American Bonanza Gold 6-K Notice of No Auditor Review of Interim Financial Statements

AMERICAN BONANZA GOLD CORP.

Condensed Consolidated Interim Financial Statements

Nine months ended September 30, 2011

(Unaudited – Prepared by Management)

NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

Under National Instrument 51-102, “Continuous Disclosure Obligations”, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.

The accompanying unaudited interim condensed consolidated financial statements of the Corporation have been prepared by management and approved by the Audit Committee and Board of Directors of the Corporation.

The Corporation’s independent auditors have not performed a review of these condensed consolidated financial statements in accordance with the standards established by the Canadian Institute of Chartered Accountants for a review of interim financial statements by an entity’s auditors.

American Bonanza Gold Corp.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS

(In Canadian Dollars)

(Unaudited – Prepared by Management)September

	September 30,		December 31,		January 1,
	2011		2010		2010
			(Restated,note 2)		(Restated,note 2)
	$		$		$
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	11,894,005		3,104,650		957,923
Amounts receivable (note 3)	118,808		114,442		455,680
Prepaid expenses	78,469		34,758		32,926
Marketable securities (note 4)	-		5,805,000		1,879,842
	12,091,282		9,058,850		3,326,371
DEFERRED SHARE ISSUE COSTS	-		181,726		-
RECLAMATION BOND	1,728,265		20,000		20,000
MINERAL PROPERTIES, PLANT AND EQUIPMENT    (note 5)	50,679,156		1,649,571		14,502
EXPLORATION AND EVALUATION ASSETS (note 6)	-		25,980,002		37,815,443
	52,407,421		27,831,299		37,849,945
	64,498,703		36,890,149		41,176,316
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities	4,390,033		1,079,376		687,940
RECLAMATION AND RESTORATION (note 11)	1,528,793		-		40,621
	5,918,826		1,079,376		728,561
SHAREHOLDERS’ EQUITY
Share capital (note 7)	85,180,530		62,449,075		60,650,619
Other equity reserve (note 7)	9,075,170		6,319,728		6,396,978
Accumulated other comprehensive income (loss)	1,156,712		(479,513	)	(285,353	)
Deficit	(36,832,535	)	(32,478,517	)	(26,314,489	)
	58,579,877		35,810,773		40,447,755
	64,498,703		36,890,149		41,176,316

APPROVED ON NOVEMBER 10, 2011 ON BEHALF OF

THE BOARD:

Signed: Brian Kirwin

Director

Signed: Robert T. McKnight

Director

The accompanying notes are an integral part of these consolidated financial statements
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American Bonanza Gold Corp.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVELOSS

(In Canadian Dollars)

(Unaudited – Prepared by Management)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2011		2010		2011		2010
			(Restated,note 2)				(Restated,note 2)
	$		$		$		$
EXPENSES (INCOME):
General and administrative (note 8)	357,870		201,008		1,143,558		517,512
Stock-based compensation (note 7)	1,584,670		-		3,113,349		-
Exploration	76,906		86,398		202,362		157,394
Business development	49,402		44,577		130,643		128,025
Foreign exchange	(724,028	)	503		(483,408	)	7,976
Amortization	852		1,892		3,956		6,219
Interest and accretion of asset retirement                obligation	-		477		-		1,431
Loss on sale of marketable securities	274,510		562,105		274,510		1,205,004
Mineral property and exploration and evaluation               assets write down	72,662		4,014,729		19,438		4,014,729
Interest income	(11,748	)	(11	)	(50,390	)	(38	)
LOSS FOR THE PERIOD BEFORE INCOME
TAXES	(1,681,096	)	(4,911,678	)	(4,354,018	)	(6,038,252	)
DEFERRED INCOME TAXES RECOVERY	-		-		-		(63,850	)
LOSS FOR THE PERIOD	(1,681,096	)	(4,911,678	)	(4,354,018	)	(6,102,102	)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on available-for-sale                marketable securities, net of tax	225,000		(29,819	)	(855,000	)	(903,307	)
Reclass realized loss on marketable security	(225,000	)	545,766		855,000		1,188,660
Currency translation adjustments	4,116,360		(601,746	)	1,636,225		(298,516	)
TOTAL COMPREHENSIVE INCOME (LOSS)	4,116,360		(85,799	)	1,636,225		(13,163	)
COMPREHENSIVE INCOME (LOSS) FOR THE    PERIOD	2,435,264		(4,997,477	)	(2,717,793	)	(6,115,265	)
LOSS PER COMMON SHARE
Basic and diluted	(0.01	)	(0.04	)	(0.02	)	(0.05	)
WEIGHTED AVERAGE NUMBER OF SHARES	181,868,843		124,106,172		176,922,195		120,302,552

The accompanying notes are an integral part of these consolidated financial statements

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American Bonanza Gold Corp.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(In Canadian Dollars)

(Unaudited – Prepared by Management)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2011		2010		2011		2010
			(Restated,note 2)				(Restated,note 2)
	$		$		$		$
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Loss for the period	(1,681,096	)	(4,911,678	)	(4,354,018	)	(6,102,102	)
Items not affecting cash:
Stock-based compensation	1,584,670		-		3,113,349		-
Amortization	852		1,892		3,956		6,219
Accretion of asset retirement obligation	-		477		-		1,431
Loss (gains) on marketable securities	225,000		(630,536	)	225,000		-
Loss on disposal	-		1,188,660		-		1,188,660
Mineral property and exploration and evaluation                           assets write down	-		4,014,729		-		4,014,729
Deferred income taxes	-		-		-		63,850
	129,426		(336,456	)	(1,011,713	)	(827,213	)
Changes in non-cash operating accounts:
Amounts receivable	33,807		(11,234	)	(4,366	)	(42,968	)
Prepaid expenses	(43,926	)	(19,461	)	138,015		2,350
Accounts payable and accrued liabilities	3,272,580		(91,200	)	3,310,657		(181,178	)
	3,391,887		(458,351	)	2,432,593		(1,049,009	)
INVESTING ACTIVITIES
Exploration and evaluation assets	-		(390,304	)	-		(1,205,535	)
Sale of marketable securities, net of commission	4,950,000		196,823		4,950,000		976,535
Reclamation bond	(136,407	)	-		(1,708,265	)	-
Mineral properties, plant and equipment	(11,286,399	)	(483,518	)	(19,000,521	)	(560,641	)
	(6,472,806	)	(676,999	)	(15,758,786	)	(789,641	)
FINANCING ACTIVITIES
Issue of common shares, net of issue costs	5,388,920		1,159,204		21,427,568		1,411,894
Exercise of options, warrants	683,035		95,000		687,980		95,000
	6,071,955		1,254,204		22,115,548		1,506,894
INCREASE (DECREASE) IN CASH AND     CASH EQUIVALENTS	2,991,036		118,854		8,789,355		(331,756	)
CASH AND CASH EQUIVALENTS,       beginning of period	8,902,969		507,313		3,104,650		957,923
CASH AND CASH EQUIVALENTS,       end of the period	11,894,005		626,167		11,894,005		626,167
SUPPLEMENTARY INFORMATION:
Cash flows include the following elements:
Interest paid	-		-		-		-
Interest received	11,748		11		50,390		38
Income taxes paid	-		-		-		-

