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FINANCIAL STATEMENTS  FOR THE YEAR ENDED FEBRUARY 29, 2012    TABLE OF CONTENTS   1. Managements Report  2. Independent Auditors Report  3. Balance Sheets  4. Statements of Loss  5. Statements of Comprehensive Loss  6. Statements of Changes in Shareholders Equity  7. Statements of Cash Flows  8. Notes to Financial Statements  General information  Basis of preparation and adoption of International Financial Reporting Standards ("IFRS")  Summary of significant accounting policies  Transition to IFRS  Critical accounting estimates and judgements  Short-term investments  Tax credits for mining exploration and commodity taxes receivable  Financial instruments  Mining properties  Accounts payable and accrued liabilities  Deferred royalties  Share Capital  Warrants  Stock options  Related party transactions  Rent, office expense and other  General exploration costs  Cash flows  Deferred tax  Earnings per share  Capital management  Commitments  Subsequent events          MANAGEMENTS REPORT   Responsibility for Financial Information  Virginia Mines management is responsible for the preparation, integrity and objectivity of the financial statements and other financial information presented in this Annual Report. These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board and include some amounts that are based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly in all material respects.  Virginia Mines policy is to maintain systems of internal accounting, and administrative and disclosure controls reinforced by standards of conduct and ethics set out in written policies to provide reasonable assurance that the financial information is relevant, accurate and reliable, and that assets are appropriately accounted for and adequately safeguarded.  The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board and is composed of independent outside directors. The Committee meets periodically with management and external auditor to review accounting, auditing and internal control matters. These financial statements have been reviewed and approved by the Board of Directors on the recommendation of the Audit Committee.  The financial statements have been audited by PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., the independent auditor, in accordance with the Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) on behalf of the shareholders. The external auditor has full and free access to the Audit Committee.  Internal Control over Financial Reporting  Virginia Mines management is responsible for establishing and maintaining adequate internal control over financial reporting. Virginia Mines 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 IFRS.  Virginia Mines internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Virginia Mines assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of Virginia Mines; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Virginia Mines assets that could have a material effect on the financial statements.  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.  Management conducted an evaluation of the effectiveness of Virginia Mines internal control over financial reporting based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  1      Based on the evaluation, the management concluded that Virginia Mines internal control over financial reporting was effective as of February 29, 2012.  The effectiveness of the Companys internal control over financial reporting as at February 29, 2012, has been audited by PricewaterhouseCoopers LLP/s.r.l./s.e.n.c.r.l., the independent auditor, as stated in its report, which appears herein.    /s/  André Gaumond/s/  Robin VilleneuveAndré Gaumond
President and CEORobin Villeneuve
CFO   2


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5   VIRGINIA MINES INC.  Balance Sheets  (expressed in Canadian dollars)  As atAs atAs atFebruary 29,February 28,March 1,201220112010AssetsCurrent assetsCash$10,364,713$11,619,832$16,365,339Short-term investments (note 6)39,463,52734,210,31125,308,249Tax credits for mining exploration and commoditytaxes receivable (note 7)2,839,0352,302,9033,262,900Other amounts receivable391,78732,977300,262Prepaid expenses138,021102,22659,779Derivative financial instrument--1,046,21053,197,08348,268,24946,342,739Deferred tax assets (note 19)976,384--Long-term investments--1,344,666Property, plant and equipment, at cost lessaccumulated depreciation of $174,945 ($122,065 as atFebruary 28, 2011 and $82,527 as at March 1, 2010)167,888147,552111,156Mining properties(note 9)47,960,34437,602,24828,938,768$102,301,699$86,018,049$76,737,329LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities (note 10)8,386,5123,235,8852,597,678Deferred tax liabilities (note 19)2,116,449--Deferred royalties (note 11)3,629,6802,445,8701,216,880Shareholders' EquityShare capital (note 12)124,688,911115,809,533109,112,925Warrants (note 13)14,35840,28236,051Stock options (note 14)6,625,7055,858,0294,286,205Contributed surplus385,549381,317376,949Deficit(45,136,428)(43,483,991)(41,752,332)Accumulated other comprehensive income1,590,9631,731,124862,97388,169,05880,336,29472,922,771$102,301,699$86,018,049$76,737,329Commitments (note 22)Subsequent events (note 23)  The accompanying notes are an integral part of these condensed interim financial statements.  Approved by the Board of Directors  (signed) André Gaumond, Director(signed) André Lemire, Director  6   VIRGINIA MINES INC.  Statements of Loss  (expressed in Canadian dollars)


|                                                                       |                   |             |                   |   |            
|---------------------------------------------------------------------- | ----------------- | ----------- | ----------------- | - | -----------
|                                                                       | Year Ended        |             | Year Ended       
|                                                                       | February 29,
2012 |             | February 28,
2011
|                                                                       |                   |             |                   |   |            
|Expenses                                                               |                   |             |                   |   |            
|Salaries                                                               | $                 | 905,452     |                   | $ | 823,486    
|Professional and maintenance fees                                      |                   | 392,400     |                   |   | 369,590    
|Rent, office expenses and other (note 16)                              |                   | 1,108,928   |                   |   | 622,994    
|Stock-based compensation (note 14)                                     |                   | 1,418,614   |                   |   | 2,225,912  
|Depreciation of property, plant and equipment                          |                   | 52,880      |                   |   | 41,585     
|General exploration costs (note 17)                                    |                   | 814,003     |                   |   | 541,770    
|Grants, credit on duties refundable for loss and refundable tax credit |                   |             |                   |   |            
|for resources                                                          |                   | (53,908)    |                   |   | (38,672)   
|Cost of mining properties abandoned or written off (note 9)            |                   | 860,261     |                   |   | 1,312,999  
|                                                                       |                   | 5,498,630   |                   |   | 5,899,664  
|                                                                       |                   |             |                   |   |            
|Other income (expense)                                                 |                   |             |                   |   |            
|Dividends                                                              |                   | 259,793     |                   |   | 185,351    
|Interest                                                               |                   | 740,296     |                   |   | 679,664    
|Fees invoiced to partners                                              |                   | 451,540     |                   |   | 161,502    
|Option payments received in excess of cost of mining properties        |                   | 10,000      |                   |   | 9,778      
|Gain on sale of available-for-sale investments                         |                   | 116,649     |                   |   | 23,963     
|Loss on investments held for trading                                   |                   | -           |                   |   | (174,372)  
|Gain (loss) on investments designated as held for trading              |                   | (49,229)    |                   |   | 146,643    
|                                                                       |                   | 1,529,049   |                   |   | 1,032,529  
|                                                                       |                   |             |                   |   |            
|Loss before income taxes                                               |                   | (3,969,581) |                   |   | (4,867,135)
|Deferred tax recovery (note 19)                                        |                   | 2,317,144   |                   |   | 3,135,476  
|Net loss                                                               | $                 | (1,652,437) |                   | $ | (1,731,659)
|                                                                       |                   |             |                   |   |            
|                                                                       |                   |             |                   |   |            
|Per share(note 20)                                                     |                   |             |                   |   |            
|                                                                       |                   |             |                   |   |            
|Basic net loss                                                         |                   | (0.053)     |                   |   | (0.057)    
|                                                                       |                   |             |                   |   |            
|Diluted net loss                                                       |                   | (0.053)     |                   |   | (0.057)    

The accompanying notes are an integral part of these condensed interim financial statements.   7   VIRGINIA MINES INC.  Statements of Comprehensive Loss  (expressed in Canadian dollars)


|                                                                                |                              |             |  |                              |            
|------------------------------------------------------------------------------- | ---------------------------- | ----------- |  | ---------------------------- | -----------
|                                                                                | Year Ended February 29,
2012 |             |  | Year Ended
February 28,
2011
|                                                                                |                              |             |  |                              |            
|Net Loss                                                                        | $                            | (1,652,437) |  | $                            | (1,731,659)
|                                                                                |                              |             |  |                              |            
|Other comprehensive income (loss)                                               |                              |             |  |                              |            
|                                                                                |                              |             |  |                              |            
