Page 1

Page 2

Page 3

The accompanying notes are an integral part of these interim financial statements.

Page 4

The accompanying notes are an integral part of these interim financial statements.

Page 5

The financial information as at November 30, 2008 and for the three and nine-month periods ended November 30, 2008 and 2007 are unaudited. However, in the opinion of management, all adjustments necessary to present fairly the results of these periods have been included.The adjustments made were of a normal recurring nature. Interim results may not necessarily be indicative of results anticipated for the year.

These unaudited interim financial statements have been prepared in accordance with Canadian generally accepted accounting principles and use the same accounting policies and methods used in the preparation of Virginia Mines Inc.'s (the "company") most recent annual financial statements except for the new accounting standards as described in note 2. All disclosures required for annual financial statements have not been included in these financial statements. These unaudited interim financial statements should therefore be read in conjunction with the company's most recent annual audited financial statements.

Accounting changes

Effective March 1, 2008, the company adopted four new accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA") in relating to general standards of financial statements presentation, capital disclosures and financial instruments.

Section 1400, General Standards of Financial Statement Presentation

Section 1400 has been amended to include requiremements to assess and disclose an entity's ability to continue as a going concern (going concern assumption). The adoption of this Section had no impact on the financial statements of the company.

Section 1535, Capital Disclosures

This Section establishes standards for disclosing information about an entity's capital. The information will enable users of its financial statements to evaluate its objectives, policies and processes for managing capital. An entity will also disclose whether it complies with capital requirements to which it is subject and the consequences of non-compliance. The required disclosure is contained in note 3.

Section 3862, Financial Instruments – Disclosures and Section 3863, Financial Instruments - Presentation

Sections 3862, "Financial Instruments – Disclosures", and 3863, "Financial Instruments – Presentation", which replace Section 3861, "Financial Instruments – Disclosures and Presentation" require enhanced disclosures on financial asset and liability categories as well as a detailed analysis of the risks associated with the company's financial instruments and how the entity manages those risks. Presentation requirements remain unchanged. The required disclosure is contained in note 9.

Effective July 1, 2008, the Canadian Accounting Standards Board approved amendments to CICA Sections 3855, "Financial Instruments – Recognition and Management", and Section 3862, "Financial Instruments – Disclosures". These amendments focus on the ability to reclassify, under rare circumstances, financial assets out of trading. The company has not reclassified any of its financial instruments.

Page 6

Impact of new accounting standards not yet adopted

International Financial Reporting Standards ("IFRS")

In 2007, the CICA published an update of the Accounting Standards Board's Implementation Plan for incorporating IFRS into Canadian GAAP. The plan outlines the key decisions that the CICA will need to make as it implements the Strategic Plan to converge Canadian GAAP standards with IFRS. While IFRS uses a similar conceptual framework to that of Canadian GAAP, there are still significant accounting policy differences that will need to be resolved. The CICA has confirmed January 1, 2011 as the change over from current Canadian GAAP to IFRS for publicly accountable companies.

During the next periods, the company will develop its internal implementation plan to meet the guidelines of the future reporting requirements.

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.

From the management point of view, the working capital as at November 30, 2008 will cover current expenditures and exploration fees for the next following years.

The mining properties in which the company currently has an interest are in the exploration stage. Since the company has enough cash and cash equivalents, 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 and its return on short-term investments.

On June 5, 2008, the company completed a private placement of $4,500,000. The proceeds from the offering was used mainly to fund exploration on the Coulon JV project.

The company is not subject to externally imposed capital requirements.

As at November 30, 2008, the company held $3,800,000 principal amount of non-bank sponsored Asset-Backed Commercial Paper ("ABCP").

Since the beginning of the period, a ABCP restructuring report of J.P. Morgan dated March 14, 2008 and a restructuring Plan proposed to noteholders dated March 20, 2008 were published. The Plan was approved by noteholders on April 25, 2008 and on June 5, 2008, the Ontario Superior Court of Justice homologated it.