The accompanying notes are an integral part of these consolidated financial statements

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American Bonanza Gold Corp.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

(In Canadian Dollars)

(Unaudited – Prepared by Management)

						Accumulated
				Other		Other
	Share Capital			Equity		Comprehensive
	Shares	Amount		Reserve		Income (Loss)		Deficit		Total
		$		$		$		$		$
Balance, January 1, 2010
(Restated, note 2)	118,245,889	60,650,619		6,396,978		(285,353	)	(26,314,489	)	40,447,755
Private placement, net of share issue costs	9,603,383	1,411,894		-		-		-		1,411,894
Shares issued for plant purchase	1,250,000	212,500		-		-		-		212,500
Exercise of options	800,000	95,000		-		-		-		95,000
Other comprehensive income	-	-		-		(13,163	)	-		(13,163	)
Loss for the period	-	-		-		-		(5,656,656	)	(5,656,656	)
Balance, September 30,2010	129,899,272	62,370,013		6,396,978		(298,516	)	(31,971,145	)	36,497,330
						Accumulated
				Other		Other
	Share Capital			Equity		Comprehensive
	Shares	Amount		Reserve		Income (Loss)		Deficit		Total
		$		$		$		$		$
Balance, January 1, 2011
(Restated, note 2)	130,199,272	62,449,075		6,319,728		(479,513	)	(32,478,517	)	35,810,773
Public offer, net of share issue costs	61,500,000	21,427,568		-		-		-		21,427,568
Exercise of warrants	254,000	95,930		-		-		-		95,930
Exercise of options	-	592,050		-		-		-		592,050
Stock-based compensation	4,830,000	-		3,371,349		-		-		3,371,349
Reclass options exercised	-	683,319		(683,319	)	-		-		-
Issue cost related to agent compensation valuation	-	(67,412	)	67,412		-		-		-
Currency translation	-	-		-		1,636,225		-		1,636,225
Loss for the period	-	-		-		-		(4,354,018	)	(4,354,018	)
Balance, September 30,2011	196,783,272	85,180,530		9,075,170		1,156,712		(36,832,535	)	58,579,877

The accompanying notes are an integral part of these consolidated financial statements

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

1.	NATURE OF OPERATIONS
	American Bonanza Gold Corp. (the “Corporation” or “Company”) was incorporated in British Columbia on December 10, 2004. The Corporation is domiciled in Vancouver, Canada. The Corporation is an exploration stage mining company engaged in the identification, acquisition, exploration and development of precious metals properties located in the United States and Canada. The Corporation has not yet determined whether its mineral properties contain mineral reserves which are economically recoverable with the exception of Copperstone property (note 5). The recoverability of amounts capitalized is dependent upon the discovery of economically recoverable reserves, securing and maintaining title in the properties and obtaining the necessary financing to complete the exploration and development of these projects and upon the attainment of future profitable production. The amounts capitalized as exploration and evaluation assets, net of impairment recognised, represent costs to date, and do not necessarily represent present or future values.
	These financial statements have been prepared by management on a going-concern basis, which assumes the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and settle its liabilities and commitments in the normal course of business. The Corporation anticipates that current cash resources will adequately fund expected development costs, until generation of operating revenue, of the Copperstone property and other operating cash flow requirements in the foreseeable future. These financial statements do not reflect the adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary should the going concern assumption become inappropriate.
2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
	These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standards (“IAS”) 34,Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). These are the Corporation’s first International Financial Reporting Standards (IFRS) condensed consolidated interim financial statements. IFRS 1,First Time Adoption of IFRS,has been applied as these financial statements are part of the period covered by the Corporation’s first IFRS consolidated financial statements for the year ending December 31, 2011. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements. The Corporation’s condensed consolidated interim financial statements were prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP) until December 31, 2010. Canadian GAAP differs from IFRS in some areas and accordingly, the significant accounting policies applied in the preparation of these condensed consolidated interim financial statements are set out below and have been consistently applied to all periods presented except in instances where IFRS 1 either requires or permits an exemption. An explanation of how the transition from Canadian GAAP to IFRS has affected the reported consolidated statements of operations and comprehensive income (loss), financial position, and cash flows of the Corporation is provided in note 13. This note includes information on the provisions of IFRS 1 and the exemptions that the Corporation elected to apply, reconciliations of equity, net loss and comprehensive income (loss) for comparative periods and equity at the date of transition, January 1, 2010.
	Principles of consolidation
	The consolidated financial statements include the accounts of the Corporation and its wholly-owned subsidiary, Bonanza Explorations Inc. (a United States, Nevada corporation).
	All inter-company transactions and balances have been eliminated upon consolidation.
	Use of estimates
	The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant areas requiring the use of management estimates and assumptions relate to the determination of the recoverability of

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued)
	Use of estimates(continued)
	exploration and evaluation assets, amounts receivable, deferred income tax assets and liabilities, asset retirement obligations and assumptions used in valuing options and warrants in stock-based compensation calculations. Actual results could differ from those estimates.
	Cash and cash equivalents
	Cash and cash equivalents consist of cash on deposit with banks or highly liquid short-term interest bearing securities that are readily convertible to known amounts of cash and those that have maturities of three months or less when acquired.
	Marketable securities
	Marketable securities are classified as available-for-sale and are carried at the fair value based upon quoted market prices. Changes in fair value are included in other comprehensive income.
	Exploration and evaluation assets and government assistance
	Costs related to mineral activities, which include the investigation, acquisition, exploration, and evaluation of mining properties, are capitalized on a property-by-property basis until such time as the property is placed in production, is sold or abandoned or determined to be impaired. Capitalized exploration and evaluation costs are considered to be tangible assets. These assets are not depreciated as they are not currently available for use. When proven and probable reserves are determined and development is approved, capitalized exploration and evaluation costs are reclassified to mineral properties and leases or capital work-in-progress within property, plant and equipment.
	The Corporation qualifies for mineral exploration assistance programs associated with the exploration and evaluation of mineral properties located in Quebec. Recoverable amounts are offset against exploration and evaluation costs incurred when the Corporation has complied with the terms and conditions of the program and the recovery is reasonably assured.
	Option payments received on mineral properties are credited against previous capitalized costs.
	Office equipment
	Office equipment, consisting of office and computer equipment, are recorded at cost and are amortized on a straight-line basis over five years.
	Assets under construction
	The Corporation has acquired its production equipment including mill, crushers and mobile equipment and such expenditures are recorded at cost. Most of this equipment is used and requires refurbishing and offsite preparation prior to construction in the Copperstone site. None of this equipment is ready for its intended use as of September 30, 2011, and hence no amortization was taken during the current fiscal period.
	Foreign currency translation
	The reporting and functional currency of the Corporation is the Canadian dollar. The functional currency of its United States subsidiary is the United States dollar.
	Foreign currency transactions entered directly by the Corporation or its subsidiary are translated into their functional currency as following:

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued)
	Foreign currency translation(continued)
		Monetary assets and liabilities are translated at period end exchange rates and other balance sheet items are translated at historical exchange rates.
		Income statement items are translated in effect at the time of transaction.
		Foreign exchange gains and losses are included in the determination of income.
	Transaction of the foreign functional currency subsidiary financial statements into the Parent’s Canadian dollar reporting currency is performed as follows:
		Assets and liabilities are translated at period end exchange rates and other balance sheet items are translated at historic exchange rates.
		Income statement items are translated at average exchange rates prevailing during the period.
		Exchange gains and losses on the translation of the foreign operations into the Corporation’s functional currency are excluded from the determination of income and reported as a foreign currency translation adjustment in the other comprehensive income in the shareholder’s equity.
	Financial instruments
	The Corporation classifies all financial instruments as either held-to-maturity, available-for-sale, held for trading, loans and receivables and other liabilities. Financial assets held to maturity, loans and receivables and financial liabilities other than those held for trading, are measured at amortized cost. Available-for-sale instruments are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Instruments classified as held for trading are measured at fair value with unrealized gains and losses recognized in the statement of operations.
	The Corporation has classified its cash and cash equivalents as held for trading and therefore measures them at fair market value, with the unrealized gain or loss recorded in income. The amounts receivable has been classified as loans and receivable and accounts payable and accrued liabilities are classified as other liabilities.
	The Corporation has classified its marketable securities as available-for-sale securities and therefore carries them at fair value, with unrealized gains or losses recorded in shareholders’ equity as a component of other comprehensive income. These amounts will be reclassified from other comprehensive income to net income when they are realized.
	For certain of the Corporation’s financial instruments, including cash and cash equivalents, amounts receivable, and accounts payable and accrued liabilities, the carrying amounts approximate fair values due to their short-term to maturity.
	Income taxes
	The Corporation accounts for income taxes under the asset and liability method. Under this method, temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount are used to calculate deferred income tax assets or liabilities. Deferred tax assets are recognized to the extent that it is more likely than not that the deferred income tax assets will be realized. The Corporation realized deferred income tax assets or liabilities using tax rates anticipated to be in effect in the periods that the temporary differences are expected to be settled or realized. The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income in the period that the change occurs.

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued)
	Loss per share
	Basic loss per share is calculated by dividing net loss available to the shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated to reflect the dilutive effect of exercising outstanding stock options and warrants by application of the treasury stock method. Outstanding stock options and share purchase warrants that would potentially dilute basic loss per share have not been included in the computation of diluted loss per share because to do so would be anti-dilutive.
	Reclamation and restoration
	The fair value of obligations associated with the retirement of tangible long-lived assets is recorded in the period it is incurred with a corresponding increase to the carrying amount of the related asset. The obligations recognized are statutory, contractual or legal obligations. The liability is accreted over time for changes in the fair value of the liability through charges to accretion, which is included in depletion, amortization and accretion expense. The costs capitalized to the related assets are amortized in a manner consistent with the depletion and amortization of the related asset.
	Impairment of long-lived assets
	The Corporation reviews the carrying value of long-lived assets for impairment when circumstances indicate an asset’s value may not be recoverable. The evaluation is based on the higher of the asset’s fair value less costs to sell and its value in use, which is present value of future cash flows expected to be derived from the asset in its current state. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the higher of fair value less costs to sell and value in use.
	Segmented information
	The Corporation conducts its business in a single operating segment being the acquisition, exploration and development of mineral properties. All mineral properties are located in the United States as detailed in notes 5 and 6.
	New Accounting Pronouncements
	Adoption of new accounting policies
	The following new or amended IFRSs have been issued which are effective for annual periods beginning on or after January 1, 2013 with early adoption permitted, with the exception of IFRS 13 which is effective prospectively from January 1, 2013:
	IFRS 9Financial Instruments
	IFRS 10Consolidated Financial Statements
	IFRS 11Joint Arrangements
	IFRS 12Disclosure of Interests in Other Entities
	IFRS 13Fair Value Measurement
	Amendments to IAS 19Employee Benefits
	Amendments to IAS 28Investments in Associates and Joint Ventures
	IFRS 9Financial instruments(“IFRS 9”) was issued in November 2009 and will replace IAS 39Financial Instruments: Recognition and Measurement(“IAS 39”). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39.

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

2.	BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES(continued)
	IFRS 10Consolidated Financial Statements(“IFRS 10”) replaces the guidance in IAS 27Consolidated and Separate Financial Statements(“IAS 27”) and SIC-12Consolidation – Special Purpose Entities.
	IAS 27 (2008) survives as IAS 27 (2011)Separate Financial Statements, only to carry forward the existing accounting requirements for separate financial statements. IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are SPEs in the scope of SIC-12. In addition, the consolidation procedures are carried forward substantially unmodified from IAS 27 (2008).
	IFRS 11Joint Arrangements(“IFRS 11”) replaces the guidance in IAS 31Interests in Joint Ventures(“IAS 31”). Under IFRS 11, joint arrangements are classified as either joint operations or joint ventures. IFRS 11 essentially carves out of previous jointly controlled entities, those arrangements which although structured through a separate vehicle, such separation is ineffective and the parties to the arrangement have rights to the assets and obligations for the liabilities and are accounted for as joint operations in a fashion consistent with jointly controlled assets/operations under IAS 31. In addition, under IFRS 11 joint ventures are stripped of the free choice of equity accounting or proportionate consolidation; these entities must now use the equity method. Upon adoption of IFRS 11, entities which had previously accounted for joint ventures using proportionate consolidation shall collapse the proportionately consolidated net asset value (including any allocation of goodwill) into a single investment balance at the beginning of the earliest period presented. The investment’s opening balance is tested for impairment in accordance with IAS 28 (2011) and IAS 36Impairment of Assets. Any impairment losses are recognized as an adjustment to opening retained earnings at the beginning of the earliest period presented.
	IFRS 12Disclosure of Interests in Other Entities(“IFRS 12”) contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities. Interests are widely defined as contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. The required disclosures aim to provide information in order to enable users to evaluate the nature of, and the risks associated with, an entity’s interest in other entities, and the effects of those interests on the entity’s financial position, financial performance and cash flows.
	IFRS 13Fair Value Measurement(“IFRS 13”) replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value as 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,i.e. an exit price. The standard also establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements to provide information that enables financial statement users to assess the methods and inputs used to develop fair value measurements and, for recurring fair value measurements that use significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income. IFRS 13 explains ‘how’ to measure fair value when it is required or permitted by other IFRSs. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.
	IAS 19Employee Benefits(“IAS 19”) will modify accounting for pensions and other post-retirement and post-employment benefits and impact corporate financial reporting, including reported net profit. The key impacts of the amendments will include:
	•	Changes in how a plan's funded status and its variation during a reporting period will affect balance sheet and comprehensive income
	•	Changes in the reported benefit expense due to the removal of the expected return on assets and amortization items
	•	Significant changes to the footnote disclosures
	•	Potential implications for the way that plan sponsors manage defined benefit plan risk