|Unrealized gain (loss) on available-for-sale investments, net of related income |                              |             |  |                              |            
|tax recovery of $6,092 (income tax expense of $138,135 in 2011)                 |                              | (39,201)    |  |                              | 888,891    
|Reclassification of gains on available-for-sale investments realized upon sale, |                              |             |  |                              |            
|net of related income taxes of $15,689 ($3,223 in 2011)                         |                              | (100,960)   |  |                              | (20,740)   
|                                                                                |                              |             |  |                              |            
|                                                                                |                              | (140,161)   |  |                              | 868,151    
|                                                                                |                              |             |  |                              |            
|Comprehensive loss                                                              | $                            | (1,792,598) |  | $                            | (863,508)  

The accompanying notes are an integral part of these condensed interim financial statements.  8   VIRGINIA MINES INC.  Statements of Changes in Shareholders Equity  (expressed in Canadian dollars)


|                                                        |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|------------------------------------------------------- | ------------- |  | -------- |  | ------------- |  | ------------------- |  | ------------ |  | -------------------------------------- |  | -----------
|                                                        | Share
capital |  | Warrants |  | Stock
options |  | Contributed
surplus |  | Deficit      |  | Accumulated
other
comprehensive
income |  | Total      
|                                                        | $             |  | $        |  | $             |  | $                   |  | $            |  | $                                      |  | $          
|Balance as at March 1, 2011                             | 115,809,533   |  | 40,282   |  | 5,858,029     |  | 381,317             |  | (43,483,991) |  | 1,731,124                              |  | 80,336,294 
|                                                        |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|Net loss                                                | -             |  | -        |  | -             |  | -                   |  | (1,652,437)  |  | -                                      |  | (1,652,437)
|Unrealized loss on available-for-sale                   |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|investments, net of related income taxes                | -             |  | -        |  | -             |  | -                   |  | -            |  | (39,201)                               |  | (39,201)   
|Reclassification of gains on available-for-sale         |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|investments realized upon sale, net of related          |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|income taxes                                            | -             |  | -        |  | -             |  | -                   |  | -            |  | (100,960)                              |  | (100,960)  
|Comprehensive loss for the year                         | -             |  | -        |  | -             |  | -                   |  | (1,652,437)  |  | (140,161)                              |  | (1,792,598)
|Stock-based compensation                                | -             |  | -        |  | 1,418,614     |  | -                   |  | -            |  | -                                      |  | 1,418,614  
|Stock options exercised                                 | 1,704,956     |  | -        |  | (650,938)     |  | -                   |  | -            |  | -                                      |  | 1,054,018  
|Warrants granted                                        | -             |  | 14,359   |  | -             |  | -                   |  | -            |  | -                                      |  | 14,359     
|Warrants exercised                                      | 211,309       |  | (36,051) |  | -             |  | -                   |  | -            |  | -                                      |  | 175,258    
|Warrants expired                                        | -             |  | (4,232)  |  | -             |  | 4,232               |  | -            |  | -                                      |  | -          
|Issuance of shares for acquisition of mining
properties | 1,201,670     |  | -        |  | -             |  | -                   |  | -            |  | -                                      |  | 1,201,670  
|Issuance of shares for cash consideration               | 6,551,890     |  | -        |  | -             |  | -                   |  | -            |  | -                                      |  | 6,551,890  
|Share issue expenses                                    | (790,447)     |  | -        |  | -             |  | -                   |  | -            |  | -                                      |  | (790,447)  
|Balance as at February 29, 2012                         | 124,688,911   |  | 14,358   |  | 6,625,705     |  | 385,549             |  | (45,136,428) |  | 1,590,963                              |  | 88,169,058 




|                                                |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|----------------------------------------------- | ------------- |  | -------- |  | ------------- |  | ------------------- |  | ------------ |  | -------------------------------------- |  | -----------
|                                                | Share
capital |  | Warrants |  | Stock
options |  | Contributed
surplus |  | Deficit      |  | Accumulated
other
comprehensive
income |  | Total      
|                                                | $             |  | $        |  | $             |  | $                   |  | $            |  | $                                      |  | $          
|Balance as at March 1, 2010                     | 109,112,925   |  | 36,051   |  | 4,286,205     |  | 376,949             |  | (41,752,332) |  | 862,973                                |  | 72,922,771 
|Net loss                                        | -             |  | -        |  | -             |  | -                   |  | (1,731,659)  |  | -                                      |  | (1,731,659)
|Unrealized gain on available-for-sale           |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|investments, net of related income taxes        | -             |  | -        |  | -             |  | -                   |  | -            |  | 888,891                                |  | 888,891    
|Reclassification of gains on available-for-sale |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|investments realized upon sale, net of related  |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|income taxes                                    | -             |  | -        |  | -             |  | -                   |  | -            |  | (20,740)                               |  | (20,740)   
|Comprehensive loss for the year                 | -             |  | -        |  | -             |  | -                   |  | (1,731,659)  |  | 868,151                                |  | (863,508)  
|Stock-based compensation                        | -             |  | -        |  | 2,225,912     |  | -                   |  | -            |  | -                                      |  | 2,225,912  
|Stock options exercised                         | 1,605,631     |  | -        |  | (649,720)     |  | -                   |  | -            |  | -                                      |  | 955,911    
|Stock options cancelled                         | -             |  | -        |  | (4,368)       |  | 4,368               |  | -            |  | -                                      |  | -          
|Warrants granted                                | -             |  | 4,231    |  | -             |  | -                   |  | -            |  | -                                      |  | 4,231      
|Issuance of shares for acquisition of mining    |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|properties                                      | 922,700       |  | -        |  | -             |  | -                   |  | -            |  | -                                      |  | 922,700    
|Issuance of shares for cash consideration       | 4,740,000     |  | -        |  | -             |  | -                   |  | -            |  | -                                      |  | 4,740,000  
|                                                |               |  |          |  |               |  |                     |  |              |  |                                        |  |            
|Share issue expenses                            | (571,723)     |  | -        |  | -             |  | -                   |  | -            |  | -                                      |  | (571,723)  
|Balance as at February 28, 2011                 | 115,809,533   |  | 40,282   |  | 5,858,029     |  | 381,317             |  | (43,483,991) |  | 1,731,124                              |  | 80,336,294 

The accompanying notes are an integral part of these financial statements.  9   VIRGINIA MINES INC.  Statements of Cash Flows  (expressed in Canadian dollars)


|                                                                         |                              |              |                              |   |             
|------------------------------------------------------------------------ | ---------------------------- | ------------ | ---------------------------- | - | ------------
|                                                                         | Year Ended
February 29,
2012 |              | Year Ended
February 28,
2011
|                                                                         |                              |              |                              |   |             
|Cash flows from operating activities                                     |                              |              |                              |   |             
|Net loss                                                                 | $                            | (1,652,437)  |                              | $ | (1,731,659) 
|                                                                         |                              |              |                              |   |             
|Adjustments for :                                                        |                              |              |                              |   |             
|Deferred tax recovery                                                    |                              | (2,317,144)  |                              |   | (3,135,476) 
|Loss (gain) on investments designated as held for trading                |                              | 49,229       |                              |   | (146,643)   
|Loss on investments held for trading                                     |                              | -            |                              |   | 174,372     
|Gain on sale of available-for-sale investments                           |                              | (116,649)    |                              |   | (23,963)    
|Option payments received in excess of cost of mining properties          |                              | (10,000)     |                              |   | (9,778)     
|Cost of mining properties abandoned or written off                       |                              | 860,261      |                              |   | 1,312,999   
|Depreciation of property, plant and equipment                            |                              | 52,880       |                              |   | 41,585      
|Stock-based compensation                                                 |                              | 1,418,614    |                              |   | 2,225,912   
