SECURITIES AND EXCHANGE
COMMISSION



Washington, D.C. 20549



FORM
20-F



[ X ]  Registration statement pursuant
to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

or

[   ]  Annual report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year ended
_________________.

or

[  ]  Transition report pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _____ to
_____



[  ]  shell
company report pursuant to Section 13 OR 15(d) of the Securities Exchange Act of
1934



Date of event requiring this shell company
report _______



For the transition period from _________ to
________



Commission File
Number:___________________



BAJA MINING CORP.

__________________________________________________________

(Exact Name of Registrant as Specified in
its Charter)



___________________________________________________________

(Translation of Registrant's Name into
English)



British Columbia, Canada

___________________________________________________________

(Jurisdiction of Incorporation or
Organization)



2350-1177 West Hastings Street

Vancouver, British Columbia V6E 2K3

____________________________________________________________

(Address of Principal Executive Offices)



Securities registered or to be registered
pursuant to Section 12(b) of the Act:



Title of each class  Name of each exchange on which registerer



N/A                                                    N/A



Securities registered or to be registered
pursuant to Section 12(g) of the Act:



Common Shares without par value

(Title of Class)



Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:





NONE

(Title of Class)



Indicate the number of outstanding shares
of each of the Company's classes of capital or common stock as ofMay 8, 2006:
 103,885,876Common Shares without par value.



Indicate by checkmark whether the registrant (1) has
filed reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.



YES_____  NO_____ N/A



Indicate by checkmark which financial statement item the
registrant has elected to follow.



ITEM 17  _X_   ITEM 18
______



If this is an annual report, indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).



YES_____  NO_____ N/A



(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)



Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.



YES_____  NO_____ N/A



















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BAJA MINING
CORP.

TABLE OF CONTENTS





PART I



Item
1.

Identity of Directors, Senior Management and
Advisors

Item 2.

Offer Statistics and Expected Timetable

Item 3.

Key Information

Item 4.

Information on the Company

Item 5.

Operating and Financial Review and
Prospects

Item 6.

Directors, Senior Management and Employees

Item 7.

Major Shareholders and Related Party
Transactions

Item 8.

Financial Information

Item 9.

The Offer and Listing

Item 10.

Additional Information

Item 11.

Quantitative and Qualitative Disclosure About Market
Risk

Item 12.

Description of Securities Other than Equity
Securities



PART II



Item
13.

Defaults, Dividend Arrearages and
Delinquencies

Item 14.

Material Modifications to the Rights of Security Holders and
Use of Proceeds.

Item 15.

Controls and Procedures

Item
16.

Item
16A.

Audit Committee Financial Expert

Item 16B.

Code of Ethics

Item 16C.

Principal Accountant Fees and Services

Item 16D.

Exemptions from the Listing Standards for Audit
Committees

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated
Purchasers



PART III



Item
17.

Financial Statements

Item 18.

Financial Statements

Item 19.

Financial Statements and its Exhibits

Glossary
of Terms

Guide 7 and
CIM Reporting Definitions



Signature Page









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NOTE REGARDING
FORWARD-LOOKING STATEMENTS



The statements in this registration
statement that are not based on historical facts are referred to as
"forward-looking statements."  These statements can be identified generally
by forward-looking words such as "expect", "believe", "anticipate", "plan",
"intend", "estimate", "may", "will" or similar words.  Information
concerning the interpretation of drill results and mineral resource estimates
also may be deemed to be forward-looking statements, as such information
constitutes a prediction of what mineralization might be found to be present if
and when a project is actually developed.  Forward-looking statements are
statements about the future and are inherently uncertain, and actual
achievements of the Company or other future events or conditions may differ
materially from those reflected in the forward-looking statements due to a
variety of risks, uncertainties and other factors, including, without
limitation, those described in Item 3.D. of this Registration Statement under
the heading, "Risk Factors", and elsewhere in this Registration Statement.



You are cautioned that any such
forward-looking statements are not guarantees and may involve risks and
uncertainties. Our actual results may differ materially from those in the
forward-looking statements due to risks facing us or due to actual facts
differing from the assumptions underlying our predictions.  Some of these
risks and assumptions include:



·

general economic and business
conditions, including changes in interest rates, fluctuations in the prices for
base metals, fluctuations in prices for securities in the resource sector,
demand for base metals and other economic and business conditions;

·

natural phenomena or disasters that
may affect completion of drill programs, exploration work, completion of
feasibility studies or development, if warranted;

·

actions by government authorities,
including changes in government regulation, permitting requirements or
environmental legislation;

·

the companys ability to raise
sufficient financing to complete its planned exploration work on its properties
and to place its properties into development, if warranted;

·

future decisions by management in
response to changing conditions, and

·

misjudgments, inaccurate assumptions
or changes in conditions related to forward-looking statements.



We advise you that these cautionary remarks
expressly qualify in their entirety all forward-looking statements attributable
to us or persons acting on our behalf.  You should not place undue reliance
on such forward-looking statements.



METRIC
CONVERSION TABLE

For ease of reference, the following conversion factors are
provided:

|             |                     |                  |                  
|------------ | ------------------- | ---------------- | -----------------
|Metric Unit  | U.S. Measure        | U.S. Measure     | Metric Unit      
|             |                     |                  |                  
|1 hectare    | 2.471 acres         | 1 acre           | 0.4047 hectares  
|1 metre      | 3.2881 feet         | 1 foot           | 0.3048 metres    
|1 kilometre  | 0.621 miles         | 1 mile           | 1.609 kilometres 
|1 gram       | 0.032 troy oz.      | 1 troy ounce     | 31.1 grams       
|1 kilogram   | 2.205 pounds        | 1 pound          | 0.4541 kilograms 
|1 tonne      | 1.102 short tons    | 1 short ton      | 0.907 tonnes     
|1 gram/tonne | 0.029 troy ozs./ton | 1 troy ounce/ton | 34.28 grams/tonne













---



EXPLANATORY NOTE



Our financial statements have been prepared
in accordance with Canadian GAAP, which differs in certain significant respects
from U.S. GAAP, and are stated in Canadian Dollars.  Financial information
should be read in conjunction with our financial statements and the notes
thereto included elsewhere in this Registration Statement, including our audited
consolidated financial statements for the years ended December 31, 2005, 2004
and 2003.  Reference is made to Note 13 in our audited consolidated
financial statements for an explanation of all material differences between
Canadian GAAP and U.S. GAAP. The financial information should also be read in
conjunction with our financial statements and the notes thereto included
elsewhere in this Registration Statement, including our unaudited interim
consolidated financial statements for the three month period ended March 31,
2006 and 2005.  Reference is made to Note 13 in our unaudited interim
consolidated financial statements for an explanation of all material differences
between Canadian GAAP and U.S. GAAP.



In this document, references to "we",
"our", "us", the "Company" "Registrant" or "Baja" mean Baja Mining Corp. and its
subsidiaries unless the context of the sentence clearly suggests otherwise.







---



PART I



BUSINESS OF THE COMPANY



The Company is involved in the mining industry and
currently has only one resource property, the Boleo property, Mexico.  The
Boleo property is a copper-cobalt-zinc-manganese deposit located near Santa
Rosalia, Baja California Sur, Mexico.  The Company is currently conducting
a Definitive Feasibility Study on the Boleo property to determine the viability
of placing such property into production to produce copper metal, either cobalt
metal or an intermediate cobalt product (such as cobalt carbonate) for further
processing off-site, zinc sulphate and an intermediate manganese product such as
manganese carbonate or manganese sulphate.  All technical work in regard to
the definitive feasibility study is currently scheduled to be completed by July
2006, with the final study expected to be delivered in September 2006.



ITEM 1.
 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS



A.

