Mandalay Resources Announces Early Adoption of International Financial Reporting Standards

TORONTO, March 11 /CNW/ - Mandalay Resources Corporation ("Mandalay" or the "Company") (TSX: MND) (TSX: MND.WT) announced today that it has been granted exemptive relief from the Canadian securities regulatory authorities to prepare its financial statements for the year ended December 31, 2010 in accordance with International Financial Reporting Standards ("IFRS") with an adoption date of January 1, 2010 and a transition date of January 1, 2009. As a result, the Company has re-filed its interim consolidated financial statements and Management's Discussion & Analysis ("MD&A") for each of the three, six and nine month periods of 2010 in accordance with IFRS.  These financial statements and MD&A were originally prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP").  All future financial statement and MD&A filings will be completed in accordance with IFRS, including the annual financial statements and MD&A for the year ended December 31, 2010.

In addition, the Company has adopted the U.S. dollar as its reporting currency as management believes that this will allow investors to more readily compare the Company's financial results with those of other multi-jurisdictional mining companies, many of which also use the U.S. dollar as reporting currency.

IFRS Conversion Plan

The Company established a formal IFRS project implementation plan in early 2010 and a detailed timetable to manage its transition from GAAP to IFRS. The Company allocated substantial internal resources and worked with its auditors and third party consultants to ensure a timely and accurate conversion.  The conversion project was monitored by Mandalay's Chief Financial Officer, who reports regularly to the Audit Committee and the Board of Directors on the progress of the conversion project. Both the initial scoping and planning phase and the detailed assessment phase of the Company's IFRS implementation plan were completed in the third quarter of 2010. The Company was also undertaking an Enterprise Resource Planning solution implementation and recognized that early adoption to IFRS would reduce the cost and complexity of this system implementation and reduce the complexity of the reporting conversion given the Company's other strategic operating objectives.

The Company's first interim financial statements prepared under IFRS are the interim financial statements for the three months ended March 31, 2010, which includes full disclosure of its new IFRS policies in Note 2 to these financial statements. 

Transition to IFRS

The Company's consolidated financial statements for the year ending December 31, 2010 are the first annual financial statements that comply with IFRS with the effective date of transition being January 1, 2009. IFRS 1, First-time Adoption of International Financial Reporting Standards, sets forth guidance for the initial adoption of IFRS.  The Company has applied the following exemptions to its opening statement of financial position dated January 1, 2009:

Cumulative translation differences

IFRS 1 allows a first-time adopter to not comply with the requirements of IAS 21, The Effects of Changes in Foreign Exchange Rates, for cumulative translation differences that existed at the date of transition to IFRS.  The Company has chosen to apply this election and has eliminated the cumulative translation difference and adjusted retained earnings by the same amount at the date of transition to IFRS.  If, subsequent to adoption, a foreign operation is disposed of, the translation differences that arose before the date of transition to IFRS will not affect the gain or loss on disposal.

IFRS 1 also outlines mandatory guidelines that a first-time adopter must follow.  The Company has applied the following mandatory guidelines to its opening statement of financial position dated January 1, 2009:

Assets and liabilities of subsidiaries and associates

In accordance with IFRS 1, if a parent company adopts IFRS subsequent to its subsidiary or associate adopting IFRS, the assets and the liabilities of the subsidiary or associate are to be included in the consolidated financial statements at the same carrying amounts as in the financial statements of the subsidiary or associate.  The Company's subsidiary, AGD Mining Pty Ltd ("AGD"), adopted IFRS in 2006 and previously reported audited financial statements in compliance with IFRS.  As such AGD is excluded from applying the optional elections set out in IFRS 1 at Mandalay's transition date.  On a consolidated basis, Mandalay is not precluded from adopting accounting policies which differ from those previously applied by a subsidiary in its standalone financial statements.  Any accounting policy differences are required to be aligned on consolidation.