|                                                                         |                              | (1,715,246)  |                              |   | (1,292,651) 
|                                                                         |                              |              |                              |   |             
|Variation in deferred royalties                                          |                              | 1,183,810    |                              |   | 1,228,990   
|                                                                         |                              |              |                              |   |             
|Changes in items of working capital (note 18a)                           |                              | 2,929,504    |                              |   | 215,480     
|                                                                         |                              | 2,398,068    |                              |   | 151,819     
|                                                                         |                              |              |                              |   |             
|Cash flows from financing activities                                     |                              |              |                              |   |             
|Issuance of common shares, net of share issue expenses                   |                              | 11,452,775   |                              |   | 8,407,129   
|Draw on revolving credit line                                            |                              | -            |                              |   | 1,117,343   
|                                                                         |                              | 11,452,775   |                              |   | 9,524,472   
|                                                                         |                              |              |                              |   |             
|Cash flows used in investing activities                                  |                              |              |                              |   |             
|Acquisition of short-term investments                                    |                              | (29,397,633) |                              |   | (24,926,752)
|Disposition of short-term investments                                    |                              | 24,097,334   |                              |   | 17,089,802  
|Disposition of long-term investments                                     |                              | -            |                              |   | 1,227,364   
|Acquisition of mining properties and capitalized exploration costs       |                              | (10,451,354) |                              |   | (9,829,212) 
|Change in credit on duties refundable for loss and refundable tax credit |                              |              |                              |   |             
|related to exploration costs                                             |                              | 653,907      |                              |   | 2,084,981   
|Acquisition of property, plant and equipment                             |                              | (73,216)     |                              |   | (77,981)    
|Option payments received                                                 |                              | 65,000       |                              |   | 10,000      
|                                                                         |                              | (15,105,962) |                              |   | (14,421,798)
|                                                                         |                              |              |                              |   |             
|Net change in cash                                                       |                              | (1,255,119)  |                              |   | (4,745,507) 
|Cash - Beginning of year                                                 |                              | 11,619,832   |                              |   | 16,365,339  
|Cash - End of year                                                       | $                            | 10,364,713   |                              | $ | 11,619,832  
|                                                                         |                              |              |                              |   |             
|                                                                         |                              |              |                              |   |             
|Interest received                                                        |                              | 659,430      |                              |   | 620,932     
|Dividends received                                                       |                              | 259,793      |                              |   | 185,351     
|                                                                         |                              |              |                              |   |             
|Supplemental information (note 18b)                                      |                              |              |                              |   |             

The accompanying notes are an integral part of these financial statements.  10   VIRGINIA MINES INC.  Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  1 General information  Virginia Mines Inc. (the "Company") incorporated under the Canada Business Corporations Act,is in the business of acquiring and exploring mining properties. It has not yet determined whether its properties contain ore reserves that are economically recoverable. The recoverability of the amounts shown for mining properties is dependent upon the existence of economically recoverable ore reserves, the ability of the Company to obtain necessary financing to continue the exploration and development of its properties, and upon future profitable production or proceeds from the disposal of properties.  The address of its registered office is 116 St-Pierre, Suite 200, Quebec City, Quebec, Canada.   2 Basis of preparation and adoption of International Financial Reporting Standards ("IFRS")  The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as defined in the Handbook of the Canadian Institute of Chartered Accountants ("CICA Handbook"). In 2010, the CICA Handbook was revised to incorporate IFRS as issued by the International Accounting Standards Board ("IASB") and to require publicly accountable enterprises to apply these standards effective for years beginning on or after January 1, 2011. Accordingly, these are the Companys first annual financial statements prepared in accordance with IFRS as issued by the IASB. In these financial statements, the term "Canadian GAAP" refers to Canadian GAAP before the adoption of IFRS.  The financial statements have been prepared in compliance with IFRS. Subject to certain transition elections and exceptions disclosed in note 4, the Company has consistently applied the accounting policies used in the preparation of its opening IFRS balance sheet at March 1, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 4 discloses the impact of the transition to IFRS on the Company's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Companys financial statements for the year ended February 28, 2011 prepared under Canadian GAAP.  Basis of measurement  These financial statements have been prepared on a going concern basis, under the historical cost convention, except for financial instruments categorized at fair value through profit or loss and available-for-sale.  These financial statements were approved by the Board of Directors for issue on May 14, 2012.   3 Summary of significant accounting policies  The significant accounting policies used in the preparation of these annual financial statements are described below.  Cash  Cash includes cash on hand and balances with banks.  Short-term investments  Short-term investments consist primarily of bonds, trust units, convertible debentures and investments in public companies. These short-term investments are recognized in the financial statements on the trade date.  Financial instruments  Financial assets and liabilities are recognized when the Company becomes a party to the contractual provision of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.  11   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  The standards require that financial assets and financial liabilities, including derivative financial instruments, be initially measured at fair value. Subsequent to initial recognition, financial assets and financial liabilities are measured based on their classification: at fair value through profit or loss, available-for-sale investments, loans and receivables or financial liabilities at amortized cost.  ● At fair value through profit or loss– Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated by management. Assets in this category principally include embedded derivatives and derivatives which do not qualify for hedge accounting.  Financial instruments in this category are recognized initially and subsequently at fair value. Transaction costs are expensed in the statement of loss. Gains and losses arising from changes in fair value are presented in the statement of loss in the period in which they arise.  Financial instruments in this category are included in non-current assets unless the investments mature within 12 months or management intends to dispose of them within 12 months.  Financial assets designated as at fair value through profit or loss at inception are those that are managed and whose performance is evaluated on a fair value basis.  The Company's financial assets at fair value through profit or loss comprise convertible debentures. The Company has designated its convertible debentures as held for trading.  ● Available for sale– Available-for-sale investments are non-derivatives that are either designated in this category or not classified in any of the other categories. Financial assets classified as available for sale are recognized initially at fair value plus transaction costs and are subsequently carried at fair value. Unrealized gains and losses are recognized directly in other comprehensive income (loss), except for significant or prolonged decline in value, which are recognized in the statement of loss. Upon derecognition of the financial asset, the accumulated gains or losses previously recognized in accumulated other comprehensive income are reclassified to the statement of loss.  Available-for-sale investments are included in non-current assets unless the investments mature within 12 months or management intends to dispose of them within 12 months.  The Company’s available-for-sale assets comprise bonds, trust units and investments in public companies.  ● Loans and receivables– Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets classified as loans and receivables are recognized initially at the amount expected to be received less, when material, a discount to reclass the loans and receivables to fair value. Subsequently, they are measured at amortized cost using the effective interest method less a provision for impairment. They are included in current assets except for those with maturities greater than 12 months after the reporting period, which would be classified as non-current assets.  The Company's loans and receivables include cash and other amounts receivable in the balance sheet.  ● Financial liabilities at amortized cost– Financial liabilities include accounts payable and accrued liabilities and are initially recognized at the amount required to be paid less, when material, a discount to reduce the payable to fair value. Subsequently, they are measured at amortized cost using the effective interest method, which corresponds to par value due to their short-term maturity. They are included in current liabilities if payment is due within 12 months. Otherwise, they are presented as non-current liabilities.  