Directors and senior
management



As of June 30, 2006, the members of our Board of Directors
and senior officers are as follows:



|                                                                                                                                        |                                                                                                                                                                           |                                                             
|--------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------
|Name and municipality of residence                                                                                                      | Principal Occupation for the past five
      years                                                                                                                        | Position with Baja                                          
|John Greenslade, P.Eng.
      Suite 2350 – 1177 West Hastings Street, Vancouver,
      British Columbia Canada V6E 2K3                  | President of the Company; President Minterra
      Resource Corp., (a mineral exploration company), Previously Partner,
      Holmes Greenslade (Barristers & Solicitors) | President, Director & CEO                                   
|William Murray,
      Suite 2350 - 1177 West Hastings Street, Vancouver ,
      British Columbia, Canada                                | VP Operations of the Company, Consulting Engineer,
      President Polymet Mining Corp.(a mineral development company)                                                    | Director, Vice President Operations                         
|Robert Mouat Suite 2350 – 1177 West Hastings
      Street, Vancouver, British Columbia Canada V6E 2K3                                   | Chief Financial Officer of the Company, Managing
      Director Mintec, Director Terra Gaia Inc (an environmental company)                                                | Director, Chief Financial Officer, Corporate
      Secretary
|Graham Thody,
      Suite 540 – 475 West Georgia Street, Vancouver,
      British Columbia, Canada V6B 4M9                              | Chartered Accountant, Partner Nemeth Thody
      Anderson                                                                                                                 | Director                                                    
|Charles Thomas Ogryzlo, P.Eng.
      Ofiplaza El Ritro, Rotonda El Peridista 150m al
      Sur, Edif.. 7, Suite 723, Managua, Nicaragua | President and CEO of Polaris Energy Corp.,
      President and CEO of Blackhawk Mining Corp and Triton Mining Corp.                                                       | Director                                                    
|Ross Glanville,P.Eng.
      Suite 2350 – 1177 West Hastings Street, Vancouver,
      British Columbia Canada V6E 2K3                    | President  Ross Glanville & Associates
      since 1990                                                                                                                   | Director                                                    
|David Dreisinger, PhD.
      5233 Bentley Drive, Delta,  British Columbia,
      Canada V4K 4K2                                         | VP. Metallurgy of the Company, Professor Faculty of
      Applied Science, Department of Metal and Materials Engineering at
      University of British Columbia          | Vice President of Metallurgy                                
|Gaston Reymenants
      Fabrieksweg 7 B3190
      Boortmeerbeek, Belgium                                                                | Managing Director, GMS Metals, Dublin, Ireland, VP
      Marketing of the Company                                                                                         | Vice President Marketing                                    
|Tawn Albinson
      Sinaloa #106 Desp. 301
      Col. Roma 06700
      Mexico, D.F.                                                     | Manager and Director Minera y Metalurgica del
      Boléo, Consulting Geologist                                                                                           | Managing Director, Minera y Metalurgica del
      Boléo.    
|Eric Norton, P.Eng.
      Suite 2350 – 1177 West Hastings Street, Vancouver,
      British Columbia, Canada V6E 2K3                     | Manager, Exploration Business Development, Teck
      Cominco                                                                                                             | Project Director                                            
|George Gauld, P.Eng.
      Suite 2350 – 1177 West Hastings Street, Vancouver,
      British Columbia, Canada V6E 2K3                    | Project Manager of the Company, President G. Gauld
      & Associates Ltd., Director, Applied Technology Enterprises
Inc.                                                 | Project Manager                                             



See "Item 6. Directors, Senior Management
and Employees" for additional information.









B.

Advisers.



Not Applicable.



C.

Auditors



Staley Okada & Partners, Chartered
Accountants, 3rd Floor, 10190 – 152A Street, Surrey, British Columbia
("Staley Okada") were reappointed as the Companys Auditors at its Annual
General Meeting held on June 2, 2005. Staley Okada were first appointed as
Auditors at the Annual General meeting on June 18, 2004.  Staley, Okada
& Partners are members of the Institute of Chartered Accountants of British
Columbia and are properly registered with the United States Public Company
Accounting Oversight Board and Canadian Public Accountability Board.



Amisano Hanson, Chartered Accountants, 604
– 750 West Pender Street, Vancouver, British Columbia Canada, V6C 2T7 ("Amisano
Hanson) were the Companys Auditors prior to Staley Okada.  Amisano Hanson
resigned as a result of the reverse takeover ("Reverse Acquisition") of the
Company by shareholders of Mintec International Limited herein described. The
resignation was not as a result of any reservation, reportable events,
disagreements, consultation or unresolved issues with Amisano Hanson.



Staley Okada & Partners were the
auditors for Mintec International Limited ("Mintec") prior to the reverse take
over.



ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE



Not applicable.



ITEM 3.  KEY
INFORMATION



A.

Selected Financial
Data



The following table presents selected
financial information.  The Company's financial statements are stated in
Canadian Dollars and are prepared in accordance with Canadian Generally Accepted
Accounting Principles (GAAP). There are several material differences between
Canadian GAAP and generally accepted accounting principles in the United States
("U.S. GAAP") as is applicable to the financial information disclosed or
summarized herein.



The following selected financial data has
been extracted from the more detailed financial statements included herein
(stated in Canadian Dollars, being the foreign currency our financial statements
are denominated in; see "Currency and Exchange Rates"), including our audited
consolidated financial statements for the years ended December 31, 2005, 2004
and 2003 and our unaudited interim consolidated financial statements for the
three month period ended March 31, 2006 and 2005.  Reference is made to
Note 13 in our audited consolidated financial statements for years ended
December 31, 2005, 2004 and 2003, and Note 13 in our unaudited interim
consolidated financial statements for the three month period ended March 31,
2006 and 2005, for an explanation of all material differences between Canadian
GAAP and U.S. GAAP.  The selected financial data is qualified in its
entirety by, and should be read in conjunction with, the financial statements
and notes thereto as well as managements discussion and analysis of results of
operations and liquidity and capital resources under "Item 5.  Operating
and Financial Review and Prospects".  The Company completed a reverse
acquisition of Mintec International Corporation, Barbados, on April 22, 2004 and
accordingly, comparable financial information for the periods ended December 31,
2003, 2002 and 2001 are to Mintecs financial statements.  Financial
Statements for periods prior to December 31, 2001 were not available without
unreasonable effort and expense, and financial data for such periods have been
omitted.  Prior to April 22, 2004, Mintec was a non-reporting (private)
company and only prepared financial statements on an annual basis.



---

Table 1 – Selected Financial Information



|                                      |                                                     |                                        |              |              |            |            |            | 
|------------------------------------- | --------------------------------------------------- | -------------------------------------- | ------------ | ------------ | ---------- | ---------- | ---------- | 
|                                      | Three Month Period Ended
      March 31 (unaudited) | Year Ended
      December 31 (audited)
|                                      | 2006                                                | 2005                                   | 2005         | 2004         | 2003       | 2002       | 2001      
|Canadian
      GAAP- Canadian Dollars
|Total
      revenues                  | -                                                   | -                                      | -            | -            | -          | -          | -         
|Net Income
      (Loss)               | $(1,930,508)                                        | $(2,017,441)                           | $(6,996,731) | $(5,391,685) | $(404,029) | $481,445   | $(691,257)
|Income (Loss)
      per common share  | $(0.03)                                             | $(0.03)                                | $(0.11)      | $(0.10)      | $(0.01)    | $0.01      | $(0.02)   
|Total
    Assets                      | 7,807,162                                           | 4,992,769                              | 4,377,132    | 6,355,007    | 970,077    | 892,383    | 885,610   
|Long term
      debt                  |                                                     | -                                      | -            |              |            | -          | -         
|Cash dividend
      per share         | -                                                   | -                                      | -            | -            | -          | -          | -         
|Shares
      Outstanding (1)          | 76,675,820                                          | 60,236,306                             | 76,280,820   | 60,236,306   | 40,000,000 | 40,000,000 | 40,000,000
|Due to related
      parties          | 34,547                                              | 42,413                                 | 61,186       | 47,003       | 793,849    | 330,172    | 594,285   
|Total
      shareholders equity      | 7,550,559                                           | 4,665,688                              | 3,923,817    | 5,146,809    | 144,042    | 548,071    | 666,626   



(1)  Number of common
shares issued and outstanding.



