Redback Mining

8/6/2019 Redback Mining

1/23

RED BACK MINING INC.

Second Quarter Report

June 30, 2010


2/23

1

RED BACK MINING INC.MANAGEMENT DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONTHREE AND SIX MONTHS ENDED JUNE 30, 2010

The following management discussion and analysis of the results of operations and financial condition(MD&A) for Red Back Mining Inc. (Red Back or the Company) should be read in conjunction with theunaudited consolidated financial statements for the three and six month periods ended June 30, 2010 andrelated notes thereto. The financial information in this MD&A is partly derived from the Companysconsolidated financial statements prepared in accordance with Canadian generally accepted accountingprinciples. The effective date of this MD&A is July 30, 2010. Additional information about the Companyand its business activities is available on SEDAR at www.sedar.com.

The technical contents of this MD&A have been reviewed by Hugh Stuart, BSc, MSc, a Qualified Personpursuant to NI 43-101. Mr. Stuart is the Vice President Exploration of the Company and a Member of theAustralasian Institute of Mining and Metallurgy.

Red Back is a company engaged in operating, exploring, acquiring and developing mineral properties.It currently owns two gold mines in West Africa. In Ghana, it holds a 100% interest in the Chirano GoldMine (Chirano) through Chirano Gold Mines Limited (CGML). The Government of Ghana has a

right to acquire a 10% ownership of CGML, at no cost. In Mauritania, the Company holds a 100%interest in the Tasiast Gold Mine (Tasiast) through Tasiast Mauritanie Limited SA (TMLSA). Inaddition to government royalties, Tasiast is subject to a 2% royalty on life of mine gold production inexcess of 600,000 oz. Red Back also holds various other exploration properties in Ghana, Mauritaniaand Cte D Ivoire.

Highlights

With the gold price averaging over $1,200 per oz and gold production in excess of 100,000 oz in thequarter, Red Back is reporting strong profits from mining operations and operating cash flows during thethree months ended June 30, 2010. Increasing mining volumes and grade from Akwaabas undergroundoperations at Chirano will continue to increase the Companys production profile in the second half of the

year notwithstanding lower production at Tasiast as a result of waterline failures that have affected dumpleach operations. Annual production is now expected to be 445,000 - 465,000 oz at estimated cashoperating costs of $435 - $470 per oz.

The Companys second quarter highlights were: Total gold production of 106,362 oz (year-to-date: 202,522 oz). Average realized gold price of $1,215 per oz (year-to-date: $1,167 per oz). Profit from mining operations of $54.3 million (year-to-date: $97.9 million) Net income of $21.9 million (year-to-date: $55.1 million). Cash operating costs of $481 per oz (year-to-date: $476 per oz). CAD $600 million private placement from Kinross Gold Corporation (24 million shares at CAD $25

per share).

On July 19, 2010, Red Back released an initial underground reserve of 920,000 oz at Paboase, thesecond underground deposit at Chirano. Decline development at Paboase commenced in the secondquarter with first ore expected to be mined in the third quarter of 2011.

Results of Operations

Net income for the three and six months ended June 30, 2010 was $21.9 million and $55.1 millionrespectively (June 30, 2009: $24.7 million and $50.0 million). While profits from mining operations havedoubled compared to the previous quarter because of higher production and gold prices ($54.3 million vs.$27.0 million) net income has been affected by high non-cash stock-based compensation costs.


3/23

2

Variances in Chiranos cash operating costs per oz between the second quarter of 2010 and 2009 aredue to the higher cost of underground mining operations, which had not reached commercialproduction until late 2009 and are ramping up to full mining levels in 2010, and one-time costs due tothe re-structuring of labour force contracts. At Tasiast, second quarter cash operating costs per ozcompared to the same period in 2009 are higher because of mining lower grade ore, as anticipated inthe mining schedule, and increased energy unit costs.

Stock-based compensation was $22 million in the second quarter of 2010 (June 30, 2009: $nil, as noshare-based awards were granted). The valuation of share-based awards, whether calculated using theBlack-Scholes economic model (stock options) or the intrinsic model (cash-settled share appreciationrights and deferred share units), is heavily influenced by the Company share price. Approximately $13million of this expense is due to a combination of the increase in RBIs share price in the secondquarter and not valuing and expensing 2009 stock option grants until the second quarter of 2010,when shareholders approved the Companys stock option plan. The fair values and the relatedexpense of share-based awards do not necessarily reflect the actual amount that will be realized upontheir future exercise.

Summary of Financial Results

Quarter Ended Jun 10 Mar 10 Dec 09 Sep 09 Jun 09 Mar 09 Dec 08 Sep 08

Total revenue ($000) 131,047 109,995 114,026 69,152 69,353 65,858 54,650 54,200

Net income (loss) ($000) 21,933 33,168 24,038 35,113 24,666 25,345 7,983 10,568

Net income (loss) per share ($) 0.09 0.14 0.10 0.15 0.11 0.12 0.04 0.06

Key operating statistics for the second quarter and year-to-date are provided below.

Three months ended June 30, 2010 Three months ended June 30, 2009Chirano Tasiast Total Chirano Tasiast Total

Ore tonnes mined, open cut (000t) 867 1,551 2,418 811 1,180 1,991

Ore tonnes mined, underground (000t) 223 - 223 24 - 24

Ore tonnes placed on DL (000t) - 1,150 1,150 - 809 809Average grade of DL tonnes (g/t) - 0.7 0.7 - 0.8 0.8

Ore tonnes milled (000t) 858 499 1,357 583 294 877Average grade (g/t) 2.3 3.0 2.6 2.5 3.7 2.9Average recovery 89.8% 89.5% 89.7% 90.5% 91.1% 90.7%

Gold produced, CIL (oz) 54,567 44,313 98,880 43,264 33,399 76,663Gold produced, dump leach (oz) - 7,482 7,482 - 3,574 3,574Gold produced, total (oz) 54,567 51,795 106,362 43,264 36,973 80,237Gold sold (oz) (Note 2) 55,579 52,314 107,893 37,273 37,722 74,995

Realized gold price per oz $1,225 $1,204 $1,215 $931 $919 $925

Cash operating costs per oz (Note 3)Operating $600 $355 $481 $430 $327 $378Royalties $ 56 $ 69 $ 62 $ 31 $ 28 $ 29

Depreciation, amortization and accretionper oz (Note 4) $163 $163 $163 $111 $201 $156Note 1: Production statistics may not calculate exactly due to rounding.Note 2: 2009 gold sold at Chirano excludes 4,208 oz recovered from underground operations and capitalized during pre-production

development.Note 3: This is a non-GAAP measure. It is calculated by dividing costs on the statement of income and retained earnings by gold

oz sold. Chiranos 2010 cash costs are net of silver credits of $7 (2009: nil)Note 4: For Tasiast, approximately $41 per oz (2009: $80 per oz) of depreciation and amortization are due to the amortization of the

fair value excess on purchase of the Tasiast mineral properties in 2007.


