represented 89.3% of
the listed warrants outstanding on February 28, 2007 thereby forcing each
remaining listed warrant (579,398) to be exchanged for 0.2982 common shares of
the Company by April 30, 2007 (except those warrants held by U.S. warrant
holders who are not accredited investors or who are accredited investors but who
did not deliver a subscription form and representation letter pursuant to the
program).  At December 31, 2007, 225,403 of the remaining listed
warrants were exchanged for 67,211 common shares.
  At
December 31, 2007, $0.8 million of cash was held in trust relating primarily to
warrant exercises.
  During
2008 144,081 compensation warrants were exercised at Cdn.$5.25 per share for
gross proceeds of Cdn.$756,000 (752,000).  At December 31, 2008 no
warrants were outstanding.
  (c)
              Stock
      options:
  During
2003 the Company established The Jaguar Stock Option Plan (the
“Plan”).  Under the Plan the Company may grant options to directors,
officers, employees, and consultants of the Company, and its
subsidiaries.  The maximum number of Company shares that have been
reserved under this plan is 10,500,000.  Options granted after
February 17, 2004 do not have any specific vesting provisions.
  Effective
October 22, 2004 the Plan was amended to allow a cashless exercise of the
options.  Under this amendment, an option holder can elect to have the
Company withhold a number of shares of stock issued as payment of the exercise
prices, based on the price of the shares at the close of trading on the day
preceding the day of exercise of the options, with the net shares issued to the
optionee in connection with the exercised options.  During the year
ended December 31, 2008, 619,500 options were exercised using the cashless
method (2007 - 164,000, 2006 -1,796,967).
   
   32
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007
 
 13.
                Capital
      Stock (continued):
  (c)
              Stock
      options (continued):
 
 Common
      share options
                                          
                                          Number
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise
                                            Price
      U.S.
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise
                                            Price
      Cdn.Balance,
      December 31, 2005
                                          
                                          
                                          4,425,300
                                          
                                          
                                          $
                                          0.79
                                          
                                          
                                          $
                                          3.80Issued
      during the year
                                          
                                          
                                          3,045,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          5.56Options
      exercised:-exercisable
      in US$
                                          
                                          
                                          (1,150,997
                                          )
                                          
                                          
                                          0.76
                                          
                                          
                                          
                                          --exercisable
      in Cdn.$
                                          
                                          
                                          (688,303
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4.06Options
      expired
                                          
                                          
                                          (362,000
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3.95Balance,
      December 31, 2006
                                          
                                          
                                          5,269,000
                                          
                                          
                                          $
                                          1.03
                                          
                                          
                                          $
                                          4.80Issued
      during the year
                                          
                                          
                                          2,808,500
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          7.59Options
      exercised:-exercisable
      in US$
                                          
                                          
                                          (24,000
                                          )
                                          
                                          
                                          1.17
                                          
                                          
                                          
                                          --exercisable
      in Cdn.$
                                          
                                          
                                          (192,842
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3.74Options
      expired
                                          
                                          
                                          (55,000
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          4.51Balance,
      December 31, 2007
                                          
                                          
                                          7,805,658
                                          
                                          
                                          $
                                          1.00
                                          
                                          
                                          $
                                          5.85Issued
      during the year
                                          
                                          
                                          130,000
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          6.86Options
      exercised:-exercisable
      in Cdn.$
                                          
                                          
                                          (699,645
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3.83Options
      expired
                                          
                                          
                                          (175,000
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          6.36Balance,
      December 31, 2008
                                          
                                          
                                          7,061,013
                                          
                                          
                                          $
                                          1.00
                                          
                                          
                                          $
                                          6.06
 
 Exercise
                          price
                        
                        Outstanding
                          December
      31,
                          2008
                        
                        Weighted
      Average
                          Remaining
      Life
                          in
      Years
                        
