**Exhibit 1**

**QUEENSTAKE RESOURCES LTD.**

**999 18****th**** Street, Suite 2940**

**Denver, Colorado, USA 80202**

**(303) 297-1557**

**March 29,2007**

** **

** **

 

**RENEWAL ANNUAL INFORMATION FORM**

**For**

** **

**the financial year ended December31, 2006**

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**TABLE OF CONTENTS**
| PRELIMINARY NOTES                                                             |   | 3      |
|-------------------------------------------------------------------------------|--------|--------|
| Incorporation of  Financial Statements and Management Discussion and Analysis |   | 3      |
| Date of  Information                                                          |   | 3      |
| Currency and  Exchange Rates                                                  |   | 3      |
| Metric  Equivalents                                                           |   | 3      |
| Forward-Looking  Statements                                                   |   | 4      |
|                                                                          |   |   |
| GLOSSARY OF TERMS                                                             |   | 6      |
|                                                                          |   |   |
| CORPORATE STRUCTURE                                                           |   | 9      |
| Name and  Incorporation                                                       |   | 9      |
| Intercorporate  Relationships                                                 |   | 9      |
|                                                                          |   |   |
| GENERAL DEVELOPMENT OF THE BUSINESS                                           |   | 10     |
| Three-Year  History                                                           |   | 10     |
| Acquisitions and  Dispositions                                                |   | 12     |
|                                                                          |   |   |
| NARRATIVE DESCRIPTION OF THE BUSINESS                                         |   | 14     |
| General                                                                       |   | 14     |
| Principal  Operating Property — Jerritt Canyon Mine                      |   | 16     |
|                                                                          |   |   |
| RISK FACTORS                                                                  |   | 30     |
|                                                                          |   |   |
| CAPITAL STRUCTURE                                                             |   | 36     |
|                                                                          |   |   |
| MARKET FOR SECURITIES                                                         |   | 36     |
|                                                                          |   |   |
| DIRECTORS AND OFFICERS                                                        |   | 37     |
| Name, Address,  Occupation and Security Holding                               |   | 37     |
| Corporate Cease  Trade Orders and Bankruptcies                                |   | 39     |
| Conflicts of Interest                                                         |   | 40     |
|                                                                          |   |   |
| LEGAL PROCEEDINGS                                                             |   | 42     |
|                                                                          |   |   |
| INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL  TRANSACTIONS                   |   | 42     |
|                                                                          |   |   |
| TRANSFER AGENT AND REGISTRAR                                                  |   | 42     |
|                                                                          |   |   |
| MATERIAL CONTRACTS                                                            |   | 42     |
|                                                                          |   |   |
| INTEREST OF EXPERTS                                                           |   | 43     |
|                                                                          |   |   |
| ADDITIONAL INFORMATION                                                        |   | 43     |

 

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# PRELIMINARY NOTES

***Incorporation ofFinancial Statements and Management Discussion and Analysis***

Incorporated by reference intothis Renewal Annual Information Form (“AIF”) are the consolidated financialstatements of the Company for the year ended December 31, 2006, and the accompanyingmanagement’s discussion and analysis (“MD&A”) with respect to suchyear.  All financial information in thisAIF has been prepared in accordance with generally accepted accountingprinciples (“GAAP”) in Canada.  Copies ofall materials incorporated by reference herein may be obtained from SEDAR,under the Company’s name, at www.sedar.com.

***Date of Information***

All information contained inthis AIF is as of March 29, 2007, unless otherwise stated.

***Currency andExchange Rates***

Effective December 31, 2003,the Company changed its reporting currency from Canadian dollars to U.S.dollars.  Accordingly, dollar amounts inthis AIF are expressed in U.S. dollars unless otherwise indicated.  “Cdn” is used to indicate Canadian dollarvalues.

The following table sets forththe rate of exchange for the Canadian dollar, expressed in U.S. dollars ineffect at the end of the periods indicated, the average of exchange rates ineffect on the last day of each month during such periods, and the high and lowexchange rates during such periods based on the noon rate of exchange asreported by the Bank of Canada for conversion of Canadian dollars into U.S.dollars.

|                                                          | ** ** | **Year Ended December 31** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|
| **Canadian Dollars to U.S. Dollars** | ** ** | **2006**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| Rate at end of period                                    |       | $                                         | 0.85810    |   | $ | 0.85800 |   | $ | 0.83030 |   |
|                                                     |       |                                      |       |   |   |   |   |
| Average rate for period                                  |       | $                                         | 0.88495    |   | $ | 0.82622 |   | $ | 0.77014 |   |
|                                                     |       |                                      |       |   |   |   |   |
| High for period                                          |       | $                                         | 0.90990    |   | $ | 0.87480 |   | $ | 0.85320 |   |
|                                                     |       |                                      |       |   |   |   |   |
| Low for period                                           |       | $                                         | 0.85280    |   | $ | 0.78510 |   | $ | 0.71380 |   |

 

The noon rate of exchangeon March 29, 2007 as reported by the Bank of Canada for the conversion ofCanadian dollars into U.S. dollars was Canadian $1.00 equals U.S. $0.8637.

***Metric Equivalents***

For ease of reference, thefollowing factors for converting Imperial measurements into metric equivalentsare provided:

| To convert from Imperial | ** ** | **To metric** | ** ** | **Multiply by** |
|--------------------------|------------|---------------|------------|-----------------|
| Acres                    |       | Hectares      |       | 0.404686        |
|                     |       |          |       |            |
| Feet                     |       | Metres        |       | 0.30480         |
|                     |       |          |       |            |
| Miles                    |       | Kilometres    |       | 1.609344        |
|                     |       |          |       |            |
| Tons                     |       | Tonnes        |       | 0.907185        |
|                     |       |          |       |            |
| Ounces (troy)/ton        |       | Grams/Tonne   |       | 34.2857         |

 

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**Cautionary Statement**

**Forward-Looking Statements:**

Thisdocument contains “forward-looking statements” within the meaning of Section21E of the Securities Exchange Act of the United States.  Forward-looking statements include, but arenot limited to, statements with respect to anticipated commencement dates ofmining or metal production operations, projected quantities of future metalproduction, anticipated production rates and mine life, operating efficiencies,costs and expenditures and conversion of mineral resources to reserves.  In certain cases, forward-looking statementscan be identified by the use of words such as “could”, “expect”, “believe”, “will”,“estimate”, “anticipate”, “project” and similar expressions and statementsrelating to matters that are not historical facts.  Forward-looking statements include, withoutlimitation, (i) estimates and projections of future gold production and cashoperating costs, (ii) estimates of savings, cost reductions and mill refurbishmentand maintenance costs, (iii) estimates related to financial performance,including cash flow, capital expenditures, exploration and administrativecosts, (iv) estimates and projections of mineral reserves and resources, (v)estimates and opinions regarding geologic and mineralization interpretation,(vi) estimates of exploration investment, scope of exploration programs andtiming of project advancement, commencement of production and availability ofdrills and other equipment, (vii) estimates of reclamation and closure costs,and (viii) statements relating to the proposed combination of the Company andYGC Resources Ltd.  Forward-lookingstatements are subject to risks, uncertainties and other factors, includinggold and other commodity price volatility, political and operational risks,mine development, production and cost estimate risks, risks relating to theproposed combination of the Company and YGC Resources Ltd. and otherrisks, including those described under the heading “Risk Factors” in theRenewal Annual Information Form and in the Management’s Discussion andAnalysis, included herein as Exhibits 1 and 3, respectively, which may causethe actual results, performance or achievements of the Company to be materiallydifferent from any future results, performance or achievements expressed orimplied by such forward-looking statements. Although the Company has attempted to identify important factors thatcould cause actual actions, events or results to differ materially from thosedescribed in forward-looking statements, there may be other factors that causeactions, events or results not to be as anticipated, estimated orintended.  There can be no assurance thatforward-looking statements will prove to be accurate, as actual results andfuture events could differ materially from those anticipated in suchstatements.  Important factors that couldcause actual results to differ materially from Queenstake’s expectations aredisclosed in Queenstake documents filed from time to time with Canadian Regulatoryauthorities on SEDAR, the U.S. Securities and Exchange Commission (SEC) andother regulatory authorities. Accordingly, readers should not place undue reliance on forward-lookingstatements.  The Company undertakes noobligation to publicly update or revise any forward-looking statements, whetheras a result of new information, future events or otherwise.

**Cautionary Notes to U.S.Investors Concerning Reserve and Resource Estimates:**

***Provenand Probable Reserves*.** The estimates of proven and probable mineral reserves shown in thisAnnual Information Form have been prepared in accordance with NationalInstrument 43-101 of the Canadian Securities Administrators (NI 43-101).  The definitions of proven and probable reservesused in NI 43-101 differ from the definitions in Industry Guide 7 of the U.S.Securities and Exchange Commission (SEC). Accordingly, the Company’s disclosure of mineral reserves in this AnnualReport may not be comparable to information from U.S. companies subject to theSEC’s reporting and disclosure requirements.

***Measuredand Indicated Resources.*** This Annual Information Form uses the terms “measuredand indicated resources”.  The Companyadvises U.S. investors that while these terms are recognized and required byCanadian 

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regulations, the SEC doesnot recognize them.  U.S. investors arecautioned not to assume that any part or all of mineral deposits in thesecategories will ever be converted into reserves.  Mineral resources that are not “mineralreserves” do not have demonstrated economic viability.  Disclosure of “contained ounces” of mineralresources is permitted under Canadian regulations; however, the SEC normallyonly permits the reporting of non-reserve mineralization as in-place tonnageand grade.

***InferredResources.* **This AnnualInformation Form uses the term “inferred resources”.  The Company advises U.S. investors that whilethis term is recognized and required by Canadian regulations, the SEC does notrecognize it.  “Inferred resources” havea great amount of uncertainty as to their existence, and great uncertainty asto their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineralresource will ever be upgraded to a higher category.  Under Canadian rules, estimates of inferredmineral resources may not form the basis of feasibility or prefeasibilitystudies, except in rare cases.  U.S.investors are cautioned not to assume that any part or all of an inferredresource exists or is economically or legally mineable.

For further information,please refer to the definitions of reserves and resources and discussion underthe heading “Risk Factors” in this Annual Information Form and in theManagement’s Discussion and Analysis, included herein as Exhibits 1 and 3,respectively.

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# GLOSSARY OF TERMS

Except as otherwise defined,the following terms, when used herein, shall have the following meaning
| **“Company” or “ Queenstake”**          |       | Queenstake Resources Ltd., including, unless the  context otherwise requires, the Company’s subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                  | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **“carbonaceous”**                                |       | Containing carbon or coal or other rock containing  small particles of carbon distributed throughout the whole mass.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“deposit”**                                     |       | A mineralized body which has been physically  delineated by sufficient drilling, trenching, and/or underground work, and  found to contain a sufficient average grade of metal or metals to warrant  further exploration and/or development expenditures; such a deposit does not  qualify as a commercially mineable ore body or as containing ore reserves, until  final legal, technical, and economic factors have been resolved.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“development” or “mine development”** |       | Driving openings to access the mineral reserves in  an underground mine.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“diamond drill”**                               |       | A type of rotary drill in which the cutting is done  by abrasion rather than percussion. The cutting bit is set with diamonds and  is attached to the end of a long hollow rods through which water is pumped to  the cutting face. The drill cuts a core of rock, which is recovered in long  cylindrical sections, an inch or more in diameter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“feasibility study”**                           |       | A detailed report showing the feasibility of placing  a prospective ore body or deposit of minerals within a mineral property into  production, which report typically includes, inter alia, the specific portion  or portions of the property that should be included in a development block,  conclusions and recommendations regarding any adjustments that should be made  to the boundaries of a development block, a description of the work to be  performed in order to develop the mineral resources within the development  block and to construct a mine or mines and related facilities on the  development block, the estimated capital and operating costs thereof, a  proposed schedule for the timing of development and mine construction, and an  assessment of the impact of the operation and the information obtained and  evaluations made in respect thereof. |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“indicated mineral resource”**                  |       | That part of a mineral resource for which quantity,  grade or quality, densities, shape and physical characteristics can be  estimated with a level of confidence sufficient to allow the appropriate  application of technical and economic parameters, to support mine planning  and evaluation of the economic viability of the deposit. The estimate is based  on detailed and reliable exploration and testing information gathered through  appropriate techniques from locations such as outcrops, trenches, pits,  workings and drill holes that are spaced closely enough for geological and  grade continuity to be reasonably assumed.                                                                                                                                                                                                                                    |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“inferred mineral resource”**                   |       | That part of a mineral resource for which quantity  and grade or quality can be estimated on the basis of geological evidence and  limited sampling and reasonably assumed, but not verified, geological and  grade continuity. The estimate is based on limited information and sampling  gathered through appropriate techniques from locations such as outcrops,  trenches, pits, workings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **“ measured mineral resource”**                  |       | That part of a mineral resource for which quantity,  grade or quality, densities, shape and physical characteristics are so well  established that they can be estimated with confidence sufficient to allow  the appropriate application of technical and economic parameters to support  production planning and evaluation of the economic viability of the deposit.  The estimate is based on detailed and reliable exploration, sampling and  testing information gathered through appropriate techniques from locations  such as outcrops, trenches, pits, workings and drill holes that are spaced  closely enough to confirm both geological and grade continuity.                                                                                                                                                                                                           |
| ** **                                                  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

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| **“mineral reserve”**                        |   | The economically mineable part of a measured or  indicated mineral resource demonstrated by at least a preliminary feasibility  study. This study must include adequate information on mining, processing,  metallurgical, economic and other relevant factors that demonstrate, at the  time of reporting, that economic extraction can be justified. A mineral  reserve includes diluting materials and allowances for losses that may occur  when the material is mined and processed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|                                                   |   | The terms “mineral reserve”, “proven mineral  reserve” and “probable mineral reserve” used in this AIF are Canadian mining  terms as defined in accordance with NI 43-101 under the guidelines set out in  the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”),  Standards on Mineral Resource and Mineral Reserves Definitions and guidelines  adopted by the CIM Council on August 20, 2000 (the “CIM Standards”).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“mineral reserve review”**                 |   | A mineral reserve review is a review of the data and  processes used to prepare a mineral reserve, including drilling and sampling  practices, laboratory procedures, geostatistical analysis, grade estimation  procedures, resource classification, mine cutoff grade, mine design and  planning, and cash flow analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“mineral reserve audit”**                  |   | A mineral reserve audit includes a review of the  data and processes as outlined in the Mineral Reserve Review, but also  includes verification of the processes. The verification typically includes  checks on all or some of the processes and may include verification of the  database by comparison to original assay certificates, re-estimation of the  resource using the stated parameters or other estimation techniques, and  verification of the tonnage and grade of the stated resources and reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“mineral resource”**                       |   | A concentration or occurrence of natural, solid,  inorganic or fossilized organic material in or on the earth’s crust in such  form and quantity and of such a grade or quality that it has reasonable  prospects for economic extraction. The location, quantity, grade, geological  characteristics and continuity of a mineral resource are known, estimated or  interpreted from specific geological evidence and knowledge. The term  “mineral resource” covers mineralization and natural material of intrinsic  economic interest which has been identified and estimated through exploration  and sampling and within which mineral reserves may subsequently be defined by  the consideration and application of technical, economic, legal,  environmental, socio-economic and governmental factors. The phrase  “reasonable prospects for economic extraction” implies a judgment by the  Qualified Person in respect of the technical and economic factors likely to  influence the prospect of economic extraction. A mineral resource is an  inventory of mineralization that under realistically assumed and justifiable  technical and economic conditions might become economically extractable. The  term “mineral resource” used in this AIF is a Canadian mining term as defined  in accordance with NI 43-101 — under the guidelines set out in the CIM  Standards. |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“mineralization”**                         |   | Mineral-bearing rock; the minerals may have been  either a part of the original rock unit or injected at a later time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“mineralized”**                            |   | Metallic mineral-bearing material; the minerals may  have been either a part of the original rock unit or injected at a later  time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“NI 43-101”**                              |   | Canadian National Instrument 43-101 - Standards of  Disclosure for Mineral Projects of the Canadian Securities Regulators.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **“net smelter return royalty/NSR royalty”** |   | A payment made by a producer of metals based on the  value of the gross metal production from the property, less deduction of certain  limited costs including smelting, refining, transportation and insurance  costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| ** **                                             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

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| **“net proceeds interest”**     |   | The right to receive a portion of the net proceeds,  based on gross revenues less all operating, capital and similar expenses,  from the production and sale of metal from the property.                                                                                                                                                                                           |
|-------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“ounces”**                    |   | Troy ounces.                                                                                                                                                                                                                                                                                                                                                                       |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“ probable mineral reserve”** |   | The economically mineable part of an indicated, and  in some circumstances a measured mineral resource demonstrated by at least a  preliminary feasibility study. This study must include adequate information  on mining, processing, metallurgical, economic and other relevant factors  that demonstrate, at the time of reporting, that economic extraction can be  justified. |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“proven mineral reserve”**    |   | The economically mineable part of a measured mineral  resource demonstrated by at least a preliminary feasibility study. This study  must include adequate information on mining, processing, metallurgical,  economic and other relevant factors that demonstrate, at the time of  reporting, that economic extraction is justified.                                              |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“put option”**                |   | An option contract that gives the holder the right  to sell a certain quantity of an underlying security or commodity to the  writer of the option, at a specified price (strike price) up to a specified  date (expiration date). Also called a “put”.                                                                                                                  |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“Qualified Person”**          |   | An individual who, in accordance with NI  43-101:                                                                                                                                                                                                                                                                                                                             |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| ** **                                |   | (a)                                                                                                                                                                                                                                                                                                                                                                                | is an engineer or geoscientist with at least five  years of experience in mineral exploration, mine development or operation or  mineral project assessment, or any combination of these; |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |   |
| ** **                                |   | (b)                                                                                                                                                                                                                                                                                                                                                                                | has experience relevant to the subject matter of the  mineral project and the technical report; and |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |   |
| ** **                                |   | (c)                                                                                                                                                                                                                                                                                                                                                                                | is a member in good standing of a recognized  professional association. |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“ramp”**                      |   | An inclined underground tunnel that provides access  to an ore body for exploration, ventilation and/or mining purposes in an  underground mine.                                                                                                                                                                                                                                   |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“refractory”**                |   | Mineralized material in which gold is not amenable  to recovery by conventional cyanide methods due to either encapsulation by  other minerals or the presence of elemental carbon.                                                                                                                                                                                                |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“roast”**                     |   | The treatment of ore by heat in order to oxidize  those elements causing the ore to be refractory.                                                                                                                                                                                                                                                                                 |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“share”**                     |   | A common share without par value of the Company.  Historical references to numbers of shares have been adjusted to reflect the  share exchange ratio of 0.4993 to one used in the July 19, 1999 amalgamation  with Santa Cruz Gold Inc.                                                                                                                                            |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“tailings”**                  |   | Waste material from a mineral processing mill after  the metals and minerals of a commercial nature have been extracted.                                                                                                                                                                                                                                                           |
| ** **                                |   |                                                                                                                                                                                                                                                                                                                                                                               |
| **“ton” or “t”**      |   | A short ton (2,000 pounds).                                                                                                                                                                                                                                                                                                                                                        |

 

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# CORPORATE STRUCTURE

***Name andIncorporation***

Queenstake Resources Ltd. (the“Company”) was incorporated under the laws of the province of British Columbiaon May 3, 1977 under the name “Queenstake Resources Ltd.” by registration ofits Memorandum and Articles with the British Columbia Registrar ofCompanies.  To facilitate a businesscombination of the Company and Santa Cruz Gold Inc. (“Santa Cruz”) on June 24,1999, the Company continued its corporate jurisdiction from British Columbia tothe Yukon Territory under the Business Corporations Act (Yukon), as amended(the “YBCA”).   Effective July 19, 1999,the Company merged with Santa Cruz through an amalgamation by way of statutoryplan of arrangement under the YBCA to form one continuing company with the name“Queenstake Resources Ltd.”  EffectiveJuly 10, 2006, the Company continued its corporate jurisdiction from the YukonTerritory to British Columbia under the British Columbia Business CorporationsAct (“the BCBCA”).