---

Table 2 - Presented in Accordance with U.S.
GAAP.



|                                     |                                         |                              |             |             |            |           
|------------------------------------ | --------------------------------------- | ---------------------------- | ----------- | ----------- | ---------- | ----------
|                                     | Three Month Period Ended
      March 31 | Year Ended
      December 31
|                                     | 2006                                    | 2005                         | 2005        | 2004        | 2003       | 2002      
|US
      GAAP- Canadian Dollars     
|Total
      revenues                 |                                         |                              | -           | -           | -          | -         
|Net
      Income (Loss)              | (1,930,508)                             | (2,017,441)                  | (6,996,731) | (5,376,645) | (477,863)  | 505,344   
|Income
      (Loss) per common share | (0.03)                                  | (0.03)                       | $(0.11 )    | $(0.10)     | $(0.01)    | $0.01     
|Total
      Assets                   | 7,049,369                               | 4,234,076                    | 3,619,339   | 5,597,214   | 970,077    | 892,383   
|Long
      term debt                 | -                                       | -                            | -           |             | -          | -         
|Cash
      dividend per share        | -                                       | -                            | -           | -           | -          | -         
|Shares
      Outstanding (1)         | 76,675,820                              | 60,236,306                   | 76,280,820  | 60,236,306  | 40,000,000 | 40,000,000
|Due
      to related parties         | 34,457                                  | 42,413                       | 61,186      | 47,003      | 793,849    | 330,172   
|Total
      shareholders equity     | 6,792,766                               | 3,907,895                    | 3,166,024   | 4,389,016   | 144,042    | 548,071   





(1)  Number of common
shares issued and outstanding.



Note: Readers should refer to Note 13 of
the Company's Consolidated Financial Statements for the years ended December 31,
2005, 2004 and 2003, and note 13 of the Companys Unaudited Interim Consolidated
Financial



Statements for
the three month period ended March 31, 2006 and 2005, for the material
differences between Canadian and U.S. GAAP.



The rate of exchange for the Canadian Dollar was 1.1150
on June 30,2006.

CURRENCY AND EXCHANGE RATES



All monetary amounts are expressed in
Canadian dollars except where otherwise indicated. The following table sets
forth the rate of exchange for the Canadian Dollar at the end of each of the
previous six months and the five most recent fiscal years ended December 31, the
average rates for each year and the range of high and low rates for month end
period and each year.  For purposes of this table, the rate of exchange
means the noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York.  The table sets forth the number of Canadian Dollars required under
that formula to buy one US Dollar.  The average rate means the average of
the exchange rates on the last day of each month during the year.



|                  |        |       
|----------------- | ------ | ------
|For the month end | High   | Low   
|April 2006        | 1.1718 | 1.1203
|March 2006        | 1.1722 | 1.1320
|February 2006     | 1.1718 | 1.1203
|January 2006      | 1.1726 | 1.1436
|December 2005     | 1.1754 | 1.1427
|November 30, 2005 | 1.1960 | 1.1656





---



|                   |        
|------------------ | -------
|For the year ended | Average
|December 31, 2005  | 1.1630 
|December 31, 2004  | 1.3015 
|December 31, 2003  | 1.2946 
|December 31, 2002  | 1.5694 
|December 31, 2001  | 1.5488 





B.

Capitalization and
indebtedness



The following table sets forth the
Companys indebtedness, capitalization and the accumulated deficit as at March
31, 2006:



|                                                                |  |                                 
|--------------------------------------------------------------- |  | --------------------------------
|(Calculated in accordance with
      Canadian GAAP)             |  | March 31, 2006
      (Unaudited)
|Long-term indebtedness                                          |  | nil                             
|Shareholders Equity                                            |  |                                 
|Authorized:
       200,000,000 Common shares, without par value |  |                                 
|Issued and
      outstanding: 76,675,820 shares                 |  | $45,677,938                     
|Share subscriptions                                             |  | 4,995,962                       
|Contributed Surplus                                             |  | 2,626,441                       
|Accumulated (Deficit)                                           |  | (45,752,782)                    
|Total shareholders equity and
      capitalization             |  | $7,550,559                      



The Company had an accumulated deficit as
of March 31, 2006 of $45,752,782.  This amount primarily relates to amounts
expended on the exploration and development of the Boleo Property.





C.

Reason for the offer
and use of proceeds



Not applicable.



D.

Risk Factors



Readers should carefully
consider the risks and uncertainties described below before deciding whether to
invest in shares of our common stock.

Our failure to successfully
address the risks and uncertainties described below would have a material
adverse effect on our business, financial condition and/or results of
operations, and the trading price of our common stock may decline and investors
may lose all or part of their investment.  We cannot assure you that we
will successfully address these risks or other unknown risks that may affect our
business.

Estimates of mineralized
material are inherently forward-looking statements subject to error. Although
resource estimates require a high degree of assurance in the underlying data
when the estimates are made, unforeseen events and uncontrollable factors can
have significant adverse or positive impacts on the estimates. Actual results
will inherently differ from estimates. The unforeseen events and uncontrollable
factors include: geologic uncertainties including inherent sample variability,
metal price fluctuations, variations in mining and processing parameters, and
adverse changes in environmental or mining laws and regulations. The timing and
effects of variances from estimated values cannot be accurately predicted.



Our properties may prove
to be uneconomic for commercial operations and we may never recover the
investments made in our properties

We have no probable or proven reserves on any of our
properties.  We cannot assure you that minerals will be discovered in
sufficient quantities and grade at Boleo to justify commercial operations or
that funds required for development can be obtained on a timely basis, if ever.
 Whether a mineral deposit will be commercially viable depends on a number
of factors, some of which are: the particular attributes of the deposit, such as
size, grade and proximity to infrastructure; metal prices, which are highly
cyclical; and government regulations, including regulations relating to prices,
taxes, royalties, land tenure, land use, importing and exporting of minerals and
environmental protection.  If we are unable to upgrade our mineralized
material to proven and probable reserves in sufficient quantities to justify
commercial operations, we will be unable to develop mines and we may lose all of
the resources we have invested in our properties.



If the definitive
feasibility study on our El Boleo property demonstrates that it is warranted to
place it into development, we will require additional financing.

We completed an
equity financing in April 2006 to raise gross proceeds of $23 million and
accordingly have adequate funding to complete the definitive feasibility study
on the Boleo property and to provide adequate working capital to meet all
general and administrative expenses for at least 18 months,  Upon
completion of the definitive feasibility study, and assuming such study
demonstrates that the Boleo deposit can be economically mined and can generate
an adequate rate of return on investment, the next stage of development will
require us to raise significant capital in order to develop a mine.  We do
not have a definitive estimate of the cost of developing the mine.  Failure
to obtain sufficient financing may result in delaying or indefinite postponement
of development or production, if warranted, on any or all of our properties or
even a loss of property interest.  We cannot be certain that additional
capital or other types of financing will be available if needed or that, if
available, the terms of such financing will be favorable or acceptable to us.

We anticipate that we will
raise additional capital through equity financing, which may cause substantial
dilution to our existing shareholders

If the definitive feasibility study on the
Boleo property demonstrates that it is warranted to proceed to development we
will have to raise substantial capital.  While it is anticipated that a
significant portion of required capital will be in the form of debt financing,
lenders may require additional equity financing be raised.  We may issue
securities on less than favorable terms to raise sufficient capital to fund our
business plan.  Any transaction involving the issuance of equity securities
or securities convertible into common shares would result in dilution, possibly
substantial, to present and prospective holders of common shares.



We currently depend on a
single property, the Boleo Property, and there is no assurance we will
successfully place it into production

Our only mineral property is the Boleo Property.
 Unless we acquire additional properties or projects or discover additional
deposits at Boleo, our company, if successful in developing the Boleo Property,
will be solely dependent upon a single mine operation at the Boleo Property for
its revenue and profits, if any.  We cannot assure you that we will
establish any reserves on the Boleo Property or that we will successfully
develop any mining operations at the Boleo Property. The Company is considered
under United States generally accepted accounting policies to be in exploration
stage.  (Under Canadian generally accepted accounting policies it is
considered to be in the development stage.).  We currently have sufficient
funds to complete current plans at the Boleo property however if the definitive
feasibility study demonstrates that it is warranted to place the Boleo property
into commercial production we will have to raise substantial further funding.