                        Number
                          Exercisable$1.00
                        
                        135,000
                        
                        0.01
                        
                        135,000$3.29
                        Cdn.
                        40,000
                        
                        1.94
                        
                        40,000$3.47
                        Cdn.
                        350,000
                        
                        1.13
                        
                        350,000$3.65
                        Cdn.
                        126,000
                        
                        1.19
                        
                        126,000$3.75
                        Cdn.
                        115,000
                        
                        0.01
                        
                        115,000$4.00
                        Cdn.
                        157,500
                        
                        0.81
                        
                        157,500$4.05
                        Cdn.
                        470,000
                        
                        0.38
                        
                        470,000$4.25
                        Cdn.
                        71,000
                        
                        0.45
                        
                        71,000$4.41
                        Cdn.
                        398,000
                        
                        2.50
                        
                        -$4.60
                        Cdn.
                        100,000
                        
                        0.72
                        
                        100,000$4.62
                        Cdn.
                        36,000
                        
                        2.67
                        
                        36,000$4.72
                        Cdn.
                        13,513
                        
                        0.01
                        
                        13,513$5.25
                        Cdn.
                        50,000
                        
                        0.42
                        
                        50,000$5.25
                        Cdn.
                        200,000
                        
                        0.72
                        
                        200,000$5.49
                        Cdn.
                        1,000,000
                        
                        2.36
                        
                        1,000,000$5.94
                        Cdn.
                        1,135,000
                        
                        3.22
                        
                        1,093,332$6.00
                        Cdn.
                        50,000
                        
                        0.92
                        
                        50,000$6.40
                        Cdn.
                        1,010,000
                        
                        2.92
                        
                        1,010,000$6.48
                        Cdn.
                        364,000
                        
                        3.69
                        
                        81,500$9.54
                        Cdn.
                        1,240,000
                        
                        3.93
                        
                        1,240,0007,061,013
                        
                        
                        
                        6,338,845
 
  33
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007




13.
                Capital
      Stock (continued):
  (c)
              Stock
      options (continued):
  During
2008 130,000 options were granted to a consultant of the Company which vested
upon future performance.  These options expired without vesting and
therefore were not valued or expensed during the year.
  The
weighted average fair value at the date of grant for the options granted during
the year ended December 31, 2008 (n/a) (2007 - $4.07, 2006 -
$2.31).
  The
fair value of each option granted was estimated on the date of the grant using
the Black-Scholes option-pricing model with the following
assumptions:
 
 2008
                      2007
                      2006Risk-free
      interest rate
                      -
                      3.9%
      - 4.3%
                      3.8%
      - 4.5%Expected
      dividend yield
                      -
                      0.0%
                      0.0%Expected
      share price volatility
                      -
                      55.0%
      - 60.0%
                      50.0%
      - 55.0%Expected
      life of the options
                      -
                      2.8
      - 4.0 years
                      1.5
      - 5 years
 
 14.
                Long-
      term Incentive Plans
 
 On
November 5, 2008, the Company established three long-term incentive plans for
directors, senior officers, employees and consultants of the
company.
 
 A
Deferred Share Unit Plan (“DSU”) was established which allows the Company to
grant its directors performance awards.  DSUs call for eventual
settlement in cash based upon the price of the Company’s common stock subsequent
to a director’s termination from the Company’s board of directors.  On
November 5, 2008 111,737 DSUs were granted and a deferred compensation liability
of $375,000 was recorded at December 31, 2008 (2007 - $nil).  Included
in stock compensation expense for the year ended December 31, 2008 is $393,000
relating to DSUs (2007 - $nil, 2006 - $nil).
 
 A
Restricted Stock Unit Plan (“RSU”) was established which allows the Company to
grant performance awards to senior officers, employees and consultants of the
Company.  RSUs call for eventual settlement in cash based upon the
price of the Company’s common stock at a future vesting date.  On
November 5, 2008 140,000 RSUs were granted to senior officers, employees and
consultants of the company and on December 9, 2008 173,200 RSUs were granted to
employees and consultants of the company.  Deferred compensation
liabilities of  $42,000 were recorded as at December 31, 2008 relating
to these grants (2007- $nil).  Included in stock compensation expense
for the year ended December 31, 2008 is $33,000 relating to RSUs (2007 - $nil,
2006 - $nil).  Included in other cost of goods sold for the year ended
December 31, 2008 is $2,000 (2007 - $nil, 2006 - $nil) and in inventory is
$5,000 (2007 - $nil, 2006 - $nil) relating to RSU’s.  $2,000 of RSU
costs were deferred and are included in Mineral properties (2007
-$nil)
 