The registered office of the Companyis located at Suite 3350 Four Bentall Centre, 1055 Dunsmuir Street, Vancouver,British Columbia, Canada.  The executiveoffices of the Company are located at 999 Eighteenth Street, Suite 2940,Denver, Colorado, U.S.A.

***IntercorporateRelationships***

Unless the context otherwiserequires, all references herein to the Company include the Company and itssubsidiaries.  The following chartillustrates the inter-corporate relationships of the Company and its subsidiariesand their jurisdictions of incorporation, as well as the ownership of theCompany’s principal asset, the Jerritt Canyon mine.

 

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# GENERAL DEVELOPMENT OF THE BUSINESS

***Three-Year History***

On June 30, 2003, the Companyacquired 100% of the operating Jerritt Canyon gold mine, 50 miles north of Elko,Nevada, and thus transformed itself from an exploration company to a goldproducer. The Jerritt Canyon mine is a large-scale underground gold miningoperation with significant exploration potential.  Full details of this acquisition and relatedfinancing transactions are discussed under “General Development of the Business- Acquisitions and Dispositions - Jerritt Canyon Acquisition”.

In July 2004, the Companyentered into an agreement with a syndicate of underwriters to complete aprivate placement of 34,254,000 special warrants at a price of Cdn $0.50 perspecial warrant for gross proceeds of $13.0 million (Cdn $17.1 million).  The private placement closed on August 10,2004.  Each special warrant entitled theholder to acquire one common share and one-half of one common share purchasewarrant of the Company.  Each wholecommon share purchase warrant was exercisable at a price of Cdn $0.65 untilFebruary 10, 2006.  The purchase warrantsexpired unexercised.  The Company paidthe underwriters a cash commission equal to 5.0% of the gross proceeds of theoffering, or approximately $0.6 million. In addition, the Company issued the underwriters compensation warrantsexercisable, without payment of additional compensation, into compensationoptions (the “Compensation Options”). The Compensation Options were exercisable to acquire 1,712,700 units ofthe Company at a price of Cdn $0.50 per unit until October 8, 2005.  The Compensation Options expired unexercised.  Each unit consisted of one common share andone-half of one warrant with the warrants having the same terms as the privateplacement warrants described above.

During December 2004, theCompany’s common shares were approved for listing on the American StockExchange (“AMEX”) and commenced trading under the ticker symbol “QEE”.

On March 23, 2005, theCompany successfully completed an equity financing at the maximum offeringamount (the “Offering”) through a syndicate of agents (the “Agents”) foraggregate cash proceeds of $24.8 million (Cdn $30.0 million).  The aggregate cash proceeds included Cdn$10.0 million raised pursuant to the exercise by the Agents of anover-allotment option.  The totalOffering consisted of 100 million units (the “Units”), including those issuedpursuant to the Agents’ over-allotment option, with each Unit consisting of onecommon share and one half of one common share purchase warrant at a price ofCdn $0.30 per Unit.  Each whole commonshare purchase warrant (50 million warrants in total) can be exercised toacquire one additional common share at a price of Cdn $0.40 until March 23,2007.  On March 23, 2007 45,950,000outstanding warrants related to this financing expired unexercised.   The Agents received a 5% commission on thegross proceeds of the offering.

On June 22, 2005 theCompany issued 25,987,200 common shares pursuant to an equity financing for$5.9 million through a syndicate of underwriters (“Underwriters”).  The offering was priced at Cdn $0.28 pershare.  The Underwriters received a 4%commission on the gross proceeds of the offering.

On April 13, 2006, theCompany closed an equity private placement with Newmont Canada Limited, asubsidiary of Newmont Mining Corporation (“Newmont”), whereby Newmont purchased28.5 million Queenstake common shares at Cdn $0.41 per share for gross proceedsof $10.2 million.  As part of the privateplacement, Newmont received warrants exercisable to acquire up to 28.5 millionadditional common shares of Queenstake at a price of Cdn $0.55 through April12, 2010. These warrants, although currently out of the money, would generateCdn $15.7 million in cash if exercised. Through April 13, 2008, Newmont will have the right to participate infuture equity offerings by Queenstake to preserve its fully dilutedshareholding percentage and will have certain additional rights to participatein debt financings.  Proceeds of thisprivate placement are being used to fund exploration and for other corporateuses.  Coincident with the closing of theequity private placement, an affiliate of Newmont conveyed by mineral leasethree of its Nevada early-stage exploration properties to Queenstake.  The properties are subject to a sliding scalenet smelter return royalty, dependent on the gold price, of 3% to a maximum of5% if gold is at or above $500 per ounce, and Newmont retains the right to backinto a 51% joint venture interest in each of the properties.  In addition, another affiliate of Newmontentered into an agreement to sell concentrates and ore from its Nevada operationsto Queenstake 

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for processing at itsJerritt Canyon roasting and milling facility. The contract calls for Queenstake to purchase at least 500,000 tons peryear of ore or concentrate over two years. Queenstake is paying Newmont the net amount for the recoverable ouncesin the purchased concentrates and ore, less commercial terms for processing andrefining.  Ore purchases with Newmont maycontinue for up to three additional years to the extent Queenstake has spareprocessing capacity.  The purchase ofNewmont’s concentrates and ore is ultimately expected to increase the JerrittCanyon mill throughput to approximately 95% of its previously demonstratedcapacity of approximately 1.5 million tons per year, which is expected to lowerthe Company’s unit operating costs by spreading the fixed costs over moreounces produced.

In July 2006, the Companyreceived notification from the Nevada Department of Environmental Protectionthat an evaporation pond  must beconstructed at Jerritt Canyon to facilitate closure.  The evaporation pond was constructed throughthe third and fourth quarters of 2006 and is expected to be commissioned in thesecond quarter of 2007.  The pond, whichis expected to cost approximately $9.0 million, will provide risk mitigation intailings solution handling and a reduction in the estimated closure timeperiod.

At the end of the thirdquarter of 2006, the Company instructed its financial advisors BlackmontCapital Inc. of Toronto to assist the Company in evaluating and pursuingstrategic alternatives regarding the long-term value of Queenstake’sassets.  As a result of this process, onMarch 16, 2007, the Company and YGC Resources Ltd. (“YGC”) signed a definitive combinationagreement to merge the companies to form Yukon-Nevada Gold Corporation (*see “2007 Subsequent Events” below.*)

The Company expects toclose the Queenstake-YGC business combination in the second quarter of2007.  Upon closure of the merger, thenew Board of Directors and management of Yukon-Nevada Gold Corporation willdetermine the production outlook, exploration and capital investment levels,and strategic focus in order to deliver maximum value from the Jerritt Canyonoperation and assets.

In November 2006, the Company entered into an agreement with a Nevadasubsidiary of Newmont Mining Company whereby the Company agreed to processloaded carbon for Newmont utilizing existing excess capacity in the Company’scarbon stripping circuit.  Newmont agreedto pay a processing fee to the Company, and the Company agreed to strip thegold from the loaded carbon while maintaining total segregation of the Newmontcarbon and gold from Jerritt Canyon carbon and gold.  As of December 31, 2006 the Company owed$11.2 million to Newmont for loaded carbon that had been delivered to theJerritt Canyon site awaiting processing. During 2006, the Company recognized $0.7 million in revenue for carbonprocessed under this agreement.  As ofMarch 29, 2007, the Company has processed all Newmont loaded carbon.  The current contract extends through April30, 2007.

**2007 Subsequent Events**

On January 15, 2007, the Company closed a secured convertible bridgeloan financing facility (the “Facility”) of $8 million with Auramet TradingLLC.  The borrowed funds, less costs ofthe transaction, primarily paid the costs of a new evaporation pond at theJerritt Canyon operations which was mandated by the Nevada Department ofEnvironmental Protection (“NDEP”).  TheCompany is pursuing reimbursement for such costs under its reclamationinsurance policy with American International Specialty Lines Insurance Company,a subsidiary of AIG (the “Insurer”), but the timing and receipt of suchreimbursement is uncertain.  The Facilityhas an interest rate of 12.9% per annum and is repayable no later than May 31,2007 (extended from April 30, 2007) in cash, or at the option of Auramet, partor all of the Facility may be repaid in common shares of Queenstake at aconversion price of $0.22 per share.  Thecosts of the Facility include a 3.5% underwriting fee in respect of whichAuramet elected to receive partial payment with 1,464,579 Queenstake commonshares.  In addition, Auramet receivedshare purchase warrants exercisable to acquire 10 million Queenstake commonshares for a term of one year at an exercise price $0.22 per share.  This Facility was necessary as a result ofdelays in the ongoing discussions with the Insurer for the as yet unresolvedreimbursement of the costs of the evaporation pond. Queenstake and its legaladvisers believe that reimbursement for the cost of the evaporation pond iscovered under its reclamation insurance policy and will continue to pursue thismatter with the Insurer.  The $9.0million evaporation pond was mandated by the NDEP earlier in 2006 as part ofJerritt Canyon’s long-term closure and reclamation plan. Construction began inthe third quarter of 2006 and is 

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approximately 95% complete. The lined evaporation pond is designed toallow water from the existing tailings containment system to be isolated whileit evaporates.   At December 31, 2006,there were approximately $8 million of trade payables incurred for theevaporation pond, which were subsequently paid down using proceeds of theFacility.

The Company filed suit onJanuary 19, 2007 against the Insurer in United States District Court for the Districtof Colorado.  The suit seeks $8.4 million for construction of theevaporation pond at the Company’s Jerritt Canyon operations in Nevada plus anunspecified amount for additional damages as a result of the Insurer’s failureto reimburse Queenstake under its reclamation costs insurance policy.  Queenstake’s insurance policy includescoverage in respect of reclamation related costs arising as a result of changesin applicable environmental laws and government mandates.  The matter has been referred to arbitrationfor binding resolution.

Effective March 16, 2007,the Company and YGC Resources Ltd. (“YGC”) completed all due diligencerequirements and signed a definitive combination agreement to merge thecompanies to form Yukon-Nevada Gold Corporation (“Newco”).  The business combination is structured as aplan of arrangement whereby the Company will become a wholly-owned subsidiaryof Newco.  Under the agreed upon terms,shareholders of YGC will retain one common share of Newco for each share of YGCheld, and shareholders of Queenstake will receive one common share of Newco foreach ten shares of Queenstake held. Outstanding warrants and options in each company will be assumed orexchanged by Newco on the basis of the same ratio.  The proposed transaction would combineQueenstake’s and YGC’s mineral property interests in North America to createoperating efficiency with emphasis on production from the Jerritt Canyon goldmine in Nevada, and the advancement towards production of the Ketza River goldproperty in the Yukon.  The businesscombination is expected to yield benefits to the shareholders of Newco byproviding a greater asset base and capitalization, creating operating synergiesand efficiency, reducing overhead and creating a broader share trading marketwith the potential for greater liquidity. In addition, the transaction isexpected to allow an aggressive and sustained exploration program throughoutthe extensive land packages that will be wholly owned by Newco in Nevada andthe Yukon.  It has been agreed that theBoard of Directors of Newco will comprise all of the current members of theBoard of Directors of YGC together with Dorian (Dusty) Nicol and Peter Bojtosof Queenstake.  It has been furtheragreed that the President and CEO of Newco will be Graham C. Dickson, currentlyPresident and CEO of YGC, and that Dorian (Dusty) Nicol, currently Presidentand CEO of Queenstake, will be Executive Vice President of Exploration ofNewco.  The business combination issubject to shareholder, court and regulatory approvals and other conditionsprecedent, including a minimum $Cdn. 80.0 million net proceeds financing to becompleted by YGC for the benefit of Newco.  The respective shareholder meetings of the Company and YGC are scheduledto be held on May 18, 2007.

***Acquisitions andDispositions***

*Jerritt Canyon Acquisition*

On May 30, 2003, the Companyentered into a definitive asset purchase and sale agreement (the “Purchase andSale Agreement”) with subsidiaries of AngloGold Limited (“AngloGold”) andMeridian Gold Inc. (“Meridian”) (collectively the “Sellers”) pursuant to whichthe Company agreed to acquire the Sellers’ respective 70% and 30% interests inthe assets comprising the operating Jerritt Canyon gold mine (“Jerritt Canyon”),located in the Independence Mountain Range of Nevada, USA, 50 miles north ofElko, Nevada. The acquisition closed on June 30, 2003.

The Jerritt Canyon mine is anoperating gold property with two producing underground mines and orestockpiles, currently feeding ore to a 1.5 million ton per year capacityprocessing plant.  The Company acquiredand integrated the Jerritt Canyon mine without interruption to miningoperations.

The Jerritt Canyon acquisitionwas an arm’s-length transaction.  Underthe terms of the Purchase and Sale Agreement, the Company paid to the Sellers$1.5 million cash, together with the issuance of 32 million common shares ofthe Company with an estimated fair value of $4.1 million.  In addition, the Company agreed to pay $6million to the Sellers in quarterly instalments of $1 million and a deferrednet smelter return royalty on Jerritt Canyon production, capped at $4.0million, following which the royalty would convert to a 1% net proceedsinterest royalty.

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OnAugust 26, 2004 the Company settled the $6.0 million of deferred quarterlyinstalments with a lump sum payment of $5.6 million and settled the $4.0million capped net smelter royalty with a lump sum payment of $3.5million.  This settlement excluded the 1%net proceeds interest royalty payable to AngloGold, which in management’sopinion, based on current reserve estimates and operating cost assumptionsrepresents nominal, if any, future payments.

Underthe terms of the Purchase and Sale Agreement, the Company also assumed $4.2million of the Sellers’ operating liabilities and the Sellers’ entire JerrittCanyon mine-related reclamation and environmental liabilities.  The fair value of the Jerritt Canyon minereclamation and environmental liabilities, at the time of acquisition, wasindependently estimated at $25.8 million. This amount was funded through an environmental risk transfer program(the “ERTP”) underwritten by American Insurance Group Environmental (“AIG”), adivision of American International Companies. Under the terms of the ERTP, theCompany deposited $25.8 million into an interest-bearing account with AIG (the “CommutationAccount”).  The Commutation Accountprincipal, plus interest earned, will be used to pay for mine closure andreclamation liabilities. The ERTP also includes a closure cost cap insurancepolicy which will serve to fund reclamation and post-closure site management bythe Company.  The insurance componentprovides insurance coverage in the event that reclamation costs exceed thoseprovided for by the Commutation Account. If the ultimate reclamation costs are less than the amount in theCommutation Account, the Company would be refunded the excess cash.  In the event that the reclamation cost ismore than the Commutation Account balance, the insurance portion of the ERTP isactivated and AIG would pay the excess costs up to a defined maximum.****The ERTP also includes pollution legal liability insurancecoverage for third-party damage claims against the Company for bothpre-existing pollution conditions and new pollution conditions for a period offive years commencing June 30, 2003.  Inaddition to reclamation insurance, AIG has posted a total of $35.5 million insurety bonds with the U.S. Forest Service and the Nevada Division ofEnvironment Protection.  For theseservices, the Company paid AIG premiums totalling $5.9 million in addition toestablishing the Commutation Account. Management of the Company believes that the ERTP effectively limits theCompany’s Jerritt Canyon reclamation and mine closure liabilities to the amountof the Commutation Account with respect to obligations existing at June 30,2003.  See “2007 Subsequent Events” abovefor details of litigation commenced by the Company for recovery under thereclamation policy.

*Proposed Business Combination between the Company and YGC AnnouncedFebruary 2007*

Effective March 16, 2007, the Company and YGCResources Ltd. (“YGC”) completed all due diligence requirements and signed adefinitive combination agreement to merge the companies to form Yukon-NevadaGold Corporation (“Newco”).  The businesscombination is structured as a plan of arrangement whereby the Company willbecome a wholly-owned subsidiary of Newco. Under the agreed upon terms, shareholders of YGC will retain one commonshare of Newco for each share of YGC held, and shareholders of Queenstake willreceive one common share of Newco for each ten shares of Queenstake held.  Outstanding warrants and options in eachcompany will be assumed or exchanged by Newco on the basis of the same ratio.

