Exhibit 99.4
 | KPMG LLP | |
| Chartered Accountants | ||
| Suite 1500 Purdy's Wharf Tower I | ||
| 1959 Upper Water Street | Telephone (902) 492-6000 | |
| Halifax NS B3J 3N2 | Telefax (902) 429-1307 | |
| Canada | www.kpmg.ca |
AUDITORS' REPORT ON RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
To the Board of Directors and Shareholders of Gammon Gold Inc.
On March 29, 2010, except as to note 2 which is as of May 13, 2010, we reported on the consolidated balance sheets of Gammon Gold Inc. ("the Company") as at December 31, 2009 and 2008 and the consolidated statements of operations and comprehensive income, cash flows and shareholders' equity for each of the years in the two year period ended December 31, 2009, which are included in the annual report on Form 40-F/A. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related supplemental note entitled "Restated Reconciliation with United States Generally Accepted Accounting Principles" included in the Form 40-F/A. This supplemental note is the responsibility of the Company's management. Our responsibility is to express an opinion on this supplemental note based on our audits. In our opinion, such supplemental note, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
As discussed in note 2 to the consolidated financial statements, the December 31, 2009 consolidated financial statements have been restated.
/s/ KPMG LLP
Chartered Accountants
Halifax, Canada
March 29, 2010, except as to note 2 to the consolidated financial statements, which is as of May 13, 2010
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (:KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP
RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
The following represents additional information to the restated consolidated financial statements of Gammon Gold Inc. (“the Company”) that were prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). Details of the restatement are provided in note 2 to the December 31, 2009 restated consolidated financial statements. Set out below are the material adjustments to net earnings / (loss) for the years ending December 31, 2009 and 2008, and to shareholders' equity at December 31, 2009, and December 31, 2008 in order to conform to accounting principles generally accepted in the United States of America (“US GAAP”). On July 1, 2009 the Financial Accounting Standards Board (FASB) launched the Accounting Standards Codification (“ASC”) as the sole source of authoritative non-governmental US GAAP, superseding all non-SEC accounting and reporting standards. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Company has updated references to US GAAP to reflect the reorganization to ASC.
| Consolidated Statements of Operations and Comprehensive (Loss) / Income: | ||||||
| Year ended | Year ended | |||||
| December 31, 2009 | December 31, 2008 | |||||
| (as restated) | (as restated) | |||||
| Net earnings based on Canadian GAAP | $ | 8,205 | $ | 38,652 | ||
| Exploration costs, net of depletion (Note 1(a)) | (11,801 | ) | (8,196 | ) | ||
| Stripping costs, net of depletion (Note 1(b)) | (7,817 | ) | (4,562 | ) | ||
| Depletion of mining properties (Note 1(c)) | (5,373 | ) | (4,574 | ) | ||
| Net realizable value adjustments (Note 1(f)) | (170 | ) | 1,578 | |||
| Future income taxes on US GAAP differences | 7,221 | 4,411 | ||||
| Net (loss) / earnings based on US GAAP | (9,735 | ) | 27,309 | |||
| Amortization of actuarial gains from AOCI to net loss, net of tax of $6 (2008 - $42) (Note 1(e)) | 14 | (108 | ) | |||
| Change in funded status of employee benefit plans, net of tax of $343 (2008 - $8) (Note 1(e)) | (849 | ) | (21 | ) | ||
| Comprehensive (loss) / income based on US GAAP | $ | (10,570 | ) | $ | 27,180 | |
| (Loss) / earnings per share | ||||||
| Basic | $ | (0.08 | ) | $ | 0.23 | |
| Diluted | $ | (0.08 | ) | $ | 0.23 | |
Consolidated Statements of Shareholders' Equity:
| Deficit: | ||||||
| Year ended | Year ended | |||||
| December 31, 2009 | December 31, 2008 | |||||
| (as restated) | (as restated) | |||||
| Deficit based on Canadian GAAP | $ | (104,686 | ) | $ | (112,891 | ) |
| Change in deficit due to reporting currency translation | 7,623 | 7,623 | ||||
| Exploration costs, net of depletion (Note 1(a)) | (70,812 | ) | (59,011 | ) | ||