Our ability to continue to
operate involves a going concern risk

Our auditors have included an explanatory note to U.S.
readers and our financial statements contain a note expressing substantial doubt
regarding our ability to continue as a going concern.  Our financial
statements are presented on a going concern basis, which assumes that we will
continue to realize our assets and discharge our liabilities in the normal
course of operations.  We estimate that we have adequate funding to
complete the definitive feasibility study for the Boleo property and to finance
all foreseeable sustaining costs related to the property but will have to raise
substantial funding if the definitive feasibility study demonstrates that it is
warranted to place the Boleo property into commercial production.  If
future financing is unavailable, for further  development of our Boleo
project, we may not be able to meet our ongoing obligations, in which case the
realizable value of its assets may decline materially from current estimates



We have no history of
production and no revenues from operations; we may never generate any revenues
from operations

Our company currently has no
commercial production at Boleo and has never recorded any revenues from mining
operations.  We expect to continue to incur losses, and will continue to do
so until such time, if ever, as our properties enter into commercial production
and generate sufficient revenues to fund our continuing operations. The
development of new mining operations at Boleo will require the commitment of
substantial resources for operating expenses and capital expenditures, which may
increase in subsequent years as needed consultants, personnel and equipment
associated with advancing exploration, development and commercial production of
our properties are added.  The amounts and timing of expenditures will
depend on the progress of ongoing exploration and development, the results of
consultants analysis and recommendations, the rate at which operating losses
are incurred, the execution of any joint venture agreements with strategic
partners, our acquisition of additional properties, and other factors, many of
which are beyond our control.  We may never generate any revenues or
achieve profitability.

The price of our
securities, our ability to raise additional financing and the results of our
exploration activities may be adversely affected by fluctuations in copper and
other metal prices

The value and price of our common shares, our financial
results, and the results of our exploration activities may be significantly
adversely affected by declines in the price of copper and other metals. Copper
and cobalt prices fluctuate widely and are affected by numerous factors beyond
our control such as interest rates, exchange rates, inflation or deflation,
fluctuation in the value of the United States dollar and foreign currencies,
global and regional supply and demand, and the political and economic conditions
of copper producing countries throughout the world. The price for copper
fluctuates in response to many factors beyond anyones ability to predict.
 These fluctuations if adverse either individually or cumulatively could
render the project uneconomic or if placed into commercial production could
cause fluctuations in earnings including possible reductions in revenues, net
income and possible losses.



The prices used in making the
resource estimates are disclosed and differ from daily prices quoted in the news
media.  The percentage change in the price of a metal cannot be directly
related to the estimated resource quantities, which are affected by a number of
additional factors.  For example, a 10 percent change in price may have
little impact on the estimated resource quantities and affect only the resultant
positive cash flow, if any, or it may result in a significant change in the
amount of resources.  Because mining occurs over a number of years, it may
be prudent to continue mining for some periods during which cash flows are
temporarily negative for a variety of reasons including a belief that the low
price is temporary and/or the greater expense incurred in closing a property
permanently.

Mineralized material
calculations and life-of-mine plans using significantly lower copper and other
metal prices than currently being utilized in conducting a definitive
feasibility study could result in material write-downs of our investment in
mining properties and increased amortization, reclamation and closure
charges.

In addition to adversely
affecting our mineralized material estimates and our financial condition,
declining metal prices can impact operations by requiring a reassessment of the
commercial feasibility of a particular project. Such a ressessment may be the
result of a management decision rellated to a particular project. Even if the
project is ultimately determned to be economically viable, the need to conduct
such a reassessment may cause substantial delays in development or may interrupt
operations, ifany, until the reassessment can be completed.



There is inherent variability between duplicate samples taken
adjacent to each other and between sampling points that cannot be reasonably
eliminated.  There may also be unknown geologic details that have not been
identified or correctly appreciated at the current level of delineation. This
results in uncertainties that cannot be reasonably eliminated from the
estimation process.  Some of the resulting variances can have a positive
effect and others can have a negative effect on mining and processing
operations.

Our quantification of
mineral resources are based on estimates and are subject to great
uncertainty

The calculations of mineralized
material amount are estimates only, actual recoveries of copper or other mineral
from mineralized material may be lower or that the Boleo Property or any other
identified mineral deposit will ever qualify as a commercially mineable (or
viable) ore body that can be economically exploited.  Mineralized material,
which is not mineral reserves, does not have demonstrated economic viability.
 Any material change in the quantity of mineralization, grade or stripping
ratio, or the copper price may affect the economic viability of our properties.
 In addition, there can be no assurance that copper recoveries or other
metal recoveries in small-scale laboratory tests will be duplicated in larger
scale tests under on-site conditions or during production.

Until an unmined deposit is
actually mined and processed the quantity of mineral resources and reserves and
grades must be considered as estimates only.  In addition, the quantity of
mineral reserves and mineral resources may vary depending on, among other
things, metal prices. Any material change in quantity of mineral reserves,
mineral resources, grade, percent extraction of those reserves recoverable by
underground mining techniques or stripping ratio for those reserves recoverable
by open pit mining techniques may affect the economic viability of the Boleo
Property. In addition, there can be no assurance that copper recoveries or other
metal recoveries in small scale laboratory tests will be duplicated in a larger
scale test under on-site conditions or during production.

Definitional standards for
reporting mineralized material differ between United States reporting standards
and the Canadian standards use in this registration statement

We use the terms "measured
mineral resources," "indicated mineral resources" and "inferred mineral
resources" in this registration statement to comply with reporting standards in
Canada.  We advise U.S. investors that while those terms are recognized and
required by Canadian regulations, the United States Securities and Exchange
Commission (SEC) do not recognize them.  US investors are cautioned not to
assume that any part or all of the mineral deposits in these categories will
ever be converted into mineral reserves.  These terms have a great amount
of uncertainty as to their existence, and great uncertainty as to their economic
and legal feasibility.  It cannot be assumed that all or any part of
measured mineral resources, indicated mineral resources, or inferred mineral
resource will ever be upgraded to a higher category.  In accordance with
Canadian rules, estimates of inferred mineral resources cannot form the basis of
feasibility or other economic studies.  Investors are cautioned not to
assume that any part of the reported measured mineral resource, indicated
mineral resource, or inferred mineral resource in this registration statement is
economically or legally mineable.

We are subject to numerous
government regulations which could cause delays in our exploration and
development projects, if any, and increase costs related to our
business

Bajas mining, processing, development and mineral
exploration activities, if any, are subject to various laws governing
prospecting, mining, development, production, taxes, labor standards and
occupational health, mine safety, toxic substances, land use, water use, land
claims of local people and other matters.  No assurance can be given that
new rules and regulations will not be enacted or that existing rules and
regulations will not be applied in a manner which could limit or curtail
production or development.  Amendments to current laws and regulations
governing operations and activities of mining and milling or more stringent
implementation thereof could substantially increase the costs associated with
our business or prevent us from exploring or developing our properties.



Amendments to current laws,
regulations and permits governing operations and activities of mining and
exploration companies, or more stringent implementation thereof, could have a
material adverse impact on Baja and cause increases in exploration expenses,
capital expenditures or production costs or reduction in levels of production at
producing properties or require abandonment or delays in development of new
mining properties.



Our exploration activities
are exploratory in nature and may not be commercially successful

We currently have no properties
that produce copper or any other metals.  The Boleo Project is currently an
exploration project.  Mineral exploration is highly speculative in nature,
involves many risks and is frequently nonproductive.  Unusual or unexpected
geologic formations, and the inability to obtain suitable or adequate machinery,
equipment or labor are risks involved in the conduct of exploration programs.
 We are currently conducting exploration and deposit definition drilling at
Boleo.  The success of copper exploration is determined in part by the
following factors:

·

the identification of potential copper mineralization
based on superficial analysis;

·

availability of government-granted exploration
permits;

·

the quality of our management and our geological and
technical expertise; and

·

the capital available for exploration.

Substantial expenditures are
required to establish proven and probable reserves through drilling and
analysis, to develop metallurgical processes to extract metal, and to develop
the mining and processing facilities and infrastructure at any site chosen for
mining.  Whether a mineral deposit will be commercially viable depends on a
number of factors, which include, without limitation, the particular attributes
of the deposit, such as size, grade and proximity to infrastructure; metal
prices, which fluctuate widely; and government regulations, including, without
limitation, regulations relating to prices, taxes, royalties, land tenure, land
use, importing and exporting of minerals and environmental protection.
 There can be no assurance that any copper reserves or mineralized material
acquired or discovered will be in sufficient quantities to justify commercial
operations or that we can obtain the funds required for development on a timely
basis.