 A Stock
Appreciation Rights Plan (“SAR”) was established which allows the Company to
grant performance awards to senior officers, employees or consultants of the
Company.  SARs call for eventual settlement in cash based upon the
increase in price of the Company’s common stock from the grant date to a future
vesting date.  On November 5, 2008 685,000 SARs were granted to senior
officers of the Company which will result in a deferred compensation liability
in the amount by which the market price of the Company’s common shares at the
vesting date November 4, 2011 exceeds the market price of $3.30 at the time of
grant.  Deferred compensation liabilities of $17,000 were recorded as
at December 31, 2008 relating to these grants.  Included in stock
compensation expense for the year ended December 31, 2008 is $17,000 relating to
SARs (2007 - $nil, 2006 - $nil).
 
  34
  JAGUAR
MINING INC.
 
 Notes
to Consolidated Financial Statements
 (tabular
dollar amounts in thousands of U.S. dollars, except per share
amounts)
 
 Years
ended December 31, 2008 and 2007







15.
            Basic
      and Diluted Net Loss per Share:




Dollaramounts and share
amounts in thousands, except per share amounts.




2008
                      
                      
                      2007
                      
                      
                      2006NumeratorNet
      loss for the year
                      
                      $
                      (4,256
                      )
                      
                      $
                      (27,660
                      )
                      
                      $
                      (12,746
                      )DenominatorWeighted
      average number of common shares outstanding
                      
                      
                      62,908,676
                      
                      
                      
                      53,613,175
                      
                      
                      
                      43,114,563Basic
      and diluted net loss per share
                      
                      $
                      (0.07
                      )
                      
                      $
                      (0.52
                      )
                      
                      $
                      (0.30
                      )




The
determination of the weighted average number of shares outstanding for the
calculation of diluted net loss per share does not include the effect of
outstanding warrants and options since they are anti-dilutive.




16.
              Related
      Party Transactions:




(a)
            The
      Company incurred fees of $719,000 for the year ended December 31, 2008
      (2007 - $747,000, 2006 - $739,000) from IMS Engenharia Mineral Ltda
      ("IMSE"), a company held by several officers of the Company, which
      provides operating services to the Company's Brazilian
      subsidiaries.  The fees are included in management fees in the
      statement of operations.




(b)
            The
      Company incurred occupancy fees of $180,000 for the year ended December
      31, 2008 (2007 - $120,000, 2006 - $120,000) to BZI, a corporate
      shareholder, for use of administrative offices.  The Company
      moved to new administrative office space in December 2007.  The
      term will be three years beginning on the date of
      occupancy.  The Company also incurred consulting fees and
      administrative service charges of $344,000 from BZI for the year ended
      December 31, 2008 (2007 - $450,000, 2006 - $314,000).  The
      occupancy costs, consulting fees and administrative service fees are
      included in the statement of operations.  As at December 31,
      2008 accounts payable and accrued liabilities includes $39,000 due to
      BZI.  As at December 31, 2007 prepaid expenses and sundry assets
      includes a receivable of $101,000 from
BZI.




(c)
            The
      Company recognized rental income of $9,000 from PML and $34,000 from PCO
      for the year ended December 31, 2008 (2007 - $192,000 from PML and
      $126,000 from PCO, 2006 - $nil from PML and $90,000 from PCO) for
      temporarily idle equipment and the use of administrative
      offices.  PCO is controlled by IMS, a founding shareholder of
      the Company.  As at December 31, 2008 prepaid expenses and
      sundry assets includes $12,000 from PCO and $nil from PML (as at December
      31, 2007 - $149,000 receivable from PML, and $36,000 from PCO) (Note
      4(b)).  During 2008 the Company also received approximately
      $30,000 (2007 - $0.3 million, 2006 - $nil) of royalty income relating to
      the NSR (Note 6).