| Amortization of mineral rights (Note 1(a)) | (10,941 | ) | (10,941 | ) | ||
| Stripping costs, net of depletion (Note 1(b)) | (12,379 | ) | (4,562 | ) | ||
| Depletion of mining properties (Note 1(c)) | (9,947 | ) | (4,574 | ) | ||
| Interest expense on long-term debt adjusted to fair value (Note 1(d)) | (2,379 | ) | (2,379 | ) | ||
| Foreign exchange gain on fair value adjusted long-term debt (Note 2(d)) | (808 | ) | (808 | ) | ||
| Net realizable value adjustment reversals (Note 1(f)) | (170 | ) | - | |||
| Future income tax adjustments | 21,103 | 13,882 | ||||
| Deficit based on US GAAP | $ | (183,396 | ) | $ | (173,661 | ) |
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RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
| Accumulated other comprehensive income: | ||||||
| December 31, 2009 | December 31, 2008 | |||||
| AOCI based on Canadian GAAP | $ | 6,434 | $ | 6,434 | ||
| Change in AOCI due to reporting currency translation | (7,623 | ) | (7,623 | ) | ||
| Change in funded status of employee benefit plans, net of tax of $540 (2008 - $197) (Note 1(e)) | (1,356 | ) | (507 | ) | ||
| Amortization of actuarial gains from AOCI to net loss, net of tax of $34 (2008 - $28) (Note 1(e)) | 85 | 71 | ||||
| AOCI based on US GAAP | $ | (2,460 | ) | $ | (1,625 | ) |
Consolidated Balance Sheets:
The following material balance sheet differences exist between Canadian and US GAAP:
| Inventory: | ||||||
| December 31, 2009 | December 31, 2008 | |||||
| Reported under Canadian GAAP | $ | 71,682 | $ | 60,128 | ||
| Exploration costs (Note 1(a)) | (1,566 | ) | (157 | ) | ||
| Stripping costs (Note 1(b)) | 9,808 | 152 | ||||
| Depletion of mining interests (Note 1(c)) | 1,639 | 441 | ||||
| Net realizable value adjustment reversals (Note 1(f)) | (170 | ) | - | |||
| Reported under US GAAP | $ | 81,393 | $ | 60,564 | ||
| Mineral properties: | ||||||
| December 31, 2009 | December 31, 2008 | |||||
| Reported under Canadian GAAP | $ | 434,509 | $ | 396,019 | ||
| Exploration costs, net of depletion (Note 1(a)) | (69,246 | ) | (58,854 | ) | ||
| Stripping costs, net of depletion (Note 1(b)) | (22,187 | ) | (4,713 | ) | ||
| Amortization of mineral rights (Note 1(a)) | (10,941 | ) | (10,941 | ) | ||
| Depletion of mining interests (Note 1(c)) | (11,586 | ) | (5,014 | ) | ||
| Adjustment for mineral property purchase at fair value (Note 1(d)) | (3,187 | ) | (3,187 | ) | ||
| Reported under US GAAP | $ | 317,362 | $ | 313,310 | ||
| Future income tax liability: | ||||||
| December 31, 2009 | December 31, 2008 | |||||
| (as restated) | (as restated) | |||||
| Reported under Canadian GAAP | $ | 80,566 | $ | 69,654 | ||
| Future income tax adjustments | (21,609 | ) | (14,051 | ) | ||
| Reported under US GAAP | $ | 58,957 | $ | 55,603 |
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RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
| Employee future benefits: | ||||||
| December 31, 2009 | December 31, 2008 | |||||
| Reported under Canadian GAAP | $ | 1,635 | $ | 1,659 | ||
| Funded status of employee benefit plans (Note 1(e)) | 1,777 | 605 | ||||
| Reported under US GAAP | $ | 3,412 | $ | 2,264 |
Consolidated Statements of Cash Flows:
As a result of the treatment of mining interests and stripping costs under Notes 1 (a) and (b) below, cash expended for exploration and stripping costs would be classified as operating rather than investing, resulting in the following totals under US GAAP:
| Year ended | Year ended | |||||
| December 31, 2009 | December 31, 2008 | |||||
| Cash from operations | $ | 44,904 | $ | 38,057 | ||
| Cash used in investing | $ | (44,148 | ) | $ | (48,500 | ) |
Notes to the Reconciliation with United States Generally Accepted Accounting Principles
Note 1 – Adjustments from Canadian generally accepted accounting principles
(a) Mining interests and related deferred costs
In March 2002, the Emerging Issues Committee of the CICA issued EIC 126 –Accounting by Mining Enterprises for Exploration Costs which affects mining companies with respect to the deferral of exploration costs. EIC 126 refers to CICA Handbook Section 3061,Property, Plant and Equipment, paragraph .21 which states that for a mining property, the cost of the asset includes exploration costs if the enterprise considers that such costs have the characteristics of property, plant and equipment.