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

2.	SIGNIFICANT ACCOUNTING POLICIES(continued)
	IAS 28Investments in Associates and Joint Ventures(“IAS 28”) will modify the existing standard as issued in 2008 as follows:
	•	Associates and joint ventures held for sale. IFRS 5 Non-current Assets Held for Sale and Discontinued Operations applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment that has not been classified as held for sale, the equity method is applied until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture.
	•	Changes in interests held in associates and joint ventures. Previously, IAS 28 and IAS 31 specified that the cessation of significant influence or joint control triggered re-measurement of any retained stake in all cases with gain recognition in profit or loss, even if significant influence was succeeded by joint control. IAS 28 will be modified so that in such scenarios the retained interest in the investment is not re-measured.
	These new and revised accounting standards have not yet been adopted by American Bonanza, and the Corporation has not yet completed the process of assessing the impact that they will have on its financial statements or whether to early adopt any of the new requirements.
3.	AMOUNTS RECEIVABLE
	Amounts receivable consist of the following:

	September 30,		December 31,	January 1,
	2011		2010	2010
	$		$	$
Goods and services and harmonized sales tax	36,406		25,705	6,077
Quebec sales tax	(13,153	)	17,603	8,849
Mining duties and refundable tax credits receivable	36,024		68,505	433,998
Other	59,531		2,629	6,756
	118,808		114,442	455,680

Government Assistance

The Corporation qualifies for mineral exploration assistance programs associated with incurring exploration and development expenditures on mineral properties located in Quebec. The assistance programs are comprised of a Refundable Tax Credit of 35% of eligible exploration expenses pursuant to Quebec’s Taxation Act and a further 12% refundable credit on eligible expenditures pursuant to Quebec’s Mining Duties Act.

- 12 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

4. MARKETABLE SECURITIES

			Accumulated
	Fair Value	Cost	unrealized
			gains (losses)
	$	$	$
September 30, 2011	-	-	-
December 31, 2010 - Balmoral Resources Ltd.	5,805,000	5,175,000	630,000
January 1, 2010 – Hawthorne Gold Corp.	1,879,842	2,155,646	(275,804	)

In November 2010 the Corporation signed a definitive agreement with Balmoral Resources Ltd. (“Balmoral”) for the sale of the Corporation’s eastern Canadian exploration properties. In consideration for the properties, Balmoral made a one- time cash payment to Bonanza of $3.7 million dollars and issued 4.5 million common shares of Balmoral to the Corporation valued at $1.15 per share or $5,175,000 in total on that date. On September 13, 2011, these shares were sold at $1.10 per share, resulting in a realized loss of $225,000. A commission of $49,510 was paid for the sale resulting in a total loss of $274,510.

5.

MINERAL PROPERTIES, PLANT AND EQUIPMENT

	Exploration &		Mineral
	Evaluation		Properties		Office		Assets Under
	Properties				Equipment		Construction		TOTAL
	$		$		$		$		$
Cost:
January 1, 2010	37,815,443		-		14,502		-		37,829,945
Opening balance currency valuation:	151,750		-		-		-		151,750
Depreciation	-		-		(6,219	)	(5,078	)	(11,297	)
Addition:	1,205,535		-		-		773,399		1,978,934
Property write down	(4,014,729	)	-		-		-		(4,014,729	)
September 30, 2010	35,157,999		-		8,283		768,321		35,934,603
Opening balance currency valuation:	(640,463	)	-		-		(45,959	)	(686,422	)
Addition:	90,890		-		-		920,882		1,011,772
Depreciation	-		-		(1,956	)	-		(1,956	)
Property disposal	(8,628,424	)	-		-		-		(8,628,424	)
December 31, 2010	25,980,002		-		6,327		1,643,224		27,629,573
Re-class exploration and evaluation to                      mineral property	(25,980,002	)	25,980,002		-		-		-
Opening balance currency valuation:	-		3,325,006		(113	)	728,012		4,052,905
Depreciation	-		-		(3,843	)	-		(3,843	)
Addition:	-		(686,607	)	3,373		19,683,755		19,000,521
September 30, 2011	-		28,618,401		5,744		22,055,011		50,679,156

- 13 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

5.	MINERAL PROPERTIES, PLANT AND EQUIPMENT(continued)
	Mineral Property - Copperstone
	The Corporation is engaged in exploring and developing the Copperstone gold property in La Paz County, Arizona, United States. The Corporation holds a 100% leasehold interest in the Copperstone Project. The landlord is The Patch Living Trust and the lease was for a 10 year term starting June 12, 1995 and was renewed for a further ten years on and from June 12, 2005. The lease is renewable for one or more ten-year terms at the Corporation’s option under the same terms and conditions. The Corporation is obligated to pay for all permitting and state lease bonding, insurance, taxes, and to pay a 1% production gross royalty with the royalty increasing to 6% if the price of gold is over US$551 per ounce. The Corporation pays a minimum advance royalty per year of US$30,000.
	During 2002, the Corporation entered into a mining services agreement with an Underground Mining Contractor (“Mining Contractor”) for purposes of the development and extension of an existing underground decline in the D-Zone to establish underground infrastructure for subsequent exploration and development programs. The Corporation is required to pay to the Mining Contractor $70,000 from initial proceeds from mineral extracted from the D-Zone of the Copperstone property and a Net Smelter royalty of 3% from the first 50,000 tonnes of mineralized material extracted from the D-Zone.
6.	EXPLORATION AND EVALUATION ASSETS
	All required property payments were made with respect to the Copperstone project as of September 30, 2011, and all claims are in good standing until August 2012.
	During the first quarter of 2011, the Copperstone project was reclassified as mineral property asset under development from exploration and evaluation assets as proven and probable reserves were determined and development was approved.
	(a)	Canadian Mineral Interests
	At September 30, 2010, the Corporation wrote down the carrying value of its Fenelon, Northway, Martiniere and Northshore properties by $4,014,729 due to anticipated sale of these mineral properties to Balmoral.
	During the quarter ended December 31, 2010, the Corporation disposed of these Canadian properties for $3.7 million and 4.5 million Balmoral common shares as consideration. The gross proceeds were $8,875,000. The total carrying value of all the Canadian properties was $8,915,036 resulting in a loss of $70,355 after considering other transaction related charges and certain asset retirement obligations being assumed by the buyer.
	(b)	Gold Bar
	The Gold Bar property is located in Eureka County, 50 kilometers northwest of Eureka, Nevada. Gold Bar is subject to a 2% net smelter royalty capped at US$1,000,000 on future production. All required payments have been made to hold the claims in good standing until August 2011. Northern Canadian Minerals Inc. holds a 5% interest in the Gold Bar property subject to certain dilution provisions.
	During the year ended December 31, 2008, the Corporation wrote-down the carrying amount of the Gold Bar property by $880,785 to $200,000 due to limited exploration activity in the last three years and based upon management’s current plans with respect to the property.