4/23

3

Six months ended June 30, 2010 Six months ended June 30, 2009Chirano Tasiast Total Chirano Tasiast Total

Ore tonnes mined, open cut (000t) 1,585 3,116 4,701 1,638 2,139 3,777Ore tonnes mined, underground (000t) 352 - 352 34 - 34

Ore tonnes placed on DL (000t) - 2,108 2,108 - 1,334 1,334

Average grade of DL tonnes (g/t) - 0.7 0.7 - 0.7 0.7

Ore tonnes milled (000t) 1,653 1,016 2,669 1,196 645 1,841Average grade (g/t) 2.1 3.0 2.4 2.2 3.5 2.7Average recovery 89.6% 89.5% 89.6% 90.8% 92.7% 91.4%

Gold produced, CIL (oz) 98,507 84,998 183,505 77,522 69,549 147,071Gold produced, dump leach (oz) - 19,017 19,017 - 3,574 3,574Gold produced, total (oz) 98,507 104,015 202,522 77,522 73,123 150,645Gold sold (oz) (Note 2) 100,000 106,580 206,580 72,820 74,007 146,827

Realized gold price per oz $1,179 $1,156 $1,167 $922 $919 $921

Cash operating costs per oz (Note 3)Operating $593 $366 $476 $469 $299 $383Royalties $ 49 $ 66 $ 57 $ 29 $ 28 $ 28

Depreciation, amortization and accretionper oz (Note 4) $152 $157 $155 $ 96 $200 $148Note 1: Production statistics may not calculate exactly due to rounding.Note 2: 2009 gold sold at Chirano excludes 5,675 oz recovered from underground operations and capitalized during pre-productiondevelopment.Note 3: This is a non-GAAP measure. It is calculated by dividing costs on the statement of income and retained earnings by gold ozsold. Chiranos 2010 cash costs are net of silver credits of $9 (2009: nil)Note 4: For Tasiast, approximately $41 per oz (2009: $87 per oz) of depreciation and amortization are due to the amortization of thefair value excess on purchase of the Tasiast mineral properties in 2007.

Tasiast Gold Mine - Mauritania

Tasiasts 30 year mining lease is located in the north-western part of Mauritania, approximately 300kilometres north of the capital of Nouakchott and 162 kilometres east-southeast of the port city ofNoudhibou. Tasiasts exploration licenses include an 80 kilometre strike length of the Aoueouat

greenstone belt of Achaean age. To date, drilling in support of the resource and reserve has only tested10 kilometres of this belt.

The present life of mine plan includes the currently defined portions of the Piment and the West Branchdeposits. The existing ore body is open both at depth and along strike to the north and south.Eleven drillrigs currently operate at Tasiast and plans are in place to increase the drill fleet to 21 rigs as part of anextensive exploration program to further expand the resource and reserve. A reserve update is expectedby the end of the third quarter and will include an initial heap leach reserve.

Tasiasts production in the second quarter of 2010 was 51,795 oz (2009: 36,973 oz) at a cash operatingcost of $355 per oz (2009: $327 per oz). In the first half of the year, Tasiast produced 104,015 oz (2009:73,123 oz) at a cash operating cost of $366 per oz (2009: $299 per oz). Compared to the same period in2009, cash operating costs were higher because of scheduled lower grade ore profile, resulting inincreased processing and energy unit costs, only partially offset by lower mining costs.

As a result of a larger asset base following completion of the plant expansions in 2009, depreciation in2010 has not increased significantly compared to the same period in 2009. This is because of increasedreserves, which has a positive effect on unit-of-production calculations. Subject to the effect ofincreasing production, this is expected to continue to be the case for the balance of the year.

Production from dump leach operations at Tasiast continues to be affected by failures in the secondwaterline from the Company's bore field located 60 kilometers from the plant. The failing sections of thepipeline are being replaced with work expected to be completed in the fourth quarter, at which time full


5/23

4

dump leach irrigation rates will resume. Consequently, it is anticipated that 2010 forecast gold productionat Tasiast will be lower at 205,000 215,000 oz at a cash operating cost of $375 to $400 per oz.

Royalties for 2010 will be higher than the legislated rate of 3% of revenues because of fees accruingto the government of Mauritania from the 2009 plant expansion project. Government royalties willreduce back to the legislated rate of 3% in 2011. An advance payment towards the 2010 expansionfee was made in the first quarter. As a result, at June 30, 2010 $4.7 million has been recorded as aprepaid expense on the balance sheet and will be expensed during the balance of the year.

Chirano Gold Mine - Ghana

The Chirano mining lease, granted in April 2004, is situated in south-western Ghana, 100 kilometressouthwest of Kumasi, Ghana's second largest city. The project is within the Bibiani gold belt and thepresent mining plan includes a series of open pit deposits and the high grade Akwaaba undergroundmine. Mining at Paboase, the second underground deposit for which an inaugural reserve of 920,000 ozwas released on July 19, 2010, is expected to commence late 2011. Exploration at Chirano is nowfocused on testing the depth potential of the Chirano shear on a systematic basis over a 10 km strikelength. Five rigs are currently on site working on this program.