Under Canadian GAAP, the Company considers that exploration costs have the characteristics of property, plant and equipment and, accordingly, defers such costs.
Under United States GAAP, exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Commercial feasibility is established in compliance with the US Securities and Exchange Commission Industry Guide 7, and consists of identifying that part of a mineral deposit that can be economically and legally extracted or produced at the time of the reserve determination. After an area of interest has been assessed as commercially feasible, expenditures specific to the area of interest for further development are capitalized.
(b) Stripping costs
In March 2006, the Emerging Issues Committee of the CICA issued EIC 160 –Stripping Costs Incurred in the Production of a Mining Operation,which addresses the treatment of stripping costs under Canadian GAAP. EIC 160 indicates that stripping costs should be accounted for according to the benefit received by the entity. Generally, stripping costs should be accounted for as variable production costs that should be included in the costs of the inventory produced (that is, extracted) during the period that the stripping costs are incurred. However, stripping costs should be capitalized if the stripping activity can be shown to represent a betterment to the mineral property. A betterment occurs when the stripping activity provides access to sources of reserves that will be produced in future periods that would not have otherwise been accessible in the absence of this activity.
Under Canadian GAAP, stripping costs are capitalized when access is gained to sources of reserves that will be produced in future periods, that would otherwise not have been accessible.
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RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
EITF 04-6,Accounting for Stripping Costs Incurred during Production in the Mining Industry, addresses the treatment of stripping costs under US GAAP. EITF 04-6, now known as ASC subtopic 930-330, indicates that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of inventory produced during the period that the stripping costs are incurred. In November 2007, a mining industry position paper was issued that concluded that it was the intent of ASC subtopic 930-330 that pre-production stripping costs incurred to develop each pit within a mining complex to access a single or multiple ore bodies should generally be capitalized and separately amortized if certain operational, geological and other factors specific to the mining complex are met. As a result of this guidance, for United States GAAP, the Company has capitalized stripping costs relating to one pit for which there are no future plans to combine the pit with other pits that are currently in production. All other stripping costs have been included in the costs of inventory produced.
(c) Depletion of mining interests
Effective April 1, 2008, the Company changed its estimate, for Canadian GAAP purposes, of the useful lives of its mines to be based on proven and probable reserves of the mine and the portion of mineralization expected to be classified as reserves. Previously, the Company estimated the useful life based on proven and probable reserves to be mined. There is limited guidance under Canadian GAAP regarding the depletion of mineral interests, however Section 3061,Property, Plant & Equipment, definesmining properties as “items of property, plant and equipment represented by the capitalized costs of acquired mineral rights and the costs associated with exploration for and development of mineral reserves”. Therefore, mining properties are consideredproperty, plant & equipment under Canadian GAAP. With respect to amortization of property, plant and equipment, Section 3061 indicates that “amortization should be recognized in a rational and systematic manner appropriate to the nature of an item of property, plant and equipment with a limited life and its use by the enterprise”.The Companydetermined that the useful life of its mines is better represented by also including a portion of mineralization expected to be classified as reserves, as opposed to only proven and probable reserves.
The United States Securities and Exchange Commission indicated inIndustry Guide 7 that disclosure of reserve information is limited to proven and probable reserves. Consequently, in December 1996 the American Institute of Certified Public Accountants' International Practices Task Force indicated that because disclosure of possible reserves is prohibited by SEC rules, under US GAAP, the base used for the depletion calculation also cannot include these amounts.