We may not be able to obtain permits in order to
develop the Boleo Property



All phases of our operations are subject to permitting
and environmental regulation in the various jurisdictions (federal, state and
local) in which we operate.  Permitting and environmental legislation is
evolving in a manner that we anticipate will require stricter standards and
enforcement, increased fines and penalties for non-compliance, more stringent
environmental assessments of proposed projects and a heightened degree of
responsibility for companies and their officers, directors and employees.
 Prior to any development on the Boleo Property, Minera y Metalurgica del
Boléo S.A. de C.V. must receive a permit from the Secretaria de Desarrollo
Social of Mexico ("SEDESOL").  There is no guarantee that Minera y
Metalurgica del Boléo S.A. de C.V. will obtain all permits necessary to develop
the Boleo Property or that changes in the legislation or permitting requirements
may be implemented.  Future changes in permitting and environmental
regulation, if any, may adversely affect our operations by requiring additional
work on impact studies, delays caused by administrative hearings and
governmental review; increased costs related to preparation of studies, field
work and consulting experts; delays in obtaining permits and additional
implementation costs; changes to expected standards and assumptions of
management and other requirements affecting the timing, costs and ability to
obtain the required permits for our activities.



The Boleo Property is located in the Vizcaino
Natural Protected Area boundary which will affect permitting.



The Boleo Property is located within the boundaries of
the Natural Protected Area know as "El Vizcaino".  Natural Protected Areas
are geographical zones that due to their environmental characteristics, are
designated, by law, to conservation purposes.  The El Vizcaino Natural
Protected Area was established on December 5, 1988 and its management plan was
published on September 1, 2000.  The major points of the management plan as
related to the Boleo project are as follow:





a)

the plan, officially and specifically
recognizes the existence of three mining operations:



•

salt production at
Guerro Negro (by a party unrelated to the Company)



•

gypsum extraction at Santa Rosalia
(an open pit gypsum mine is located immediately to the north of and adjacent to
the Companys Boleo Project) and



•

metallic mining
project (the Companys El Boleo Project) at Santa Rosalia.



The zone plan established for the Natural Protected Area
allows the execution of new mining operations once we have met federal, state
and municipal environmental requirements and have been granted an environmental
impact authorization.



We expect that our Environmental Impact Manifest will be
subject to closer scrutiny and review and stricter environmental limitation than
if it was not in the Natural Protected Area.



The Boleo Property is located in Mexico and subject
to several country risks that may affect our ability to complete exploration and
development work on the property



All of our mineral activities will be conducted in
Mexico.  Our activities will be exposed to various levels of political,
economic and other risks and uncertainties.  These risks include but are
not limited to, hostage taking, fluctuations in currency exchange rates, high
rates of inflation, excessive import duties and taxes on the importation of
equipment, expropriation and nationalization, possible future restrictions on
foreign exchange and repatriation, changes in taxation policies, and changing
political conditions, currency controls and government regulations that favour
or require the awarding of contracts to local contractors or require foreign
contractors to employ local citizens.



Changes, if any, in mining or investment policies or
shifts in political attitude in Mexico may adversely affect the Companys
operations or profitability. Current activities and future operations may be
affected in varying degrees by government regulations with respect to, but not
limited to, restrictions on production, price controls, export controls,
currency remittance, income taxes, expropriation of property, foreign
investment, maintenance of claims, environmental legislation, land use, land
claims of local people, water use and mine safety.



Failure to comply strictly with applicable laws,
regulations and local practices relating to mineral right applications, and
tenure, could result in loss, reduction or expropriation of entitlements, or the
imposition of additional local or foreign parties as joint venture partners with
carried or other interests.



We raise required capital in Canadian dollars, but spend
such funds in Canadian and United States dollars as well as Mexican pesos (plus
minor expenditures in British pounds, Euros and Australian dollars). The
exchange rate between these currencies has fluctuated significantly in recent
years and in most years has resulted in foreign exchange losses.  The
Company does not currently enter into foreign currency contracts to hedge
against such risk.  Should the Boleo property be placed into production it
is anticipated that revenue from sales will principally be in United States
dollars while operating expenses will primarily be in Mexican pesos.  Any
changes in exchange rates could have an adverse impact on any future operating
revenues.



The current Presidential regime in Mexico has been
supportive of foreign investment.  A Mexican presidential election is
scheduled to occur in July 2006. A change in Presidential regime could have a
negative impact on the Company if it resulted, among other things, in delaying
the proposed reduction in corporate tax rates, changes in existing legislation
in regard to the repatriation of profits, restrictions on foreign ownership or
currency controls.



The occurrence of these various factors and uncertainties
cannot be accurately predicted and could have an adverse effect on our
operations or future profitability.

Exploration, development
and mining involve a high degree of risk

Our operations will be subject to all the hazards and
risks normally encountered in the exploration, development and production of
copper and other base  metals, including, without limitation, unusual and
unexpected geologic formations, seismic activity, unstable ground conditions,
rock bursts, pit-wall failures, cave-ins, flooding and other conditions involved
in the mining and removal of material, any of which could result in damage to,
or destruction of, mines and other producing facilities, damage to life or
property, environmental damage and legal liability. Milling operations, if any,
are subject to various hazards, including, without limitation, equipment failure
and failure of retaining dams around tailings disposal areas, which may result
in environmental pollution and legal liability.



The parameters used in
estimating mining and processing efficiency are based on testing and experience
with previous operations.  Various unforeseen conditions can occur that may
materially affect the estimates. In particular, past operations indicate that
care must be taken to ensure that proper ore grade control is employed and that
proper steps are taken to ensure that the leaching operations are executed as
planned. If these issues are not addressed, unforeseen difficulties may occur in
planned operations.

Lack of infrastructure at
Boleo Property will add to Project capital and operating costs

There is not an adequate supply
of fresh water or electric power at the Boleo Property.  The process plant
will primarily utilize sea water, which will add to corrosion expenses. To the
extent potable water is required it will be produced in a desalination plant.
The cost of this plant is approximately US$3 million and is included in current
capital cost estimates.  Power for the project will be provided by a 15
megawatt diesel generated power plant plus from a cogeneration plant attached to
an acid plant that burns sulphur to provide necessary sulphuric acid for the
process plant.  The cost of sulphur is the single largest reagent cost in
the plant.  Any increase in the cost of sulphur will result in a
significant increase in operating costs. The acid plant is currently budgeted on
the basis of a used plant at an estimated cost of US$17 million.  If a used
plant cannot be obtained it will significantly increase this cost.

Bajas title to its
properties may be subject to other claims

There is no guarantee that title
to Bajas properties will not be challenged or impugned. Bajas mineral property
interests may be subject to prior unrecorded agreements or transfers or the
claims of local people and title may be affected by undetected defects. There
may be valid challenges to the title of Bajas properties which, if successful,
could impair development and/or operations.  There are currently no known
or threatened challenges to the Companys title to the Boleo Property.

Baja does not insure
against all risks

Bajas insurance will not cover
all the potential risks associated with a mining companys operations.
 Baja may also be unable to maintain insurance to cover these risks at
economically feasible premiums.  Insurance coverage may not continue to be
available or may not be adequate to cover any resulting liability.
 Moreover, insurance against risks such as environmental pollution or other
hazards as a result of exploration and production is not generally available to
Baja or to other companies in the mining industry on acceptable terms. Baja
might also become subject to liability for pollution or other hazards which may
not be insured against or which Baja may elect not to insure against because of
premium costs or other reasons. Losses from these events may cause Baja to incur
significant costs that could have a material adverse effect upon its financial
condition and results of operations.

The mining industry is
competitive, which may limit our ability to retain qualified personnel, acquire
attractive properties or raise capital

The mining industry is
competitive in all of its phases, including recruiting qualified personnel,
acquisition of properties that may be complementary, capital raising and
securing equipment or services required for exploration programs and analysis.
  We face strong competition from other mining companies in these
areas.  Many of these companies have greater financial resources,
operational experience and technical capabilities than Baja.  As a result
of this competition, we may be unable to maintain or acquire attractive mining
properties, retain consultants and personnel or raise financing on terms we
consider acceptable or at all.Intense competition may delay our exploration
activities or increase our costs substantially, which could affect our financial
condition and results or operations.