12   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  Impairment of financial assets  At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss, as follows:  a) Financial assets carried at amortized cost: The loss is the difference between the amortized cost of the loan or receivable and the present value of the estimated future cash flows, discounted using the instruments original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly hrough the use of an allowance account.  b) Available-for-sale financial assets: The impairment loss is the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the statement of loss. This amount represents the cumulative loss in accumulated other comprehensive income that is reclassified to the statement of loss.  Impairment losses on financial assets carried at amortized cost and available-for-sale debt securities are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. Impairment losses on available-for-sale equity instruments are not reversed.  Property, plant and equipment and depreciation  Property, plant and equipment are recorded at cost less accumulated depreciation and impairment, and are depreciated using a straight-line method over their estimated useful lives ranging between five to ten years which is considered appropriate to reduce the carrying values to estimated residual values of the assets. Cost includes expenditures that are directly attributable to the acquisition of the assets. Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate.  Mining properties  The Company records its acquisition of interests in mining properties and areas of geological interest at cost less option payments received and other recoveries. These acquisition costs are recognized as intangible assets. Exploration costs related to these interests and projects are capitalized on the basis of specific claim blocks or areas of geological interest until the mining properties to which they relate are placed into production, sold or abandoned. These exploration costs are recognized as tangible assets. Management reviews for impairment the carrying amount of mining properties on a regular basis. These costs will be amortized over the estimated recoverable resources in the current mine plan using a unit of production basis or written off if the mining properties are sold or projects are abandoned. General exploration costs not related to specific mining properties are expensed as incurred.  Although management has taken actions to verify the ownership rights for mining properties in which the Company owns an interest in accordance with industry standards for the current exploration phase of these properties, these procedures give no assurance to the Company as to title. The title of property may be subject to unrecognized prior agreements and not compliant with regulatory requirements.  Mining properties are reviewed for impairment at each reporting date whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the mining property carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the mining property's fair value less costs to sell and value in use. Value in use is determined using discounted estimated future cash inflows. Impairment losses are recognized in the statement of loss under caption Cost of mining properties abandoned or written off. For the purpose of assessing impairment, mining properties are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Impairments are reviewed for potential reversals at each reporting date. Impairment can be reversed but is limited to the carrying amount that would have been determined net of depreciation, as if no impairment to the carrying amount would have been recognized.  13   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  Jointly controlled operations  A jointly controlled operation involves the use of assets and other resources of the Company and other venturer rather than the establishment of a corporation, partnership or other entity.  The Company accounts for the assets it controls and the liabilities and the expenses it incurs.  Provisions  Provisions for environmental restoration, restructuring costs and legal claims, where applicable, are recognized when: (i) the Company has a present legal or constructive obligation as a result of past events; (ii) it is more likely than not that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated.  Provisions are measured at management's best estimate of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to present value where the effect is material. The increase in the provision due to passage of time is recognized as interest expense. Changes in assumptions or estimates are reflected in the period in which they occur.  Provision for environmental restoration represents the legal and constructive obligations associated with the eventual closure of the Company's property, plant and equipment. These obligations consist of costs associated with reclamation and monitoring of activities and the removal of tangible assets. The discount rate used is based on a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability, excluding the risks for which future cash flow estimates have already been adjusted.  The Company had no material provisions as at February 29, 2012, February 28, 2011 and March 1, 2010.  Credit on duties refundable for loss and refundable tax credit for resources  The Company is entitled to a credit on duties refundable for loss of 7.5% (8% since January 1, 2012) under the Mining Duties Act and a refundable tax credit for resources which may reach 38.75% under the Quebec Income Tax Act. Those credits are calculated on qualified exploration expenditures incurred.  Those credits are accounted for using the cost reduction method. Accordingly they are recorded as a reduction of the related expenses or capital expenditures in the year the expenses are incurred provided that the Company has reasonable assurance those credits will be realized.  Flow-through shares  The Company finances some exploration expenditures through the issuance of flow-through shares. The resource expenditure deductions for income tax purposes are renounced to investors in accordance with the appropriate income tax legislation. The difference ("premium") between the amount recognized in common shares and the amount the investors pay for the shares is recognized as a liability which is reversed into the statement of loss when eligible expenditures have been made. The Company recognizes a deferred tax liability for the expenses renounced and a deferred tax expense at the moment the eligible expenditures are made.  Income taxes  The Company provides for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on deductible or taxable temporary differences between the carrying amount and tax bases of assets and liabilities using enacted or substantively enacted income tax rates expected to be in effect for the year in which the differences are expected to reverse. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the financial position reporting date.  A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.  14   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  Deferred tax assets and liabilities are presented as non-current and are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when deferred tax assets and liabilities levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.  Basic and diluted earnings per share  Basic earnings per share are calculated using the weighted average number of participating shares outstanding during the year.  Diluted earnings per share are calculated using the weighted average number of participating shares outstanding during the year, plus the effects of dilutive potential participating shares outstanding during the year.  The calculation of diluted earnings per share is made using the treasury stock method, as if all dilutive potential shares had been issued at the later of the beginning of the year or the date of issuance, as the case may be, and as if the funds obtained thereby had been used to purchase participating shares of the Company at the average quoted market value of the participating shares during the year.  Warrants  Fair value of warrants is measured on the date of grant. The fair value of warrants granted is measured using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which the warrants were granted. On the date of grant, the fair value of warrants is recognized as a share issue expense presented in reduction of share capital.  Stock-based compensation plan  The Company has established a stock-based compensation plan, which is described in note 14. Any consideration received from plan members upon the exercise of stock options is credited to share capital. The Company accounts for compensation costs for all forms of stock-based compensation awarded to employees and non-employees, including stock options, using a fair value-based method.  Fair value is measured on the date of grant. The fair value of options granted is measured using the Black-Scholes option-pricing model, taking into account the terms and conditions upon which the options were granted. On the date of grant, the fair value of stock options is recognized as an expense under caption Stock-based compensationas stock vest immediately, if any.  Foreign currency transactions  Transactions denominated in foreign currencies are translated into Canadian dollars as follows: monetary assets and liabilities are translated at the exchange rate in effect at the reporting date and revenues and expenses are translated at the average exchange rate for the year. Non-monetary assets and liabilities are translated at historical rates. The Company's functional currency is the Canadian dollar. All foreign exchange gains and losses are recognized in the statement of loss.  Revenue recognition  Interest on short-term investments, calculated using the effective interest method, is recognized in the statement of loss as part of interest income on an accrual basis.  Dividends on short-term investments are recognized in the statement of loss as part of dividends when the Company's right to receive the payment is established.  The fees invoiced to partners are recognized when the services are provided as project operator.  Deferred royalties will be recognized into income once the Éléonore mine will go into commercial production, on the basis that the production royalties will initially be paid out of these advance payments received by the Company.  15   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  Segment reporting  The Company currently operates in one business segment, being the acquisition and the exploration of mining properties. All of the Company's mining properties are located in Quebec, Canada.  New accounting standards not yet adopted  In June 2011, the IASB amended IAS 1, Financial Statement Presentation. The amendment to IAS 1 requires entities to separate items presented in other comprehensive income (loss) into two groups, based on whether or not they may be recycled to the statement of loss in the future. The amendment is effective for annual periods beginning on or after July 1, 2012. Early adoption is permitted and full retrospective application is required. Management does not expect the standard to have a significant impact on the Company's financial statements.  IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income (loss). Where such equity instruments are measured at fair value through other comprehensive income (loss), dividends are recognized in profit or loss to the extent that they are not clearly representing a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.  Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments  Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit or loss would generally be recorded in other comprehensive income (loss). This standard is effective for annual periods beginning on or after January 1, 2015.  In May 2011, the IASB issued a group of new standards that address the scope of the reporting entity: IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities and IFRS 13, Fair Value Measurement.  IFRS 10 replaces all of the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statementsand SIC-12, Consolidation  Special Purpose Entities. IFRS 10 changes the definition of control so that the same criteria are applied to all entities to determine control focusing on the need to have both power and variable returns before control is present. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. The renamed IAS 27 continues to be a standard dealing solely with separate financial statements and its guidance is unchanged.  IFRS 11 has changed the definitions of joint arrangements reducing the types of joint arrangements to two: joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. Entities that participate in joint operations will follow accounting much like that for joint assets or joint operations today.  IFRS 12 sets out the required disclosures for entities reporting under IFRS 10 and IFRS 11. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entitys interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.  IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures.  These standards are required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet assessed the impact of these standards or determined whether it will adopt the standards early.  16   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  4 Transition to IFRS  The Company adopted IFRS on March 1, 2011, with a date of transition effective March 1, 2010 (the transition date). The Company prepared its opening IFRS balance sheet at that date. Prior to the adoption of IFRS, the Company prepared its financial statements in accordance with Canadian GAAP.  The effect of the Company's transition to IFRS is summarized in this note as follows: a) Transition elections; b) Reconciliation of equity; c) Reconciliation of comprehensive loss; d) Adjustments to the statement of cash flows; e) Explanatory notes  (a) Transition elections  IFRS 1 offers certain exceptions and the possibility for the Company to elect certain exemptions from full retrospective application of IFRS. The Company evaluated the options available and no one was elected.  (b) Reconciliation of equity as previously reported under Canadian GAAP to IFRS  As at February 28, 2011As at March 1, 2010Note 4e)Cdn GAAPAdjIFRSCdn GAAPAdjIFRS$$$$$$AssetsCurrent assetsCash(ii)11,619,832-11,619,83216,365,339-16,365,339Short-term investments34,210,311-34,210,31125,308,249-25,308,249Tax credits for mining exploration and commodity taxes receivable2,302,903-2,302,9033,262,900-3,262,900Other amounts receivable32,977-32,977300,262-300,262Prepaid expenses102,226-102,22659,779-59,779Derivative financial instrument---1,046,210-1,046,21048,268,249-48,268,24946,342,739-46,342,739Long-term investments---1,344,666-1,344,666Property, plant and equipment147,552-147,552111,156-111,156Mining properties37,602,248-37,602,24828,938,768-28,938,76886,018,049-86,018,04976,737,329-76,737,329LiabilitiesCurrent liabilitiesAccounts payable and accrued liabilities(i)2,196,2791,039,6063,235,8851,817,508780,1702,597,678Deferred royalties2,445,870-2,445,8701,216,880-1,216,880Shareholders' EquityShare capital(i)118,141,821(2,332,288)115,809,533109,664,713(551,788)109,112,925Warrants40,282-40,28236,051-36,051Stock options5,858,029-5,858,0294,286,205-4,286,205Contributed surplus381,317-381,317376,949-376,949Deficit(i)(44,776,673)1,292,682(43,483,991)(41,523,950)(228,382)(41,752,332)Accumulated other comprehensive income1,731,124-1,731,124862,973-862,97381,375,900(1,039,606)80,336,29473,702,941(780,170)72,922,77186,018,049-86,018,04976,737,329-76,737,329
  17   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  (c) Reconciliation of comprehensive loss as previously reported under Canadian GAAP to IFRS  Year endedFebruary 28, 2011Note 4e)Cdn GAAPAdjIFRS$$$Expenses5,899,664-5,899,664Other income1,032,529-1,032,529Loss before income taxes(4,867,135)-(4,867,135)Deferred tax recovery(i)1,614,4121,521,0643,135,476Net loss(3,252,723)1,521,064(1,731,659)Other comprehensive income, net of related income taxes868,151-868,151Comprehensive loss(2,384,572)1,521,064(863,508)  (d) Adjustments to the statement of cash flows  The transition from Canadian GAAP to IFRS had no significant impact on cash flows generated by the Company.  (e) Explanatory notes  (i) Flow-through shares  On transition to IFRS, the Company has adopted an accounting policy whereby the premium between the amount recognized in common shares and the amount the investors pay for the shares is recognized as a liability which is reversed into the statement of loss when eligible expenditures have been made. The Company recognizes a deferred tax liability for the expenses renounced and a deferred tax expense at the moment the eligible expenditures are made.  Previously, the Company's Canadian GAAP policy was to adopt the recommendations of EIC 146 with respect to the accounting for flow-through shares. This resulted in the Company reducing the net proceeds of the flow-through share issuance by the future tax liability of the Company arising from the renunciation of the exploration and development expenditures in favour of the flow-through share subscribers.  (ii) Financial instruments  Cash is classified as loans and receivables, while under Canadian GAAP it was classified as held-for-trading financial instruments. The reclassification has no impact on the financial statements.  18   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  5 Critical accounting estimates and judgements  The preparation of financial statements in conformity with IFRS requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These financial statements include estimates that, by their nature, are uncertain. The impacts of such estimates are pervasive throughout the financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  The Company has identified the following critical accounting policies under which significant judgments, estimates and assumptions are made and where actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.  ● Short-term investments  At each reporting date, the Company assesses whether there is objective evidence that a financial asset (other than a financial asset classified as fair value through profit or loss) is impaired. Objective evidence of an impairment loss includes: i) significant financial difficulty of the obligor; ii) delinquencies in interest or principal payments; iii) increased probability that the borrower will enter bankruptcy or other financial reorganization; and iv) in the case of equity securities, a significant or prolonged decline in the fair value of the security below its cost.  ● Mining properties  The Company’s evaluation of the recoverable amount with respect to the mining properties is based on numerous assumptions including long-term commodity prices, future capital requirements, exploration potential and operations performance and may differ significantly from actual values. The recoverable amounts are based, in part, on certain factors that may be partially or totally outside of the Companys control. This evaluation involves a comparison of the estimated recoverable amounts of mining properties to carrying values. Assets are reviewed for an indication of impairment at each reporting date and when there are indicators of impairment. This determination requires significant judgment. Factors which could trigger an impairment review include, but are not limited to, interruptions in exploration activities and significant negative industry or economic trends.  ● Stock-based payments  The Company makes certain estimates and assumptions when calculating the fair values of stock options granted. The significant assumptions used include estimate of expected volatility, expected life and expected risk-free rate of return. The expected life is estimated using historical data and current expectations. The expected volatility is estimated using the historical volatility of the Company's stock over the same period as the expected life.  ● Deferred tax assets and liabilities  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply when the differences are expected to be recovered or settled. The determination of the ability of the Company to utilize tax losses carry forwards to offset deferred tax liabilities requires management to exercise judgment and make certain assumptions about the future performance of the Company. Management is required to assess whether it is probable that the Company will benefit from these prior losses and other deferred tax assets. Changes in economic conditions, commodity prices and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses.  19   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   6 Short-term investments  a) Allocation of investments by instrument  Short-term investments available for sale  As at
February 29,
2012As at
February 28,
2011BondsFederal$-$1,034,160Provincial-1,525,147Paragovernmental2,329,8694,467,375Municipal30,253,24920,150,767Companies751,912659,838Financial institutions26,611229,66833,361,64128,066,955Preferred shares1,300,640592,510Common shares3,557,7734,033,069Trust units677,600528,500Total$38,897,654$33,221,034Short-term investments designated as held for tradingAs at
February 29,
2012As at
February 28,
2011Convertible debentures$565,873$989,277Total short-term investments$39,463,527$34,210,311  20   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   b) Allocation of bonds and convertible debentures by maturity date  Bonds maturity  Less thanFrom 1 toMore than1 year5 years5 yearsTotal$$$$As at February 29,  201219,204,87413,114,8441,041,92333,361,641As at February 28,  201120,095,5976,446,2111,525,14728,066,955Convertible debentures maturityLess thanFrom 1 toMore than1 year5 years5 yearsTotal$$$$As at February 29,  2012117,068448,805-565,873As at February 28,  2011382,569606,708-989,277    c) Interest rate  The bonds bear interest at fixed rates ranging from 1.35% to 8.25% (from 1.00% to 8.25% as at February 28, 2011). The convertible debentures bear interest at fixed rates ranging from 5.70% to 8.50% (5.70% to 8.50% as at February 28, 2011).  21   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  7 Tax credits for mining exploration and commodity taxes receivable  As atAs atFebruary 29,February 28,20122011Refundable tax credit for resources$1,957,753$892,983Credit on duties refundable for loss489,4081,074,986Commodity taxes receivable391,874334,934$2,839,035$2,302,903  8 Financial instruments  a) Classification  The classification of financial instruments as at February 29, 2012, as at February 28, 2011, and as at March 1, 2010, is summarized as follows:  As at February 29, 2012Carrying valueFair valueAt fair value through profit or lossAvailable-for-saleLoans and receivablesFinancial liabilities at amortized costTotalTotal$$$$$$Financial assetsCash--10,364,713-10,364,71310,364,713Short-term investments565,87338,897,654--39,463,52739,463,527Other amounts receivable--391,787-391,787391,787565,87338,897,65410,756,500-50,220,02750,220,027Financial liabilitiesAccounts payable and accruedliabilities---6,500,1336,500,1336,500,133As at February 28, 2011Carrying valueFair valueAt fair value through profit or lossAvailable-for-saleLoans and receivablesFinancial liabilities at amortized costTotalTotal$$$$$$Financial assetsCash--11,619,832-11,619,83211,619,832Short-term investments989,27733,221,034--34,210,31134,210,311Other amounts receivable--32,977-32,97732,977989,27733,221,03411,652,809-45,863,12045,863,120Financial liabilitiesAccounts payable and accruedliabilities---2,196,2792,196,2792,196,279
  22   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  As at March 1, 2010Carrying valueFair valueAt fair value through profit
or lossAvailable-for-saleLoans and receivablesFinancial liabilities at amortized costTotalTotal$$$$$$Financial assetsCash--16,365,339-16,365,33916,365,339Short-term investments1,894,99223,413,257--25,308,24925,308,249Other amounts receivable--300,262-300,262300,262Derivative financial instrument1,046,210---1,046,2101,046,210Long-term investments (a)1,344,666---1,344,6661,344,6664,285,86823,413,25716,665,601-44,364,72644,364,726Financial liabilitiesAccounts payable and accruedliabilities---1,817,5081,817,5081,817,508