The proposed transaction would combine Queenstake’sand YGC’s mineral property interests in North America to create operatingefficiency with emphasis on production from the Jerritt Canyon gold mine inNevada, and the advancement towards production of the Ketza River gold propertyin the Yukon.  The business combination isexpected to yield benefits to the shareholders of Newco by providing a greaterasset base and capitalization, creating operating synergies and efficiency,reducing overhead and creating a broader share trading market with thepotential for greater liquidity. In addition, the transaction is expected to allowan aggressive and sustained exploration program throughout the extensive landpackages that will be wholly owned by Newco in Nevada and the Yukon.

Ithas been agreed that the Board of Directors of Newco will comprise all of thecurrent members of the Board of Directors of YGC together with Dorian (Dusty)Nicol and Peter Bojtos of Queenstake.  Ithas been further agreed that the President and CEO of Newco will be Graham C.Dickson, currently President and CEO of YGC, and that Dorian (Dusty) Nicol,currently President and CEO of Queenstake, will be Executive Vice President ofExploration of Newco.

Theobligations of the Company and YGC to complete the Transaction are subject tocertain conditions precedent, including, among others: the receipt ofshareholder, regulatory and court approval to the Transaction, that less than5% of the outstanding shares of the Company and YGC shall have provided noticesof dissent to the Transaction, and that YGC shall have completed a financing toraise minimum net proceeds to YGC of Cdn.$80,000,000. In addition, theobligation of YGC to complete the Transaction is subject to Queenstake havingrenegotiated, on a basis satisfactory to YGC, the agreement pursuant to whichan affiliate of Newmont Canada Limited (“Newmont”) has agreed to sell concentratesand ore from Newmont’s Nevada operations to Queenstake for processing atQueenstake’s  Jerritt Canyon roasting andmilling facility.

TheCombination Agreement may be terminated in certain circumstances, including,among others: by the mutual agreement of both parties, by either company iftheir shareholders fail to approve the Transaction, by either company if theother board of directors has approved or recommended a different acquisitionproposal (the “Acquisition Proposal”), or the board has entered into anagreement with respect to a superior offer (a “Superior Offer”) .

Inthe event that, the Combination Agreement is terminated as a result of:

·                  a breach by either company in any materialrespect of its covenants, representations and warranties in the CombinationAgreement;

·                  the failure of the board of directors of onecompany to make and maintain a recommendation to its shareholders to approvethe Transaction;

·                  the approval or recommendation by the board of directors of one company to adifferent Acquisition Proposal; or

·                  the acceptance by one company of a SuperiorOffer

thenthe defaulting company is required to pay to the other company a break fee inthe amount of 5% of its outstanding market capitalization determined as of thedate of termination.

The respectiveshareholder meetings of the Company and YGC to approve the Transaction arescheduled to be held on May 18, 2007.

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NARRATIVEDESCRIPTION OF THE BUSINESS

***General***

*The Company*

Queenstake is a gold miningand exploration company.  The Company’sprincipal asset and only current source of gold production is the 100% ownedJerritt Canyon gold mine in Nevada, U.S.A, acquired on June 30, 2003. See “GeneralDevelopment of the Business — Acquisitions and Disposals — Jerritt CanyonAcquisition”.  Jerritt Canyon is anoperating gold complex with two producing underground mines, ore stockpiles anda 1.5 million ton per year capacity processing plant. In addition, theapproximately 119-square miles that comprise the Jerritt Canyon property offera significant number of advanced, early stage and district-scale explorationtargets, and potential to expand the currently defined mineral reserves andresources proximal to the producing mines.

*Uses of Gold*

Product fabrication andbullion investment are the two principal uses of gold. Within the fabricationcategory there are a wide variety of end uses, the largest of which is themanufacture of jewellery. Other fabrication purposes include official coins,electronics, miscellaneous industrial and decorative uses, dentistry, medalsand medallions.

*Sales andRefining*

Gold can be readily sold onnumerous markets throughout the world and it is not difficult to ascertain itsmarket price at any particular time. Since there are a large number ofavailable gold purchasers, the Company is not dependent upon the sale of goldto any one customer.

The Company’s gold productionis currently refined to market delivery standards by Johnson Matthey Inc., at arefinery in Salt Lake City, Utah.  TheCompany believes that because of the availability of alternative refiners, nomaterial adverse effect would result if the Company lost the services ofJohnson Matthey Inc.

*Employees*

AtDecember 31, 2006, the Company had approximately 364 full-time employees in theUnited States, of which approximately 356****were at theJerritt Canyon mine and****8****at the Company’s executive offices in Denver,Colorado.   None of the Company’s U.S.employees are unionized.  The Companybelieves that labor relations at both locations are good.

*Social andEnvironmental Policies*

Queenstake’s success is firmly entrenched in the concept of multipleuse of lands which integrates land use for mining, agriculture, ranching,wildlife and sustainable public development. The Company is committed to land use that strengthens and enhances thesocial and environmental quality of northern Nevada.

Regulatory approvals andpermits for the Jerritt Canyon mines were seamlessly transferred to Queenstakeon July 1, 2003.  Since that dateQueenstake has continued all of the high standards of environmental performanceat Jerritt Canyon.

Consistent with changingpermitting strategies from mine closure planning to sustaining and increasingJerritt Canyon production for the foreseeable future, all three major operatingpermits for the Jerritt Canyon mines were renewed or reissued in 2004.  The Nevada mining permit which regulateswater pollution control was renewed on September 17, 2004 for five years.  A site wide Title V Air Quality Permit wasissued on March 10, 2004 for a five year term. On April 2, 2004 a site wide Reclamation Permit was reissued to includeall current activities ongoing at Jerritt Canyon.  In addition to obtaining the three major operatingpermits Queenstake also obtained permits for the Steer mine portal and surfacefacilities area in January 2004 and initiated the U.S. Forest Servicepermitting process 

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for the next five-yearexploration plan.  It was further honoredby the State of Nevada when it received the 2004 Nevada Reclamation Award forclosure and reclamation work at the Burns Basin surface mine area. Through2005, work progressed on an environmental assessment for the next five yearexploration plan with the U.S. Forest Service. The Company maintained active participation in the Nevada Voluntary MercuryEmission Reduction Program and actively participated with the Nevada Divisionof Environmental Protection and others in the development of new regulationsregarding mercury air emission controls.

A large portion of theJerritt Canyon Mine is located on public land administered by the U.S. ForestService.  The Jerritt Canyon staffmaintains a proactive relationship with the U.S. Forest Service Administrators,which includes weekly site inspections and updates.  A majority of the Jerritt Canyon miningdistrict has undergone formal National Environmental Policy Act (“NEPA”) reviewas part of the 25-year mining and exploration history of the District.  Environmental issues are well defined in thisdocumentation and appropriate mitigation strategies are in place to support andexpand operations.

Reclamation projects are scheduled annually and are completed concurrentwith the completion of mining activities. To date, over 1,500 acres of mined lands have been reclaimed.  Reclamation and closure activities aredefined and associated costs are bonded with the Federal Government and theState of Nevada.  These bonded activitiesare also insured by a reclamation and closure policy independently administeredby AIG.  As reclamation is completed,payment for completing the insured activity is paid to the Company from apre-funded Commutation Account administered by AIG. This program has shown tobe workable during the 2006 reclamation season. During 2006, the company was mandated by NDEP to commence construction ofan evaporation pond as part of Jerritt Canyon’s long-term closure andreclamation plan.  The lined evaporationpond is expected to cost $9.0 million and is designed to allow water from theexisting tailings containment system to be isolated while it evaporates.

The Company is committed to conducting its operations with closeconsideration to environmental values and ethics as well as to social issues.The Company will therefore:

·                  Comply with applicable laws, regulations, andpermit conditions and, where appropriate, exceed their minimum requirements;

·                  Establish and maintain management systems tomonitor all environmental aspects of its activities;

·                  Review these management systems regularly toevaluate their effectiveness and modify them as appropriate to optimize theireffectiveness;

·                  Proactively pursue and evaluate engineeringalternatives to best address closure and reclamation issues;

·                  Assure that financial resources are availableto meet environmental and reclamation obligations;

·                  Ensure that the Company’s employees andcontractors are aware of the Company’s environmental policies and understandtheir relevant responsibilities;

·                  Participate in the ongoing public and privatesector debate on environmental and social matters that relate to the miningindustry.

The Company is continually striving to improve its environmentalperformance.

*Environmental ProtectionRequirements*

For a discussion of thecurrent and future effects of environmental protection requirements, see “NarrativeDescription of the Business — Operating Property — Jerritt Canyon MineEnvironmental”, below.  See also “RiskFactors” below.

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***Principal OperatingProperty — Jerritt Canyon Mine***

*Introduction*

On June 30, 2003, the Companyacquired the Jerritt Canyon mine, in Nevada. See “General Development of theBusiness - Acquisitions and Dispositions — Jerritt Canyon Acquisition”, The Jerritt Canyon mine is an operatinggold property with two producing underground mines and ore stockpiles,currently feeding ore to a 1.5 million ton per year capacity processingplant.  The Jerritt Canyon area is alarge and historically prolific gold producing district, having produced overseven and a half million ounces of gold over the past 25 years. The Jerritt Canyonacquisition effectively transformed the Company from an exploration company toa gold producer.

*Recent Operations*

Following the closing ofthe acquisition on June 30, 2003, the Company integrated the Jerritt Canyonmines without interruption to mine operations. The skilled work force and mine management team at Jerritt Canyonprovided the Company with sufficient operating depth.  Mining during 2003 covered the first sixmonths of Queenstake’s ownership of the Jerritt Canyon mine.  Production levels were similar to previousyear results achieved under the previous owners.  Mined ore tonnage during 2004 began todecline in the face of insufficient mine development, lack of sustainingcapital investment, and mature ore bodies. The decline in mined ore tonnage continued through 2005 and 2006.  Mining during 2006 was derived primarily fromthe Smith, and SSX underground mines. The Murray Mine was shut down in March 2006.

Gold production fromJerritt Canyon declined in 2006 as a result of fewer ore tons mined from theSmith Mine and Zone 1 of the SSX Mine. The Smith Mine was adversely affected by water inflows in excess of thecapacity of the pumping system to dewater. Ore tons below the water table in Smith are generally higher-grade andmore contiguous and had been planned to provide in excess of 40% of total oremined for the Jerritt Canyon operation during 2006.  At the end of the third quarter of 2006, theCompany reduced pumping activities and deferred mining of the wet Smith Mineore to later years.  The SSX Mineexperienced grade declines due to higher mining dilution as a result of themining of smaller, less contiguous ore blocks. The Murray Mine was shut-down as planned in the first quarter of2006.  Although underground mineperformance was positively affected by a stable underground workforce, highavailability of underground production equipment, the presence of twocontractors on site for the majority of the year that were dedicated todevelopment and the continuation of the Company’s excellent operating safetyrecord, these improvements were not sufficient to offset declines in mined oretonnage and grade.  The Companyimplemented several cost savings initiatives toward the end of the thirdquarter of 2006 that have delivered and are expected to continue to result insignificant reductions to operating costs going forward.  Cost initiatives completed include:discontinuing the services of one underground mining contractor; reduction of11% of the workforce; reorganizing and centralizing the maintenance department;removing from service the high-hours, high-maintenance cost mining equipment;and, deferring the production of ore tons that lie below the water table at theSmith Mine.

In April 2006, the millat the Jerritt Canyon process facility experienced a catastrophic failure of apinion gear.  The site maintenance staffreplaced the pinion gear and, at that time, thoroughly inspected the bull gearto identify the root cause of the gear failure. Processed ore tonnage and gold production for the full-year 2006 wereunfavorably impacted as the Company made the decision to run the mill at areduced capacity in order to minimize the risk of further mill pinion and bullgear mechanical issues.  When the newmill pinion gear was installed in April 2006, the bull gear was turned over andseveral cracked teeth repaired.  Throughthe third quarter of 2006, the new pinion gear exhibited a high degree of wearand pitting and elevated gear surface temperatures that could have posed a riskof catastrophic failure and potential collateral damage if the mill hadcontinued to run at full capacity.  As aresult of this experience, the bull and pinion gears are subject to intensemonitoring and daily inspection shutdowns, further limiting mill throughput.  A new bull gear has been ordered and is expectedto be delivered in April 2007.  The ballmill was operated through the end of 2006 at an average of approximately 75%ball charge in order to reduce the load on the pinion and bull gear.  The Company intends to maintain the 75% ballcharge and limit the risk of failure on the gears until the new bull gear is 

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installed during thesecond quarter of 2007.  As of March 29,2007, the mill is operating on average at approximately 75% capacity processinga blend of Jerritt Canyon mined ore, Jerritt Canyon stockpiled ore and Newmontpurchased ore.  The blend of ore throughthe mill is determined based on grade, recovery, metallurgical complements toother ore types, minimization of re-handling costs and other factors.

Full-year 2006 goldproduction from Jerritt Canyon was 153,581 ounces, excluding production fromore purchased from Newmont, which totalled 16,270 ounces.  Cash operating costs per ounce were $533 for2006 reflecting the mill-related production shortfalls and lower throughputrate, delays in accessing ore and deferral of the mining of higher cost areasof the mines. Cash operating costs continue to be adversely affected byincreases in basic commodity prices. The Jerritt Canyon cost of operationsshowed improvement in the fourth quarter of 2006 as a result of the costreduction measures implemented in late September, with production and costs andcash flow sufficient to continue to fund the ongoing operations at JerrittCanyon.

Gold production was169,851 ounces for the full-year 2006. Gold production declined by 34,240 ounces or 17% from the full-year2005.  Ore tons milled were 973,593 forthe full-year 2006, a decrease of 133,344 tons or 12% from full-year 2005.

Jerritt Canyon ore grademined for the full-year 2006 is 0.23 opt gold, a decline of 0.01 or 5% from thesame period in 2005.  The grade ofQueenstake ore milled increased to 0.23 opt, a 0.01 opt or 5% improvement from2005.  A reconciliation table of QueenstakeJerritt Canyon and Newmont purchased ore processed is provided below.

Total tons processed in2006 were 973,593, a decline of 133,344 tons or 12% from 2005.  The reduction in tonnage is due to acombination of fewer ore tons mined, mill mechanical availability issues andthe Company’s plan to scale-back roaster operations in early 2006.  Beginning in August 2005 and continuingthrough April 2006, the mill processing rate had been scaled back fromoperating two roasters together to one roaster at a time as a cost cuttingmeasure.  The process rate was increasedin April 2006 and the second roaster fully utilized upon the commencement ofdelivery of purchased ore from Newmont (see “*PrivatePlacement, Ore Processing and Property Lease Agreements”* below*)*.  Comparison tooperating results from previous years should be viewed in that context.  The table below summarizes production resultsfor both Queenstake-Jerritt Canyon ore and ore purchased from Newmont.

Table 1 — ProductionResults

|                        | ** ** | **Year ended December 31, 2006** | ** ** |
|------------------------|------------|------------------------------------------------------|------------|
| ** **             | ** ** | **Queenstake ore**                              | ** ** | **Newmont ore** | ** ** | **Total** | ** ** |
| Tons processed         | ** ** | **792,959**                                          | ** ** | **180,634** | ** ** | **973,593** | ** ** |
| Grade processed  (opt) | ** ** | **0.23**                                             | ** ** | **0.10** | ** ** | **0.21** | ** ** |
| Process recovery       | ** ** | **85.8**                                             | **%**      | **90.4** | **%** | **86.2** | **%** |
| Gold ounces produced   | ** ** | **153,581**                                          | ** ** | **16,270** | ** ** | **169,851** | ** ** |

 

Newmont began deliveringpurchased ore to the mill in April 2006 and by the end of 2006 the JerrittCanyon operation had received approximately 440,000 tons of purchased ore andhad over 259,000 tons of purchased ore in stockpile.  Under the terms of the purchase agreement theCompany is allowed to defer payment for purchased ore until the ore isprocessed and the gold produced.  As ofMarch 29, 2007, the Company is in compliance with all provisions of the oresale and purchase agreement with Newmont.

Processed ore tonnage andgold production for the full-year 2006 were unfavorably impacted as the Companymade the decision to run the mill at a reduced capacity in order to minimizethe risk of further mill pinion and bull gear mechanical issues mentionedpreviously.

In order to minimize riskand assure optimum mill utilization, the Company completed an analysis ofcritical spares and inventory.  Theanalysis identified areas requiring improvement especially in light of currentsteel component shortages and machine fabrication lead times for major mechanicalcomponents, as is being experienced across the entire Nevada gold miningindustry and globally.  These areas arebeing addressed and a complement of critical spares inventory is expected to bein place by mid-2007.  At March 29, 2007,the operation has two new spare pinion gears on site and a new bull gear hascompleted fabrication in Australia during early-March and is in transit to theJerritt Canyon site.

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The reduced millthroughput for full-year 2006 has resulted in a deferral of the processing ofcurrently stockpiled ore to 2007.  TheCompany has estimated that there were a total of approximately 11,900 containedounces of Jerritt Canyon ore and approximately 37,000 contained ounces ofNewmont purchased ore in stockpiles at the mill at the end of 2006.  These are much larger stockpiles thanQueenstake has maintained in the past.

It is planned that theinstallation of the new bull gear will be completed in the second quarter of2007, and that the mill will operate at 75% throughput capacity until thatcapital replacement project is completed. After installation of the bull gear and completion of planned annualmaintenance, the mill will increase feed tonnage and ball charge to againoperate at 100% capacity or approximately 1.5 million tons per year.  Mill feed will consist of both Jerritt Canyonore, and concentrates and ore purchased from Newmont’s Nevada operations.  All Newmont purchased ore stockpiles existingas of March 29, 2007 should be processed by year-end 2007.

Capitalized minedevelopment of 7,083 feet during the year was essentially on 2006 plan, as themining emphasis shifted to short-term production as the high-grade stockpileswere being depleted during the second quarter. Two mining contractors that had been dedicated to development werephased-out during the year and internal crews were assigned to thoseheadings.  Capitalized mine developmentin 2005 totalled 9,412 feet, 2,329 feet or 25% more than full-year 2006.