Chiranos production in the second quarter of 2010 was 54,567 oz (2009: 43,264 oz) at a cash operating

cost of $600 per oz (2009: $430 per oz). In the first half of the year, Chirano produced 98,507 oz (2009:77,522 oz) at a cash operating cost of $593 per oz (2009: $469 per oz). Cash operating costs are highercompared to the same periods in 2009 due to the higher cost of underground mining operations, which in2009 did not reach commercial levels of production until the fourth quarter and are ramping up to fullmining rates in 2010, and the impact of one-time costs from the re-structuring of contracts for the labourforce ($95 per oz for the quarter; $53 per oz for the first half of the year). This was due to contractualnegotiations with the unions which resulted in a change to fixed term contracts.

Underground mining at the high grade Akwaaba operation is scheduled to ramp up to a full productionrate of approximately 100,000 tonnes per month in the fourth quarter with significant increases inproduction forecast starting in the third quarter. This will result in lower cash costs per oz as higher miningvolumes are achieved. For the year, Red Back continues to forecast production from Chirano to bebetween 240,000 and 250,000 oz at a cash operating cost of $485 to $525 per oz, after taking into

account the full year impact of the one-time labour contract re-structuring costs estimated at $25 peroz.

Other Income Statement Items

Interest expense in 2010 relates to stand-by fees and deferred financing charges on an undrawnrevolving debt facility. Interest income is higher in 2010 compared to 2009 because of a higheraverage cash balance on hand notwithstanding lower interest rates.

General and administrative costs in the second quarter of 2010 reflect higher corporate developmentactivities. They also include costs relating to a Company-sponsored site visit to its African operationsby a group of financial analysts in both 2009 and 2010. Costs in 2010 to date also include a non-cash$484,000 charge relating to common shares issued out of treasury for a donation in support of the

promotion of the mining industry.

The granting of stock-based awards and the determination of their vesting period is at the discretion ofthe Board. Stock options and deferred share units were granted during the second quarter of 2010. In2009, the majority of share-based awards were granted in the fourth quarter. Stock-basedcompensation reflects the amortization of the fair value of share-based awards over their vestingperiod. The fair value of stock options is determined using the Black-Scholes economic model, and itis highly impacted by the share price at the time the valuation is made, usually at the time of grant.The fair value of cash settled share appreciation rights and deferred share units is determined bychanges in value of the share price and, for deferred share units, by the share price at the time of


6/23

5

grant as well. As a result, the fair values and the related expense of share-based awards do notnecessarily reflect the actual amount that will be realized upon their future exercise.

A significant portion of the high stock-based compensation in the second quarter of 2010 ($9 million)is directly attributable to the increase in Red Backs share price during the same period. In addition, inaccordance with accounting measuring principles, options granted in late 2009 were not valued untilapproved by shareholders in May 2010. Consequently, stock-based compensation in the quarter endedJune 30, 2010 not only reflects share-based awards granted in that quarter but also the additional amountrelating to the 2009 grants of stock options.

Foreign exchange gains realized in the first quarter were $2.7 million when Red Back reduced itsholdings of Canadian dollars.

Minority interest of $1.5 and $2.5 million for the second quarter and the first half of the year,respectively, reflect the Government of Ghanas right to back-in to a 10% ownership of CGML, at nocost, and is recognized only to the extent of accumulated retained earnings in the operatingsubsidiary. At June 30, 2009, the subsidiary still had an accumulated deficit and, therefore, nominority interest had been recognized.

Income Taxes

The income tax expense for the second quarter and year-to-date in 2010 relates fully to the Ghanaianoperations. Future income taxes were recorded using the Ghanaian income tax rate of 25%. Currentincome taxes relate to a special tax levy that applies to Ghanaian companies in selected industries,including the mining sector. This levy, calculated at 5% of net income before income taxes, istemporary and applicable only to the end of 2010.

No income tax provision is recorded for the Tasiast operations in Mauritania as they are exempt fromincome tax until the end of 2010.

Other comprehensive income

Other comprehensive income includes the effect of realized and unrealized foreign exchange gains on

cash balances held in a currency other than the US dollar. As at June 30, 2010, Red Back held CAD$691 million (December 31, 2009: CAD $118.2 million) and AUD $18.4 million (December 31, 2009: $nil).

Liquidity and Capital Resources

On May 7, 2010 the Company issued 24 million common shares at a price of CAD $25 per share forgross proceeds of $577 million (CAD $600 million) under a private placement financing with Kinross GoldCorporation.

At June 30, 2010 the Company had cash and cash equivalents of $730 million (December 31, 2009: $150million) and working capital of $819 million (December 31, 2009: $218 million).

Capital cost additions for property, plant and equipment for the first six months of the year total $30.5million and can be summarized as follows:

(Amounts in millions of dollars) Chirano Tasiast Total

Plant enhancement projects $ 6.4 $ 5.0 $ 11.4Mining fleet - 11.3 10.6Others 2.1 5.7 8.5

Total $ 8.5 $ 22.0 $ 30.5


7/23

6

To June 30, 2010 additions to mineral properties total $66.5 million and can be summarized as follows:

(Amounts in millions of dollars) Chirano Tasiast Others Total

Exploration $ 8.2 $ 18.2 $ 1.0 $ 27.4Underground development, Akwaaba and Paboase 15.0 - - 15.0Open pit cut backs 10.9 - - 10.9

Tailings dam lifts 5.9 4.0 - 9.9Dump and heap leach development - 3.3 - 3.3Total $ 40.0 $ 25.5 $ 1.0 $ 66.5

During the second quarter, Red Back increased its estimated Tasiast capital project expenditures from$48 million to $103 million. New or expanded capital projects for the year include:

$29.0 million of mining equipment in addition to the previously budgeted expansion of the miningfleet, in anticipation of increasing mining activities from the dump and heap leach operations

$7.7 million of additional capital towards the design and construction of dump and heap leachinfrastructure

$5.8 million for camp expansion to accommodate expanding operations and construction $5.6 million in further expansion of TSF II, the current tailings dam, and sustaining capital $4.5 million for the replacement of sections of the 500 mm water pipeline

$2.4 million of additional mobile equipment in support of the dump and heap leach plantconstructionThese new or expanded projects are part of a developing plan to expand operations at Tasiast over thenext two to five years in response to the discovery of the Greenschist zone.