   (a) Asset-backed commercial paper (ABCP) notes designated as held for trading.  Other amounts receivable and accounts payable and accrued liabilities are financial instruments whose carrying value approximates their fair value due to their short-term maturity. Cash is measured at fair value.  The fair value of available-for-sale short-term equity investments is established using the bid price on the most beneficial active market for these instruments that is readily available to the Company. When a bid price is not available, the Company uses the closing price of the most recent transaction on such instrument.  The fair value of short-term investments at fair value through profit or loss and the fair value of available-for-sale short-term debt investments are valued at bid price using independent pricing services or by dealers prices.  (b) Fair value hierarchy  Financial instruments recorded at fair value on the balance sheet are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:  Level 1  valuation based on quoted prices observed in active markets for identical assets or liabilities.  Level 2  valuation techniques based on inputs that are quoted prices of similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; inputs other than quoted prices used in a valuation model that are observable for that instrument; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.  Level 3  valuation techniques with significant unobservable market inputs.  A financial instrument is classified to the lowest level of the hierarchy for which a significant input has been considered in measuring fair value.  23   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  The following tables present the financial instruments recorded at fair value in the balance sheet as at February 29, 2012, as at February 28, 2011 and as at March 1, 2010, classified using the fair value hierarchy described above:  As at February 29, 2012Level 1Level 2Level 3Financial assetsShares and trust units$5,536,013$-$-Bonds and convertible debentures-33,927,514-$5,536,013$33,927,514$-As at February 28, 2011Level 1Level 2Level 3Financial assetsShares and trust units5,154,079--Bonds and convertible debentures-29,056,232-$5,154,079$29,056,232$-As at March 1, 2010Level 1Level 2Level 3Financial assetsShares and trust units4,855,250--Bonds and convertible debentures-20,452,999-Derivative financial instrument--1,046,210Long-term investments--1,344,666$4,855,250$20,452,999$2,390,876  No transfer attributable to changes in the observability of market data was made among the fair value measurement hierarchy levels during the years ended February 29, 2012 and February 28, 2011.  Change in the fair value of financial instruments classified in level 3: Long-term
investmentsDerivative financial
instrumentFair value as at March 1, 2010$1,344,666$1,046,210Gain on investments designated as held for trading128,202-Loss on investments held for trading-(174,372)Principal repayments(140,912)-Disposition of the ABCP(1,086,452)-Disposition of the derivative financial instrument(245,504)(871,838)Fair value as at February 28, 2011--
  24   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   c) Financial risks  The Company has exposure to various financial risks, such as credit risk, liquidity risk and market risk from its use of financial instruments.  Credit risk  Credit risk associated with cash and short-term investments arises mainly from the possibility that the issuer of securities may be unable to fulfill payment obligations. The Company minimizes its exposure to issuer risk by investing only in products having a high quality investment-grade rating. In addition, the Company attempts to minimize its risks by entering into agreements only with Canadian institutions with strong credit rating and their subsidiaries. Exposure to these risks is closely monitored and maintained within the limits stated in the investment policy of the Company, which is revised regularly.  Credit risk associated with other amounts receivable arises from the possibility that the Company's partners may not be able to repay their debts. These receivables result from exploration work carried out on projects in partnership with other mining companies.  The Company considers that the credit risk related to amounts receivable from such partnerships is minimal, because the Company usually signs agreements with major mining companies.  The maximum exposure to credit risk for cash and short-term investments approximates the amount recognized on the balance sheet. The Company does not hold any collateral as security.  Liquidity risk  Liquidity risk is the risk that the Company may be unable to fulfill its financial obligations related to financial liabilities. The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidities to meet liabilities when due. As at February 29, 2012, the Company had a cash balance of $10,364,713 ($11,619,832 as at February 28, 2011) to settle current liabilities of $6,500,133 ($2,196,279 as at February 28, 2011).  All of the Company's financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.  Market risk  Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk, currency risk and other price risks such as equity risk.  Interest rate risk  Interest rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuate due to changes to market interest rates. The Company's current policy is to invest excess cash principally in bonds and convertible debentures refundable before maturity and/or in interest-bearing accounts of Canadian banks and their subsidiaries.  Changes in fair value of available-for-sale bonds are recorded in Other comprehensive income (loss). For the Companys available-for-sale bonds, a variation of ± 1% of interest rates as at February 29, 2012, would result in an estimated after-tax effect in Other comprehensive income (loss) of $397,000 ($246,000 for the year ended February 28, 2011).  25   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   Foreign exchange risk  The Company's functional currency is the Canadian dollar and most of its purchases are made in Canadian dollars. Since April 1, 2009, the Company has received monthly advance payments of US$100,000 (see note 11). The Company holds foreign currency in a chartered Canadian bank account as at February 29, 2012, but the risk is minimized because the balance of the bank account is not significant for the Company. As a result, the Company's exposure to foreign exchange risk is minimal.  Equity risk  Equity risk is the risk that the fair value of a financial instrument varies due to equity market changes. An investment policy is in place and its application is monitored by the Board of Directors on a quarterly basis.  Changes in fair value of trust units and available-for-sale shares are recorded in Other comprehensive income (loss). For the Company's trust units and available-for-sale shares, a variation of ± 10% of the quoted market prices as at February 29, 2012, would result in an estimated after-tax effect in Other comprehensive income (loss) of $479,000 ($446,000 for the year ended February 28, 2011).  Changes in fair value of convertible debentures at fair value through profit or loss are recorded in the Statements of loss. Changes in fair value of convertible debentures would be more impacted by the stock markets than the interest rate variation. A variation of ± 10% in market prices as at February 29, 2012, would result in a maximal estimated after-tax effect in the Statements of loss of $57,000 ($99,000 for the year ended February 28, 2011).  d) Other information  As at February 29, 2012, gross unrealized losses on available-for-sale securities totalled $215,512 ($98,694 as at February 28, 2011). Of this sum, an amount of $15,788 ($25,772 as at February 28, 2011)  is related to bonds and results from changes in market interest rates and not to deterioration in the creditworthiness of issuers. The balance of $199,724 ($72,922 as at February 28, 2011) related to common shares is mainly explained by fluctuation of prices in the market. The Company has the ability and intent to hold these securities for a period of time sufficient to allow for recovery in fair value. It assesses that the gross unrealized losses are not significant or prolonged.  The total interest income for financial assets that are not classified as at fair value through profit or loss is $627,000 ($487,000 for the year ended February 28, 2011).  26   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   9 Mining properties  Reconciliation of mining properties  Acquisition costExplorationMiningcostspropertiesClaimsTotalBalance as at March 1, 2010$19,290,099$7,035,363$2,613,306$28,938,768Costs incurred9,377,792922,700633,18810,933,680Mining properties under option(222)--(222)Mining properties abandoned or written off(861,096)(237,142)(214,761)(1,312,999)Credit on duties refundable for loss and refundabletax credit for resources(956,979)--(956,979)Balance as at February 28, 201126,849,5947,720,9213,031,73337,602,248Costs incurred10,894,3821,201,670448,98812,545,040Mining properties under option(31,712)(22,031)(1,257)(55,000)Mining properties abandoned or written off(759,453)(19,937)(80,871)(860,261)Credit on duties refundable for loss, refundable taxcredit for resources and non-refundable tax credit(1,271,683)--(1,271,683)Balance as at February 29, 2012$35,681,128$8,880,623$3,398,593$47,960,344
    a) On April 26, 2007, IAMGOLD Corporation ("IAMGOLD") granted the Company the option to acquire a 100% interest in the Anatacau property for a consideration consisting of $25,000 in cash and exploration work totalling $3,000,000 to be carried out no later than December 31, 2015. As at February 29, 2012, the Company made a cash payment of $25,000 and spent $1,774,782 on exploration work.  b) On September 10, 2010, the Company granted Shield Gold Inc. ("Shield Gold") the option to acquire a 50% interest in the La Grande Nord property for a consideration consisting of $30,000 in cash over a two-year period and exploration work totalling $1,000,000 no later than September 10, 2015. As at February 29, 2012, Shield Gold made a cash payment of $10,000 and spent $80,120 on exploration work.  c) On March 7, 2011, the Company entered into agreement with Anglo American Exploration (Canada) Ltd. ("AAEC"), whereby the Company has transferred to AAEC a 50% interest in the mining claims of the Baie Payne property. AAEC must fund an aggregate of $4,000,000 in expenditures over a six-year period to maintain its 50% undivided interest in the Baie Payne property. As at February 29, 2012, AAEC spent $2,766,317 on exploration work.  27   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   d) On April 18, 2011, the Company acquired from Ressources D'Arianne Inc. ("D'Arianne") a 100% interest in the Komo and Wabamisk-D'Arianne properties in consideration of the issuance of 40,000 shares of the Company. These properties were merged in the Company's Assini property.  On April 18, 2011, the Company acquired from D'Arianne and SOQUEM Inc. ("SOQUEM") a 100% interest in the Lac H property (owned equally by D'Arianne and SOQUEM) in consideration of the issuance of 50,000 shares of the Company (25,000 shares to D'Arianne and 25,000 shares to SOQUEM). This property was merged in the Company's Wabamisk property.  On April 18, 2011, D'Arianne granted the Company the option to acquire a 50% interest in the Opinaca property for a consideration consisting of the issuance of 26,330 shares of the Company and exploration work totalling $878,000 to be carried out no later than April 18, 2016. Of the 165 claims that make up the property, three are subject to a 2% NSR in favour of Les Explorations Carat Inc. ("Carat"). The Company bought back the royalty of Carat in consideration of the issuance of 15,000 shares of its share capital. As at February 29, 2012, the Company spent $148,334 on exploration work.  These shares were evaluated at $9.15, which was the April 18, 2011 closing price.  e) On June 8, 2011, the Company entered into agreement with Quadra FNX Mining Ltd. ("Quadra FNX") on the Lac Gayot property. As per the agreement, Quadra FNX has the option to acquire a 50% interest in the Lac Gayot property, in consideration of payments totalling $100,000 and $10,000,000 in exploration work to be carried out during the next nine years. As at February 29, 2012, Quadra FNX made a cash payment of $30,000 and spent $832,893 on exploration work.  f) On June 22, 2011, the Company entered into agreement with IAMGOLD on the Lac Pau property. As per the agreement, IAMGOLD has the option to acquire a 50% interest in the Lac Pau property, in consideration of payments totalling $130,000 and $6,000,000 in exploration work to be carried out during the next seven years. As at February 29, 2012, IAMGOLD made a cash payment of $25,000 and spent $1,302,879 on exploration work.  g) On September 1, 2011, the Company entered into agreement with Aurizon Mines Ltd. to jointly undertake further mineral exploration on the Éléonore Est property.  h) On November 23, 2011, the Company entered into agreement with AAEC, whereby the Company has transferred to AAEC a 50% interest in the mining claims of the Ashuanipi property. AAEC must fund an aggregate of $5,000,000 in expenditures over a five-year period to maintain its 50% interest in the Ashuanipi property. As at February 29, 2012, AAEC spent $1,059,099 on exploration work.  28   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  Detail of mining properties  # ClaimUndivided