(d)
            The
      Company’s subsidiaries MSOL and MTL were required to pay an employment
      claim of a former employee who performed work for MSOL, then owned by BZI,
      and other BZI companies.  BZI has guaranteed the amount owed to
      the company of R$378,000 ($162,000).  As at December 31, 2008,
      prepaid expenses and sundry assets include $162,000 receivable from BW
      Mineração, a wholly owned subsidiary of BZI.  (December 31, 2007
      - $nil) (Note 4 (b)).




The
above related party transactions are in the normal course of operations and have
been measured at the exchange amount agreed upon between the related
parties.



















35





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007







17.
              Supplemental
      Cash Flow Information:




December
      31,
                            2008
                          
                          
                          December
      31,
                            2007
                          
                          
                          December
      31,
                            2006Equipment
      purchased on issuing note payable (Notes
    10(a),(b),(c),(f),(i)
                          
                          $
                          2,263
                          
                          
                          $
                          -
                          
                          
                          $
                          649Equipment
      purchased on eliminating loan receivable
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          327Warrants
      issued in conjunction with the offering
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          584Conversion
      of loan receivable into NSR (Note 6)
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          1,535Transfer
      of Zone C in return for forgiveness of note payable and royalties payable
      (Note 9(a))
                          
                          $
                          452
                          
                          
                          $
                          350
                          
                          
                          $
                          -Mineral
      rights purchased on issuing note payable to CVRD (Note
    10(h))
                          
                          $
                          5,494
                          
                          
                          $
                          8,208
                          
                          
                          $
                          -





December
      31,
                          2008
                        
                        
                        December
      31,
                          2007
                        
                        
                        December
      31,
                          2006Interest
      paid
                        
                        $
                        9,312
                        
                        
                        $
                        8,217
                        
                        
                        $
                        270Income
      taxes paid
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        591




Cash
and cash equivalents include R$415,000 ($177,000) in bank certificates of
deposit (2007 - R$38.0 million ($21.4 million)) and Cdn$7.5 million ($6.0
million) of cashable guaranteed investment certificates.




18.
            Capital
      Disclosures




The
Company manages its capital structure in order to support the acquisition,
exploration and development of mineral properties; and to maximize return to
stakeholders through a flexible capital structure which optimizes the costs of
capital and the debt and equity balance. The Company sets the amount of capital
in proportion to risk by managing the capital structure and making adjustments
in light of changes in economic conditions and the risk characteristics of the
underlying assets. To adjust or maintain our capital structure, the Company may
adjust the amount of long term debt, enter into new credit facilities, purchase
some of its common shares for cancellation pursuant to normal course issuer bids
or issue new common shares.  The Company’s overall strategy remains
unchanged from 2007.




The
capital structure of the Company consists of notes payable (Note 10) and all of
the components of shareholders’ equity.




The
Company is not subject to externally imposed capital requirements.







19.
            Commitments:




In the
normal course of business, the Company enters into contracts that give rise to
commitments for future minimum payments.  The Company enters into
forward foreign exchange contracts which future payments are dependent upon
future exchange rates (Note 5(a)(ii)). The following table summarizes the
remaining contractual maturities of the Company’s financial liabilities and
other commitments.





36





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007







19.
            Commitments
      (continued):





Less
      than 1
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    More
      than 5Commitments
                                    
                                    year
                                    
                                    
                                    1
      -3 years
                                    
                                    
                                    3
      - 5 years
                                    
                                    
                                    years
                                    
                                    
                                    TotalCurrent
      liabilitiesAccounts
      payable and acrrued liabilities
                                    
                                    $
                                    13,416
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    13,416Current
      taxes payable
                                    
                                    
                                    8,626
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    8,626Notes
      PayablePrincipal
                                    
                                    
                                    4,680
                                    
                                    
                                    
                                    10,588
                                    
                                    
                                    