On June 25, 2008, a number of ABCP holders appealed the Ontario Superior Court of Justice’s decision to the Ontario Court of Appeal. On August 18, 2008, the Ontario Court of Appeal upheld the Ontario Superior Court of Justice’s decision approving the Committee’s Restructuring Plan. On August 29, 2008, a number of ABCP holders appealed the Ontario Court of Appeal’s decision to the Supreme Court of Canada. On September 19, 2008, the Supreme Court of Canada denied leave to appeal by a small group of ABCP holders.

Page 7

 

On November 25, 2008, the Pan-Canadian Investors Committee for Third-Party Structured ABCP (the "Committee") announced that it will not complete the proposed restructuring of the third-party ABCP market in Canada by the end of November. The delay is principally due to the complexity of the restructuring, the large number of participants involved in the process and current market conditions.

On December 11, 2008, the Committee announced that an agreement in principle has been reached among various key participants in the ABCP restructuring, which would result in several significant improvments to the restructuring Plan.

On December 24, 2008, the Committee confirmed that an agreement for additional back-stop facility has been reached with all key stakeholders, including the governments of Canada, Quebec, Ontario and Alberta.

On January 12, 2009, the Committee announced that the Superior Court of Ontario has granted the Plan Implementation Order and that, accordingly, the Plan for restructuring third-party ABCP can now be implemented. The restructuring is expected to close on or about January 16, 2009.

Taking into account the information made available and the changes that occurred in the credit market conditions and the review of the assumptions used, the company remeasured the fair value of its investments in ABCP.

The company's methodology assessment consists on use of market indexes corresponding to the length, constitution and notation of underlying assets. This method includes two possible scenarios depending upon the success of the Montreal Proposal. The company's assigns a 95% success probability, the average discount rate used is 15.19% with an estimated average term of 7.55 years and the average coupon rate is 2.43%.

In determining the fair value of the Montreal Proposal ABCP, the company assumes that it will be converted into variable rate term notes and in accordance with the key elements of the Master Agreement. In addition, the company assumes the restructured notes will include traditional securitized assets ($300,000 principal amount), restructured pooled synthetic notes ($1,500,000 principal amount) will be reduced by the cost of a margin facility estimated to be 1% and all US sub-prime residential mortgage-backed collateralized debt obligations will be restructured as ineligible notes ($2,000,000 principal amount). Restructuring costs will be distributed among new notes and should reduce the returns. There is currently not enough information on the cost allocation to assign on each note.

As at November 30, 2008, the fair value of the company's ABCP was estimated to $1,306,000. Following this estimation the company has accounted, for the three and nine-month periods ended November 30, 2008, an unrealized loss in ABCP investments of $177,000 and $138,000, respectively (an unrealized loss of $4,770 and $384,770 for the three and nine-month periods ended November 30, 2007, respectively), which is presented under caption "Unrealized losses on investments held for trading".

An increase in the estimate discount rate of 1% would reduce the estimated fair value of the company’s investment in ABCP by approximately $83,000.

Since the fair value of the ABCP is determined using a probability-weighted approach and the foregoing assumptions and is based on the company’s assessment of market conditions as at November 30, 2008, the reported fair value may change materially in subsequent periods. In addition, the fair value estimate is dependent upon the likelihood, nature and timing of future restructuring under the terms of the Montreal Proposal. The company believes the outcome of the proposed restructuring will not have a material impact on the company’s financial condition.

 

 

Page 8

On July 3, 2008, the company signed a letter agreement with its financial institution concerning a credit agreement that will be effective following the application of the Crawford Committee's proposal on ABCP. This agreement applies on restructured notes to be received in exchange of ABCP supported by ineligible assets with a carrying value of $2,000,000 that the company holds. The company will be eligible to credit facilities up to $1,500,000. The initial maturity will be two years from the signing of the agreement, which term can be deferred at the financial institution's discretion for additional periods of one year respectively, for a maximum of five renewals. Under the credit agreement, the company will have the option, from the contractual maturity date of the credit facility, to dispose of the restructuring notes in favour of the financial institution in payment of the facility principal.

Page 9

All mining properties are located in the province of Quebec.

Page 10

Page 11

Page 12

 

For the three and nine-month periods ended November 30, 2008, there was no difference between the basic and diluted loss per share since the dilutive effect of stock options was not included in the calculation; otherwise, the effect would have been anti-dilutive. However, the net loss diluted per share for these periods was calculated according to the basic weighted average number of shares outstanding.