- 14 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

6.	EXPLORATION AND EVALUATION ASSETS(continued)
(b)	Gold Bar(continued)
	During the quarter ended December 31, 2010, the Corporation wrote off the carrying value of $200,000 as no exploration activity has occurred on this property in recent years.
	(c)	Iskut Joint Venture
	By agreement dated June 1, 1989 between Golden Band Resources Inc. (“Golden Band”), and Barrick Gold Corp., formerly Prime Resources Corp. (“Barrick”) and American Bonanza Gold Corp., formerly American Ore Ltd. (“American Bonanza”) formed a joint venture with mineral claims located next to the Snip mine in northern British Columbia.
	American Bonanza had written down its interest down to zero value in previous years.
	During the fiscal year, American Bonanza and Golden Band acquired Barrick’s Iskut Joint Venture interest. 47.5% to American Bonanza and 52.5% to Golden Band in return for acknowledging Barrick’s resignation as operator and discharged Barrick from all of its duties and obligations as the operator of the Iskut JV.
	In June 2011, the Corporation and its joint venture partner Golden Band signed a letter agreement to sell their JV interest to Skyline Gold Corporation. The general terms of the Skyline agreement require the payment of 5,000,000 common shares of Skyline and 2,500,000 warrants which are exercisable for a period of five years to be split proportionately between the Corporation (47.5%) and Golden Band (52.5%). One warrant can be converted into a common share of Skyline at a price of $0.50 per share.
	The Corporation has not recorded any value for the acquired interest nor has it recorded any gain on the sale of its interest in the Iskut Joint Venture since the sale is subject to negotiating the final terms of the agreement, meeting certain conditions specified in the letter agreement and receiving approval from the regulatory authorities.
	(d)	Other
	The Oatman property is located in Mohave County in Northwest Arizona and covers 600 hectares acquired through the staking of 67 unpatented mining claims in November 2003.
	The Belmont property is located in the Belmont Mining District of Nevada in Nye County, about 40 miles north of Tonopah, in the Walker Lane Mineral Belt. The Corporation acquired the property covering 200 hectares through the staking of 23 unpatented mining claims in February 2004.
	The Vulture Property is located in Maricopa County, central Arizona. The Corporation acquired the property covering 500 hectares through the staking of 61 claims in July 2004.
	During the year ended December 31, 2008, the Corporation wrote-off the carrying value of the Oatman, Belmont, Hassayampa and Vulture properties totalling $214,964 as no exploration activity has occurred on these properties in recent years. This write-down is required to comply with existing accounting guidelines.

- 15 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

7.	SHARE CAPITAL
	Authorized
	The Corporation is authorized to issue an unlimited number of common shares and an unlimited number of Class A Preferred Shares without par value. No Class A Preferred Shares have been issued.
	On June 16, 2010, the Corporation completed a non-brokered private placement of 1,594,500 flow-through common shares, at a price of $0.16 per common share for gross proceeds of $255,120. No commission was paid on the financing.
	On January 21, 2011, the Corporation closed a marketed public offering of units including those issued pursuant to the over-allotment option, which was exercised in full by Wellington West Capital Markets Inc. (the “Agent”) (the “Offering”). A total of 50 million units were sold, at a price of $0.35 per unit, for gross proceeds of $17.5 million. Each unit consists of one common share and one half of one warrant, with each whole warrant entitling the holder to purchase a further common share at a price of $0.45 per common share at any time until July 21, 2012. The warrants will not be listed for trading. The Corporation paid the Agent a cash commission equal to 6% of the gross proceeds of the Offering, and issued to the Agent warrants to purchase 2,963,700 common shares at a price of $0.38 per common share, exercisable until July 21, 2012. Share issue cost related to this financing totaled $1,720,978 including the fair value of Agent warrants estimated as $314,375 using the Black-Scholes pricing model using the following weighted average assumptions:

Risk free interest rate	1.72%
Expected dividend yield	-
Stock price volatility	69.8%
Expected life of options	1.5 year

Options

The Corporation grants incentive stock options as permitted pursuant to the Corporation’s Stock Option Plan (the “Plan”) approved by the shareholders. The Plan has been structured to comply with the rules of the Toronto Stock Exchange (“TSX”). The aggregate number of common shares which may be subject to option at any one time may not exceed 10% of the issued common shares of the Corporation as of that date – including options granted prior to the adoption of the Plan. All options may not be granted for a term exceeding 5 years, and the term will be reduced to one year following the date of death. If the Optionee ceases to be qualified to receive options from the Corporation those options shall immediately terminate.

As at September 30, 2011, the Corporation has stock options outstanding to acquire an aggregate of 18,005,000 common shares and are held by directors, officers, employees and consultants, exercisable at prices between $0.06 and $0.53 per share at varying times up until September 2, 2016.

- 16 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

7.	SHARE CAPITAL(continued)
	Options(continued)

	Number of			Weighted average
	Options			exercise price
Balance, December 31, 2008	4,335,000		$	0.14
Granted	7,325,000		$	0.08
Balance, December 31, 2009	11,660,000		$	0.10
Exercised	(1,100,000	)	$	0.12
Balance, December 31, 2010	10,560,000		$	0.10
Granted	100,000		$	0.19
Granted	6,895,000		$	0.39
Granted	100,000		$	0.385
Granted	350,000		$	0.365
Granted	4,830,000		$	0.53
Exercised	(400,000	)	$	0.39
Exercised	(750,000	)	$	0.22
Exercised	(1,000,000	)	$	0.07
Exercised	(1,070,000	)	$	0.06
Exercised	(1,610,000	)	$	0.085
Balance, September 30, 2011	18,005,000		$	0.328

The following table summarizes stock options outstanding and exercisable at September 30, 2011:

Number of
Options	Exercise Price	Expiry Date
1,150,000	$0.220	November 6, 2012
910,000	$0.070	August 6, 2013
1,460,000	$0.060	January 26, 2014
2,110,000	$0.085	March 19, 2014
500,000	$0.090	July 28, 2014
100,000	$0.190	March 25, 2015
6,495,000	$0.390	March 2, 2016
100,000	$0.385	May 5, 2016
350,000	$0.365	June 23, 2016
4,830,000	$0.530	September 2, 2016
18,005,000	$0.328

During the nine months ended September 30, 2011, under the fair value based method, $3,113,349 (2010 – $nil) in compensation expense was recorded for options granted to employees and charged to operations.