Over the past year, cashoperating costs were negatively impacted by $3.2 million in increased commoditycosts, including fuel, electric power, commodities and freight, $2.1 million inhigher labor costs from wage increases and higher than anticipated overtime,and $3.1 million from increased contractor costs. These factors accounted forincreases in cash operating costs per ounce totalling $48 in 2006.

*2006 Quarterly Production Summary*

Quarterly production andfinancial information provided below as at December 31, 2006, is not indicativeof future annual production or financial results.  Key quarterly production statistics areillustrated in Table 2.

Table 2 — Jerritt CanyonQuarterly Production Statistics
| ** **                          | ** ** | **Three months ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **December 31,  2006**      | ** ** | **September 30,  2006** | ** ** | **June 30,  2006** | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** | **March 31,  2005** | ** ** |
| Gold ounces produced                | ** ** | **45,776**                       |       | 43,781 |   | 50,421 |   | 29,873 |   | 45,555 |   | 49,613 |   | 54,156 |   | 54,767 |   |
| Gold ounces sold                    | ** ** | **44,929**                       |       | 43,129 |   | 51,216 |   | 28,488 |   | 46,828 |   | 54,446 |   | 50,560 |   | 50,850 |   |
|                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Average sales price per  ounce      | ** ** | **$**                            | **615**    |   | $ | 617 |   | $ | 627 |   | $ | 553 |   | $ | 485 |   | $ | 442 |   | $ | 428 |   | $ | 427 |   |
| Cash operating costs per  ounce (1) | ** ** | **$**                            | **545**    |   | $ | 643 |   | $ | 461 |   | $ | 558 |   | $ | 413 |   | $ | 401 |   | $ | 371 |   | $ | 365 |   |
|                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ore tons mined                      | ** ** | **199,219**                      |       | 161,371 |   | 188,283 |   | 228,963 |   | 223,060 |   | 220,779 |   | 234,625 |   | 280,635 |   |
| Tons processed                      | ** ** | **253,945**                      |       | 297,563 |   | 271,857 |   | 150,228 |   | 211,587 |   | 267,116 |   | 316,800 |   | 311,434 |   |
| Grade processed (opt)               | ** ** | **0.22**                         |       | 0.18 |   | 0.22 |   | 0.25 |   | 0.25 |   | 0.21 |   | 0.21 |   | 0.21 |   |
| Process recovery                    | ** ** | **85.6**                         | **%**      | 86.3 | % | 86.0 | % | 86.4 | % | 86.8 | % | 865 | % | 87.3 | % | 85.8 | % |

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(1)             The Company has adopted the Gold InstituteProduction Cost Standard (the “Standard”) to calculate and report cashoperating costs per ounce of gold produced. This is a non-GAAP measure, intended to complement conventional GAAPreporting; accordingly these data should not be considered a substitute forGAAP measures. Management believes that cash operating costs per ounce is auseful indicator of a mine’s performance.

Gold production during thethree-month period ended March 31, 2006 was 29,873 ounces or a 45% decreasefrom the same period in 2005.  Production was negatively affected byunusually wet and heavy snowfall and rapid run-off throughout the region, whichinterrupted delivery of ore from the mines to the mill and adversely affectedmill throughput.

Gold production duringthe three-month period ended June 30, 2006 was 50,421 ounces, which was a20,548 ounce or 69% improvement from the prior quarter but 7% less than thesame period in the previous year.  Poormill 

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mechanical availabilityand reduced throughput capacity caused by pinion gear failures limited processtonnage through the second quarter of 2006.  Mined tonnage was furtherimpacted by high ground water levels in the Smith Mine.

Gold production for thethree-month period ended September 30, 2006 was 43,781 ounces, approximately13% less than the previous quarter, and was 122% less than the same period inthe previous year.  The processing miillcontinued to run at approximately 75% capacity through the quarter in an effortto prevent further damage to the mill pinion and bull gear.  A new bull-gear was ordered in the quarterwith an expected delivery time of April 2007.   Jerritt Canyoncontinued to allocate resources to mine development and engaged a second miningcontractor in mid-August 2006 to accelerate mine development in order tomaintain production capacity.

Gold production for thethree-month period ended December 31, 2006 was 45,776 ounces, essentiallyunchanged from gold production for the same period in 2005.   Mill tonnageprocessed continued to be adversely impacted as the Company decided to minimizerisk of catastrophic failure of the pinion and bull gears and ran the mill atapproximately 75% capacity.  Cashoperating costs for the quarter and for the year were adversely affected byrising costs faced by the North American gold mining industry in general andJerritt Canyon specifically, including fuel, electricity, commodity and laborcosts during the quarter.

*Exploration and DevelopmentSummary*

During 2005, the Companyspent $19.7 million for underground development, major haulage-ways,ventilation raises, definition drilling, capital resource development,sustaining capital and related activities to provide long-term infrastructureand stope access within the mines.

During 2006, the Companyinvested $31.9 million, including $8.4 million for construction of anevaporation pond, in underground development, definition drilling, sustainingcapital and other capital projects. Significant capital investments during the year included one newElphinstone loader, one rebuilt Caterpillar 16g motor grader, ore padimprovements to support the Newmont purchased ore, three carbon screens, onerebuilt six-yard loader, Starvation Canyon permitting and the evaporation pond.

Much of the exploration donethroughout the Jerritt Canyon district in past years was in search of eithershallow open pit targets or multi-million ounce targets.  During the few years prior to the Company’sacquisition of Jerritt Canyon, known reserves were not aggressively expandedand advanced stage targets were not aggressively followed up.  Management of the Company believes that witha significant investment in surface and underground exploration activities,there is potential for significant reserve and resource expansion that wouldessentially represent extensions of the known ore bodies.   In addition, management of the Companybelieves that the property offers potential for discovery of significant newore bodies resulting from systematic district scale exploration.

Explorationcontinued during 2006 but was limited both by availability of funding and drillrigs as well as the need to focus on near mine resource conversion to meetshort term production needs at the expense of long term district exploration.  The Company expensed $4.9 million for surfacedrilling programs completed in 2006.

The Starvation Canyonexploration program continued to improve continuity of gold mineralizationencountering one of the best drill intercepts in the three-decade history ofJerritt Canyon: an intercept at Starvation Canyon of 140 feet with an averagegrade of 0.46 ounce of gold per ton (opt).

*Property Description and Location*

The Jerritt Canyon mine islocated in Elko County, Nevada within the Independence Mountain Range,approximately 50 miles north of the City of Elko, Nevada.  Elko, has a population of approximately34,000 and is serviced by regular scheduled air service from Salt Lake City,Utah.  All services required by theJerritt Canyon Mine operation 

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are readily available in the surroundingarea.  Access to the property is by meansof State Road 225, a paved road, to the main entrance road to the mine wherethe administrative offices are located.

Jerritt Canyon operations areconducted on a combination of public and private lands, with the mines andmining related surface facilities located primarily on public lands and theprocess plant, administrative facilities and tailings impoundment located onprivate lands.  The Company’s 100% ownedJerritt Canyon property interests cover an area of approximately 119 squaremiles, containing a total of 3,066 owned and leased mineral claims, 12,433acres of fee lands, 934 acres of patented mineral claims and 11,080 acres ofleased fee land with mineral rights.

The climate is characterizedby winters with temperatures between 0 and 40 degrees Fahrenheit and summertemperatures between 35 and 85 degrees Fahrenheit.  Average annual precipitation at the tailingsimpoundment area is estimated at 14 inches per year with an estimated annualaverage evaporation of 43 inches.  Asignificant amount of the total precipitation falls as snow and increases withelevation to the mining areas.  Theadministration offices, process plant and tailings impoundment are located atan elevation of approximately 6,400 feet; the mines are located at elevationsup to 8,000 feet.

The primary regulatoryoversight of the Jerritt Canyon Mine is by the U.S. Forest Service (“USFS”),due to the mining activity being located on a combination of public and privatelands, and by the Nevada Division of Environmental Protection (“NDEP”).

Since the initial Plan ofOperations was approved in 1980, there have been at least 45 submittals to theUSFS, including three subsequent Plans of Operation and Amendments or Modificationsto approved Plans of Operation. Development of identified ore bodies from theexisting underground mine surface facilities is expected to require onlyadministrative approval.

The NDEP regulates theapproval of the Jerritt Canyon’s Water Pollution Control Permit, Air QualityPermit, Stormwater Discharge Permit, Underground Injection Control Permit, DamsSafety Permit and Reclamation Permit. All permits are current and in goodstanding.

Sierra Pacific Power Company,the only electric public utility in the area, provides electric power to themine.

*Government Regulation*

Miningoperations and exploration activities are subject to various federal and statelaws and regulations in the United States which govern prospecting,development, mining, production, exports, taxes, labor standards, occupationalhealth, waste disposal, protection of the environment, mine safety, hazardoussubstances and other matters. The Company has obtained those licenses, permitsor other authorizations currently required to conduct its exploration and otherprograms. The Company believes that it is in compliance in all materialrespects with applicable mining, health, safety and environmental statutes andthe regulations passed thereunder in jurisdictions in which the Company operates.There are no current orders or directions relating to the Company with respectto the foregoing laws and regulations.

*Environmental Laws*

As is common for miningoperations in Nevada, there are numerous environmental obligations associatedwith Jerritt Canyon that are related to ongoing operations as well as mineclosure and reclamation.  Environmentalmanagement systems are in place and there are qualified environmental staffonsite at Jerritt Canyon.  Variousmitigation programs are in place as required under the various plans ofoperations that have been filed and approved for the project.  Except for the evaporation pond mandated bythe NDEP in 2006 at a cost of $9.0 million, no unusual costs associated withany of these programs have been identified. Approved reclamation plans are in place and Jerritt Canyon isprogressing with concurrent reclamation in an orderly manner.  Final reclamation obligations for the projectinclude closure of the tailings impoundment and waste rock dumps, reclamationof pits by partially backfilling the pits with mine waste from undergroundoperations, sealing of underground portals and dismantling of buildings andstructures.  Current geochemicalcharacterization of the waste rock produced from mining operations has demonstratedthe waste rock to be generally non-acid generating.

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U.S. Federal Laws

The U.S. Forest Service requires that miningoperations on lands subject to its regulation obtain an approved plan ofoperations subject to environmental impact evaluation under the *National Environmental Policy Act*. Any significantmodifications to the plan of operations may require the completion of anenvironmental assessment or Environmental Impact Statement prior to approval.Mining companies must post a bond or other surety to guarantee the cost ofpost-mining reclamation. These requirements could add significant additionalcost and delays to any mining project undertaken by the Company.

Under the U.S. *Resource Conservation andRecovery Act*, mining companies may incur costs for generating,transporting, treating, storing, or disposing of hazardous waste, as well asfor closure and post-closure maintenance once they have completed miningactivities on a property. The Company’s mining operations may produce airemissions, including fugitive dust and other air pollutants, from stationaryequipment, storage facilities, and the use of mobile sources such as trucks andheavy construction equipment which are subject to review, monitoring and/orcontrol requirements under the Federal Clean Air Act and state air qualitylaws. Permitting rules may impose limitations on the Company’s productionlevels or create additional capital expenditures for pollution control in orderto comply with the rules.

The U.S. *Comprehensive EnvironmentalResponse Compensation and Liability Act of 1980*, as amended, (“CERCLA”)imposes strict joint and several liability on parties associated with releasesor threats of releases of hazardous substances. Those liable groups include,among others, the current owners and operators of facilities which releasehazardous substances into the environment and past owners and operators ofproperties who owned such properties at the time the disposal of the hazardoussubstances occurred. This liability could include the cost of removal orremediation of the release and damages for injury to the surrounding property.The Company cannot predict the potential for future CERCLA liability withrespect to its Nevada property or surrounding areas.

Nevadalaws

At the state level,mining operations in Nevada are also regulated by the Nevada Department ofConservation and Natural Resources, Division of Environmental Protection.Nevada state law requires the Jerritt Canyon Mine to hold Nevada WaterPollution Control Permits, which dictate operating controls and closure andpost-closure requirements directed at protecting surface and ground water. Inaddition, the Company is required to hold Nevada Reclamation Permits requiredunder NRS 519A.010 through 519A.170. These permits mandate concurrent andpost-mining reclamation of mines and require the posting of reclamation bondssufficient to guarantee the cost of mine reclamation. Other Nevada regulationsgovern operating and design standards for the construction and operation of anysource of air contamination and landfill operations. Any changes to these lawsand regulations could have an adverse impact on the Company’s financialperformance and results of operations by, for example, required changes tooperating constraints, technical criteria, fees or surety requirements.

*ERTP*

Anintegral element of the Jerritt Canyon Mine acquisition was the ERTP, aninnovative insurance/assurance product purchased from the Insurer.  The Company believes the ERTP effectivelylimits financial exposure for environmental and reclamation liabilities andrisks associated with the Jerritt Canyon mine assumed on its acquisition inJune 2003 to the amount in the Commutation Account.  The fair value of the total reclamationliability at Jerritt Canyon was independently estimated by the Insurer at $25.8million as at June 30, 2003. This amount was fully funded by the Company bymeans of a cash Commutation Account in the amount of $25.8 million depositedwith the Insurer. The cash plus interest earned in the Commutation Account willbe used to pay for Jerritt Canyon’s reclamation and mine closure liabilities.In addition, the ERTP provides to government regulators the surety bonds,totalling $39.4 million, which allow the Company to operate the Jerritt Canyonmine under the existing operating permits. The ERTP also includes a reclamationand mine closure cost cap insurance policy which will serve to fund reclamationand post-closure site management by the Company.  This cost cap insurance provides coverage forfuture reclamation costs if they exceed those provided for by the CommutationAccount.  If the ultimate reclamationcosts are less than the amount in the Commutation Account, the Company would berefunded the excess cash.  If thereclamation cost is 

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morethan the Commutation Account balance, the cost cap insurance, provided by theInsurer, will pay the excess costs up to a defined maximum.  The Company does not currently anticipatethat the covered reclamation costs will be in excess of the defined maximum.

The Company filed suit onJanuary 19, 2007 against the Insurer in United States District Court for theDistrict of Colorado.  The suit seeks $8.4 million for construction of theevaporation pond mandated by NDEP at the Company’s Jerritt Canyon operations inNevada plus an unspecified amount for additional damages as a result of theInsurer’s failure to reimburse Queenstake under its reclamation costs insurancepolicy.  Queenstake’s insurance policyincludes coverage in respect of reclamation related costs arising as a resultof changes in applicable environmental laws and government mandates.  The matter has been referred to arbitration.The Company is pursuing reimbursement for such costs under its reclamationinsurance policy with the Insurer but the timing and receipt of suchreimbursement is uncertain.

*Jerritt Canyon History*

In 1972, FMC Gold (renamedMeridian Gold Inc. in 1996) discovered a disseminated gold deposit in theJerritt Canyon area.  In 1976, FMC Goldformed a joint venture with Freeport McMoRan Inc., to explore and develop thearea, and mining at Jerritt Canyon commenced in 1981.  In 1990, Freeport McMoRan Inc. sold itsinterest in Jerritt Canyon to a predecessor of AngloGold. Since inception,mining has continued uninterrupted at Jerritt Canyon, producing over 7.5million ounces of gold to date.  Open pitmining occurred from 1981 through 1999; underground mining started in 1993.Annual production, prior to the Company’s acquisition, had historicallyaveraged between 300,000 and 350,000 ounces of gold, at historical cashoperating costs ranging from $245 to $270 per ounce.  The previous owners of the Jerritt Canyonmine had planned to shut the operation down by the end of 2004.

Pursuant to the Purchase andSale Agreement, the Company acquired the Jerritt Canyon Mine from theSellers.  See “General Development of theBusiness — Acquisitions and Dispositions — Jerritt Canyon Acquisition”.

*Geology*

The Jerritt Canyon districtdeposits are hosted by a Paleozoic sedimentary sequence that underlies the IndependenceMountain range and consists of four distinct assemblages:  (1) the western facies (upper plate of theRoberts Mountain thrust fault), (2) the eastern facies (lower plate of theRoberts Mountain thrust fault), (3) the Schoonover sequence, and (4) the Antleroverlap sequence. The western facies consists of chert, argillite, siltstone,shale, quartzite, and limestone-greenstone complex and is considered to be adeep-water sequence.  The easternsequence is a Cambrian to Silurian continental shelf carbonate sequence thatincludes the Hanson Creek Formation, and the Roberts Mountains Formation, whichare the main hosts to the gold mineralization in the district.

Within the Jerritt Canyonarea, gold can locally occur within all sedimentary formations, but ispreferentially hosted by the Roberts Mountains and Hanson Creek Formations ofthe eastern facies.  The RobertsMountains Formation consists of calcareous to dolomitic siltstones and siltylimestones.  The Hanson Creek Formationis divided into five members and consists of medium-grained limestone,dolomitic limestone, carbonaceous micrites, and chert beds.

Gold mineralization at JerrittCanyon is preferentially found within the base of the Roberts MountainsFormation and the Upper Hanson Creek Formation. Gold mineralization is structurally controlled by high angle northwestand northeast trending structures that acted as conduits for mineralizingfluids.  Much of the higher grade, morecontinuous gold mineralization occurs where two sets of high angle structuresintersect and cut the favourable stratigraphic intervals that contain highproportions of clay-sized materials.  Thedeposits are considered to be Carlin-type, sediment-hosted, replacementfine-grained gold in carbonaceous sediments. Gold occurs as very fine-grained micron size particles deposited incarbonates and fine-grained, calcareous, clastic sedimentary rocks.