Our success is dependent
on our key personnel

We are dependent upon our key
executives: John Greenslade, William Murray, Tawn Albinson and Dr. David
Dreisinger, who are responsible for developing our property, exploration, mine
and plant design, and financing strategies.  The loss of the services of
one or more of such key management personnel could have a material adverse
effect on our business.  Our ability to manage our exploration and, if
warranted, development activities, and hence our success, will depend in large
part on the efforts of these individuals.  We face intense competition for
qualified personnel, and there can be no assurance that we will be able to
attract and retain such personnel.

Certain of our officers
and directors also serve as officers and/or directors of other mineral resource
companies, which may give rise to conflicts

Certain of our directors and
officers are also directors, officers or shareholders of other companies that
are similarly engaged in the business of acquiring, developing and exploiting
natural resource properties.  For example, John W. Greenslade is also
President of Minterra Resource Corp., a mineral exploration company; Robert
Mouat is a director of Terra Gaia Inc., an environmental company; and William
Murray is President of Polymet Mining Corp., a mineral development company. In
addition, Gaston Reymenants is also Vice-President Marketing of Polymet Mining
Corp., a position he held prior to joining the Company.  Such associations
may give rise to conflicts of interest from time to time.  In particular,
Minterra Resource Corp. and Polymet Mining Corp. are also involved in the mining
industry which leads to the possibility that such companies could compete with
the Company for the acquisition of mineral projects.  Both the Company and
Polymet Mining Corp. propose to produce copper metal and cobalt.  The sale
of Cobalt is a specialized market and conflicts may arise in selling or
developing cobalt properties.

Our growth will require
new personnel, who may not be readily available

We are expecting significant
growth in our number of employees if the results of our exploration and
feasibility study activities on the Boleo Property are successful and, if
warranted, we begin development activities and reach a decision to place the
property into production.  This growth is expected to place substantial
demands on our management and operations.  Our ability to assimilate new
personnel, if warranted, will be critical to our performance as we will be
required to recruit additional personnel and to train, motivate and manage our
employees.   We will also have to adopt and implement new systems in
all aspects of our operations. This will be particularly critical in the event
we decide not to use a contract miner at the Boleo Property. We may not be able
to recruit the personnel required to execute our programs or to manage these
changes successfully.

Legislation, including the
effective date of Section 404 of Sarbanes-Oxley Act of 2002, may make it
difficult for us to retain or attract officers and directors

We may be unable to attract and
retain qualified officers, directors and members of board committees required to
provide for effective management as a result of the recent and currently
proposed changes in the rules and regulations which govern publicly-held
companies.  Sarbanes-Oxley Act of 2002 has resulted in a series of rules
and regulations by the Securities and Exchange Commission that increase
responsibilities and liabilities of directors and executive officers.  The
perceived increased personal risk associated with these recent changes may deter
qualified individuals from accepting these roles.

Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, we expect that beginning in our annual report for
the year ended December 31, 2007, we will be required to furnish a report by
management on our internal controls over financial reporting.  Such report
will contain among other matters, an assessment of the effectiveness of our
internal control over financial reporting, including a statement as to whether
or not our internal control over financial reporting is effective.  This
assessment must include disclosure of any material weaknesses in our internal
control over financial reporting identified by our management.  Such report
must also contain a statement that our auditors have issued an attestation
report on our managements assessment of such internal controls. Public Company
Accounting Oversight Board Auditing Standard No. 2 provides the professional
standards and related performance guidance for auditors to attest to, and report
on, our managements assessment of the effectiveness of internal control over
financial reporting under Section 404.



While we believe our internal
control over financial reporting is effective, we are still compiling the system
and processing documentation and performing the evaluation needed to comply with
Section 404, which is both costly and challenging.  We cannot be certain
that we will be able to complete our evaluation, testing and any required
remediation in a timely fashion.  During the evaluation and testing
process, if we identify one or more material weaknesses in our internal control
over financial reporting, we will be unable to assert that such internal control
is effective. If we are unable to assert that our internal control over
financial reporting is effective as of December 31, 2007 (or if our
auditors are unable to attest that our managements report is fairly stated or
they are unable to express an opinion on the effectiveness of our internal
controls), we could lose investor confidence in the accuracy and completeness of
our financial reports, which would have a material adverse effect on our stock
price.

Failure to comply with the new
rules may make it more difficult for us to obtain certain types of insurance,
including director and officer liability insurance, and we may be forced to
accept reduced policy limits and coverage and/or incur substantially higher
costs to obtain the same or similar coverage. The impact of these events could
also make it more difficult for us to attract and retain qualified persons to
serve on our board of directors, on committees of our board of directors, or as
executive officers.



You may be unable to enforce U.S. judgments against
us or our officers and directors



We are incorporated under the laws of the Province of
British Columbia, Canada. The majority of our directors are resident in Canada;
the two exceptions are residents in Costa Rica and the Bahamas, respectively.
 Consequently, it may be difficult for United States investors to effect
service of process within the United States upon us or upon those directors or
officers who are not residents of the United States, or to realize in the United
States upon judgments. Judgments of United States courts predicated upon civil
liabilities may be enforceable in Canada by a Canadian court if the U.S. court
in which the judgment was obtained had jurisdiction, as determined by the
Canadian court, in the matter.  There is substantial doubt whether an
original action could be brought successfully in Canada against any of such
persons or the Company predicted solely upon such civil liabilities.



We do not intend to pay cash dividends and there is
no assurance that we will ever declare cash dividends.



We do not have any intention of paying cash dividends in
the foreseeable future.  In particular, there can be no assurance that our
Board of Directors will ever declare cash dividends, which action is completely
within their discretion.



We believe we were a passive foreign investment
company during 2005, which may have a material affect on U.S.
holders.



We believe we were a "passive foreign investment company"
("PFIC") during the year ended December 31, 2005, which may have a material
affect on US Holders.  United States income tax legislation contains rules
governing PFICs, which can have significant tax effects on US Holders of foreign
corporations.  A US Holder who holds stock in a foreign corporation during
any year in which such corporation qualifies as a PFIC is subject to United
States federal income taxation under one of two alternative tax regimes at the
election of each such US Holder.  The U.S. federal income tax consequences
to a U.S. Holder of the acquisition, ownership, and disposition of Common Shares
will depend on whether such U.S. Holder makes an election to treat the Company
as a "qualified electing fund" or "QEF" under Section 1295 of the Code (a
"QEF Election") or a mark-to-market election under Section 1296 of the Code
(a "Mark-to-Market Election").  See Item 10. "Taxation – United States
Federal Income Tax Consequences."



See Item 10 Additional Information - Taxation - United
States Federal Income Tax Consequences for a detailed discussion of material
United States federal income tax consequences for U.S. Shareholders.





ITEM 4.  INFORMATION ON THE
COMPANY



A.

History and Development of the
Company



Baja Mining Corp. was incorporated under the laws of the
Province of British Columbia, Canada pursuant to the Company Act(British
Columbia) on July 15, 1985 under the name "Scimitar Systems Inc."



On May 12, 1987, the Companys name was changed to "Gypsy
Resources Ltd." and, on August 24, 1988, the Companys then existing Articles
were cancelled and new Articles were adopted.  On July 5, 1989, the
Companys share capital was subdivided on a two new for one old share basis and
its Memorandum was altered to increase its authorized capital to 200,000,000
common shares without par value.  On February 2, 1990, the Companys name
was changed to "Pacific Century Explorations Ltd.", and, on November 27, 1992,
the Companys then existing Articles were cancelled and new Articles were
adopted.  On June 9, 1994, the Companys name was changed to "Goldwater
Resources Ltd.", its share capital was consolidated on a one new for five old
share basis and its Memorandum was altered to increase its authorized capital to
200,000,000 common shares without par value.  On November 16, 1999, the
Companys name was changed to "First Goldwater Resources Inc.". Effective
November 14, 2002, the Companys share capital was consolidated on a one new for
sixteen old shares basis and its Memorandum was altered to increase its
authorized capital to 200,000,000 common shares without par value.