interestBalance as at
March 1,
2011Cost
incurredMining properties abandoned, written off, under option and related tax creditsBalance as at February 29, 2012%$$$$Anatacau (note 9a)207Acquisition costs070,8853,321-74,206Exploration costs914,432193,006(36,580)1,070,858985,317196,327(36,580)1,145,064Ashuanipi (note 9h)596Acquisition costs5088,949--88,949Exploration costs1,484,925102,094(23,341)1,563,6781,573,874102,094(23,341)1,652,627Baie Payne (note 9c)471Acquisition costs50601,549--601,549Exploration costs147,923--147,923749,472--749,472Corvet Est568Acquisition costs5071,92213,031-84,953Exploration costs1,408,899144,448(4,785)1,548,5621,480,821157,479(4,785)1,633,515Coulon661Acquisition costs1004,874,49563,177-4,937,672Exploration costs7,674,9262,972,985(308,256)10,339,65512,549,4213,036,162(308,256)15,277,327Éléonore Régional886Acquisition costs100345,46831,712(11,302)365,878Exploration costs1,146,946793,074(202,990)1,737,0301,492,414824,786(214,292)2,102,908Escale129Acquisition costs100403,96113,191-417,152Exploration costs348,850335,017(40,414)643,453752,811348,208(40,414)1,060,605(forward)19,584,1304,665,056(627,668)23,621,518
  29   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  # ClaimUndivided
interestBalance as at
March 1,
2011Cost
incurredMining properties abandoned, written off, under option and related tax creditsBalance as at February 29, 2012%$$$$(brought forward)19,584,1304,665,056(627,668)23,621,518Lac Gayot (note 9c)449Acquisition costs1001,942,030-(22,151)1,919,879Exploration costs688,007-(7,849)680,1582,630,037-(30,000)2,600,037Lac Pau (note 9f)715Acquisition costs100134,75729,802(1,137)163,422Exploration costs2,885,410505,990(34,724)3,356,6763,020,167535,792(35,861)3,520,098Nichicun410Acquisition costs10073,24030,511-103,751Exploration costs310,6351,148,557(192,235)1,266,957383,8751,179,068(192,235)1,370,708Poste Lemoyne Ext.605Acquisition costs1001,172,98857,700-1,230,688Exploration costs5,221,2541,080,592(86,779)6,215,0676,394,2421,138,292(86,779)7,445,755Wabamisk900Acquisition costs100318,976479,652(59,205)739,423Exploration costs2,369,4791,209,511(478,773)3,100,2172,688,4551,689,163(537,978)3,839,640OthersAcquisition costs653,434928,561(30,301)1,551,694Exploration costs2,247,9082,409,108(646,122)4,010,8942,901,3423,337,669(676,423)5,562,588TotalAcquisition costs10,752,6541,650,658(124,096)12,279,216Exploration costs26,849,59410,894,382(2,062,848)35,681,12837,602,24812,545,040(2,186,944)47,960,344
  30   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  # ClaimUndivided
interestBalance as at
March 1,
2010Cost
incurredMining properties abandoned, written off, under option and related tax creditsBalance as at February 28, 2011%$$$$Anatacau207Acquisition costs048,92521,960-70,885Exploration costs761,018172,257(18,843)914,432809,943194,217(18,843)985,317Ashuanipi469Acquisition costs10078,9899,960-88,949Exploration costs834,172867,018(216,265)1,484,925913,161876,978(216,265)1,573,874Baie Payne471Acquisition costs10081,449520,100-601,549Exploration costs134,88513,038-147,923216,334533,138-749,472Corvet Est568Acquisition costs5056,53719,459(4,074)71,922Exploration costs1,074,683403,402(69,186)1,408,8991,131,220422,861(73,260)1,480,821Coulon650Acquisition costs1004,856,92117,574-4,874,495Exploration costs6,731,439945,286(1,799)7,674,92611,588,360962,860(1,799)12,549,421Éléonore Régional844Acquisition costs100270,306100,293(25,131)345,468Exploration costs674,987623,029(151,070)1,146,946945,293723,322(176,201)1,492,414(forward)15,604,3113,713,376(486,368)18,831,319
  31   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  # ClaimUndivided
interestBalance as at
March 1,
2010Cost
incurredMining properties abandoned, written off, under option and related tax creditsBalance as at February 28, 2011%$$$$(brought forward)15,604,3113,713,376(486,368)18,831,319Escale129Acquisition costs100-403,961-403,961Exploration costs-365,188(16,338)348,850-769,149(16,338)752,811Lac Gayot448Acquisition costs1002,161,36311,813(231,146)1,942,030Exploration costs760,5629,961(82,516)688,0072,921,92521,774(313,662)2,630,037Lac Pau715Acquisition costs100110,78923,968-134,757Exploration costs1,027,7191,952,273(94,582)2,885,4101,138,5081,976,241(94,582)3,020,167Poste Lemoyne Ext.605Acquisition costs1001,154,18618,802-1,172,988Exploration costs4,000,8551,538,162(317,763)5,221,2545,155,0411,556,964(317,763)6,394,242Wabamisk834Acquisition costs100232,17786,799-318,976Exploration costs1,217,2761,268,021(115,818)2,369,4791,449,4531,354,820(115,818)2,688,455OthersAcquisition costs597,027321,199(191,552)726,674Exploration costs2,072,5031,220,157(734,117)2,558,5432,669,5301,541,356(925,669)3,285,217TotalAcquisition costs9,648,6691,555,888(451,903)10,752,654Exploration costs19,290,0999,377,792(1,818,297)26,849,59428,938,76810,933,680(2,270,200)37,602,248
  32   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  Cost of mining properties abandoned or written off  Year ended
February 29,
2012Year ended
February 28,
2011Asini$-$20,040Corvet Est-63,900Diaconglo-31,046Éléonore régional64,291110,341Génération Grenville102,14472,868Lac Bellamant15,339-Lac Farley-128,331Lac Gayot-313,017Laguiche65094,765Nichicun-316,627Reccey Sakami182,95885,047Wabamisk412,642-Wahemen-36,794Wemindji41,26314,591Other40,97425,632Total *$860,261$1,312,999   * Mining properties are abandoned or written off in whole or in part because of their low discovery potential.  33   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  10 Accounts payable and accrued liabilities As atAs atAs atFebruary 29,February 28,March 1,201220112010Companies held by Directors$3,464$11,344$10,613Advances from partners3,520,592290,561215,069Trade2,976,0771,894,3741,591,826Premium related to flow-through shares1,886,3791,039,606780,170$8,386,512$3,235,885$2,597,678  11 Deferred royalties  Advance payments on the royalty held by the Company on the Éléonore deposit, started on April 1, 2009. These payments are made by Les Mines Opinaca, a subsidiary held 100% by Goldcorp Inc. ("Goldcorp"), paid on the basis of US$100,000 per month up to 50 months, unless the mine production was preceded. In such case, the royalties will be paid according to deposit production.  To secure these advance payments, Goldcorp granted the Company a US$5 million immovable hypothec on the Éléonore property.  The Company will recognize into income these advance payments, which are currently classified as deferred royalties,  once the Éléonore mine goes into commercial production, on the basis that the production royalties will be paid out of advance payments received by the Company. The production period represents the performance period over which the earnings process will be completed.  If the Éléonore mine is not brought to production, the Company will recognize the non-refundable advance payments into income.  12 Share capital  Authorized Unlimited number of common shares, voting and participating, without par value Issued and fully paid  The share capital issued has varied as follows:  Year Ended
February 29, 2012Year Ended
February 28, 2011Number$Number$Balance - beginning of year30,779,692115,809,53329,799,392109,112,925Stock options exercised206,0001,704,956215,3001,605,631Warrants exercised26,635211,309--Issuance of shares for acquisition of mining properties
(note 9d)131,3301,201,670125,000922,700Issuance of shares for a cash consideration (a)741,0836,551,890640,0004,740,000Share issue expenses-(790,447)-(571,723)Balance - end of year31,884,740124,688,91130,779,692115,809,533  34   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  (a) Detail of the issuance of flow-through shares:  On June 28, 2011, the Company completed a private placement of 214,286 flow-through common shares at a price of $14.00 per share for gross proceeds of $3 million. A premium of $1,189,287 was accounted for in the Company's share capital. Issue expenses of $208,166 related to this placement were incurred, including the issuance of 12,857 warrants entitling the holder to subscribe for one common share of the Company at a price of $10.00 until June 28, 2012. A fair value of $8,488 has been assigned to the warrants.  On September 27, 2011, the Company completed a private placement of 200,000 flow-through common shares at a price of $15.00 per share for gross proceeds of $3 million. A premium of $1,200,000 was accounted for in the Company's share capital. Issue expenses of $204,644 related to this placement were incurred, including the issuance of 12,000 warrants entitling the holder to subscribe for one common share of the Company at a price of $10.50 until September 27, 2012. A fair value of $5,871 has been assigned to the warrants.  On February 23, 2012, the Company completed a private placement of 326,797 flow-through common shares at a price of $15.30 per share for gross proceeds of $5 million. A premium of $2,058,821 was accounted for in the Company's share capital. Issue expenses of $333,000 related to this placement were incurred.  13 Warrants  The following table presents the warrant activity since March 1, 2010 and summarizes information about outstanding and exercisable warrants as at February 29, 2012:  Year Ended
February 29, 2012Year Ended
February 28, 2011WeightedWeightedaverageaverageNumberexercise priceNumberexercise price$$Outstanding and exercisable - beginning of year38,6357.3326,6356.58Granted24,85710.2412,0009.00Exercised(26,635)6.58--Expired(12,000)9.00--Outstanding and exercisable - end of year24,85710.2438,6357.33  The weighted average remaining contractual life for the 24,857 warrants is 5.4 months.  The fair value of warrants granted has been estimated using the Black & Scholes model with the following assumptions:  Year EndedYear EndedFebruary 29,February 28,20122011Risk-free interest rate1.22%1.67%Expected volatility32.4%31.5%Dividend yieldNilNilWeighted average expected life12 months12 monthsWeighted average fair value of warrants granted0.578 $$0.353  35   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  14 Stock options  The Company has established a stock option plan under which certain key employees, officers, directors and suppliers may be granted stock options of the Company. The number of stock options cannot exceed, at any time, 10% of the number of outstanding shares. Options vest immediately and are exercisable over a maximum period of ten years following the grant date. The stock options price is always higher than the last closing price on the day of grant at the Toronto Stock Exchange.  The following table presents the stock options activity since March 1, 2010 and summarizes information about stock options outstanding and exercisable as at February 29, 2012:  Year Ended
February 29, 2012Year Ended
February 28, 2011WeightedWeightedaverageaverageNumberexercise priceNumberexercise price$$Outstanding and exercisable - beginning of year1,874,0005.291,487,8004.84Granted329,0009.11603,0006.09Exercised(206,000)5.12(215,300)4.44Cancelled--(1,500)5.41Outstanding and exercisable - end of year1,997,0005.941,874,0005.29  The following table summarizes information about stock options outstanding and exercisable as at February 29, 2012:  Options outstanding and exercisableRange of
exercise
pricesNumberWeighted average remaining
contractual lifeWeighted
average
exercise