(d) Fair value of long-term debt
In consideration for the Soyopa claims acquired in November, 2001, the Company entered into a non-interest bearing loan agreement. Commencing in 2006, the loan was presented at its fair value under Canadian GAAP. Under US GAAP, interest must be imputed on this loan in accordance with ASC topic 470,Debt. The reduction in the principal amount of the loan as a result of imputing a market rate of interest also reduced the carrying values of the Company's mineral properties accordingly.
During the periods subsequent to November 2001, the interest imputed on the loan was recorded as a period expense for US GAAP. For Canadian GAAP, the imputed interest was added to the cost of the mineral properties.
(e) Employee future benefits
The Company follows FAS No. 158,Employer's Accounting for Defined Benefit Pension and Other Postretirement Plans, which requires the recognition of the funding status of a benefit plan in the Company's financial statements. FAS No. 158, now known as ASC topic 715, also requires that the plan assets and benefit obligations be measured as of the date of the Company's fiscal year-end. Under ASC topic 715, the Company is required to recognize unamortized actuarial gains and losses, prior service cost and remaining transitional amounts not recognized under Canadian GAAP, and to recognize changes in the funded status, through other comprehensive income, in the year in which the changes occur.
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RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
(f) Inventory net realizable value adjustments
On January 1, 2008, the Company adopted CICA Section 3031,Inventories, which requires that previous write-downs of inventories be reversed when there is a subsequent increase in the net realizable value of the inventories. On January 1, 2008, the Company recognized a net realizable value adjustment reversal of $1,578 relating to inventories that had been written down in 2007.
ASC topic 330,Inventory, addresses the accounting for net realizable value adjustments for US GAAP and indicates that when inventories have been written down below cost at the close of a fiscal year, such reduced amount is to be considered the cost for subsequent accounting purposes, and therefore no future reversal of the write-down is permitted. ASC topic 270,Interim Reporting, however, indicates that recoveries of inventory losses from market declines in later interim periods of the same fiscal year should be recognized as a reversal of the original write-down.
The net realizable value adjustment reversal recognized on January 1, 2008 is not permitted under US GAAP. The higher value inventories under Canadian GAAP would have been expensed to production costs during the year. Therefore, the impact of this difference under US GAAP is to increase net earnings for the year ended December 31, 2008 by $1,578. This difference has no impact on the December 31, 2008 inventory balance. During 2009, the Company recognized a net realizable value adjustment reversal of $295 in the first quarter of the year. At December 31, 2009, $170 of this reversal remained within inventory under Canadian GAAP, with the remainder expensed to production cost during the year. This amount has been adjusted under US GAAP, which decreases earnings and inventory by $170 for the year ended December 31, 2009.
Note 2 – Stock options (in Canadian dollars)
The intrinsic value of options exercised during 2009 is $9,370 (2008 - $17,914). As at December 31, 2009 and 2008, the aggregate intrinsic value of options outstanding is $17,354 and $4,412 respectively, while the aggregate intrinsic value of the options currently exercisable is $11,491 and $4,286, respectively. In 2009 and 2008, the 1,067,750 and 277,095 options that vested had a fair value of $5,825 and $1,396, respectively.
The weighted average remaining contractual life for options exercisable as at December 31, 2009 and 2008 is 1.91 years and 1.12 years respectively.
As at December 31, 2009 there was $3,491 (2008 - $5,977) in unrecognized compensation cost related to options which have not yet vested. This expense is expected to be recognized over a weighted average period of 2.53 years (2008 - 3.3 years).
The tax benefit realized from stock options exercised during the year was $Nil.
Note 3 – Employee future benefits
The funded status of the Company's plans as at December 31, 2009 and 2008 is ($3,412) and ($2,264) respectively.
Amounts recorded in accumulated other comprehensive income as at December 31, 2009 and 2008 are as follows:
| December 31, 2009 | December 31, 2008 | |||||
| Net loss, net of tax of $385 (2008 - $49) | $ | 961 | $ | 127 | ||
| Prior service cost, net of tax of $121 (2008 - $120) | 310 | 309 |
The amount recognized in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost during the year ended December 31, 2010 is $22.