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*Mineral Reserve and ResourceEstimates*

Table 3 below summarizesproven and probable mineral reserves that totalled 485,700 ounces of goldcontained in 2.0 million tons at an average grade of 0.245 opt at December 31,2006, based on a three-year average gold price of $485 per ounce.  Measured and indicated resources, includingreserves, were estimated at 1.9 million ounces of gold contained in 8.2 milliontons at an average grade of 0.232 opt. The Company also estimated inferred resources of 2.4 million tons at0.226 opt for 545,200 ounces of gold. The Company’s proven and probable reserves and measured, indicated andinferred resources were audited and verified by SRK Consulting (U.S.), Inc. assatisfying the standards of Canadian National Instrument 43-101.

Proven and probablemineral reserves decreased by 392,200 ounces or 45%, and measured and indicatedresources decreased by 0.2 million ounces or 10% between year-end 2006 andyear-end 2005.  Measured and indicatedresources at December 31, 2006 were lower than in 2005 largely due to anincreases in the mining unit costs, an increase in cutoff grade, remnant ouncescondemned with the shutdown of the Murray Mine and, elimination from reservesof ounces below the water table at the Smith Mine.  The continued application of smaller,narrower blocks in mine planning enhanced the overall quality of the resourcesand reserves.  The proven reservecomponent of total proven and probable reserves was 36% in 2006, unchanged from2005.  Expenditures for districtexploration and surface drilling were $4.9 million in 2006, compared to $3.9million in 2005.

Reserve and resource estimates have been developed from extensivesurface and underground drilling data using geology-constrained standardkriging and polygonal methods using MineSight modeling and planningsoftware.  Mineral resources are containedin about 20 mineral deposits in the Jerritt Canyon area.  Block modelingtechniques supported by relatively small block sizes are used.  Cutoffgrades have been calculated for each of the mines using cost estimates andplant recovery estimates derived from December 2006 actual year-to-date values. Factors for mining dilution were included.

Most of the assays on which these estimates are based were performed byindependent assay labs for surface drilling using standard fire assaytechniques and subject to internal Quality Assurance/Quality Control (“QA/QC”)procedures; samples from underground drilling are analyzed by Jerritt Canyon’slaboratory using standard fire assay techniques and industry accepted QA/QCprocedures.

**Table 3**(1),(2),(3),(4),(5)
| ** **     | ** ** | **JERRITT CANYON PROVEN & PROBABLE GOLD RESERVES - December 2006** | ** ** |
|----------------|------------|---------------------------------------------------------------------------------------------------------------------|------------|
| ** **     | ** ** | **PROVEN**                                                                                                          | ** ** | **PROBABLE** | ** ** | **TOTAL** | ** ** |
| **Deposit**    | ** ** | **Tons (000)**                                                                                                 | ** ** | **oz/st** | ** ** | **Oz (000)** | ** ** | **Tons (000)** | ** ** | **oz/st** | ** ** | **Oz (000)** | ** ** | **Tons (000)** | ** ** | **oz/st** | ** ** | **Oz (000)** | ** ** |
| Murray         |       | 17.3                                                                                                                |       | 0.275 |   | 4.8 |   | 1.1 |   | 0.120 |   | 0.1 |   | 18.4 |   | 0.266 |   | 4.9 |   |
| Smith          |       | 97.8                                                                                                                |       | 0.385 |   | 37.6 |   | 171.2 |   | 0.302 |   | 51.8 |   | 269.0 |   | 0.332 |   | 89.4 |   |
| SSX-Steer      |       | 440.3                                                                                                               |       | 0.262 |   | 115.4 |   | 299.1 |   | 0.272 |   | 81.4 |   | 739.4 |   | 0.266 |   | 196.8 |   |
| Saval          |       | 11.4                                                                                                                |       | 0.200 |   | 2.3 |   | 108.8 |   | 0.250 |   | 27.2 |   | 120.2 |   | 0.246 |   | 29.5 |   |
| Starvation     |       | —                                                                                                              |       | — |   | — |   | 369.6 |   | 0.305 |   | 112.9 |   | 369.6 |   | 0.305 |   | 112.9 |   |
| Wright  Window |       | —                                                                                                              |       | — |   | — |   | 32.6 |   | 0.226 |   | 7.4 |   | 32.6 |   | 0.226 |   | 7.4 |   |
| **Sub  Total** |       | 566.8                                                                                                               |       | 0.282 |   | 160.1 |   | 982.5 |   | 0.286 |   | 280.8 |   | 1,549.3 |   | 0.285 |   | 440.9 |   |
| ** **     | ** ** | ** **                                                                                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Stockpiles** |       | 69.3                                                                                                                |       | 0.198 |   | 13.7 |   | 366.3 |   | 0.085 |   | 31.1 |   | 435.7 |   | 0.103 |   | 44.8 |   |
| ** **     |       |                                                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Total**      | ** ** | **636.1**                                                                                                           | ** ** | **0.273** | ** ** | **173.8** | ** ** | **1,348.8** | ** ** | **0.231** | ** ** | **312.0** | ** ** | **1,984.9** | ** ** | **0.245** | ** ** | **485.7** | ** ** |

 

Table 4, below, summarizes theestimated measured, indicated and inferred resources, calculated in accordancewith National Information 43-101. Mineral reserves, as shown in Table 2 above, are included in measured andindicated resources.  Undergroundresources are calculated using a cut-off grade of 0.150 ounces of gold per ton(“opt”); open pittable resources are calculated using a cut-off grade of 0.075opt.

 

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**Table 4**(1),(2),(3),(4),(5)

**JERRITT CANYON TOTAL MINERALRESOURCES - December 2006**

includes provenand probable reserves

 
| ** **                   | ** ** | **MEASURED**        | ** ** | **INDICATED** | ** ** | **MEASURED + INDICATED** | ** ** | **INFERRED**        | ** ** |
|------------------------------|------------|---------------------|------------|---------------|------------|------------------------------------|------------|---------------------|------------|
| **DEPOSIT / AREA** | ** ** | **Tons (000)** | ** ** | **oz/st**     | ** ** | **Oz (000)**                  | ** ** | **Tons (000)** | ** ** | **oz/st** | ** ** | **Oz (000)** | ** ** | **Tons (000)** | ** ** | **oz/st** | ** ** | **Oz (000)** | ** ** | **Tons (000)** | ** ** | **oz/st** | ** ** | **Oz (000)** | ** ** |
|                         |       |                |       |          |       |                               |       |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Murray                       |       | 156                 |       | 0.310         |       | 48.3                               |       | 27                  |       | 0.269 |   | 7.1 |   | 182.4 |   | 0.304 |   | 55.4 |   | 90.4 |   | 0.228 |   | 20.6 |   |
| Murray Zone 9                |       | —              |       | —        |       | —                             |       | 210.9               |       | 0.277 |   | 58.5 |   | 210.9 |   | 0.277 |   | 58.5 |   | 61.6 |   | 0.209 |   | 12.9 |   |
| SSX-Steer                    |       | 1,735.2             |       | 0.259         |       | 448.6                              |       | 597.3               |       | 0.286 |   | 170.7 |   | 2,332.5 |   | 0.266 |   | 619.3 |   | 929.7 |   | 0.230 |   | 213.4 |   |
| Smith                        |       | 601.2               |       | 0.311         |       | 187                                |       | 463.1               |       | 0.264 |   | 122.3 |   | 1,064.4 |   | 0.290 |   | 309.1 |   | 541.6 |   | 0.231 |   | 125.3 |   |
| Smith East                   |       | —              |       | —        |       | —                             |       | 997.7               |       | 0.281 |   | 280.5 |   | 997.7 |   | 0.281 |   | 280.5 |   | 120.4 |   | 0.264 |   | 31.7 |   |
| Saval                        |       | 12.3                |       | 0.227         |       | 2.8                                |       | 357.0               |       | 0.255 |   | 91.1 |   | 369.3 |   | 0.254 |   | 93.9 |   | 191.2 |   | 0.238 |   | 45.5 |   |
| Starvation Canyon            |       | —              |       | —        |       | —                             |       | 636.5               |       | 0.290 |   | 184.3 |   | 636.5 |   | 0.290 |   | 184.3 |   | 51.2 |   | 0.278 |   | 14.2 |   |
| Wright Window                |       | —              |       | —        |       | —                             |       | 97.8                |       | 0.156 |   | 15.2 |   | 97.8 |   | 0.156 |   | 15.2 |   | 19.0 |   | 0.229 |   | 4.3 |   |
|                         |       |                |       |          |       |                               |       |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Subtotal                     |       | 2,504.6             |       | 0.274         |       | 686.4                              |       | 3,386.9             |       | 0.275 |   | 929.8 |   | 5,891.5 |   | 0.274 |   | 1,616.2 |   | 2,005.1 |   | 0.233 |   | 468.0 | ** ** |
| Stockpiles                   |       | 69.3                |       | 0.198         |       | 13.7                               |       | 1,158.0             |       | 0.059 |   | 68.2 |   | 1,227.3 |   | 0.067 |   | 81.9 |   | — |   | — |   | — |   |
|                         | ** ** | ** **          | ** ** | ** **    | ** ** | ** **                         | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Pit Resources                | ** ** | ** **          | ** ** | ** **    | ** ** | ** **                         | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Burns Basin Pit              |       | —              |       | —        |       | —                             |       | 29.7                |       | 0.134 |   | 4.0 |   | 29.7 |   | 0.134 |   | 4.0 |   | — |   | — |   | — |   |
| California Mtn. Pit          |       | —              |       | —        |       | —                             |       | 8.0                 |       | 0.115 |   | 0.9 |   | 8.0 |   | 0.115 |   | 0.9 |   | — |   | — |   | — |   |
| Coyote Zone 10 Pit           |       | —              |       | —        |       | —                             |       | —              |       | — |   | — |   | — |   | — |   | — |   | 20.1 |   | 0.104 |   | 2.1 |   |
| Pie Creek Pit                |       | —              |       | —        |       | —                             |       | 190.2               |       | 0.157 |   | 29.9 |   | 190.2 |   | 0.157 |   | 29.9 |   | 28.3 |   | 0.142 |   | 4.0 |   |
| Road Canyon Pit              |       | —              |       | —        |       | —                             |       | 148.6               |       | 0.143 |   | 21.2 |   | 148.6 |   | 0.143 |   | 21.2 |   | 74.3 |   | 0.131 |   | 9.7 |   |
| Mill Creek                   |       | —              |       | —        |       | —                             |       | 78.4                |       | 0.124 |   | 9.7 |   | 78.4 |   | 0.124 |   | 9.7 |   | — |   | — |   | — |   |
|                         | ** ** | ** **          | ** ** | ** **    | ** ** | ** **                         | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| U/G Resources                | ** ** | ** **          | ** ** | ** **    | ** ** | ** **                         | ** ** | ** **          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Burns Basin                  |       | —              |       | —        |       | —                             |       | 30.7                |       | 0.194 |   | 6.0 |   | 30.7 |   | 0.194 |   | 6.0 |   | 50.6 |   | 0.228 |   | 11.5 |   |
| California Mtn.              |       | —              |       | —        |       | —                             |       | 32.1                |       | 0.377 |   | 12.1 |   | 32.1 |   | 0.377 |   | 12.1 |   | 9.4 |   | 0.330 |   | 3.1 |   |
| Coyote Zone 10               |       | —              |       | —        |       | —                             |       | 45.2                |       | 0.212 |   | 9.6 |   | 45.2 |   | 0.212 |   | 9.6 |   | 2.7 |   | 0.184 |   | 0.5 |   |
| MCE                          |       | —              |       | —        |       | —                             |       | 4.4                 |       | 0.201 |   | 0.9 |   | 4.4 |   | 0.201 |   | 0.9 |   | 7.8 |   | 0.189 |   | 1.5 |   |
| Waterpipe II                 |       | —              |       | —        |       | —                             |       | —              |       | — |   | — |   | — |   | — |   | — |   | 37.4 |   | 0.206 |   | 7.7 |   |
| West Mahala                  |       | —              |       | —        |       | —                             |       | 368.1               |       | 0.224 |   | 82.5 |   | 368.1 |   | 0.224 |   | 82.5 |   | 141.9 |   | 0.209 |   | 29.6 |   |
| Winters Creek                |       | —              |       | —        |       | —                             |       | 148.9               |       | 0.218 |   | 32.5 |   | 148.9 |   | 0.194 |   | 32.5 |   | 37.2 |   | 0.199 |   | 7.4 |   |
|                         |       |                |       |          |       |                               |       |                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| **Total**                    | ** ** | **2,573.9**         | ** ** | **0.272**     | ** ** | **700.1**                          | ** ** | **5,629.3**         | ** ** | **0.214** | ** ** | **1,207.1** | ** ** | **8,203.2** | ** ** | **0.232** | ** ** | **1,907.2** | ** ** | **2,414.8** | ** ** | **0.226** | ** ** | **545.2** | ** ** |

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(1)  Based on a gold price of $485 per ounce.

(2)  “Resources” or “resource”used in this Annual Information Form are as defined in National Instrument43-101 of the Canadian Securities Administrators and are not terms recognizedor defined by the U.S. Securities and Exchange Commission (SEC). Mineral resourcesare not reserves and do not have demonstrated economic viability.  Contained metal estimates remain subject tofactors such as mining dilution and process recovery losses. For furtherinformation, please refer to the risk factors and definitions of reserves andresources in the Company’s filings on SEDAR and with the SEC as filed on theSEC’s EDGAR database, which can also be accessed through the Company’s website,www.queenstake.com.  Refer also to theCautionary Statement on page four on this document. Key assumptions and methodsused in deriving proven and probable reserves, and measured and indicatedresources are as described in this document and the Company’s  National Instrument 43-101 Report that willbe filed during the second quarter of 2007.

(3)  U.S. investors are advisedto read the Cautionary Statement on page four in this document.  It cannot be assumed that part or all of themineral deposits termed “resources” may ever demonstrate economic viability tobecome reserves and the term “inferred resources” is not recognized by the SECand it cannot be assumed that part or all of an inferred resource will ever beupgraded to a higher category.

(4) For Queenstake, the Qualified Persons for the technical informationcontained in this Annual Information Form are Messrs. Dorian L. (Dusty) Nicol,President and Chief Executive Officer, Robert Todd, Manager of TechnicalServices, and Donald G. Colli, Manager of Mineral Resources.

(5)  For SRK Consulting (U.S.),Inc., in connection with of Queenstake’s National Information 43-101 report,the Qualified Person is Mr. Landy Stinnet, Associate Mining Engineer.

Although the Company hascarefully prepared and verified the mineral resource and reserve figures above(and elsewhere in this document), such figures are estimates, and there can beno assurance given that the indicated amount of gold will actually be mined andprocessed.  See also “Risk Factors”.

The net change in reservesrelative to the previously estimated reserves at December 31, 2005 is comprisedof depletion due to production, reclassification of ounces from reserve toresource as a result of increases in the mining unit costs, increase in cutoffgrade, remnant ounces condemned with the shutdown of the Murray Mine and,elimination from  reserves of ouncesbelow the water table at the Smith Mine.

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Except for ore stockpiles,substantially all the current reserves at Jerritt Canyon are contained indeposits being developed, or to be developed, and mined by underground methods.Once the mineralized envelopes and gold grades are estimated the minegeologists draw grade envelopes (based on cutoff grade), using the block modelvalues, existing adjacent development and the cutoff grades provided byengineers for each mine.  In order todetermine the portion of the measured and indicated resource that would qualifyfor proven and probable mineable ore reserve status, it is necessary toconfigure the measured and indicated resource into mineable shapes for theselected mining method, and then apply tests for economic viability and includefactors for mining dilution and recovery.

Resources at Jerritt Canyonhave been developed from the extensive drilling data, using geology-constrainedstandard kriging and polygonal methods and using a mine modeling and planningsoftware package.  Mineral resources arecontained in 16 mineral deposits in the Jerritt Canyon area.  The operation employs block modelingtechniques supported by relatively small block sizes.

Exploration drilling programsat Jerritt Canyon are predominantly reverse circulation surface drilling andoccasionally, surface core drilling, followed by underground drilling with coreholes. Underground production sample drilling consists of reverse circulationand rotary percussion drilling.

All assaying at Jerritt Canyonfollows accepted industry standards using industry practices at recognizedlaboratories. Samples from surface drilling both core and reverse circulationare sent to an outside laboratory for assaying. Blanks or standards areroutinely submitted with these samples. Underground drill samples are sent tothe Jerritt Canyon laboratory (the “JC Laboratory”) on site. The JC Laboratoryhas all the normal sample preparation equipment and facilities. The JCLaboratory operates continually with a crew of 16 and does about 500 fireassays per day with a 24-hour turnaround from receipt of sample to reporting ofassays. Several programs are followed to track assay quality including internalchecks, check samples sent in by the mine department, weekly dispatch ofsamples to other laboratories, and participation in a round-robin program withother mining laboratories in the area where random samples are sent out andothers received. Blanks, standards, and/or pulps are routinely submitted withthe sample stream. Check samples of core holes (pulps) are sent to outsidelaboratories for analysis. Pulps and coarse rejects form one outside laboratoryare routinely submitted to another outside laboratory for analysis.

The vast majority of drillholes (except rotary percussion holes) are measured for downhole deviations andrecorded in the database. Very few exploration holes do not get measured fordeviation. This may occur in shallow vertical holes, when holes collapse orwhen logistics are such that timely measurement is not permitted.

The geological data isnormally maintained in MineSight software for interpretation and mine planmodeling at each mine.

*Mining*

The Jerritt Canyon minecurrently consists of the Smith, and SSX-Steer Complex underground mines, alllocated several miles west of an ore processing plant and administrationcomplex.  Access to all underground minesis by inclined ramp. Typical openings underground are 15 feet x 15 feet incross-section, with ramps of 12% to 15% inclination. All openings undergroundmust be supported with rockbolts and wire mesh, and shotcrete where conditionsare more severe, or where traffic is concentrated. Generally, the mines arerelatively dry, except for the Smith Mine which has underground water inflowsof about 850 gallons per minute (gpm). A dewatering system with the capacity tohandle 1,500 gpm has been installed and the water table in the Smith Mine hasstabilized. Interior development includes haulage levels, stope access ramps,crosscutting, and drifting alongside the ore. Ventilation boreholes connect theunderground mine workings with the surface.