At Chirano, capital projects are proceeding as planned and, overall, no significant costs variances areexpected.

In addition, exploration programs at Tasiast and Chirano in the amount of $24.9 million and $8.8 million,respectively, were approved for the second half 2010.

As at June 30, 2010, the Company had capital purchase commitments totalling $53.8 million, including$39 million towards the expansion of the Tasiast mining fleet.

Contingency

In late 2009, CGML received a notice of re-assessment of prior years income tax returns from theGhanaian tax authorities denying approximately $90 million of past, current and future income taxdeductions and imputing additional revenues of approximately $30 million, both related to the taxtreatment of hedge contracts entered into in 2005 as part of the original bank project financing requiredfor the construction of the Chirano Gold Mine. CGML is vigorously defending its original tax filing position.The final outcome of this matter is not determinable at this time. Should the re-assessment be ultimatelyupheld, it would result in the recognition of additional future income tax liabilities of approximately $22million.

Transactions with Related Parties

During the first six months of the year, Red Back paid $0.6 million (June 30, 2009: $0.2 million) to acompany controlled by a director for management services.

Critical Accounting Estimates

There have been no material changes to the critical accounting estimates discussed in the annualMD&A filed on SEDAR on February 26, 2010.


8/23

7

Significant Accounting Policies

The Company continues to follow the accounting policies described in the audited consolidated financialstatements for the year ended December 31, 2009 that was filed on SEDAR on February 26, 2010.

International Financial Reporting Standards

In January 2006, the Canadian Accounting Standards Board adopted a strategic plan, which includes thedecision to move financial reporting for Canadian publicly accountable enterprises to a single set ofglobally accepted high-quality standards, namely, International Financial Reporting Standards (IFRS),as issued by the International Accounting Standards Board. The effective implementation date of theconversion from Canadian generally accepted accounting principles (Canadian GAAP) to IFRS isJanuary 1, 2011, with an effective transition date of January 1, 2010 for financial statements prepared ona comparative basis. Red Back is engaged in an assessment and conversion process which includesconsultation with external consulting firms and expects to be ready for the conversion to IFRS in advanceof January 1, 2011. As part of the conversion process, the Company has offered IFRS specific training tosenior financial reporting personnel and directors.

As more fully discussed in the Management Discussion and Analysis for the first quarter ended March 31,

2010 disseminated on May 3, 2010, the Company has completed the first two phases of its conversion toIFRS. Phase one, an initial general diagnostic of its accounting policies and Canadian GAAP relevant to its

financial reporting requirements to determine the key differences and options with respect toacceptable accounting standards under IFRS was completed in late 2008.

Phase two, an in depth analysis of the IFRS impact in those areas identified under phase one is noweffectively also complete, subject to changes in circumstances and pronouncements between nowand the end of the year.

Phase three, the implementation of the conversion process, including the completion of the openingbalance sheet as at January 1, 2010 together with related discussion and notes, will be carried out in thesecond half of 2010.

Financial Instruments and Related Risks

The Companys financial instruments consist of cash and cash equivalents, accounts receivable,marketable securities, and accounts payable and accrued liabilities. Cash and cash equivalents areclassified as available for sale financial assets, recognized at fair value, with any unrealized gain orloss recorded in other comprehensive income. The fair value of all other financial instrumentsapproximates their carrying values, due to their short-term maturity or capacity of prompt liquidation.

As at June 30, 2010, the Companys currency risk was due to CAD $691 million of cash balances(CAD $118.2 million at December 31, 2009) and AUD $18.4 million ($nil at December 31, 2009).Based on this exposure, a 10% change in the Canadian/US dollar exchange rate would give rise to anincrease/decrease in other comprehensive income of approximately $66 million and a 10% change inthe Australian/US dollar exchange rate would give rise to an increase/decrease in other

comprehensive income of approximately $1.6 million. The Company has no other significant exposureto single individual currencies other than the US dollar because its revenues and the majority of itscosts are measured in US dollars.

Red Back does not currently have financial instruments that are exposed to significant commodity orcredit risks because the Company has not engaged in derivative commodity transactions or have largeloans and receivables with third parties requiring a review of credit worthiness. Further, the Companyis not exposed to significant liquidity risk because of the nature of the financial assets it currently holds. Inaddition, cash and cash equivalents are held through large financial institutions and, as at June 30,2010, were with counterparties with high credit ratings.


9/23

8

Outstanding Share Data

As at July 30, 2010 the Company had 256,781,885 common shares issued and outstanding and6,211,336 share options outstanding under its stock-based incentive plan.

Uncertainties and Risk Factors

There has been no material change in the uncertainties and risk factors affecting Red Backs activitiesthat were discussed in the annual MD&A filed on SEDAR on February 26, 2010.

Outlook

Except for the increase in reserve estimates at Chirano and the higher treasury from the CAD $600million private placement, which are discussed in earlier sections of this MD&A, during the second quarterthere were no significant changes in the business outlook of the Company discussed in the annualMD&A filed on SEDAR on February 26, 2010.

Internal Controls over Financial Reporting and Disclosure Controls

Management is responsible for the design of internal controls over financial reporting to providereasonable assurance regarding the reliability of financial reporting and the preparation of the financialstatements in accordance with accounting principles generally accepted in Canada. The Companybelieves its internal controls and procedures are effective in providing reasonable assurance thatfinancial information is recorded, processed, summarized and reported in a timely manner.

There have been no changes in Red Backs internal control over financial reporting during the quarterended June 30, 2010 that have materially affected, or are reasonably likely to materially affect, internalcontrol over financial reporting.

Management is also responsible for the design and effectiveness of disclosure controls and

procedures to provide reasonable assurance that material information related to the Company,including its consolidated subsidiaries, is made known to the Companys certifying officers.