The fair value of stock options used to calculate compensation expense has been estimated using the Black-Scholes option pricing model using the following weighted average assumptions:

- 17 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

7.	SHARE CAPITAL(continued)
	Options(continued)

	2011	2010
Risk free interest rate	2.16%	-
Expected dividend yield	-	-
Stock price volatility	75.6%	-
Expected life of options	5.0	-

The risk free rate of return is the yield on a zero-coupon Canadian Treasury Bill of a term consistent with the assumed option life. The expected volatility is based on the Corporation’s historical prices. The expected average option term is the average expected period to exercise, based on the historical activity patterns for historical grants.

The weighted average fair value of options granted during the nine months ended September 30, 2011 was $0.28.

Warrants

At September 30, 2011, the Corporation had 32,404,141 outstanding common share purchase warrants.

			Weighted
	Number of		Average
	Warrants		Exercise Price
			$
Balance, December 31, 2008	4,281,220		0.30
Expired	(4,281,220	)	0.30
Balance, December 31, 2009	-		-
Granted	4,004,441		0.23
Balance, December 31, 2010	4,004,441		0.23
Granted	25,000,000		0.45
Granted	2,963,700		0.38
Granted	690,000		0.61
Exercised	(83,500	)	0.23
Exercised	(170,500	)	0.45
Balance, September 30, 2011	32,404,141		0.42

The following table summarizes the warrants outstanding and exercisable at September 30, 2011:

Number of
Warrants	Exercise Price	Expiry Date
1,666,858	$0.23	August 11, 2012
2,254,083	$0.23	August 24, 2012
24,829,500	$0.45	July 21, 2012
2,963,700	$0.38	July 21, 2012
690,000	$0.61	March 29, 2013
32,404,141

- 18 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

8. GENERAL AND ADMINISTRATIVE EXPENSES

	September 30, 2011		September 30, 2010
	Three Months	Nine	Three Months	Nine
		Months		Months
	$	$	$	$
Management fees, consulting and salaries	214,963	676,575	36,418	226,797
Office and administration	33,417	59,452	14,162	16,949
Legal and accounting	34,759	80,652	65,857	77,220
Insurance	15,415	35,070	9,659	31,470
Public company expenses	59,316	291,809	74,912	165,076
	357,870	1,143,558	201,008	517,512

9.	LEASE OBLIGATION
	The Corporation is committed under lease agreements for the office premises in Reno in the amount of US$26,900 per year.
	The Corporation’s lease obligation to The Patch Living Trust on the Copperstone mineral property is disclosed in note 5.
10.	RELATED PARTY TRANSACTIONS
	The Corporation’s related parties consist of companies which have certain directors in common as follows:

Related Party	Nature of Transactions
Nevada Copper Corp.	General administration and management fees
Mesa Exploration Corp.	General and administration

The Corporation recovered under cost-sharing arrangements the following expenditures from companies which have certain directors in common:

	September 30, 2011		September 30, 2010
	Three Months	Nine Months	Three Months	Nine Months
	$	$	$	$
Management and consulting fees	60,875	130,750	27,375	83,625
General and administration expenses	-	34,375	15,125	51,875
	60,875	165,125	42,500	135,500

As of September 30, 2011, a balance of $23,981 remained owing to these related parties.

- 19 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

11.	RECLAMATION AND RESTORATION
	The Corporation’s reclamation and restoration consist of reclamation and closure costs for the Copperstone project based on the present value of obligations estimated to incur in the next 7 years. Significant reclamation and closure activities were to include land rehabilitation, demolition of buildings and ongoing care and maintenance and other costs.
	The liability for reclamation and closure cost obligations was $1,528,793 as of September 30, 2011. This was the the present value of the estimated current Copperstone project disturbance obligation of $1,708,265 using a discount rate of 1.68%.
12.	FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL
	Fair values in the consolidated balance sheet:
	The carrying amounts reported in the consolidated balance sheet for short term financial assets and liabilities, which includes cash and cash equivalents, amounts receivable, accounts payable and accrued liabilities approximate fair values due to the immediate or short-term maturities of these financial instruments.
	The following is a classification of fair value measurements recognized in the consolidated balance sheet using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

	Fair value measurement at reporting date using:
		Quoted prices in
		active markets	Significant other	Significant
	September 30,	identical assets	observable	unobservable
	2011	(Level 1)	inputs (Level 2)	inputs (Level 3)
Assets
Cash and cash equivalents	11,894,005	11,894,005	-	-
Marketable securities	-	-	-	-

Level 1 –	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 –	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 –	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Cash and cash equivalents are classified as held for trading and therefore are recorded at fair value.

The carrying amounts of marketable securities are equal to fair value, which is based on active market obtained from the closing stock price.

- 20 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

12.	FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL(continued) Contractual Obligations
	The following table sets forth the Corporation’s known contractual obligations as at September 30, 2011:

		Payments due by period
		Less than			More than
	Total	1 year	2-3 years	4-5 years	5 years
Contractual Obligations	$	$	$	$	$
Mineral Property Interests – Filing Fees	931,000	186,000	621,000	30,000	94,000

Financial risk factors
The Corporation manages its exposure to financial risks, including foreign exchange risk and interest rate risk, based on a framework to protect itself against adverse rate movements. All transactions undertaken are to support the Corporation’s ongoing business and the Corporation does not acquire or issue derivative financial instruments for trading or speculative purposes. The Corporation’s Board of Directors oversees management’s risk management practices.
The Corporation’s activities are exposed to financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk.
a)	Market risks
	i)	Interest rate risk
		Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Cash and cash equivalents bear interest at market rates. Other current financial assets and liabilities are not exposed to interest rate risk because of their short-term nature or being non-interest bearing.
	ii)	Currency risk
		The Corporation is exposed to currency fluctuations in foreign currencies. The Corporation’s subsidiary is not currently exposed to currency fluctuation other than the US dollar, its functional currency. The Corporation holds balances in cash and cash equivalents, and accounts payable and accrued liabilities in foreign currencies (US dollars) and is therefore exposed to gains or losses on foreign exchange. The Corporation’s subsidiary is not currently exposed to currency other than the USD, its functional currency. Based on the balance in foreign currencies as at September 30, 2011, a variance in foreign currency exchange rate of 10% would have a slight impact on the Corporation’s financial statements.
		As of September 30, 2011, the Corporation held the following US$ financial instruments:

	US$
Cash and cash equivalents	951,139
Accounts payable	(3,860,244	)
	(2,909,105	)
Effect of 10% variation on US exchange:	(290,911	)

- 21 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

12.	FINANCIAL INSTRUMENTS AND MANAGEMENT OF CAPITAL(continued)
	b)	Credit risk
		Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Corporation to credit risk consist of cash and cash equivalents and amounts receivable. The Corporation has reduced its credit risk by investing its cash equivalents in guaranteed investment certificates with a Schedule 1 Canadian chartered bank. Also, as the majority of its receivables are with the governments of Quebec and Canada in the form of sales tax receivables and government’s incentives, credit risk is considered minimal.
	c)	Liquidity risk
		Liquidity risk is the risk that the Corporation will not be able to meet the obligations associated with its financial liabilities. As of September 30, 2011, the Corporation had enough funds available to meet its financial liabilities and future financial liabilities from its commitments in the expected positive cash flow generated from operation. The Corporation handles liquidity risk through the management of its capital structure.
	CAPITAL MANAGEMENT
	The Corporation’s objectives of capital management are intended to safeguard the entity's ability to support the Corporation’s exploration and development of its mineral properties and support any expansion plans.
	The capital of the Corporation consists of the items included in shareholders’ equity and debt obligations net of cash and cash equivalents. The Corporation manages the capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of the Corporation’s underlying assets.
	To effectively manage the entity’s capital requirements, the Corporation has in place a planning and budgeting process to help determine the funds required to ensure the Corporation has the appropriate liquidity to meet its objectives. The Corporation may issue new shares or seek debt financing to ensure that there is sufficient working capital to meet its short- term business requirements. The Corporation is not subject to externally imposed capital requirements.

- 22 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
	The Corporation adopted IFRS on January 1, 2011, with a transition date of January 1, 2010. Under IFRS 1First-time Adoption of International Financial Reporting Standards, IFRS is applied retrospectively at the transition date with all adjustments to assets and liabilities as stated under Canadian GAAP taken to retained earnings unless certain exemptions are applied. IFRS 1 provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.
	(a)	IFRS exemption options
	Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the conversion from Canadian GAAP to IFRS:
	Share-based payments
	IFRS 1 permits the application of IFRS 2,Share Based Payments, only to equity instruments granted after November 7, 2002 that had not vested by the date of transition to IFRS. The Corporation has applied this exemption and applied IFRS 2 for equity instruments granted after November 7, 2002 that had not vested by January 1, 2010.
	Business combinations
	The Corporation has elected to apply IFRS 3,Business Combinations, prospectively to business combinations that occur after the date of transition. The Corporation has elected this exemption under IFRS 1, which removes the requirement to retrospectively restate all business combinations prior to the date of transition to IFRS.
	Site restoration costs
	The Corporation has elected to apply the IFRS 1 exemption whereby it has measured the site restoration costs at January 1, 2010 in accordance with the requirements in IAS 37,Provisions, estimated the amount that would have been in property, plant and equipment when the liabilities first arose, and discounted the transition date liability to that date using the best estimate of the historical risk-free discount rate.
	Cumulative translation differences
	The Corporation has elected to apply the IFRS 1 exemption whereby cumulative translation differences included in accumulated other comprehensive income are reset to zero at the transition date.
	(b)	Reconciliations
	The adoption of IFRS has resulted in changes to the Corporation’s reported financial position and results of operations. The Corporation’s adoption of IFRS did not have an impact on the total operating, investing or financing cash flows. In order to allow the users of the financial statements to better understand these changes, the financial statements previously presented under Canadian GAAP have been reconciled to IFRS.

- 23 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
	(continued)
	The January 1, 2010, Canadian GAAP Consolidated Balance Sheets have been reconciled to IFRS as follows:

	Canadian GAAP		Adjustments		IFRS		Ref
	January 1, 2010				January 1, 2010
	$		$		$
ASSETS
Current assets	3,326,371		-		3,326,371
Reclamation bond	20,000		-		20,000
Exploration and evaluation assets	41,973,947		(4,158,504	)	37,815,443		(i), (ii)
Office Equipment, net	14,760		(258	)	14,502
	45,335,078		(4,158,762	)	41,176,316
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities	687,940		-		687,940
Asset retirement obligation	36,352		4,269		40,621		(i)
	724,292		4,269		728,561
SHAREHOLDERS' EQUITY
Share capital	59,977,063		673,556		60,650,619		(iii)
Other equity reserve	6,396,978		-		6,396,978
Accumulated Other Comprehensive Loss	(242,322	)	(43,031	)	(285,353	)	(iv)
							(ii), (iii),
Deficit	(21,520,933	)	(4,793,556	)	(26,314,489	)	(iv)
	44,610,786		(4,163,031	)	40,447,775
	45,335,078		(4,158,762	)	41,176,316

- 24 -

American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
	(continued)
	The Canadian GAAP consolidated statement of comprehensive (loss) income for the nine-month period ended September 30, 2010, has been reconciled to IFRS as follows:

	Canadian		IFRS
	GAAP		Adjustments		IFRS		Ref
	$		$		$
EXPENSES
General and administrative	517,512		-		517,512
Loss on disposal of marketable securities	1,205,004		-		1,205,004
Write down of exploration and evaluation assets	4,014,729		-		4,014,729
Exploration	157,394		-		157,394
Business development	128,025		-		128,025
Foreign exchange	7,976		-		7,976
Amortization	6,219		-		6,219
Interest and accretion of asset retirement obligation	1,431		-		1,431
Interest Income	(38	)	-		(38	)
NET LOSS	(6,038,252	)	-		(6,038,252	)
Income tax recovery (expense)	-		(63,850	)	(63,850	)	(iii)
LOSS FOR THE PERIOD	(6,038,252	)	(63,850	)	(6,102,102	)
Unrealized loss on available-for-sale marketable securities, net of tax	(903,307	)	-		(903,307	)
Re-class realise loss on marketable securities	1,188,660		-		1,188,660
Cumulative currency translation difference	-		(298,516	)	(298,516	)	(ii)
Other comprehensive income (loss)	285,353		(298,516	)	(13,163	)
LOSS PER COMMON SHARE	(0.05	)	-		(0.05	)
WEIGHTED AVERAGE NUMBER OF SHARES	120,302,552		-		120,302,552

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)(continued)
	The September 30, 2010, Canadian GAAP Consolidated Balance Sheets have been reconciled to IFRS as follows:

	Canadian GAAP		Adjustments		IFRS		Ref
	September 30,				September 30,
	2010				2010
	$		$		$
ASSETS
Current assets	1,155,391		-		1,155,391
Reclamation bond	20,000		-		20,000
Exploration and evaluation assets	39,164,753		(4,006,754	)	35,157,999		(i), (ii)
Plant and equipment, net	781,682		(5,078	)	776,604
	41,121,826		(4,011,832	)	37,109,994
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities	506,762		-		506,762
Asset retirement obligation	37,783		4,269		42,052		(i)
Deferred income tax liability	63,850		-		63,850
	608,395		4,269		612,664
SHAREHOLDERS' EQUITY
Share capital	61,632,607		737,406		62,370,013		(iii)
Other equity reserve	6,396,978		-		6,396,978
Accumulated Other Comprehensive Loss	43,031		(341,547	)	(298,516	)	(iv)
							(ii), (iii),
Deficit	(27,559,185	)	(4,411,960	)	(31,971,145	)	(iv)
	40,513,431		(4,016,101	)	36,497,330
	41,121,826		(4,011,832	)	37,109,994

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)(continued)
	The Canadian GAAP consolidated statement of operation and comprehensive income (loss) for the year ended December 31, 2010, has been reconciled to IFRS as follows:

	Canadian		IFRS
	GAAP		Adjustments		IFRS		Ref
	$		$		$
EXPENSES
General and administrative	688,587		-		688,587
Stock-based compensation	-		-		-
Exploration	283,594		-		283,594
Business development	257,916		-		257,916
Foreign exchange	13,749		-		13,749
Amortization	8,110		-		8,110
Interest and accretion of asset retirement obligation	1,431		-		1,431
Write-down of exploration and evaluation assets	4,214,729		(489,908	)	3,724,821		(ii)
Loss on exploration and evaluation asset disposal	70,355		-		70,355
Loss (gain) on sale of marketable securities	1,205,004		-		1,205,004
Interest income	(79	)	-		(79	)
NET LOSS	(6,743,396	)	489,908		(6,253,488	)
Income tax recovery (expense)	153,310		(63,850	)	89,460		(iii)
LOSS FOR THE YEAR	(6,590,086	)	426,058		(6,164,028	)
Unrealized loss on available-for-sale marketable securities, net of tax	(379,111	)	-		(379,111	)
Re-class realise loss on marketable securities	1,205,004		-		1,205,004
Cumulative translation difference	-		(1,020,053	)	(1,020,053	)	(ii)
							��
OTHER COMPREHENSIVE INCOME (LOSS)	825,893		(1,020,053	)	(194,160	)
LOSS PER COMMON SHARE	(0.05	)	-		(0.05	)
WEIGHTED AVERAGE NUMBER OF SHARES	122,765,013		-		122,765,013

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)(continued)
	The December 31, 2010, Canadian GAAP Consolidated Balance Sheets have been reconciled to IFRS as follows:

	Canadian GAAP		Adjustments		IFRS		Ref
	December 31,				December 31,
	2010				2010
	$		$		$
ASSETS
Current assets	9,058,850		-		9,058,850
Deferred share issue costs	181,726		-		181,726
Reclamation bond	20,000		-		20,000
Exploration and evaluation assets	30,627,219		(4,647,217	)	25,980,002		(i), (ii)
Plant and equipment	1,695,530		(45,959	)	1,649,571
	41,583,325		(4,693,176	)	36,890,149
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities	1,079,376		-		1,079,376
SHAREHOLDERS' EQUITY
Share capital	61,711,669		737,406		62,449,075		(iii)
Other equity reserve	6,319,728		-		6,319,728
Accumulated other comprehensive income (loss)	583,571		(1,063,084	)	(479,513	)	(iv)
							(ii), (iii),
Deficit	(28,111,019	)	(4,367,498	)	(32,478,517	)	(iv)
	40,503,949		(4,693,176	)	35,810,773
	41,583,325		(4,693,176	)	36,890,149

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American Bonanza Gold Corp.

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(In Canadian Dollars)

Nine months ended September 30, 2011 (Unaudited – Prepared by Management)

13.	FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)(continued)
	Notes to the IFRS reconciliations:
	i)	Asset retirement obligation
	On transition to IFRS, the Corporation had an asset retirement obligation consisting of reclamation and closure costs for the Fenelon project based on the present value of obligations estimated to incur in the next eight years. The measurement of the obligation under Canadian GAAP at January 1, 2010, was $36,352, and was determined by applying to the nominal estimate of the obligation a discount rate of 5.25%, which was the risk-free interest rate for the term matching the expected time to expenditure. Under IFRS, the measurement of the obligation must be adjusted at each year-end for changes in the discount rate; such adjustments are not required under Canadian GAAP. Applying the risk-free interest rate of 2.74% at January 1, 2010 to the nominal estimate of the obligation, the present value measurement of the obligation was determined to be $40,621.
	ii)	Functional currency change
	On transition to IFRS, there is a change in functional currency from Canadian dollar to the United States dollar for Bonanza Explorations Inc., the Corporation’s subsidiary. This results in adjustment to the carrying value of the subsidiary’s non-monetary assets as of the transition date. As the Corporation has elected to apply the IFRS 1 exemption for cumulative translation differences, the opening journal to adjust the carrying value of the subsidiary’s non-monetary assets is recorded to Deficit. Subsequent adjustments for the non-monetary assets are charged to cumulative translation adjustment (included in other comprehensive income).
	iii)	Flow-through shares
	Under IFRS, there is no specific guidance regarding flow-through shares. Therefore, under the IFRS framework, the increase to share capital when flow-through shares are issued is measured based on the current market price of common shares. The incremental proceeds, or "premium", is recorded as an obligation to provide future tax deductions, similar to deferred revenue. When expenditures are incurred and when future renunciation of these expenditures is probable, a deferred tax liability and expense is recognized and the related provision is reversed to deferred tax expense. On transition to IFRS, the Corporation booked an adjustment to decrease the carrying amount of share capital originally recognised under Canadian GAAP to reflect the application of IFRS guidance to all flow-through share issuances made by the Corporation prior to the transition date net of any effect for the premium is recognized under IFRS.
	iv)	Cumulative translation differences
	In 2007, the Corporation recorded a foreign currency translation gain of $43,031 in accumulated other comprehensive income. The translation gain has been retained in accumulated other comprehensive income since it was originally recognized. As the Corporation has elected to apply the IFRS 1 exemption for cumulative translation differences, the Corporation recorded an adjusting entry to reset cumulative translation differences to zero at the transition date.
14.	SUBSEQUENT EVENTS
	Subsequent to September 30, 2011, the Corporation closed the over-allotment option to acquire an additional 1,725,000 common shares at a price of $0.53 per Optioned Share for gross proceeds of $914,250. This over-allotment was related to its previously completed public offering in which the Corporation sold an aggregate of 11,500,000 common shares.
	Subsequent to September 30, 2011, 33,333 share purchase warrants were exercised at $0.23 per warrant.

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