Mechanized, tracklessunderground mining is employed together with cemented backfill for groundcontrol and to increase ore recovery. Almost half the ore is mined by long-hole benching, the remainder ismined by drift-and-fill methods. Underground trucks deliver ore to windrows on the surface at each mineportal, where the ore is sampled before being delivered by 150-ton haul trucksto the processing plant.  Good, wide,haul roads connect the individual mines to the processing plants and to theadministration area next to the plant. All of the mines feed the sameprocessing plant, with the two mines typically producing and trucking about2,200 tons per day to the plant.

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Mine drilling, mucking, andhauling equipment maintenance is typically performed in small surface shopslocated at each mine, or at the central shop located adjacent to the processingplant.

*Processing*

The ore processing facility atJerritt Canyon, as originally built, processed oxide and mildly refractory oresby conventional cyanide leaching in conjunction with chlorine-gas pre-oxidationof the mildly refractory fraction.  Thisprocess continued to operate until 1997. With ores becoming more carbonaceous and refractory, and with theintroduction of higher-grade ore from underground operations, a dry mill withdual ore roasting circuits was added in 1989 and is currently inoperation.  Mill feed is subjected to primaryand secondary crushing before being dried, milled and roasted to prepare therefractory ores for gold recovery in a carbon-in-leach circuit.  Gold is recovered using a Merrill-Croweprocess, is smelted on site and shipped to the refinery as high quality dorébars.  The plant has a processingcapacity of 1.5 million tons per year.

*CapitalCosts*

Thelevel of capital expenditures made by the former owners at Jerritt Canyon inthe immediate period prior to the sale of the mine reflected that the mineswere scheduled to shut down at the end of 2004. Underground development and reserve expansion drilling, critical to thelong-term sustainability of the operation, had been curtailed.  Consequently, the Company began an aggressiveunderground development and reserve and resource expansion program.  Drilling and mine development into highlyprospective resource areas has been given highest priority.  Primary targets for conversion of resourcesto reserves include areas immediately adjacent to current operations primarilyat the SSX and Smith mines.

Duringfiscal 2006, the Company spent $31.9 million for the evaporation pond,underground development, major haulage-ways, ventilation raises, definitiondrilling, capital resource development, sustaining capital and relatedactivities to provide long-term infrastructure and stope access within themines. This compares to capital investments during 2005 of $19.7 million.

*ProductionOutlook First Quarter of 2007*

During the first quarterof 2007, the Jerritt Canyon mill continued to operate at approximately 75% ofcapacity.  A planned 10-day shutdown toreplace the pinion and bull gear is scheduled for late in the second quarter of2007. During the 2007 first quarter, the mines continued to produce ore atapproximately the same tonnages as experienced in late 2006.

*Production Outlook Full Year 2007*

The Company expects to close the Queenstake-YGC business combination inthe second quarter of 2007 (*see “2007 SubsequentEvents” above.*)  Upon closureof the merger, the new Board of Directors and management of Yukon-Nevada GoldCorporation will determine the production outlook, exploration and capitalinvestment levels, and strategic focus in order to deliver maximum value fromthe Jerritt Canyon operation and assets.

 

If the Queenstake-YGC mergeris delayed or does not close during 2007, the Board of Directors and managementof the Company will release 2007 production guidance based on a revised mineplan that operates Jerritt Canyon to achieve cash self sufficiency during 2007without a significant investment in exploration,  mine development or capitalinfrastructure.  The cost cuttingmeasures undertaken in late 2006 appear to be taking effect, however, ore tonsmined and grade have declined over the past 15 months.  The Company expects that gold production willstabilize but at a reduced rate from 2006 levels.  The Company is analyzing the full impact ofthe cost reduction measures implemented, development requirements, millshutdown and bull gear replacement timing issues, and other production/costimprovement measures.  The roastersshould be processing at full capacity, or approximately 1.5 million tons peryear, beginning in July 2007 and on completion of bull gear replacement.  All Newmont purchased ore stockpile existingas of March 29, 2007 should be processed by year-end 2007.  During the second quarter of 2007, the millis scheduled to

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be down for 10 days to allowfor annual maintenance and bull gear replacement.  During the scheduled mill down-time, themines will continue to produce ore and accumulate the ore in stockpilesadjacent to the mill that will then be processed during the third quarter of2007.

If the Queenstake-YGCmerger is delayed, it is unlikely that a significant exploration or sustainingcapital program could be funded without a financing.

The Company expects tomill approximately 0.9 million tons of ore during 2007 processing a blend ofJerritt Canyon mined ore, Jerritt Canyon stockpiled ore and Newmont purchasedore.  The mill is expected to run at 75%capacity for the first half of the year through completion of the pinion andbull gear shutdown and then, at 100% (1.5 million tons annually) for the secondhalf of the year.  The blend of orethrough the mill is determined based on grade, recovery, metallurgicalcomplements to other ore types, minimization of re-handling costs and otherfactors.  Mill capacity during the summerand fall is typically 20% to 40% higher than winter, largely because the drymill capacity is adversely affected by high moisture in the feed, due tosnowfall and ice.

*Exploration and Development*

Subject to available funding,the Company intends to expand its mineral resources and reserves at JerrittCanyon through focused exploration on its approximately 119-square mile JerrittCanyon district landholdings.  Managementof the Company believes much of the exploration work done in past years under theprevious owners was in search of either shallow open pit targets ormulti-million ounce underground targets and that known reserves and advancedstage targets were not aggressively expanded or systematically followed-up.

Targetsbroadly fall into 4 categories.

1.               Targetswhere work by previous owners identified mineralization that was so clearlyhigh priority that Queenstake began aggressive follow-up during 2004 andcontinued in 2005. The best example of this type of target is StarvationCanyon, where an aggressive drilling program led to the recognition of ahigh-grade mineralized system that remains open.

2.               Targetsin the southern part of the district, where drilling by prior owners identifiedcontinuous mineralization which not only remains open, but which may becontrolled by vertical structures that have yet to be tested by angle holes.Some of these targets are Waterpipe Canyon, and Pie Creek.

3.               Numerousareas where one or more drill holes by previous owners have identifiedmineralization in favorable geologic settings, such as Winters Creek Window andMahala Creek, where there is potential to establish both continuity andextension by further drilling. These targets are on structural trends fromorebodies that are currently in production or have previously been mined.

4.               Numerousareas where surface geochemical anomalies coincide with favorable geology, orextrapolation of favorable geology. In some cases, some additional work isrequired to define specific drilling targets.

Positive exploration resultsdefined the first mineralreserves at Starvation Canyon and successfully replaced proven and probablereserves, net of depletion from production, at year-end 2006.

*2006 Private Placement, OreProcessing and Property Lease Agreements*

On March 29, 2006, theCompany entered into an agreement with Newmont Canada Limited (“Newmont”)whereby Newmont purchased 28.51 million Queenstake common shares at Cdn $0.41per share for gross proceeds of US $10.0 million through an equity privateplacement.  As part of the privateplacement, Newmont received warrants that can be exercised to acquire up to28.51 million common shares of Queenstake at a price of Cdn $0.55 for afour-year period, which would generate Cdn $15.7 million in cash if exercised.  For a period of two years from closing,

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Newmont will have theright to participate in future equity offerings by Queenstake to preserve itsfully diluted shareholding percentage and will have certain additional rightsto participate in debt financings.  Theprivate placement, which remains subject to certain closing conditions,including regulatory approvals, is expected to close in the second quarter of2006. Proceeds were used to fund exploration and for other corporate uses.

An affiliate of Newmontagreed to convey three of its Nevada exploration properties to Queenstake on alease-option basis.  The properties aresubject to a sliding scale net smelter royalty, dependent on the gold price, of3% to a maximum of 5% if gold is at or above $500 per ounce, and Newmont retainsthe right to back into a 51% joint venture interest in each of the properties.

In addition, anotheraffiliate of Newmont agreed to sell concentrates and ore from its Nevadaoperations to Queenstake for processing at its Jerritt Canyon roasting and millingfacility.  The contract calls forQueenstake to purchase at least 500,000 tons per year over two years.  Queenstake will pay Newmont for therecoverable ounces in the purchased concentrates and ore, and Queenstake willcharge Newmont commercial terms for processing and refining. Ore purchases withNewmont may continue for up to three additional years if Queenstake has thespare processing capacity.

Thefollowing map illustrates the Jerritt Canyon property in Elko County, Nevada.

 

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# ****

 

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# RISKFACTORS

The operations of the Companyare speculative due to the high-risk nature of its business, which is theacquisition, financing, exploration, development and operation of miningproperties.  The risks below are not theonly ones facing the Company. Additional risks not currently known to theCompany, or that the Company currently deems immaterial may also impair theCompany’s operations.  The order in whichthe following risk factors appear does not necessarily reflect management’sopinion of their order or priority.

*Gold Price Volatility*

The Company’s business isaffected by the world spot market price of gold. Gold prices are subject tovolatile price movements over short periods of time and are affected bynumerous factors, all of which are beyond the Company’s control. These includeindustry factors such as: industrial and jewellery demand; the level of demandfor gold as an investment; central bank lending, sales and purchases of gold;speculative trading; and costs of and levels of global gold production byproducers of gold. Gold prices may also be affected by macroeconomic factors,including: expectations of the future rate of inflation; the strength of, andconfidence in, the US dollar, the currency in which the price of gold isgenerally quoted, and other currencies; interest rates; and global or regional,political or economic uncertainties. The profitability of the Company’soperations is directly related to the price of gold. If the world market priceof gold were to drop and the prices realized by the Company on gold sales wereto decrease significantly and remain at such a level for any substantialperiod, this would materially and adversely affect the Company’s profitabilityand cash flow.

A decline in the market priceof gold may also require the Company to write-down its mineral reserves, whichwould have a material and adverse effect on its earnings and financialposition. Should any significant write-down in reserves be required, materialwrite-downs of the Company’s investment in the affected mining properties plusincreased amortization and asset retirement obligation charges may berequired.  Further, if revenue from goldsales declines, the Company may experience liquidity difficulties. This mayreduce its ability to invest in exploration and development, which wouldmaterially and adversely affect future production, earnings, and the Company’sfinancial position.

*Price Volatility of Other Commodities*

The Company’s profitability isalso affected by the market prices of commodities, which are consumed orotherwise used in connection with operations, such as diesel fuel, natural gaselectricity and cement. Prices of such commodities are also subject to volatileprice movements over short periods of time and are affected by factors that arebeyond the Company’s control.

*Mining Risks and Insurance Risks*

The operations of the Companyare subject to significant risks and hazards, incidental to the exploration,development and production of gold including environmental hazards, industrialaccidents, unusual or unexpected rock formations, pressures, cave-ins andflooding, some of which are beyond the Company’s control. These risks andhazards could result in: damage to, or destruction of, mineral properties orproducing facilities; personal injury or death; environmental damage; delays inmining; and monetary losses and possible legal liability for such damage.Although the Company maintains and intends to continue to maintain insurancewhich it considers adequate to cover some of these risks and hazards to theextent available and consistent with the industry practice, no assurance can begiven that such insurance will continue to be available, or that it will beavailable at economically feasible premiums. The Company’s property, business interruption and liability insurancemay not provide sufficient coverage for losses related to these or other risksor hazards. In addition, the Company may become subject to liability forhazards which it cannot insure against or which it may elect not to insureagainst because of premium costs or other reasons.

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*Mineral Reserves and Resources*

The Company’s mineral reservesand mineral resources are estimates, and no assurance can be given that theindicated level of gold will be able to be mined and processed. Fluctuations inthe price of gold may render mineral reserves containing relatively lowergrades of gold mineralization uneconomic. Moreover, short-term operatingfactors relating to the mineral reserves, such as the need for orderlydevelopment of ore bodies or the processing of new or different ore grades, maycause mineral reserves to be reduced or the Company to be unprofitable in anyparticular accounting period.  Estimatedreserves may have to be recalculated based on actual production experience.Market price fluctuations of gold, as well as increased production costs orreduced recovery rates, may render the present proven and probable reservesunprofitable to develop at a mine or mines. This could cause the Company toreduce its reserves, which could have a negative impact on its operations andfinancial results. Failure to obtain necessary permits or government approvalscould also cause the Company to reduce its reserves.

Mineral resources that are notmineral reserves do not have demonstrated economic viability.  Due to the uncertainty of inferred mineralresources, these mineral resources may never be upgraded to proven and probablemineral reserves.

There is no assurance that theCompany will obtain the estimated levels of recovery of gold or the pricesassumed in determining gold reserves.

*Mine Development*

The Company’s ability tosustain or increase its present levels of gold production is dependent upon thesuccessful development of new producing mines and/or identification ofadditional reserves at existing mining operations. If the Company is unable todevelop new ore bodies, it will not be able to sustain present productionlevels. Reduced production could have a material and adverse impact on futurecash flows, results of operations and financial condition.

*Production and Cost Estimates*

The Company preparesestimates of future production and cash costs of production for its operations.No assurance can be given that such estimates will be achieved. The failure bythe Company to achieve production or cost estimates could have an adverseimpact on any or all of the Company’s future cash flows, results of operationsand financial condition.  The Company’sactual production may vary from estimates for a variety of reasons, including:actual ore mined varying from estimates of grade, tonnage, dilution andmetallurgical and other characteristics; short-term operating factors relatingto the ore reserves, such as the need for sequential development of ore bodiesand the processing of new or different ore grades; risks and hazards associatedwith mining; natural phenomena, such as inclement weather conditions, floods,and earthquakes; and unexpected labor shortages. Cash costs of production maybe affected by a variety of factors, including: ore grade, metallurgy, laborcosts, the cost of commodities, supplies and services. Such occurrences couldresult in damage to mineral properties, interruptions in production, injury ordeath to persons, damage to property of the Company or others, monetary lossesand legal liabilities. These factors may cause a mineral deposit that has beenmined profitably in the past to become unprofitable, forcing the Company tocease production.

*Exploration*

Gold exploration is highlyspeculative in nature.  The Company’s explorationwork involves many risks and may be unsuccessful.  Substantial expenditures are required toestablish proven and probable reserves and to complete the related minedevelopment.  It may take several yearsfrom the initial phases of drilling until production is possible. As a resultof these uncertainties, there is no assurance that current or futureexploration programs will be successful

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and result in the expansion orreplacement of current production with new reserves or result in the discovery ofnew ore bodies.

*Environmental, Health and Safety Regulations*

The Company’s miningoperations and exploration activities are subject to extensive laws andregulations governing the protection of the environment, waste disposal, workersafety, mine development and protection of endangered and protected species.Environmental legislation is evolving in a manner that may require stricterstandards and enforcement, increased fines and penalties for non-compliance,more stringent environmental assessments of proposed projects and a heighteneddegree of responsibility for companies and their officers, directors andemployees. There is no assurance that existing or future environmentalregulation will not materially adversely affect the Company’s business, financialcondition and results of operations. Environmental hazards may exist on theproperties in which the Company holds interests and that are unknown to theCompany at present and that have been caused by previous existing owners oroperators of the properties. There may be costs and production delaysassociated with compliance with these laws and regulations. Bonds or otherforms of financial assurances are required for security for these reclamationactivities.  The unknown nature ofpossible future additional regulatory requirements creates uncertaintiesrelated to future environmental, health and safety costs. The Company has setaside cash to fund reclamation at the Jerritt Canyon mine based on currentassessments and has purchased insurance against unexpected reclamation costsbeyond the current estimated amounts. There can be no assurance, however, thatactual environmental and reclamation obligations will not exceed suchprovisions.

Bills proposing majorchanges to the mining laws of the United States have been considered byCongress. If these Bills, which may include royalty fees or net profitsinterests, are enacted in the future, they could have a significant effect onthe ownership and operation of patented and unpatented mining claims in theUnited States, including claims that the Company owns or holds.  Any amendment to current laws and regulationsgoverning operations and activities of mining companies, or more stringentimplementation thereof, could have a material adverse impact on the Company’sfinancial condition and results of operations.

*Employee Relations*

The Company’s ability toachieve its future goals and objectives is dependent, in part, on maintaininggood relations with its employees. Although the Jerritt Canyon mine employeesare not unionized, production at its mining operations is dependent upon theefforts of the Company’s employees, and a prolonged labor disruption at JerrittCanyon could have a material adverse impact on the Company’s operations as awhole.

In addition, relations betweenthe Company and its employees may be affected by changes in the scheme of laborrelations that may be introduced by the relevant government authorities inwhose jurisdictions the Company carries on business.  Changes in such legislation or in the relationshipbetween the Company and its employees may have a material adverse effect on theCompany’s business, results of operations and financial condition.

*Title to Properties*

The validity of mining claims,which constitute most of the Company’s property holdings, can be uncertain andmay be contested. Although the Company has attempted to acquire satisfactorytitle to its properties, some risk exists that some titles, particularly titleto undeveloped properties, may be subject to prior unregistered agreements ortransfer or native land claims and title may be affected by other undetecteddefects and may be defective.

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*Competition*

The mineral exploration andmining business is competitive in all of its phases.  The Company competes with other mining companiesand individuals, including competitors with greater financial, technical andother resources than the Company for mining claims and leases on explorationproperties, acquisition of gold mining assets, capital and qualified employees.  The Company cannot assure that it willcontinue to be able to compete successfully with its competitors in acquiringsuch properties, capital and employees or terms it considers acceptable, if atall.

*Dependence on Management*

The success of the operationsand activities of the Company is dependent to a significant extent on theefforts and abilities of its management, a small group of individuals.  Investors must be willing to rely to asignificant extent on management’s discretion and judgment.  The Company does not have in place formalprograms for the succession of management and training of management.  The Company does not maintain any key maninsurance on any of its employees.  Theloss of any one member of the management group could have a material adverseeffect on the Company’s business.

*Conflicts of Interest*

Certain of the directors andofficers of Company are also directors and/or officers of other naturalresource companies.  Such associationsmay give rise to conflicts of interest from time to time.  The Company’s directors are required by lawto act honestly and in good faith with a view to the best interests of theCompany and to disclose any interest, which they may have in any project oropportunity of the Company.  If aconflict of interest arises at a meeting of the board of directors, anydirector in a conflict must disclose his interest and abstain from voting onsuch matter in accordance with applicable corporate laws.