Cautionary Note Regarding Forward-Looking Statements

This document contains forward looking statements concerning anticipated developments andevents that may occur in the future. Forward looking statements include, but are not limited to,statements with respect to the future price of gold, the estimation of mineral reserves and resources,the realization of mineral reserve estimates, the timing and amount of estimated future production,costs of production, capital expenditures, costs and timing of the development of new deposits,success of exploration activities, permitting time lines, currency fluctuations, requirements foradditional capital, government regulation of mining operations, environmental risks, unanticipated

reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases,forward looking statements can be identified by the use of words such as plans, expects or doesnot expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates ordoes not anticipate, or believes, or variations of such words and phrases or state that certainactions, events or results may, could, would, might or will be taken, occur or be achieved.Forward looking statements involve known and unknown risks, uncertainties and other factors whichmay cause the actual results, performance or achievements of the Company to be materially differentfrom any future results, performance or achievements expressed or implied by the forward lookingstatements. Although the Company has attempted to identify important factors that could cause actualactions, events or results to differ materially from those described in forward looking statements in thesection entitled Risk Factors, there may be other factors that cause actions, events or results not to


10/23

9

be as anticipated, estimated or intended. There can be no assurance that forward looking statementswill prove to be accurate, as actual results and future events could differ materially from thoseanticipated in such statements. Accordingly, readers should not place undue reliance on forwardlooking statements. These forward looking statements are made as of the date of this document and,other than as required by applicable securities laws, the Company assumes no obligation to update orrevise them to reflect new events or circumstances.


11/23

RED BACK MINING INC.INTERIM CONSOLIDATED BALANCE SHEETS

(in Thousands of United States Dollars, Unaudited)

June 30,2010

December 31,2009

ASSETSCurrent assets

Cash and cash equivalents $ 730,488 $ 150,471Accounts receivable 38,634 32,795Marketable securities (Note 2) 1,526 -Inventories (Note 3) 87,546 76,779Prepaid expenses 5,132 2,298

863,326 262,343

Deferred charges 307 490Property, plant and equipment, net (Note 4) 284,877 269,246Mineral properties and related expenditures (Note 5) 478,306 429,052

$ 1,626,816 $ 961,131

LIABILITIES

Current liabilitiesAccounts payable and accrued liabilities $ 43,355 $ 43,256Taxes payable 1,073 929

44,428 44,185

Non current liabilitiesAsset retirement obligations (Note 6) 11,722 11,492Future income tax liability 64,128 55,000Other liabilities 11,463 2,073

87,313 68,565

Minority interest 3,549 1,008

Shareholders equityShare capital (Note 7) 1,342,415 758,243Contributed surplus (Note 8) 19,963 7,201Accumulated other comprehensive income 7,217 15,099Retained earnings 121,931 66,830

1,491,526 847,373

$ 1,626,816 $ 961,131

Commitments and contingency (Note 11)

Approved by the Board:

Richard P. Clark Lukas H. LundinDirector Director

See accompanying notes to interim consolidated financial statements.


12/23

RED BACK MINING INC.INTERIM CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS


Three months endedJune 30

Six months endedJune 30

2010 2009 2010 2009

Gold Sales $ 131,047 $ 69,353 $ 241,043 $ 135,211Costs and expenses

Operating 52,279 28,346 99,142 56,289Depreciation and amortization 17,599 11,684 31,926 21,769Accretion 115 134 230 269Royalties 6,730 2,212 11,841 4,134

Profit from mining operations 54,324 26,977 97,904 52,750

General and administrative 3,162 2,198 5,224 3,487Interest expense and bank charges 181 96 368 243

Stock based compensation 21,982 (255) 27,368 1,308Write-off of exploration costs - - 166 -Interest income (899) (431) (1,146) (627)

24,426 1,608 31,980 4,411

Income before undernoted items 29,898

25,369

65,924 48,339

Gain on sale of securities - - - 3,020Foreign exchange gain - 472 2,671 472

- 472 2,671 3,492

Income before income taxes 29,898 25,841 68,595 51,831

Current income tax expense 1,078 - 1,826 -Future income tax expense 5,387 1,175 9,128 1,820

6,465 1,175 10,954 1,820

Net income before minority interest 23,433 24,666 57,641 50,011Minority interest 1,500 - 2,540 -

Net income 21,933 24,666 55,101 50,011Retained earnings, beginning of the period 99,998 (16,987) 66,830 (42,332)

Retained earnings, end of the period $ 121,931 $ 7,679 $ 121,931 $ 7,679

Income per common share basic $ 0.09 $ 0.11 $ 0.23 $ 0.22

Income per common share diluted $ 0.09 $ 0.11 $ 0.23 $ 0.22

Weighted average number of shares outstanding:

basic 247,519,214

229,490,917

239,834,436 223,840,535

diluted 250,661,197 231,193,423 242,740,664 2



13/23

RED BACK MINING INC.INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS





2010 2009 2010 2009

Cash flows from operating activitiesNet income $ 21,933 $ 24,666 $ 55,101 $ 50,011Items not affecting cash

Amortization and depreciation 17,603 11,689 31,933 21,778Accretion 115 134 230 269Deferred charges 103 33 183 33Foreign exchange gain - (472) (2,671) (472)Future income taxes 5,387 1,175 9,128 1,820Gain on sale of marketable securities - - - (3,020)Minority interest 1,500 - 2,540 -Shares issued as a donation (note 7(a)(ii)) - - 484 -Stock based compensation 21,360 (255) 23,808 1,308

Write-off of exploration costs - - 166 -68,001 36,970 120,902 71,727

Net changes in non-cash working capital itemsAccounts receivable and prepaid expenses (6,730) (880) (8,673) (1,884)Inventories (7,992) (6,171) (10,767) (7,686)Accounts payable and accrued liabilities 10,151 (4,805) (972) (7,472)

63,430 25,114 100,490 54,685

Cash flows used in investing activitiesMineral properties and related expenditures (35,141) (21,646) (66,520) (42,724)Purchase of property, plant and equipment (27,191) (17,676) (29,370) (42,543)Purchase of marketable securities (954) - (954) -Proceeds from sale of marketable securities - - - 26,297

(63,286) (39,322) (96,844) (58,970)

Cash flows from financing activitiesCommon shares issued 578,550 5,688 582,154 134,870Debt repayment - - - (28,000)Deferred charges - (700) - (700)