Page 13

(a) Warrants and convertible debentures
(b) Bonds, trust units and shares
(c) ABCP

Page 14

 

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 and cash equivalents are valued at fair value.

The fair value of available-for-sale short-term 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 convertible debentures is established in a manner similar to available-for-sale short-term investments. Since there is no active market for the warrants, the company determines fair value using an option pricing model (Black & Scholes model) with observable data.

The fair value of long-term investments was determined using the method described in note 4.

As at November 30, 2008, gross unrealized losses on available-for-sale securities totalled $2,445,565. Of this sum, an amount of $120,309 is related to bonds and results from wider credit spreads due to recent disruptions on capital markets as well as changes in market interest rates and not from deterioration in the creditworthiness of issuers. The balance of $2,325,256 related to common shares and trust units is explained by the timing of market prices and early years in business cycle of the investees for certain investments. 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 determined that the gross unrealized losses are temporary in nature.

Financial risks

The company has exposure to credit risk, liquidity risk and market risk from its use of financial instruments.

Credit risk

Credit risk associated with 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. It also ensures to achieve a good diversification of its banking investments. In addition, the company attempts to minimize its risks by entering into agreements only with Canadian institutions 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 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 partnership is minimal, because the company signed agreements with major mining companies.

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 liquidity to meet liabilities when due. As at November 30, 2008, the company had a cash balance of $9,900,618 ($8,665,254 as at February 29, 2008) to settle current liabilities of $1,294,501 ($3,895,275 as at February 29, 2008). All of the company's financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms.

Page 15

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.

As at November 30, 2008, and as at February 29, 2008, the company's exposure to interest risk is summarized as follows:

For the three and nine-month periods ended November 30, 2008, the sensitivity to a ± 1% change in bank balance rates would have an estimated after tax effect of $25,000 and $75,000 on the Statement of Earnings.

Changes in fair value of available-for-sale bonds are recorded in Other Comprehensive Loss. For the company’s available-for-sale bonds, a variation of ± 1% of interest rates as at November 30, 2008, would result in an estimated after-tax effect in Other Comprehensive Loss of $223,000.

Foreign exchange risk

The company's functional currency is the Canadian dollar and major purchases are transacted in Canadian dollars. The company holds foreign currency in a chartered Canadian bank account as at November 30, 2008, 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 markets changes.

Changes in fair value of trust units and available-for-sale shares are recorded in Other Comprehensive Loss. For the company's trust units and available-for-sale shares, a variation of ± 10 % of the quoted market prices as at November 30, 2008, would result in an estimated after-tax effect in Other Comprehensive Loss of $356,000.

Changes in fair value of warrants and convertible debentures held for trading are recorded in the Statements of Earnings. There is no material risk related to the warrants for the company due to the zero carrying value as at November 30, 2008. Changes in fair value of convertible debentures will be more impacted by the stock markets than the interest rate variation. A variation of ± 10% in market prices as at November 30, 2008, would result in an estimated after-tax effect in Statements of Earnings of $124,000.

Page 16

The company is committed to incur exploration expenses of $4,500,000 by December 31, 2009, and transfer these expenditures to the subscribers of its flow-through share underwriting completed on June 5, 2008. As at November 30, 2008, the company has fulfilled its commitment regarding the exploration expenses and has planned to transfer the expenditures to the subscribers in the next quarter.

On August 18, 2008, the company signed 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 is $99,200 and will be subject to an annual raise according to the consumer price index.

Acquisition of a 100% Interest in the Coulon JV Property

On December 11, 2008, the company announced the execution of an agreement with Breakwater Resources Ltd. ("Breakwater") pursuant to which the company will acquire Breakwater's 50% undivided interest in the Coulon JV property in consideration for the issuance of 1,666,666 shares of the company to Breakwater. Under the terms of this agreement, Breakwater does not retain any interest or royalty in the property. The company thus becomes the sole owner of the Coulon property.

The company also undertook to secure, at closing, the simultaneous resale of 1,666,666 shares of the company owned by Breakwater at a price of $2.85 per share ($4,750,000) in favour of third-party buyers and in compliance with all applicable securities regulations.

Page 17