*Directors and Assets outside Canada*

Since certain of the Company’sdirectors are resident outside of Canada it may not be possible to effectservice of process upon such directors and since all or a substantial portionof the assets of such directors are located outside Canada, there may bedifficulties in enforcing against such directors judgments obtained in Canadiancourts.  Similarly, essentially all ofthe Company’s assets are located outside Canada and there may be difficultiesin enforcing against the Company judgments obtained in Canadian courts.

*Dilution*

The Company frequently issuescommon shares to finance asset acquisitions and working capital, to settleliabilities, to acquire services and to compensate employees.  As at March****29,2007**,** approximately 583.7 million commonshares were outstanding; approximately 38.6 million common shares were issuableupon the exercise of warrants and approximately 16.5 million common shares wereissuable upon the exercise of stock options. If all of the current warrants andoptions are exercised, the number of outstanding shares would increase by approximately10%****to approximately 638.8 millionshares.  It is possible that the Companywill enter into more agreements to issue common shares and warrants and optionsto purchase common shares.  The impact ofthe issuance of a significant amount of common shares from these warrant andoption exercises could place downward pressure on the market price of theCompany’s common shares.

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*Bridge Loan with Auramet TradingLLC*

The Company is obligatedto repay the $8.0 million Facility to Auramet Trading LLC (“Auramet”) by May31, 2007.  Auramet and the Company havereached an agreement to extend the payment date by one month from the originalagreement date of April 30, 2006.  TheCompany expects to repay the Facility through a combination of completion ofthe Queenstake and YGC merger *(see “2007 SubsequentEvents” above)*, equity financing, cash generated through operationsor other means.  If the Queenstake-YGCmerger and financing is delayed, the Company will seek to restructure and furtherextend the payment term of the Facility.

*Queenstake-YGC BusinessCombination*

The shareholders’meetings to approve the Queenstake-YGC merger are planned to occur in May2007.  If the merger is delayed or doesnot close during 2007, the Company would be required to obtain additionalfinancing to provide working capital and support ongoing operations.   There can be no assurance that the Companywill be able to obtain the necessary financing in a timely manner or onacceptable terms.

*FutureCapital Requirements*

The Company expects toclose the Queenstake-YGC business combination in the second quarter of 2007 (*see “2007 Subsequent Events” above.*)  Upon closure of the merger, the new Board ofDirectors and management of Yukon-Nevada Gold Corporation will determine theproduction outlook, exploration and capital investment levels, and strategicfocus in order to deliver maximum value from the Jerritt Canyon operation andassets.

If the Queenstake-YGC mergeris delayed or does not close during 2007, the Board of Directors and managementof the Company will release 2007 production guidance based on a revised mineplan for Jerritt Canyon to achieve cash self sufficiency during 2007 without asignificant investment in exploration, mine development or capital infrastructure.

The Company may berequired to obtain additional financing in the future to fund exploration anddevelopment activities or acquisitions of additional projects. The Company hashistorically raised capital primarily through equity financing and in thefuture may raise capital through equity or debt financing, joint ventures orother means. There can be no assurance that the Company will be able to obtainthe necessary financing in a timely manner, on acceptable terms or at all.

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*Estimates and Assumptions Employed in the Preparation ofFinancial Statements*

The preparation of itsconsolidated financial statements requires the Company to use estimates andassumptions that affect the reported amounts of assets, liabilities, revenuesand expenses. The Company’s accounting policies are described in Note 2 to itsDecember 31, 2006 consolidated financial statements. The Company’s accountingpolicies related to work-in-progress inventory valuation, depletion anddepreciation of property, plant and equipment, capitalization of developmentcosts and asset retirement obligations are critical accounting policies, whichare subject to estimates and assumptions regarding reserves, processrecoveries, future gold prices, environmental laws and regulations and futuremining activities.

The assumptions used inthe valuation of work-in-progress inventories include estimates of goldcontained in ore stockpiles and in the recovery circuit and an assumption ofthe gold price expected to be realized when the gold is recovered and furthercosts to be incurred. If these estimates or assumptions prove to be inaccurate,the Company could be required to write-down the recorded value of its work-in-progressinventories, which would reduce the Company’s earnings and working capital.

A significant portion ofthe Company’s property, plant and equipment is depleted and depreciated on aunits-of- production basis, which bases its calculations on the expected amountof recoverable reserves. If these estimates of reserves prove to be inaccurate,or if the Company revises its mine plan due to reductions in the price of goldor unexpected production cost increases, and as a result the amount of reservesexpected to be recovered are reduced, then the Company would be required towrite-down the recorded value of its property, plant and equipment or toincrease the amount of future depletion and depreciation expense, both of whichwould reduce the Company’s earnings and net assets.

The Company also assessesits property, plant and equipment for impairment at the end of each accountingperiod. If prior estimates of future cash flows prove to be inaccurate, due toreductions in the price of gold, increases in the costs of production, and/orreductions in the amount of recoverable reserves, the Company would be requiredto write-down the recorded value of its property, plant and equipment, whichwould reduce the Company’s earnings and net assets.

The Company has an obligationto reclaim its properties after the minerals have been fully depleted, and hasestimated the costs to comply with existing reclamation and accountingstandards. The estimate of the fair value of these costs was based on existingenvironmental laws and regulations, the life of the various mines, interestrates and estimated future costs.

*Payment Obligations*

The Company is, or may in thefuture become, a party to certain contractual agreements pursuant to which theCompany is or may become subject to payments and comply with otherobligations.  If such obligations are notcomplied with when due, in addition to any other remedies, which may beavailable to other parties, this could result in dilution or forfeiture ofinterests held by the Company.  The Companymay not have, or be able to obtain, financing for all such obligations as theyarise.

*Dividends*

No dividends on thecommon shares of the Company have been paid to date. The Company anticipatesthat it will retain all future earnings and other cash resources for the futureoperation and development of its business. The Company does not intend todeclare or pay any cash dividends in the foreseeable future.  Payment of any future dividends will be atthe discretion of the Company’s board of directors, after taking into accountmany factors, including the Company’s operating results, financial conditionand current and anticipated cash needs.

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# CAPITAL STRUCTURE

The Company has one classof equity: common shares without par value. The Company is authorized to issue an unlimited number of commonshares.  Each common share is entitled toone vote and to participate equally on a distribution of assets or a winding upof the Company.

As at March 29, 2007,approximately 583.7 million common shares were issued and outstanding.  An additional 38.6****millioncommon shares were issuable upon the exercise of warrants, and 16.5 millioncommon shares were issuable upon the exercise of stock options.

# MARKET FOR SECURITIES

The Company’s common sharesare currently listed on the Toronto Stock Exchange (the “TSX”) under thetrading symbol QRL. The Company’s common shares began trading on the AmericanStock Exchange (the “AMEX”) under the trading symbol QEE on December 14, 2004.

Trading History on the TSX in2006 is as follows:

| 2006       | ** ** | **Sales price (Cdn$)** | ** ** | **Average  Daily Volume** | ** ** |
|------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **High**                         | ** ** | **Low**                        | ** ** | ** ** | ** ** |
| January    |       | 0.405                            |       | 0.240                          |       | 3,810,091 |   |
| February   |       | 0.380                            |       | 0.290                          |       | 1,352,180 |   |
| March      |       | 0.530                            |       | 0.300                          |       | 3,109,053 |   |
| April      |       | 0.520                            |       | 0.415                          |       | 3,115,632 |   |
| May        |       | 0.600                            |       | 0.380                          |       | 2,178,608 |   |
| June       |       | 0.450                            |       | 0.350                          |       | 765,171 |   |
| July       |       | 0.450                            |       | 0.335                          |       | 1,202,161 |   |
| August     |       | 0.430                            |       | 0.355                          |       | 785,486 |   |
| September  |       | 0.420                            |       | 0.295                          |       | 1,166,387 |   |
| October    |       | 0.310                            |       | 0.250                          |       | 1,163,509 |   |
| November   |       | 0.335                            |       | 0.250                          |       | 1,324,632 |   |
| December   |       | 0.270                            |       | 0.205                          |       | 1,274,640 |   |

 

Trading History on the AMEX in 2006 is as follows:

 

| 2006       | ** ** | **Sales price (US$)** | ** ** | **Average  Daily Volume** | ** ** |
|------------|------------|---------------------------------|------------|--------------------------------|------------|
| ** ** | ** ** | **High**                        | ** ** | **Low**                        | ** ** | ** ** | ** ** |
| January    |       | 0.360                           |       | 0.210                          |       | 1,755,875 |   |
| February   |       | 0.330                           |       | 0.250                          |       | 1,070,361 |   |
| March      |       | 0.450                           |       | 0.260                          |       | 2,703,830 |   |
| April      |       | 0.460                           |       | 0.360                          |       | 4,188,505 |   |
| May        |       | 0.550                           |       | 0.330                          |       | 3,981,859 |   |

 

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| June      |   | 0.420 |   | 0.320 |   | 1,557,882 |   |
|-----------|--------|-------|--------|-------|--------|-----------|--------|
| July      |   | 0.410 |   | 0.290 |   | 1,546,330 |   |
| August    |   | 0.390 |   | 0.320 |   | 1,012,887 |   |
| September |   | 0.382 |   | 0.260 |   | 1,279,565 |   |
| October   |   | 0.280 |   | 0.220 |   | 1,247,395 |   |
| November  |   | 0.300 |   | 0.210 |   | 2,059,290 |   |
| December  |   | 0.240 |   | 0.170 |   | 1,839,225 |   |

 

# DIRECTORS AND OFFICERS

## ***Name, Address and Occupation***

Thenames, province or state,  country ofresidence, positions held and principal business occupations in which each ofthe Company’s current directors and executive officers of the Company has beenengaged during the immediately preceding five years is as follows:
| Name, Province or State and Country(1) | ** ** | **Position  &  Term of Service**                                                       | ** ** | **Principal  Occupation or  Employment for Past Five Years(1)**                                                                                                                                                                        |
|----------------------------------------|------------|--------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                   |       |                                                                                       |       |                                                                                                                                                                                                                                   |
| DORIAN (DUSTY) NICOL  Colorado, USA    |       | President and Chief Executive  Officer since March 2005, and Director since July 1999      |       | President and Chief Executive  Officer of Queenstake, March 2005 to present; Executive Vice President of  Queenstake, 2003 to 2005; and Vice President Exploration of Queenstake, 1999  to 2003.                                       |
|                                   |       |                                                                                       |       |                                                                                                                                                                                                                                   |
| ERIC EDWARDS  Colorado, USA            |       | Vice President Finance, Chief  Financial Officer, and Corporate Secretary since March 2005 |       | Vice President Finance and  Chief Financial Officer of the Company, March 2005 to present; Manager,  Administration of Kinross Gold Corporation, 2002 to 2005; and Vice President  Finance of EHS Capital Partners, LLP, 2001 to 2002. |
|                                   |       |                                                                                       |       |                                                                                                                                                                                                                                   |
| WENDY YANG  Colorado, USA              |       | Vice President of Investor Relations since December  2005                                  |       | Vice President, Investor  Relations, August 2005 to present; and Director, Investor Relations of  Newmont Mining Corporation, 2000 to 2005.                                                                                            |
|                                   |       |                                                                                       |       |                                                                                                                                                                                                                                   |
| PETER BOJTOS(2) (4)(6)  Colorado, USA  |       | Director since June 2000                                                                   |       | Director of the Company, June 2000  to present; a Professional Engineer, and director of several public mining  companies.                                                                                                             |

 

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| ROBERT L. ZERGA(3) (4)  Nevada, USA              |   | Non-Executive Chairman,  Director since April 2004 |   | Director of the Company, April  2004 to present; and a retired mining executive.                                                                                                                                                                                                                                          |
|--------------------------------------------------|--------|----------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                             |   |                                               |   |                                                                                                                                                                                                                                                                                                                      |
| DORIS MEYER(2) (4) (5)  British Columbia, Canada |   | Director since May 2005                            |   | Director of the Company, May  2005 to present; President and Owner of Golden Oak Corporate Services Ltd.,  which provides financial and corporate compliance services to publicly traded  mining companies; and director of several public mining companies.                                                              |
|                                             |   |                                               |   |                                                                                                                                                                                                                                                                                                                      |
| JOHN ELLIS(3)(6)  Nevada, United States          |   | Director since May 2005                            |   | Director of the Company, May 2005 to present;  Independent Consultant with respect to mines, mills and smelters for Inco,  Queenstake, and others, 2003 to present; and Founder of Ellis Consultants, a  private company providing consulting services principally to the AngloGold  group of companies, 2000 to present. |
|                                             |   |                                               |   |                                                                                                                                                                                                                                                                                                                      |
| JOHN W.W. HICK(2)(3)(5)(6)  Ontario, Canada      |   | Director since March 2006                          |   | President  of John W. W. Hick Consultants, Inc.; Chairman and a Director of Silver Eagle Mines from March 2006 to  present; Chief Executive Officer of Rio  Narcea, December 2004 to January 2006; and President and Chief Executive  Officer of Defiance Mining Corp. and its predecessor company, 2001 to 2004.         |

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(1)             Theinformation as to province or state and country of residence and principalbusiness occupation during the past five years is not within the Company’sknowledge and has been furnished by the respective directors and officers.

(2)             Denotesa member of the Audit Committee;

(3)             Denotesa member of the Compensation and Management Development Committee;

(4)             Denotesa member of the Corporate Governance and Nominating Committee;

(5)             Denotesa member of the Disclosure Committee

(6)             Denotesa member of the Risk Management Committee

As at the date of this AIF,the directors and executive officers of the Company as a group beneficiallyown, directly or indirectly, or exercise control or direction overapproximately 0.2 million common shares, representing less than 1% of theissued common shares of the Company.  Inaddition, such individuals hold stock options to acquire an additional 8.6million common shares of the Company.

The term of the directors ofthe Company expires at each annual general meeting of the shareholders and theterm of the officers expires at the discretion of the board of directors, orupon resignation from the position.

 

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## ***Corporate Cease Trade Orders and Bankruptcies***

Otherthan as set out below, no director of the Company, executive officer of theCompany or shareholder holding enough securities to materially affect thecontrol of the Company, has:

(a)                                  at the date of this AIF or has been within the10 years before the date of the AIF, been a director or executive officer ofany company (including the Company), that while that person was acting in theircapacity:

(i)                                   was the subject of a cease trade order orsimilar order that denied such issuer access to any  exemption under securities legislation for a period of more than 30 consecutivedays.

(ii)                                  was subject to an event that resulted, afterthe director or executive officer ceased to be a director or executive officer,in the company  being the object of acease trade or similar order or an order that denied the relevant companyaccess to any exemption under securities registration for a period of more than30 consecutive days; or

(iii)                               within a year of that person ceasing to act inthat capacity, became bankrupt  made aproposal under any legislation relating to bankruptcy or insolvency or wassubject to or instituted any proceedings, arrangement, or compromise withcreditors, or had a receiver, receiver manager, or trustee appointed to holdits assets.

(b)                                 within the 10 years before the date hereof,become bankrupt, made a proposal under any legislation relating to bankruptcyor insolvency, or become subject to or instituted any proceedings, arrangementor compromise with creditors, or had a receiver, receiver manager or trusteeappointed to hold the assets of the director, officer or shareholder.

In June 2000, the OntarioSecurities Commission ordered that the management and certain insiders of LinkMinerals Ventures Inc. (“Link”), be prohibited from trading in securities untilLink’s annual financial statements were filed. As a director of Link at the time, Mr. Peter Bojtos, a director ofQueenstake, was subject to the order.

The British ColumbiaSecurities Commission issued a cease trade order against Link Minerals VenturesInc. (“Link”) in August, 2001 for the failure to file annual financialstatements.  Mr. Peter Bojtos, a directorof Queenstake, was a director of Link at the time.

Mr. Bojtos was a director ofSahelian Goldfields Inc. (“Sahelian”) when it was the subject of a proposalunder the Bankruptcy and Insolvency Act (Canada), which proposal was approvedby the creditors and by the courts in August 2001.  Sahelian is now reorganized.

Mr. Bojtos was a director ofSahelian in May, 1999 when a cease trade order was issued by the BritishColumbia Securities Commission, and in June, 2000 when the Ontario SecuritiesCommission issued a cease trade order against Sahelian for failure to fileannual financial statements for its 1998 fiscal year, and first quarter interimfinancial statements, within the time required. Sahelian was reorganized underthe Bankruptcy and Insolvency Act (Canada) in 2002, and both the cease tradeorders have since been lifted.

The foregoing information, notbeing within the knowledge of the Company, has been furnished by the respectivedirectors, officers and shareholders holding a sufficient number of securitiesof the Company to affect materially control of the Company.

No director or executiveofficer of the Company, or a shareholder holding a sufficient number ofsecurities of the Company to affect materially the control of the Company, hasbeen subject to:

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(a)                    any penaltiesor sanctions imposed by a court relating to securities legislation or by asecurities regulatory authority or has entered into a settlement agreement witha securities regulatory authority; or

(b)                   any otherpenalties or sanctions imposed by a court or regulatory body that would likelybe considered important to a reasonable investor in making an investmentdecision regarding the Company.

The foregoing information, notbeing within the knowledge of the Company, has been furnished by the respectivedirectors, officers and shareholders holding a sufficient number of securitiesof the Company to affect materially control of the Company.

## ***Conflicts of Interest***

Certain directors andofficers of the Company are also directors, officers or shareholders of othercompanies that are similarly engaged in the business of acquiring, developingand exploiting natural resource properties. The directors and officers of theCompany, are also directors of other companies that are similarly engaged inthe business of acquiring, developing and exploiting natural resourceproperties. These associations to other public companies in the resource sectormay give rise to conflicts of interest from time to time. The directors andsenior officers of the Company are required by law to act honestly and in goodfaith with a view to the best interests of the Company and to disclose anyinterest which they may have in a contract or transaction if the contract ortransaction is material to the Company, the Company has entered, or proposes toenter, into the contractor transaction, and either the director or seniorofficer has a material interest in the contract or transaction or the directoror senior officer is a director or senior officer of, or has a materialinterest in, a corporation which has a material interest in the contractortransaction. If a conflict of interest arises at a meeting of the board ofdirectors, any director in a conflict is required to disclose his interest andabstain from voting on such matter.