578,550 4,988 582,154 106,170

Effect of exchange rate changes on translation of cashdenominated in a currency other than the US dollar (8,921)

11,696 (5,783)

13,088

Increase in cash 569,773 2,476 580,017 114,973Cash and cash equivalents, beginning of the period 160,715 134,702 150,471 22,205

Cash and cash equivalents, end of the period $ 730,488 $ 137,178 $ 730,488 $ 137,178


14/23

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(in Thousands of United States Dollars, Unaudited)




2010 2009 2010 2009

Income for the period $ 21,933 $ 24,666 $ 55,101 $ 50,011Gain on marketable securities reclassifiedto net income on realization -

-

- (5,044)

Foreign exchange gain on net assetsdenominated in a currency other than theUS dollars reclassified to net income onrealization

-

(472)

(2,671) (472)

Unrealized gain on marketable securitiesavailable for sale, net of applicable futureincome taxes 572

-

572 -Unrealized foreign exchange gain (loss) onnet assets denominated in a currency otherthan the US dollar (8,921)

11,696

(5,783) 13,088

Total other comprehensive income (8,349) 11,224 (7,882) 7,572Comprehensive income for the period $ 13,584

$ 35,890

$47,219 $57,583


15/23

Page 5

RED BACK MINING INC.NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009(Tables in Thousands of United States Dollars, Unaudited)

1.Nature of Operations and Basis of Presentation

Red Back Mining Inc. (Red Back or the Company) is a mineral resource corporation engagedin operating, exploring, acquiring and developing mineral properties. The Company currentlyowns two gold mines in West Africa. In Ghana, it holds a 100% interest in the producing ChiranoGold Mine (Chirano). Upon the Government of Ghana exercising its right to back-in to a 10%ownership of Chirano Gold Mines Limited (CGML), at no cost, the Company will hold a 90%interest in Chirano with the Government of Ghana holding 10%. In Mauritania, the Companyholds a 100% interest in the Tasiast Gold Mine (Tasiast). The Company also holds variousother exploration properties in Ghana, Mauritania and Cte D Ivoire.

The interim consolidated financial statements are prepared in accordance with Canadian generallyaccepted accounting principles applicable to interim financial statements. They follow accountingpolicies and methods of their application consistent with the annual consolidated financial statements

as at December 31, 2009, but they do not conform in all respects with the disclosure requirements ofgenerally accepted accounting principles for annual financial statements. Accordingly, they should beread in conjunction with the Companys December 31, 2009 annual consolidated financialstatements.

2. Marketable Securities

Marketable securities consist of shares in a public company that has been classified as availablefor sale financial assets. They are recorded at their fair value of CAD $0.80, calculated based onthe June 30, 2010 closing price on the relevant stock exchange. The Companys original cost ofthe shares was CAD $0.50 per share.

3. Inventories

June 30, 2010 December 31, 2009

Stockpile ore $ 27,290 $ 24,059Dump leach material 6,010 4,521Gold in circuit 5,071 3,442Gold in safe 2,784 4,718Materials and supplies 46,391 40,039

$ 87,546 $ 76,779


16/23

Page 6

4. Property, Plant and Equipment

June 30, 2010 December 31, 2009

CostAccumulatedDepreciation

Net BookValue Cost

AccumulatedDepreciation

Net BookValue

Plant and

equipment $ 297,907 $ 53,641 $ 244,266 $ 287,540 $ 39,706 $ 247,834Motor vehicles 4,845 2,769 2,076 4,284 2,406 1,878Buildings 11,647 2,461 9,186 11,475 1,921 9,554Construction in

progress 29,349 - 29,349 9,980 - 9,980

$ 343,748 $ 58,871 $ 284,877 $ 313,279 $ 44,033 $ 269,246

5. Mineral Properties and Related Expenditures

Chirano TasiastOther

Projects Total

Balance, December 31, 2008 $ 126,016 $ 249,276 $ 6,106 $ 381,398

Exploration and evaluation costs 6,302 15,868 2,206 24,376Development expenditure 49,207 12,392 - 61,599Change in estimated asset retirement

obligations -

1,333

- 1,333Amortization (13,765) (23,779) - (37,544)Write-off of deferred exploration costs - - (2,110) (2,110)

Balance, December 31, 2009 $ 167,760 $ 255,090 $ 6,202 $ 429,052Exploration and evaluation costs 8,185 18,235 1,026 27,446Development expenditure 31,852 7,222 - 39,074Amortization (10,309) (6,791) - (17,100)Write-off of deferred exploration costs - - (166) (166)

Balance, June 30, 2010 $ 197,488 $ 273,756 $ 7,062 $ 478,306

Included in the above balance for Chirano are $42.1 million (December 31, 2009: $32.1 million)of stripping costs incurred subsequent to commencement of production. Amortization of thesecosts during the three and six months ended June 30, 2010 amounted to $2.6 million and $3.4million respectively (June 30, 2009: $nil).

Chirano Gold Mine

Chirano comprises one mining lease and one prospecting license held through the Companys100% owned subsidiary, CGML. Upon the Government of Ghana exercising its right to back-in toa 10% ownership of CGML, at no cost, the Company will hold a 90% interest in CGML with theGovernment of Ghana holding 10%.

Tasiast Gold Mine

Tasiast comprises one mining lease held through the Companys 100% owned subsidiary TasiastMauritanie Limited SA (TMLSA).

Other Exploration Projects

The Company owns interests in a number of other exploration properties in Ghana, Mauritaniaand Cte DIvoire. These interests are represented by various prospecting licenses and optionagreements. Exploration on these properties is ongoing.


17/23

Page 7

6. Asset Retirement Obligations

Six Months Ended June 30, 2010 Year EndedDecember 31, 2009Chirano Tasiast Total

Balance, beginning of period $ 7,512 $ 3,980 $ 11,492 $ 9,768Change in estimate - - - 1,333Accretion expense 150 80 230 391

Balance, end of period $ 7,662 $ 4,060 $ 11,722 $ 11,492

The Company has calculated the fair value of the asset retirement obligations using a discountrate of 4.0%.