Mintec International Corporation was incorporated under
the laws of Barbados, as an International Business Corporation, on the
7th day of October 1993 and continued its corporate charter to
British Columbia under the British Columbia Business Corporations Act, under the
name "Mintec Processing Ltd." (Mintec International Corporation and Mintec
Processing Ltd., being the same entity are referred to herein as "Mintec"), on
November 25, 2004. Mintec was officially discontinued as a Barbados company on
March 7, 2005. Its head office is the same as the Companys and its registered
and records office is located at 1040-999 West Hastings Street, Vancouver,
British Columbia, V6C 2W2.



On April 19, 2004 the Company completed a share exchange
with all the shareholders of Mintec in accordance with the terms of a Letter
Agreement.   The share exchange resulted in a change of control of the
Company (the "Reverse Acquisition").



On July 19, 2004 the Companys name was changed to Baja
Mining Corp. The Company is the resulting Company after the acquisition of
Mintec but is under the control of the former shareholders of Mintec. The
Company remains a British Columbia company with the Companys head office and
registered and records office situated at Suite 2350-1177 West Hastings Street,
Vancouver, B.C.,V6E 2K3, (Telephone: 604-685-2323). The Company is a reporting
Company in each of the provinces of Alberta and British Columbia. The Companys
shares have been listed on the TSX Venture Exchange (TSX V) since 1987.
 Its current trading symbol is "BAJ".



The principal expenditures of the Company are related to
its Boleo Copper/Cobalt/Manganese/Zinc Property, located in Baja California Sur,
Mexico.  During the years ended December 31, 2005, 2004, 2003 and 2002
exploration expenses incurred were $5,161,437, $3,825,698, $381,698 and $579,027
respectively.  The Company incurred expenses of $1,269,861 during the first
three months of 2006 related to exploration activities on the Boleo Property



The Company relies principally on equity financing to
fund its projects and expenditures.



There has not been any indication of any public takeover
offers by third parties in respect of the Companys common shares or by the
Company in respect of other companys shares during the last or current
financial year other than the Reverse Acquisition.



B.

Business Overview



The Company is in the process of completing a definitive
feasibility study on its Boleo Property in Mexico. The Company is considered
under United States generally accepted accounting policies to be in exploration
stage.  (Under Canadian generally accepted accounting policies it is
considered to be in the development stage.)



Work related to the definitive feasibility study is
anticipated to be completed in or about July, 2006; however, the final
definitive feasibility study document is not expected to be published until late
August or September of 2006.  The Company recently completed an underground
test mine as part of the definitive feasibility study.  A report on the
test mine is anticipated to be received in June, 2006.  Completion of the
definitive feasibility study is dependent on completion of various metallurgical
tests, including a phase 2 pilot plant, which is expected be completed by the
end of June 2006 at an estimated cost of $2.5 million, 38,865  metres of
drilling to enhance the geological classification of existing geological
resources, at an estimated cost of $5.894 million, process plant  and
infrastructure design   at an estimated cost of $0.86 million, and
other related feasibility study costs totaling approximately $0.85 million for
an aggregate remaining cost estimate of approximately $10.1  million.
 This is currently an estimate only and the final cost could vary.
 The proposed 38,865 metre in-fill drilling program is beyond that required
for the definitive feasibility study (approximatel;y 25,000 metres).  The
additional drilling is designed to enhance the geological resources for the
initially proposed 20 year production schedule, such that all resources will be
"Measured or Indicated" resources.



The Company commenced operations upon its incorporation
in 1985.  From 1994 to 1998 the Company was engaged primarily in the
business of acquiring interests in, and exploring, mineral and natural resource
properties. Historically, the Company has been involved in both the mining and
oil and gas industries.  From 1998 until the Reverse Acquisition, the
Company focused primarily on the exploration and development of oil and gas
properties.



---

The Company is engaged in the acquisition, exploration
and future development of natural resource properties.  As a result of the
Reverse Acquisition the Company will be involved principally in the mining
industry and will be focused on the ongoing development of the Boleo Property,
Mexico (See "Property, Plant and Equipment").



The Company entered into a letter agreement with the
shareholders of Mintec on December 2, 2003 and subsequently amended on February
12, 2004 and March 8, 2004, (the "Letter Agreement") pursuant to which such
shareholders agreed to exchange all the issued and outstanding shares of Mintec
for 40,000,000 shares in the capital stock of the Company.  The share
exchange was subject to the Company completing an equity issue to raise a
minimum of $10 million in gross proceeds.



On April 20, 2004, the Company completed the required
equity financings in the form of a private placement for 10,666,666 units and a
short form offering financing for 2,666,666 Units, both financings were at a
price of $0.75 per unit.  Each unit consisted of one common share of the
Company and one-half of one share purchase warrant ("Unit").  One whole
warrant will entitle the holder to purchase one common share at a price of $1.15
per common share.  The warrants are exercisable at any time up to the close
of business on April 19, 2009.



Concurrent with the closing of the financings, effective
April 20, 2004 the Company completed the share exchange in accordance with the
terms of the Letter Agreement.   The share exchange resulted in the
Reverse Acquisition.  Mintec.  The Mintec shareholders were at
arms-length to the Company.



During March, 2005 the Company completed an equity issue
of 2,100,000 Units at $0.60 per Unit for gross proceeds of $1,260,000.
 Each Unit consisted of one share and one half share purchase warrant.
 One whole warrant will entitle the holder to purchase one common share at
a price of $1.15 for a period of two years from issue (extendable to five years
should the Company achieve Tier 1 status on the TSX-V prior to expiry of the
term.



During November 2005 – the Company completed a private
non-brokered placement of 1,426,678 units at $0.35 per unit, realizing gross
proceeds of $499,337. Each unit consisted of one share and one half-share
purchase warrant. Two share purchase warrants entitle the holder to acquire one
share at $0.45 within two years of issue.



During December 2005, the Company completed (a) a private
non-brokered placement of 1,978,571 units at $0.35 per unit, realizing gross
proceeds of $692,500. Each unit consists of one share and one half-share
purchase warrant. One whole share purchase warrant entitles the holder to
acquire one share at $0.45 within two years of issue; (b) a private non-brokered
placement of 1,000,000 units at $0.35 per unit, realizing gross proceeds of
$350,000. Each unit consists of one share and one half-share purchase warrant.
One whole share purchase warrant entitles the holder to acquire one share at
$0.45 within two years of issue. Finders fees relating to this issue amounted
to $33,750 settled in cash; and (c) a private brokered placement of 5,255,715
units at $0.35 per unit, realizing gross proceeds of $1,839,500. Each unit
consists of one share and one half-share purchase warrant. One whole share
purchase warrant entitles the holder to acquire one share at $0.45 within two
years of issue. Agents fees relating to this issue amounted to $186,581 settled
in cash.



---

In April 2006, the Company completed an equity issue of
25,555,556 Units at a price of $0.90 per Unit to net proceeds of $21,692,576,
after deductions of agents commissions, finders fees and legal and general
expenses related to the issue.  Each Unit consists of one share and
one-half a share purchase warrant.   One whole warrant allows the
holder to purchase a further share at a price of $1.25 per share until April 13,
2008 (extendable to April 13, 2011 if the Company achieves Tier 1 status on the
TSX-V prior to the initial expiry date).  The warrants provide that in the
event that the Common Shares trade at a closing price on the TSX of greater than
$2.50 per share for a period of 20 consecutive trading days at any time after
four months and one day after the Closing Date, the Company may accelerate the
expiry date of the Warrants by giving notice to the holders thereof and in such
case the Warrants will expire on the 60th day after the date on which
such notice is given by the Company



Significant acquisitions and dispositions for the past
three financial years ended December 31, 2003 include:



During the period ended December 31, 2003, pre-Reverse
Acquisition the Companys interests in oil and gas prospects were transferred to
the Companys then wholly owned subsidiary Goldwater Energy. The Company
disposed of Goldwater Energy and accordingly its oil and gas prospects effective
April 19, 2004 in accordance with the Reverse Acquisition.



Other than the assets acquired under the Reverse
Acquisition as described herein, the Company has not had any other significant
acquisition or disposition of assets.