**AUDITCOMMITTEE**

Pursuantto the provisions of the *British ColumbiaCorporations Act*, the Company is required to have an AuditCommittee.  The Company must also,pursuant to the provisions of Multilateral Instrument 52-110 Audit Committees (“MI52-110”), which came into force on March 30, 2004, have a written charter whichsets out the duties and responsibilities of its audit committee.

**The AuditCommittee Charter**

TheAudit Committee Charter is attached hereto as Schedule “A”.

**Composition of the AuditCommittee**

The Audit Committee, at thepresent time, is comprised of Messrs. Bojtos and Hick and Ms. Meyer.  All members of the Audit Committee arefinancially literate and all members are independent directors.

**RelevantEducation and Experience**

JohnW. W. Hick has considerable experience in both senior management and directorcapacities with a number of public companies over the last 26 years, prior towhich he was actively engaged in the practice of law in Ontario. During hiscareer, he has been the President and/or CEO of the following public companieswhere he had direct involvement in and responsibilities for the financialresults and reporting of such companies: Grafton Group Limited, TVX Gold Inc.,Geomaque Explorations Ltd., Defiance Mining Corporation, and Rio NarceaGold Mines Ltd.  In 

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additionto serving as a director, he has served or is currently serving on the auditcommittees of the following public companies: Rayrock Resources, Cambior Inc.,Rio Narcea Gold Mines Ltd., Southern Cross Resources Inc., HudsonResources Inc., Carpathian Gold Inc. and First Uranium Corporation.

 Peter Bojtos, Audit Committee Member, is aProfessional Engineer and a director of several public mining companies,including Kalimantan Gold Corporation Limited, Vaaldiam Resources Ltd.,Tournigan Gold Corporation, Sage Gold Inc. and Vault Minerals Inc.  Mr.Bojtos has over a decade of experience working in the capacity as a directorand is a member of several audit committees.

DorisMeyer, Audit Committee Member, is a Certified General Accountant in BritishColumbia since 1985 and the President and Owner of Golden Oak CorporateServices Ltd., which since 1996 provides financial and corporate miningcompliance services to publicly traded mining companies.  Ms. Meyer beganher career and gained much of her experience in accounting and financing forthe mining industry with Queenstake Resources Ltd.   From 1982 to1996 Ms. Meyer was a full time employee of Queenstake and served as controller,Chief Financial Officer and Corporate Secretary.  In 1996 she continued inthose roles as a contractor until 2004.  Ms. Meyer is the Chief FinancialOfficer of several publicly traded mining companies.

**Reliance on Certain Exemptions**

At no time since the commencement of the Company’s most recentlycompleted fiscal year has the Company relied on the exemptions in section 2.4 *(De Minimis Non-audit Services)*, section 3.2 *(Initial Public Offerings*), section 3.4 *(EventsOutside Control of Member)*, section 3.50 *(Death,Disability or Resignation of Audit Committee Member)* or Part 8 *(Exemptions*).

**Relianceon the Exemption in Subsection 3.3(2) or Section 3.6**

Atno time since the commencement of the Company’s most recently completed fiscalyear has the Company relied on the exemption in subsection 3.3(2) *(Controlled Companies)* or section 3.6 *(TemporaryExemption for Limited and Exceptional Circumstances).*

**Relianceon Section 3.8**

Atno time since the commencement of the Company’s most recently completed fiscalyear has the Company relied on section 3.8 *(Acquisition of FinancialLiteracy)*.

**AuditCommittee Oversight**

Atno time since the commencement of the Company’s most recently completed fiscalyear was a recommendation of the Audit Committee to nominate or compensate anexternal auditor not adopted by the Board of Directors.

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**Pre-ApprovalPolicies and Procedures**

TheAudit Committee has adopted specific policies and procedures for the engagementof non-audit services.

**ExternalAuditor Service Fees (By Category)**

| Fiscal Year End | ** ** | **Audit Fees** | ** ** | **Audit Related  Fees**(1) | ** ** | **Tax Fees**(2) | ** ** | **All Other Fees**(3) | ** ** |
|---------------------------|------------|---------------------|------------|---------------------------------|------------|----------------------|------------|---------------------------------|------------|
| 2006                      |       | $                   | 215,308    |                            | $          | 0                    |       | $                               | 22,086     |   | $ | 0 |   |
| 2005                      |       | $                   | 204,859    |                            | $          | 0                    |       | $                               | 27,659     |   | $ | 0 |   |

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(1)             Feescharged for assurance and related services reasonably related to theperformance of an audit, and not included under “Audit Fees”.

(2)             Feescharged for tax compliance, tax advice and tax planning services.

(3)             Feesfor services other than disclosed in any other column.

**LEGAL PROCEEDINGS**

The Nevada Department ofEnvironmental Protection (“NDEP”) mandated that the Company construct anevaporation pond facility as part of Jerritt Canyon’s long-term closure andreclamation plan. Queenstake and its legal advisers believe that reimbursementfor the cost of the evaporation pond is covered under its reclamation insurancepolicy.

The Company filed suit onJanuary 19, 2007 against the Insurer in United States District Court for theDistrict of Colorado.  The suit seeks $8.4 million for construction of theevaporation pond at the Company’s Jerritt Canyon operations in Nevada plus anunspecified amount for additional damages as a result of the Insurer’s failureto reimburse Queenstake under its reclamation costs insurance policy.  Queenstake’s insurance policy includescoverage in respect of reclamation related costs arising as a result of changesin applicable environmental laws and government mandates.  The matter has been referred to arbitration.

**INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS**

The Company believes nodirector or executive officer of the Company or any person or company that isthe direct or indirect beneficial owner of, or who exercise control ordirection over, more than 10% of any class or series of the Company’soutstanding voting securities or any associate or affiliate of any of thepersons or companies referred to above has any material interest, direct orindirect, in any transactions which materially affected or would materiallyaffect the Company or any of its subsidiaries, occurring during the years endedDecember 31, 2006, 2005, and 2004 except for the fact that certain of thedirectors or officers of the Company are also directors and/or officers and/orsecurityholders of other publicly traded companies of which the Company is thelargest shareholder.

# Transfer Agent and Registrar

The Company’s transferagent and registrar is CIBC Mellon Trust Company, 1066 West Hastings Street,Suite 1600, Vancouver, British Columbia, Canada.

**MATERIAL CONTRACTS**

With the exception of theNewmont equity financing subscription agreement in April 2006, theQueenstake-YGC definitive combination agreement in March 2007, and contractsentered into in the ordinary course of business, the Company has not enteredinto any material 

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contracts during the mostrecently completed financial year, or since January 1, 2002, which are still infull force and effect, and which may reasonably be regarded as presentlymaterial.

**INTERESTS OF EXPERTS**

The followingprepared or certified a statement, report or valuation described or included ina filing, or referenced in a filing made by the Company under NationalInstrument 51-102 — Continuous Disclosure Obligations prescribed by theCanadian Securities Administrators, during or relating to the Company’s mostrecently completed financial year ended December 31, 2006:
| **Name**                     | ** ** | **Qualified Person with Respect to**                                                                                                                                                                                                                                            | ** ** | **# of Securities Held** |
|------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|
| PricewaterhouseCoopers LLP   |       | The audit report dated March 29, 2007, relating to  the financial statements of the Company for the financial year ended December  31, 2006.                                                                                                                                    |       | 0%                       |
| Staley, Okada & Partners |       | The audit report dated March 13, 2006, except as to  Note 24, which is as of March 30, 2006, relating to the financial statements  of the Company for the financial year ended December 31, 2005.                                                                               |       | 0%                       |
| SRK Consulting (U.S.) Inc.   |       | Consent to disclosure with respect to the technical  report titled “Jerritt Canyon Mine, Elko County, Nevada — Technical Report”  which is currently being prepared in accordance to National Instrument 43-101  (collectively, the “Technical Report” |       | 0%                       |

 

 

**ADDITIONAL INFORMATION**

Additional informationrelating to the Company is available under the Company’s profile on the SEDARwebsite at www.sedar.com.  Financialinformation relating to the Company is provided in the Company’s comparativefinancial statements and management’s discussion and analysis for the mostrecently completed fiscal year ended December 31, 2006.

Additional information,including directors’ and officers’ remuneration and indebtedness, principalholders of the Company’s securities and securities authorized for issuanceunder equity compensation plans, if applicable, will be contained in theCompany’s information circular that will be available for its annual generalmeeting of shareholders scheduled for May 18, 2007.

If you wish to receive a copyof the Company’s annual financial statements, interim financial statements,related management and discussion analysis, or previous copies of AnnualInformation Forms, please contact the Company (see the cover page for contactinformation) and a copy of the documents you requested will be forwarded to youwithout charge.

**ScheduleA**

**AuditCommittee Charter**

The Board of Directors(the “Board”) of Queenstake Resources Ltd. (the “Corporation”) has establishedan Audit Committee (the “Committee”) comprised of at least three directorsappointed by the Board. The membership qualifications, authority,responsibility and specific duties of the Committee are described below:

### MembershipQualifications

To serve on theCommittee, a director must be independent. To be considered independent, adirector must meet the criteria for independence (a) required by the TorontoStock Exchange and any applicable laws and 

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regulations, and (b)established by the Board in the Corporation’s Corporate Governance Guidelinesor otherwise. In addition, the director should receive no compensation from theCorporation or any of its affiliates (including fees paid directly orindirectly for any consulting or any legal, financial or other advisoryservices), other than director’s fees for service as a member of the Board andany committees thereof.

Committee members shallserve until their successors shall be duly designated and qualified. Any membermay be removed at any time, with or without cause, by a majority of the Boardthen in office. Any vacancy in the Committee occurring for any cause may befilled by a majority of the Board then in office.

The Board may suggest theCommittee’s chairperson, otherwise, the Committee will select the chairperson.A majority of the members of the Committee shall constitute a quorum for thetransaction of business and the act of a majority of those present at anymeeting at which there is a quorum shall be the act of the Committee.

The Committee may formand delegate authority to subcommittees when appropriate.

In addition, to serve onthe Audit Committee, a director must be financially literate (or must become sowithin a reasonable period of time after being appointed to the Committee), asthe Board of Directors interprets such qualification in its business judgment.

### Authority

The Board of Directorshas granted the Committee the authority herein provided, as well as theauthority to investigate any activity of the Corporation and its subsidiaries.The Committee has been, and shall be, granted unrestricted access to all informationand all employees have been, and shall be, directed to cooperate as requestedby members of the Committee. The Committee has the authority to retain, at theCorporation’s expense, persons having special competencies (including, withoutlimitation, legal, accounting or other consultants and experts) to assist theCommittee in fulfilling its responsibilities.

**Purposeand Responsibilities**

The primary responsibility forfinancial and other reporting, internal controls, and compliance with laws andregulations and ethics rests with the management of the Corporation. TheCommittee’s primary purposes are:

(a)          to assist the Board inits oversight of the integrity of the Corporation’s financial statements andmanagement discussion and analysis, the Corporation’s compliance with legal andregulatory requirements and corporate policies and controls, the independentauditor’s selection, retention, qualifications and independence, and

(b)         to prepare the “Report ofthe Audit Committee” to be included in the Corporation’s annual proxystatement. The Committee will assist the Board by reviewing the financialinformation that will be provided to the shareholders and others, the systemsof internal controls that management and the Board of Directors haveestablished, and the audit process.

The Committee isresponsible for overseeing the integrity of the financial reporting process andthat the financial statements and management discussion and analysis adequatelyrepresent the Corporation’s financial condition, results of operations and cashflows. Secondly, the Committee is responsible for overseeing the Corporation’scompliance with corporate financial policies that provide processes, proceduresand standards to follow in accomplishing the Corporation’s goals and objectives.Thirdly, the Committee is responsible for understanding the Corporation’sfinancial reporting risks and the internal control structure.

The Committee is alsoresponsible for confirming the independence and objectivity of the auditors.

Each of the auditors, thechief financial officer and the controller shall have direct and unrestrictedaccess to the Committee as well as the opportunity to meet with the entireBoard.

The Committee shall meetno less than four times annually. Additional or special meetings may be held atthe Committee’s discretion.

### SpecificDuties

In discharging itsresponsibilities, the Committee shall have the sole authority to, and shall, dothe following:

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1.               retain and, whereappropriate, dismiss the Corporation’s auditors,

2.               pre-approve allauditing services and related fees and the terms thereof, including the scopeof the auditors’ audit examination plan, procedures and timing of the audit,and

3.               pre-approve anynon-audit services (i.e., any services provided other than in connection withthe audit or review of financial statements) to be rendered by the Corporation’sauditors, including the terms thereof, and the fees to be paid in connectiontherewith, and

4.               The Committee maydelegate to one or more members of the Committee the authority to pre-approveservices to be provided by the auditors. Any such pre-approval by one or moremembers of the Committee shall be reported to the full Committee at the nextscheduled meeting. The pre-approval of auditing and non-auditing services canbe done with input from, but no delegation of authority to, management.

The Committee is alsoexpected to perform the following additional duties:

5.               Prior to the audit,review the experience and qualifications of the senior members of the auditors’audit team and the quality control procedures of the independent publicaccountant.

6.               Review with theauditors, the chief financial officer and management the Corporation’s policiesand procedures relative to the adequacy of internal accounting and financialreporting controls, including controls over quarterly and annual financialreporting, computerized information systems and security.

7.               Make all necessaryinquiries of management and the auditors concerning compliance with establishedstandards of corporate conduct.

8.               Review withmanagement and the auditors the accounting and reporting principles andpractices applied by the Corporation in preparing its financial statements andmanagement discussion and analysis, including:

a.               major issuesregarding accounting principles and financial statement presentations includingany significant changes in the Corporation’s selection or application ofaccounting principles, and major issues as to the adequacy of the Corporation’sinternal controls and any special audit steps adopted in light of materialcontrol deficiencies;

b.              analyses prepared bymanagement and/or the auditors setting forth significant financial reportingissues and judgments made in connection with the preparation of the financialstatements, including analyses of the effects of alternative GAAP methods onthe financial statements;

c.               identification ofeach critical accounting estimate used by the Corporation including adescription of the accounting estimate, the methodology used; underlying assumptionsand range of estimates from which the estimate was selected, and any knowntrends, commitments, events or uncertainties that may materially affect themethodology or the assumptions described;

d.              the effect ofregulatory and accounting initiatives, as well as off-balance sheet structures,on the financial statements of the Corporation; and

earnings press releases(paying particular attention to any use of “pro forma,” or “adjusted” non-GAAP,information), as well as financial information and earnings guidance providedto analysts.

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9.               Prior to therelease of each quarterly earnings press release discuss with management andthe auditors the results for the quarter, including any significanttransactions which occurred during the quarter, any significant adjustments,management judgments and accounting estimates, new accounting policies and anydisagreements between management and the auditors.

10.         Prior to submission tothe Board of Directors for approval, and prior to the release of the annualfinancial statements, review with management and the auditors, upon completionof their audit, the financial results for the year and the results of theaudit, including

a.               the Corporation’sannual financial statements and related footnotes;

b.              management’s discussionand analysis of the financial condition and results of operations;

c.               the results of theaudit, including the nature and amount of unrecorded adjustments resulting fromthe audit;

d.              the auditors’management recommendations;

e.               any significanttransactions which occurred during the year;

f.                 any significantadjustments;

g.              management judgmentsand accounting estimates;

h.              new accountingpolicies;

i.                  all alternativetreatments of financial information within generally accepted accountingprinciples, ramifications of the use of alternative disclosures and treatments,and the treatment preferred by the auditors; and

j.                  anydisagreements between management and the auditors.

11.         Prior to submission tothe Board of Directors for approval, and prior to the release of quarterlyfinancial statements, review with management and the auditors, the Corporation’squarterly financial statements for such quarter, including

a.               the financialstatements and related footnotes,

b.              management’sdiscussion and analysis of the financial condition and results of operations,

c.               the result of thequarterly review, including the nature and amount of unrecorded adjustmentsresulting from the review,

d.              any significanttransactions which occurred during the quarter,

e.               any significantadjustments,

f.                 criticalaccounting policies and practices,

g.              new accountingpolicies,

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h.              all alternativetreatments of financial information within generally accepted accountingprinciples, ramifications of the use of alternative disclosures and treatments,and the treatment preferred by the auditors, and

i.                  anydisagreements between management and the auditors.

12.         At least annually,

a.               obtain and reviewfrom the auditors a written statement delineating all their relationships withthe Corporation, consistent with the Independence Standards Board Standard I,which is to include all non-audit services provided and related fees, and

b.              discuss with theauditors any disclosed relationships or services that may impact theirobjectivity and independence and take appropriate action to satisfy itself asto the independence of the auditors.

13.         Meet periodically andseparately with each of management, the internal auditors and the auditors.

14.         Review and evaluate thechief financial officer’s work throughout the year, and present the Committee’sconclusions to the full Board.

15.          Determine that theCompany’s hiring policies for employees or former employees of the auditors arein accordance with applicable laws and regulations.

16.         Take such action asnecessary to assure the rotation of the lead audit partner at least every fiveyears or such other period as may be required under applicable law.

17.         Establish procedures forprocessing internal complaints regarding accounting, internal controls orauditing matters, and the confidential anonymous submission by employees ofconcerns regarding questionable accounting or operating practices.

18.         Conduct an annualperformance self-evaluation of the Committee.

19.         Apprise the Board ofDirectors regularly of significant developments in the course of performing theabove duties, including reviewing with the full Board any issues that arisewith respect to the quality or integrity of the Corporation’s compliance withlegal or regulatory requirements, the performance and independence of thecompany’s auditors.

20.         Review and reassess theadequacy of this charter on a regular basis and submit any proposed revisionsto the Board for consideration and approval.

 

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