The Company used a discount rate of 9.00% (2008 – 8.04%) when calculating is employee future benefit obligation. This rate was determined by matching the cash flows underlying the employee future benefit obligation with the returns available on Mexican Government bonds over similar durations.
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RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
The estimated future post-retirement benefits payments are as follows:
| 2010 | $ | 87,192 | |
| 2011 | $ | 85,187 | |
| 2012 | $ | 107,619 | |
| 2013 | $ | 141,262 | |
| 2014 | $ | 173,271 | |
| 2015 – 2020 | $ | 1,282,627 | |
Note 4 – Income taxes
The income tax effects of differences between the accounting value and the tax value of assets and liabilities are as follows:
| December 31, 2009 | December 31, 2008 | |||||
| (as restated) | (as restated) | |||||
| Deferred tax liabilities | ||||||
| Accounting value of mineral properties in excess of tax value | $ | 62,042 | $ | 63,689 | ||
| Accounting value of inventories in excess of tax value | 18,151 | 11,433 | ||||
| Unrealized foreign exchange gains | - | 1,938 | ||||
| 80,193 | 77,060 | |||||
| Deferred tax assets | ||||||
| Deductible share issue costs | 2,865 | 1,871 | ||||
| Employee future benefits | 964 | 605 | ||||
| Unrealized foreign exchange losses | 2,608 | - | ||||
| Other | 2,796 | 2,146 | ||||
| Non-capital losses carried forward | 58,253 | 64,251 | ||||
| 67,486 | 68,873 | |||||
| Valuation allowance | (46,250 | ) | (47,416 | ) | ||
| 21,236 | 21,457 | |||||
| Net deferred tax liabilities | $ | 58,957 | $ | 55,603 |
The Company follows FASB Interpretation (“FIN”) 48,Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FAS No. 109,Accounting for Income Taxes.FIN 48 is now included within ASC topic 740Income Taxes.This topic prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on accounting and disclosure based on whether it is more likely than not that an uncertain tax position will be sustained on review by taxation authorities. The Company did not have any unrecognized tax benefits at December 31, 2009, and no adjustments were recognized for uncertain tax benefits during the year.
The Company recognizes interest and penalties related to income taxes in interest expense.
The Company and its subsidiaries are subject income tax in Canada, the United States, and Mexico. In Canada, years ranging from 2005 through 2009, as applicable, are subject to examination by the taxing authorities in the respective jurisdictions where returns are filed. In the United States, years ranging from 2006 through 2009 are subject to examination by taxing authorities. All years are subject to examination by the taxing authorities in Mexico.
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RESTATED RECONCILIATION WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
DECEMBER 31, 2009
(in thousands of United States Dollars except per share data, unless otherwise noted)
The Company earns income and is subject to tax in the following jurisdictions:
| Year ended | Year ended | |||||
| December 31, 2009 | December 31, 2008 | |||||
| (as restated) | (as restated) | |||||
| Provision / (recovery) for income taxes: | ||||||
| Current | ||||||
| Canada | $ | - | $ | - | ||
| Foreign | 5,041 | 1,044 | ||||
| Future | ||||||
| Canada | - | - | ||||
| Foreign | (610 | ) | (14,706 | ) | ||
| Geographic components of (loss) / earnings before income taxes: | ||||||
| Canada | $ | (4,982 | ) | $ | (34,007 | ) |
| Foreign | (321 | ) | 47,212 | |||
| $ | (5,303 | ) | $ | 13,205 | ||
Note 5 – Receivables
| Year ended | Year ended | |||||
| December 31, 2009 | December 31, 2008 | |||||
| Trade | $ | 281 | $ | 2,254 | ||
| Other | 1,693 | 2,678 | ||||
| $ | 1,974 | $ | 4,932 | |||
| Note 6 – Accounts payable and accruals | ||||||
| Year ended | Year ended | |||||
| December 31, 2009 | December 31, 2008 | |||||
| Trade payables | $ | 22,224 | $ | 17,120 | ||
| Accruals | 7,328 | 5,745 | ||||
| Taxes payable | 422 | - | ||||
| Accrued payroll | 5,049 | 7,221 | ||||
| Other | 1,996 | 371 | ||||
| $ | 37,019 | $ | 30,457 | |||
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