7. Share Capital

(a) The Company has an unlimited number of without par value common shares authorized of

issuance.

Shares Issued and Outstanding:Six Months Ended

June 30, 2010Year Ended

December 31, 2009Number of

Shares AmountNumber of

Shares Amount

Balance, beginning of period 231,826,634 $ 758,243 206,095,970 $ 607,914Issued by short-form prospectus (i) - - 22,000,000 126,966Issued as a share donation (ii) 28,250 484 - -Issued by private placement (iii) 24,000,000 576,797 - -Issued on exercise of options 827,000 5,357 3,730,664 17,512

Fair value of options exercised (iv) - 1,534 - 5,851Balance, end of period 256,681,884 $ 1,342,415 231,826,634 $ 758,243

(i) On February 12, 2009, the Company raised gross proceeds of $132.5 million (CAD

$165 million) by issuing 22.0 million common shares at a price of CAD $7.50 per shareunder a short form prospectus financing.

(ii) On March 1, 2010 the Company made a donation of 28,250 common shares fromtreasury at a total deemed fair value of approximately CAD $500,000.

(iii) On May 7, 2010, the Company raised gross proceeds of $577 million (CAD $600million) by issuing 24.0 million common shares at a price of CAD $25 per share undera private placement financing.

(iv) Upon exercise of options the pro-rata carrying value is recognized in share capital andthe contributed surplus is reduced accordingly.

(b) The Company has two stock option plans (the 2007 Plan and the 2009 Plan) to grantincentive stock options to directors, officers, employees and consultants of the Company.The term of any option granted under both plans is fixed by the Board of Directors and maynot exceed 10 years from the date of grant. No optionee shall be entitled to a grant of morethan 10% of the Companys outstanding issued shares. The vesting of options is at thediscretion of the Board.


18/23

Page 8

Changes in the number of issued and outstanding options are outlined in the table below:

Six Months EndedJune 30, 2010

Year EndedDecember 31, 2009

OptionsOutstanding

Weighted

AverageExercise Price(CAD $)

OptionsOutstanding

Weighted

AverageExercise Price(CAD $)

Balance, beginning of period 5,733,336 8.30 7,379,000 5.84Cancelled - - (1,025,000) 6.81Exercised (827,000) 6.79 (3,730,664) 5.30Forfeited (225,000) 8.49 (110,000) 6.08Granted 1,630,000 27.28 3,220,000 9.92

Balance, end of period 6,311,336 13.39 5,733,336 8.30

The Company used the Black-Scholes option pricing model in calculating the fair value of

stock options granted in the period. The key assumptions used were a risk-free rate of 1.6%to 2.3% (2009: 0.5% - 2.2%), an expected volatility of 42% to 76% (2009: 47% - 80%), anexpected option life of one to four years (2009: one to four years), no dividend payments,and a forfeiture rate of 0% to 12% (2009: 0% - 12%).

At June 30, 2010, there was $21.2 million (December 31, 2009: $1.8 million) of unearnedfuture compensation costs relating to unvested stock options expected to be recognized overthe course of the next three years.

(c) The Company has a SARs Plan under which the Company can grant SARs up to a numberequal to 2% of its issued and outstanding common shares to officers, employees andconsultants or other eligible participants. Under the SARs Plan, SAR recipients are entitled toreceive the cash value equal to the increase in the price of Red Back common shares between

the time of grant and the time of the exercise of the SARs. The term and vesting conditions ofany SAR granted under the plan is fixed by the Board of Directors. No SAR recipient is entitledto a grant of SARs exceeding 1% of the Companys outstanding issued shares.

Six Months Ended Year EndedJune 30, 2010 December 31, 2009

OutstandingSARs

FairValue

OutstandingSARs

FairValue

Balance, beginning of period 1,550,000 $ 1,442 - $ -Exercised (63,000) (563) - -Forfeited (150,000) (442) - -Granted 325,000 - 1,550,000 -

Change in value - 17,621 - 1,442Balance, end of period 1,662,000 $ 18,058 1,550,000 $ 1,442

Unearned future compensation costs for unvested SARs expected to be recognized over thecourse of the next two years account for $10.5 million (December 31, 2009: $1.2 million) of theabove balance.

(d) The Company has a DSUs Plan under which the Company can grant DSUs up to a numberequal to 1% of its issued and outstanding common shares to non-executive directors of the


19/23

Page 9

Board. Under the DSUs Plan, DSU recipients are entitled to receive the cash value of Red Backcommon shares at the time of their retirement. The vesting conditions of any DSU grantedunder the plan are fixed by the Board of Directors.

Six Months Ended Year EndedJune 30, 2010 December 31, 2009

OutstandingDSUs

FairValue

OutstandingDSUs

FairValue

Balance, beginning of period 99,000 $ 1,392 - $ -Granted 52,000 1,334 99,000 1,383Redeemed (16,000) (316) - -Change in value - 1,055 - 9

Balance, end of period 135,000 $ 3,465 99,000 $ 1,392

(e) In 2009, the Company granted cash-settled share-based awards based on the increase in

Red Backs share price during the period of time in 2009 when no equity-basedcompensation plan was available to certain officers and employees. The estimated unearnedfuture compensation costs relating to these incentive awards at June 30, 2010 is $2.1 million

(December 31, 2009: $4.9 million) and is expected to be recognized over the course of thenext 6 to 12 months.

8. Contributed SurplusSix Months Ended

June 30, 2010Year Ended

December 31, 2009Balance, beginning of period $ 7,201 $ 10,506Fair value of stock-based compensation 14,296 2,546Fair value of options exercised (1,534) (5,851)

Balance, end of period $ 19,963 $ 7,201

9. Related Party Transactions

During the six months ended June 30, 2010 the Company paid $0.6 million (June 30, 2009: $0.2million) to a company controlled by a director for management services. At June 30, 2010, $nilwas due to this company.