price(years)$$3.21 to $4.44815,0004.784.05$5.22 to $7.68853,0007.076.51$9.04 to $9.18329,0009.649.11  The fair value of stock options granted has been estimated using the Black & Scholes model with the following assumptions:  Year EndedYear EndedFebruary 29,February 28,20122011Risk-free interest rate1.82%2.18%Expected volatility48%50%Dividend yieldNilNilWeighted average expected life72 months55 monthsWeighted average fair value of options granted$4.31$3.69  36   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)  15 Related party transactions  The related parties of the Company include companies owned by the key management personnel. The key management personnel includes the directors, the president, the vice-president exploration and the CFO. The short-term employee benefits include salaries for the key management personnel and fees for directors. The share-based payments are grants of stock options of the Company.  The Company entered into the following transactions with the key management personnel:  Year Ended
February 29,Year Ended
February 28,20122011Short-term employee benefits$767,657$775,677Share-based payments427,215720,291Total compensation of the key management personnel$1,194,872$1,495,968  The Company entered into transactions with companies owned by a director. For the year ended February 29, 2012, these transactions amounted to $212,805 ($221,621 for the year ended February 28, 2011) and are presented under caption Rent, office expenses and other in the statement of loss.  These transactions were concluded under normal terms and conditions.  16 Rent, office expenses and other  Year ended February 29,Year ended February 28,20122011Office rental$120,762$116,079Administrative and professional services84,990101,112Advertising and exhibitions125,17876,122Travel expenses130,06888,978Donations and sponsorships334,10422,280Training and tuition56,75719,042Insurance46,64241,798Office expenses and other210,427157,583$1,108,928$622,994  37   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   17 General exploration costs  Year ended February 29,Year ended February 28,20122011Salaries and fees$353,071$326,170Transport229,81319,725Field expenditures111,486164,735Other119,63331,140$814,003$541,770
  18 Cash flows  a) Changes in items of working capital  Year ended February 29,Year ended February 28,20122011Tax credits for mining exploration and commoditytaxes receivable$(40,701)$(168,005)Other amounts receivable(406,249)247,640Prepaid expenses(35,795)(42,447)Accounts payable and accrued liabilities3,412,249178,292$2,929,504$215,480
  b) Items not affecting cash  Year ended February 29,Year ended February 28,20122011Related to financing activities:Share issue expenses included in accounts payable andaccrued liabilities$18,300$18,711Settlement of revolving credit line in exchange forABCP (MAV3-1A)-1,117,343Related to investing activities:Acquisition of mining properties and exploration costsincluded in accounts payable and accrued liabilities2,211,0561,319,040Non-refundable tax credit applied against mining properties122,345-
  38   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   19 Deferred tax  The major components of income tax provision are as follows:  Year ended February 29,Year ended February 28,20122011Current income tax adjustment in respect of prioryears expense$(122,345)$-Deferred income tax recovery2,439,4893,135,476Deferred tax recovery$2,317,144$3,135,476
   The reconciliation of income taxes, calculated using the combined federal and Quebec provincial statutory tax rates, to income taxes presented in the financial statements is detailed as follows:  Year ended February 29,Year ended February 28,20122011Loss before income tax$(3,969,581)$(4,867,135)Combined federal and provincial income tax rate of28.15% (29.65% as at February 28, 2011)1,117,0001,443,000Non-deductible stock-based compensation(399,000)(664,000)Share issue expenses not affecting earnings209,000168,000Non-taxable items94,00028,000Adjustment in respect of prior years(122,345)-Change in unrecognized deferred tax assets221,000595,000Tax impact on flow-through shares1,228,0001,521,000Other(30,511)44,476Deferred tax recovery$2,317,144$3,135,476
   The decrease in the combined income tax rate is due to the reduction of the federal income tax rate.  39   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   The significant components of the deferred tax assets and liabilities are as follows:  Recognized deferred tax assets and liabilities:  Year ended February 29,Year ended February 28,20122011Deferred tax assetsDeferred royalties$976,384$-Share issue expenses306,38299,000Capital losses188,135212,000Non-capital losses92,323-Other86,117-Deferred tax assets$1,649,341$311,000Deferred tax liabilitiesMining properties(2,601,271)(99,000)Short-term investments(188,135)(212,000)Deferred tax liabilities$(2,789,406)$(311,000)Presented in the balance sheet as followsDeferred tax assets976,384-Deferred tax liabilities(2,116,449)-Unrecognized deferred tax assetsAs at
February 29,
2012As at
February 28,
2011Deferred tax assetsCapital losses$614,833$611,000Deferred royalties-658,000Share issue expenses-104,000Other-24,000$614,833$1,397,000  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.  As at February 29, 2012, the Company has non-capital losses of $343,000 (nil for 2011) available to reduce Canadian taxable income in future years that expire in 2032.  40   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   The gross movement on the deferred income tax accounts is as follows:  Balance as at March 1, 2010$-Recognized in the statement of loss138,135Recognized in other comprehensive income(138,135)Balance as at February 28, 2011-Recognized in the statement of loss(1,146,157)Recognized in other comprehensive income6,092Balance as at February 29, 2012$(1,140,065)
   The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:  Deferred tax assetsDeferredShare issueCapitalNon-capitalroyaltiesexpenseslosseslossesOtherTotal$$$$$$As at March 1, 2010--193,000--193,000Credited/(charged) to thestatement of loss-99,00019,000--118,000Credited/(charged) to othercomprehensive income------As at February 28, 2011-99,000212,000--311,000Credited/(charged) to thestatement of loss976,384207,382(29,957)92,32386,1171,332,249Credited/(charged) to othercomprehensive income--6,092--6,092As at February 29, 2012976,384306,382188,13592,32386,1171,649,341Deferred tax liabilitiesDerivativeMiningShort-termfinancialpropertiesinvestmentsinstrumentTotal$$$$As at March 1, 2010-(52,000)(141,000)(193,000)Credited/(charged) to the statement of loss(99,000)(21,865)141,00020,135Credited/(charged) to other comprehensive income-(138 135)-(138,135)As at February 28, 2011(99,000)(212,000)-(311,000)Credited/(charged) to the statement of loss(2,502,271)23,865-(2,478,406)Credited/(charged) to other comprehensive income----As at February 29, 2012(2,601,271)(188,135)-(2,789,406)
  41   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   The analysis of deferred tax assets and liabilities is as follows:As at
February 29,
2012As at
February 28,
2011Deferred tax assets:Deferred tax assets to be realized after more than 12 months$1,649,341$311,000Deferred tax assets to be realized within 12 months--1,649,341311,000Deferred tax liabilities:Deferred tax liabilities to be realized after more than 12 months(2,789,406)(311,000)Deferred tax liabilities to be realized within 12 months--(2,789,406)(311,000)Deferred tax liabilities net$(1,140,065)$-   As at February 29, 2012, the non-refundable federal tax credits and non-refundable provincial tax credits for resources were as follows:  Expiry DateFederalExpiry DateProvincial$$2027158,5852017207,2572028625,9252018545,5642029533,0782030220,7822031143,0222032157,259  These credits can be used up to the amount of income taxes payable for those years.  These credits are not because the Company considered that is not more likely than not that the credits will be realized.  42   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   20 Earnings per share  For the years ended February 29, 2012 and February 28, 2011, there was no difference between the basic and diluted loss per share since the stock options and warrants were anti-dilutive. Accordingly, the diluted loss per share for these years was calculated using the basic weighted average number of shares outstanding.  Year ended February 29,Year ended February 28,20122011Basic weighted average number of shares outstanding31,244,98430,208,496Warrants5862,804Stock options720,639538,844Diluted weighted average number of shares outstanding31,966,20930,750,144Items excluded from the calculation of dilutedloss per share because the exercise price was greaterthan the average quoted value of the common sharesWarrants24,85712,000Stock options329,000163,750   21 Capital management  The Company considers the items included in shareholders' equity as capital components.  The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition and exploration of mining properties. Given that the Company is in the mineral exploration business, the Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business.  In management's opinion, the working capital as at February 29, 2012 will cover current expenditures and exploration fees in the coming year.  The mining properties in which the Company currently has an interest are in the exploration stage. Since the Company has enough cash, it is not dependent on external financing to fund its activities. Furthermore, the Company can rely on its partnership agreements, credit on duties refundable for loss, refundable tax credit for resources, its return on short-term investments and on the advance payments on the royalties on the Éléonore property as sources of capital.  The transactions which had an effect on shareholders' equity are presented in the statement of changes in shareholders' equity.  The Company is not subject to externally imposed capital requirements or other external requirements.  43   VIRGINIA MINES INC. Notes to Financial Statements For the years ended February 29, 2912 and February 28, 2011  (expressed in Canadian dollars)   22 Commitments  The Company is committed to incurring exploration expenses of $8,500,000 by December 31, 2012 and transferring these expenditures to the subscribers of its flow-through share underwriting completed on February 25, 2011, June 28, 2011 and September 27, 2011. As at February 29, 2012, the Company has fulfilled its commitment regarding the exploration expenses.  The Company is also committed to incurring exploration expenses of $5,000,000 by December 31, 2013 and transferring these expenditures to the subscribers of its flow-through share underwriting completed on February 23, 2012. As at February 29, 2012, the Company spent $418,788 according to this commitment.  The Company has signed various exploration cost contracts and is committed to paying approximately $1,200,000 in the next 12 months under those contracts.  The Company has a rental lease for its administrative office with a company held by a director. The rental lease has a term of five years beginning on August 1, 2008 and ending on July 31, 2013. The annual cost of $104,000 is subject to an annual increase according to the consumer price index.   23 Subsequent events  On March 20, 2012, the Quebec budget announced that the refundable tax credit for resources rate will be reduced by 10 percentage points. Also, an entity may claim an increase in the tax assistance in exchange for an option to the state to acquire an equity stake in the development. The increase in the tax assistance will consist of a raise in the rate of the refundable tax credit for resources regarding eligible expenses. These changes will apply on exploration expenses incurred after December 31, 2013.  On April 5, 2012, Exploration Khalkos Inc. (« Khalkos ») granted the Company the option to acquire a 55% interest in the Murdoch property for a consideration consisting of payments totalling $300,000 and exploration work totalling $4,000,000 to be carried out no later than April 5, 2017 with the firm commitment of spending $1,000,000 on the property within 18 months following the conclusion of the agreement.  On April 12, 2012, the Company entered into agreement with Komet Manufacturers Inc. ("Komet") on the FCI property. As per the agreement, Komet has the option to acquire a 50% interest in the FCI property, in consideration of the issuance of 25,000 shares of Komet and $4,000,000 in exploration work to be carried out over a six-year period.  On May 8, 2012, the Company entered into agreement for a private placement of 190,000 flow-through common shares at a price of $15.50 per share for gross proceeds of $2,945,000. The financing is scheduled to close on or before May 30, 2012.   44