Estimates

In accordance with IFRS 1, an entity's estimates under IFRS at the date of transition to IFRS must be consistent with estimates made for the same date under previous GAAP, unless there is objective evidence that those estimates were in error.  The Company's IFRS estimates as of January 1, 2009 are consistent with its GAAP estimates for the same date.

IFRS employs a conceptual framework that is similar to GAAP.  However, significant differences exist in certain matters of recognition, measurement and disclosure.  While adoption of IFRS has not changed the Company's actual cash flows, it has resulted in changes to the Company's reported financial position and results of operations.  The following is a summary of the key changes:

IAS 39, Financial Instrument (Derivative Liability)

The Company entered into a US$ loan agreement with one of its shareholders in July 2009, which had the conversion option to the Company's common share.  The shareholder exercised the option and converted it into the shares in October 2009. 

Since the conversion price was denominated in a currency other than the Company's functional currency, the conversion option meets the definition of a derivative and was measured at fair value.  The fair value of the conversion feature was determined using the Black-Scholes option pricing model initially and subsequently re-measured at reporting periods until it was exercised.

A total of $1,536,437 was charged to operations during 2009 representing the change in fair value of the conversion feature prior to its exercise.  The value of the conversion feature, along with the balance of the loan was reclassified to common shares upon exercise of this conversion right.

IFRS 3, Business Combinations

The Company acquired AGD in November 2009.  Initially, the acquisition was accounted for under Canadian Institute of Chartered Accountants Section 1581, Business Combinations.  Upon adoption of IFRS, the Company accounted for the acquisition using the acquisition method under IFRS 3.  The main differences from GAAP which had an impact on the Company's accounting for the acquisition are:

• the purchase consideration is measured based on the fair value on the date control is achieved under IFRS, while the fair value is measured based on the market price over a  reasonable period before and after the date the terms of the business combination are agreed to and announced under GAAP; and
  
  
• acquisition-related costs are expensed under IFRS, while they were capitalized as part of the purchase consideration under GAAP.

These differences resulted in a reduction in the purchase price of AGD by $3,274,180 and an increase in business combination expense of $76,488 respectively on November 30, 2009, the date of acquisition.  These changes resulted in the subsequent reduction in depletion expenses amounting to $12,726, $68,299, $129,955, and $67,154, for each of the quarters ending December 31, 2009, March 31, 2010, June 30, 2010, and September 30, 2010, respectively.

IAS 21, Foreign Exchange Translation

The Company determined that the functional currency of AGD was the Australian dollar under IFRS, consistent with previous assessments on a stand alone basis whereas the functional currency had been assessed as the Canadian dollar under GAAP.   Further, the Company also made an accounting policy choice to present the financial statements in U.S. dollars under IFRS as compared to Canadian dollars under GAAP.

This change in the functional currency of AGD resulted in a reduction in foreign exchange loss (gain) of approximately $366,054, $190,518, $437,175 and $(848,273) for each of the quarters ending December 31, 2009, March 31, 2010, June 30, 2010 and September 30, 2010, respectively.

Detailed schedules of the impact of these changes are included in Note 10 of the consolidated interim financial statements ending March 31, 2010, June 30, 2010 and September 30, 2010 filed under the Company's profile at www.sedar.com.

About Mandalay Resources Corporation:
Mandalay Resources is a Canadian-based natural resource company with producing assets in Australia and Chile, and exploration projects in Chile. The Company is focused on executing a roll-up strategy, creating critical mass by aggregating advanced or in-production gold, copper, silver and antimony projects in Australia and the Americas to generate near-term cash flow and shareholder value.

Forward-Looking Statements:
This news release contains "forward-looking statements" within the meaning of applicable securities laws. Readers are cautioned not to place undue reliance on forward-looking statements. Actual results and developments may differ materially from those contemplated by these statements depending on, among other things, changes in commodity prices and general market and economic conditions. The factors identified above are not intended to represent a complete list of the factors that could affect Mandalay. In addition, there can be no assurance that any inferred resources that are discovered as a result of additional drilling will ever be upgraded to proven or probable reserves. Although Mandalay has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.