20/23

Page 10

10. Segmented Information

Three Months Ended June 30, 2010Ghana Mauritania Others Total

Gold revenues $ 68,074 $ 62,973 $ - $ 131,047

Operating costs and expenses (36,846) (22,163) - (59,009)Depreciation, amortization and accretion (9,130) (8,584) - (17,714)

Profit from mining operations 22,098 32,226 - 54,324Other income (costs) (11,013) (3,988) (17,390) (32,391)

Net income (loss) $ 11,085 $ 28,238 $ (17,390) $ 21,933

Six Months Ended June 30, 2010

Ghana Mauritania Others Total

Gold revenues $ 117,889 $ 123,154 $ - $ 241,043


Profit from mining operations 37,520 60,384 - 97,904Other income (costs) (18,426) (5,871) (18,506) (42,803)

Net income (loss) $ 19,094 $ 54,513 $ (18,506) $ 55,101

Three Months Ended June 30, 2009Ghana Mauritania Others Total

Gold revenues $ 34,685 $ 34,668 $ - $ 69,353Operating costs and expenses (17,187) (13,371) - (30,558)Depreciation, amortization and accretion (4,218) (7,600) - (11,818)

Profit from mining operations 13,280 13,697 - 26,977Other income (costs) (1,214) (39) (1,058) (2,311)

Net income (loss) $ 12,066 $ 13,658 $ (1,058) $ 24,666

Six Months Ended June 30, 2009

Ghana Mauritania Others Total

Gold revenues $ 67,175 $ 68,036 $ - $ 135,211


Profit from mining operations 23,801 28,949 - 52,750Other income (costs) (1,276) (39) (1,424) (2,739)

Net income (loss) $ 22,525 $ 28,910 $ (1,424) $ 50,011


21/23

Page 11

As at June 30, 2010Ghana Mauritania Others Total

Current assets $ 90,928 $ 87,311 $ 685,087 $ 863,326Capital assets, net ofdepreciation and amortization 307,586

454,246

1,658 763,490

398,514 541,557 686,745 1,626,816Current liabilities (25,201) (17,164) (2,063) (44,428)Non-current liabilities (14,387) (8,881) (3,466) (26,734)Future income tax liabilities (17,886) (46,242) - (64,128)

$ 341,040 $ 469,270 $ 681,216 $ 1,491,526

As at December 31, 2009Ghana Mauritania Others Total

Current assets $ 62,630 $ 69,666 $ 130,047 $ 262,343

Capital assets, net ofdepreciation and amortization 274,950

422,403

1,435 698,788

337,580 492,069 131,482 961,131Current liabilities (21,166) (16,115) (6,904) (44,185)Non-current liabilities (8,702) (4,123) (1,748) (14,573)Future income tax liabilities (8,758) (46,242) - (55,000)

$ 298,954 $ 425,589 $ 122,830 $ 847,373

Additions to Property Plant and EquipmentGhana Mauritania Others Total

Period ended June 30, 2010 $ 8,480 $ 21,989 $ - $ 30,469

Period ended June 30, 2009 $ 17,020 $ 23,015 $ - $ 40,035

The Company operates only in the gold sector.

11. Commitments and contingencies

At June 30, 2010, the Company had purchase commitments totaling approximately $53.8 million(December 31, 2009: $17.1 million) of which approximately $39 million is for mining fleet expansion

at Tasiast.

Late in 2009, CGML received a notice of re-assessment of prior years income tax returns denyingapproximately $90 million of past, current and future income tax deductions and imputing additionalrevenues of approximately $30 million, both related to the tax treatment of hedge contracts enteredinto in 2005 as part of the original bank project financing required for the construction of the ChiranoGold Mine. CGML is defending its original tax filing position. The final outcome of this matter is notdeterminable at this time. Should the re-assessment be ultimately upheld, it would result in therecognition of additional future income tax liabilities of approximately $22 million.


22/23

12. Management of Capital

The Companys objectives in managing its capital resources are to safeguard the entitys ability tocontinue as a going concern and, thereby, maximize returns to shareholders in the context of themarket. The Company satisfies its capital requirements through careful management of its cash

resources and by utilizing bank indebtedness or equity issues, as necessary, based on theprevailing economic conditions of both the industry and the capital markets and the underlyingrisks characteristics of the related assets.

Red Back continues with capital expansion programs at its two mining operations. The Companyexpects to fund these programs from operating cash flow and existing treasury. Red Back alsohas an undrawn $30 million corporate bank debt facility to provide it with additional flexibility inpursuing internally generated growth initiatives, or responding to new opportunities.

The Company is not currently subject to any externally imposed requirements on its shareholdersequity and there has been no change with respect to the overall capital risk management strategyduring the six month period ended June 30, 2010.


23/23

CORPORATE DIRECTORY

OFFICERS

Richard ClarkPresident and Chief Executive Officer

Lukas LundinChairman of the Board

Alessandro BitelliChief Financial Officer

Simon JacksonVice President Corporate Development

Kevin RossChief Operating Officer

Hugh StuartVice President - Exploration

Kathy LoveCorporate Secretary

DIRECTORSRichard ClarkLukas LundinMichael Hunt

Corporate Governance and NominatingCommittee

Robert ChaseAudit CommitteeCorporate Governance and NominatingCommitteeCompensation Committee

Brian EdgarLead Director

Audit CommitteeCompensation CommitteeCorporate Governance and NominatingCommittee

George BrackAudit CommitteeCompensation Committee

AUDITORS

PricewaterhouseCoopers, LLPVancouver, British Columbia, Canada

LEGAL COUNSEL

Blake Cassels & Graydon LLPVancouver, British Columbia, Canada

CORPORATE OFFICE

Suite 2101 - 885 West Georgia StreetVancouver, British ColumbiaCanada V6C 3E8Telephone: (604) 689-7842Fax: (604) 689-5452

REGISTERED AND RECORDS OFFICE

Blake Cassels & Graydon LLP2600 - 595 Burrard StreetP.O. Box 49314Vancouver, British ColumbiaCanada V7X 1L3

REGISTRAR AND TRANSFER AGENT

Computershare Trust Company of CanadaVancouver, British Columbia andToronto, OntarioCanada

SHARE LISTING

Toronto Stock ExchangeSymbol: RBICUSIP No.: 756297107S.E.C.: 12g3-2(b)Exemption Number: 82-4286

Redback Mining

Documents

Transcript of Redback Mining