                                    70,431
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    85,699Interest
                                    
                                    
                                    7,528
                                    
                                    
                                    
                                    14,842
                                    
                                    
                                    
                                    1,682
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    24,052Capital
      Lease
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Operating
      Lease Agreements
                                    
                                    
                                    191
                                    
                                    
                                    
                                    180
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    371Management
      agreements (a)Operations
                                    
                                    
                                    1,093
                                    
                                    
                                    
                                    398
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,491Suppliers
      agreementsMine
      operations (b)
                                    
                                    
                                    273
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    273Drilling
      (c)
                                    
                                    
                                    94
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    94Asset
      retirement obligations (d)
                                    
                                    
                                    630
                                    
                                    
                                    
                                    565
                                    
                                    
                                    
                                    5,402
                                    
                                    
                                    
                                    3,497
                                    
                                    
                                    
                                    10,094Joint
      venture agreement (e)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    729
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    729Total
                                    
                                    $
                                    36,531
                                    
                                    
                                    $
                                    27,302
                                    
                                    
                                    $
                                    77,515
                                    
                                    
                                    $
                                    3,497
                                    
                                    
                                    $
                                    144,845




(a)
            The
      term of the management agreements are one to two years (Note
      10(a)).




(b)
            The
      Company has the right to cancel the mine operations contract with 60 days
      advance notice.  The amount included in the contractual
      obligations table represents the amount due within 60
  days.




(c)
            The
      Company has the right to cancel the drilling contract with 30 days advance
      notice.  The amount included in the contractual obligations
      table represents the amount due within 30
days.




(d)
            The
      asset retirement obligations are not adjusted for inflation and are not
      discounted.




(e)
            On
      February 28, 2007, the Company entered into a Joint Venture agreement with
      Xstrata Brasil Exploração Mineral Ltda. (“Xstrata”) to explore the Pedra
      Branca Gold Project in Northern Brazil.  The Company was
      required to pay an aggregate fee of $150,000 over two years (of which
      $50,000 was paid during the first quarter of 2007 and $100,000 was paid in
      March 2008).  The Company will have the option to hold a 51%
      ownership interest in the new enterprise by investing an aggregate of
      $3.85 million in exploration expenditures over four years.  The
      Company must meet annual exploration expenditure targets for each year in
      which it maintains the option.  As at December 31, 2008 the
      Company has expended $3.1 million on exploration thereby meeting the
      exploration targets for years 2008 to 2010.  An additional
      $729,000 is required to be spent on exploration prior to February 28, 2011
      to meet the balance of the $1.5 million exploration
  target.




The
      Company has the opportunity to increase its ownership interest in certain
      gold deposits to 60% through further investing $3.0 million by the fifth
      anniversary of the agreement, subject to the rights of Xstrata to return
      to their 49% interest through additional contributions to the joint
      venture for certain properties which have gold deposits of two million
      ounces or more.




















37





JAGUAR
MINING INC.





Notes
to Consolidated Financial Statements


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





Years
ended December 31, 2008 and 2007








20.
              Subsequent
      Events:




(a)
            In
      February 2009, the Company reached a settlement with Companhia Vale do Rio
      Doce (“Vale”) to exchange in-kind $5.0 million of iron ore concessions
      controlled by Jaguar in exchange for a portion of the Roça Grande gold
      mineral royalty liability owed to Vale.  The portion of the iron
      ore concession exercised by Vale represents a small part of the overall
      concession held by Jaguar with the remaining acreage to remain available
      to Vale should it determine at a future point the additional land is
      desired.






(b)
            On
      March 2, 2009 the Company completed an equity financing underwritten by a
      syndicate of underwriters and issued 13,915,000 common shares at Cdn.$6.20
      per share for gross proceeds of Cdn.$86.3 million ($66.9 million).
      Pursuant to the underwriting agreement, the underwriters were paid an
      underwriters fee equal to 4.5 percent of the gross proceeds of the
      offering.




21.
            Comparative
      Figures:




Certain
      comparative figures have been reclassified to conform to the current
      year’s presentation.







38