The Company has an agreement with the Commonwealth
Scientific and Industrial Research Organization, pursuant to which the Company
has a non-exclusive royalty free licence to utilize a proprietary mixture of
commercially available reagents (chemicals) that permit the use of solvent
extraction, to recover cobalt, zinc and manganese directly from leach solutions.
 If this technical information was not available for the Companys use or
should further testing indicate that the proprietary reagent mixture cannot be
economically applied the Company would have to utilize other processes for the
recovery of cobalt, manganese and zinc.  These other processes are expected
to have higher capital and operating costs.



Mining Regulations in Mexico



Under the Mexican Constitution and the mining law of
Mexico, all mining projects are subject to Federal legal control. This control
is exercised from the exploration phase through the closure phase of a mining
project.  Prior to the initiation of exploration or construction
activities, all mining projects required to apply for and obtain an
environmental impact authorization and a land use permit from the Mexican
Federal environmental agency SEMARNAT (Secretaria de Medio Ambiente y Recursos
Naturales).  This requires the presentation of an environmental impact
manifest and a technical study which deals with the impacts, the environmental
mitigation, and habitat compensation to the satisfaction of the authorities
having environmental jurisdiction



The Boleo Property is located within the boundaries of
the Natural Protected Area known as "El Vizcaino".  Natural Protected Areas
are geographical zones that, due to its environmental characteristics, are
designated, by law, to conservation purposes.   The El Vizcaino
management plan, officially and specifically, recognizes the existence of three
mining operations in the area, one of which is the Boleo Property.  The
zoning plan established for the Natural Protected Area allows the execution of
new mining operations once the Company has met Federal, State and Municipal
environmental requirements and has been granted an environmental impact
authorization.



---

C.

Organizational Structure



As June 30, 2006, the Company has three (3) wholly owned
subsidiaries, two of which Mintec Processing Ltd., and Boleo Trading Limited are
inactive:



|                                                                |                                            |                                              |  | 
|--------------------------------------------------------------- | ------------------------------------------ | -------------------------------------------- |  | 
|                                                                | Baja Mining Corp.
      (British Columbia) |                                             
|                                                                |                                            |                                              |  | 
|                                                                |                                            |                                              |  | 
|Mintec Processing Ltd.
      (British Columbia)                 |                                            | Boleo Trading Limited
      (United Kingdom)
|                                                                |                                            |                                              | 
|Minera y Metalurgica del Boleo S.A de
      C.V.
      (Mexico) |                                            |                                             





D.

Property, plant and
equipment

Boleo
Copper/Cobalt Property, Baja California Sur, Mexico



An independent technical
report (the "Hunter Report") on the Boleo property entitled "Independent
Technical Report on the Boleo Copper Cobalt Project located in Baja California
Sur, Mexico - A Review of the Potential to Develop a Mining Operation in the
Boleo District together with Recommendations for Further Project Development"
has been authored by Don Hunter ("Hunter"), FAusIMM, C.P. (Mining) of Hunter
Mine Engineering Services Pty Ltd.  dated June 15, 2005.  There is
significant reference in the Hunter Report to a report dated November 27, 2003
(the "Mehner Report") prepared by David Mehner ("Mehner"), P.Geo., entitled an
"Underground Resource Calculation and Review, Boleo District".

A technical report dated August 12, 2005, entitled "Baja
Mining Corporation – A Preliminary Assessment of the El Boleo Copper Cobalt
Project", prepared by independent Qualified Persons, William Yeo, MAusIMM, PhD.,
and Phillip Hellman, FAIG, PhD., of Hellman & Schofield, John Wyche,
MAusIMM, MMICA,CPMin, of AMDAD, Michael Holmes, MSAIMM, PrEng., of Bateman, John
Greenslade, BASc, M.Eng., P.Eng., LLB, and Don Hunter, FAusIMM, MIOM,CPEng,
C.Eng. (the "Bateman Preliminary Assessment"). The Preliminary Economic
Assessment (the "PEA") contained in the Bateman Preliminary Assessment was
prepared by John Greenslade, President of the Company and a non-independent
Qualified Person. The PEA was reviewed by Don Hunter, FAusIMM, MIOM,CPEng,
C.Eng., to provide for necessary independence under N.I. 43-101.



In addition, the Company has
received a report dated March 2005 prepared by Hellman & Schofield Pty. Ltd.
of Sydney, Australia, entitled "Resource Estimate Study The El Boleo
Copper-Cobalt-Zinc Deposit, Baja California, Mexico" (the "Hellman &
Schofield Report").

The Hunter Report, the Bateman
Preliminary Assessment, the Mehner Report and the Hellman & Schofield Report
are available for review under the Company's profile on the SEDAR website at
www.sedar.com.

The foregoing disclosure relating to the Boleo property
has been derived from the Hunter Report, the Bateman Preliminary Assessment and
the Hellman & Schofield Report.



---

Geographic Location,
Property Size and Claim Information

The Company's Boléo Property is located adjacent to the
town of Santa Rosalia on tidewater on the east coast of the Baja peninsula
overlooking the Golfo de California (Gulf) in the province of Baja California
Sur, Mexico. Santa Rosalí
a is approximately 180 kms (2 - 3 hours drive) north of
the coastal town of Loreto and approximately 850 km. south of San Diego,
California, U.S.A.









El Boleo
Location Map

[form20fdec05002.gif]



Access for construction
equipment would principally be by the Trans-peninsular highway from the United
States border.  The highway passes through Santa Rosalia and carries heavy
traffic volumes year round. Equipment could also be brought in by barge to the
port of Santa Rosalia or the Pacific Coast marine facilities at Guerro Negro.
 There are regular scheduled air services from the United States of America
and mainland Mexico to both Loreto and to La Paz (a six hour drive to the south
of Santa Rosalia). The closest private airstrip is at Palo Verde a half hour
drive away.  Port facilities at Santa Rosalia, which serviced the copper
mine until 1985, are still being used twice a week by a ferry service to the
mainland at Guaymas.

The Boléo Property consists of
16  mineral concessions, all but one - the San Bruno - of which are
contiguous, consisting of eleven (11) exploitation concessions and five (5)
exploration concessions as described below, covering 19,254.8043 hectares.
 The project also includes three surface lots, which total 6,692.58
hectares and cover all of the identified mining areas.



---



|                                                     |           |                               |              |               | 
|---------------------------------------------------- | --------- | ----------------------------- | ------------ | ------------- | 
|Claim                                                | Title No. | Surface Area
      (hectares) | Type         | Expiry Date  
|                                                     |           |                               |              |              
|El Boleo                                             | 218082    | 4,975.6132                    | Exploitation | Sept 28-2050 
|El Boleo I                                           | 218092    | 72.4463                       | Exploitation | Aug. 30-2050 
|Boleo III                                            | 212148    | 224.6410                      | Exploitation | Aug. 30-2050 
|Nuevo San Luciano                                    | 214189    | 150.000                       | Exploitation | Aug. 9-2051  
|Boleo II frac4                                       | 218975    | 267.1579                      | Exploitation | Jan.27-2053  
|El Boleo II frac I                                   | 218179    | 1,296.6156                    | Exploitation | Sept.28-2050 
|El Boleo II frax IA                                  | 218180    | 507.2841                      | Exploitation | Sept.28-2050 
|Boleo X frac 16                                      | 211066    | 0.0068                        | Exploitation | Mar.23-2044  
|Boleo X frac 12                                      | 211062    | 3.1241                        | Exploitation | March 23-2044
|Boleo X Frac 9                                       | 211059    | 9.9612                        | Exploitation | March 23-2044
|Boleo X frac 8                                       | 211058    | 3.9486                        | Exploitation | March 23-2044
|                                                     |           |                               |              |              
|                                                     | Total     | 7,510.7988                    |              |              
|                                                     |           |                               |              |              
|San Luciano 4                                        | 223358    | 392.0000                      | Exploration  | Dec. 2-2010  
|Biarritz B                                           | 219819    | 0.0055                        | Exploration  | Apr.15-2009  
|San Luciano 2                                        | 220790    | 670.000                       | Exploration  | Sep.29-2009  
|San Luciano 3                                        | 221073    | 1,899.000                     | Exploration  | Nov.18-2009  
|San Bruno                                            | 222772    | 8,783.000                     | Exploration  | Aug.26-2010  
|                                                     |           |                               |              |              
|                                                     | Total     | 11,744.0055                   |              |              
|Total Exploration and Exploitation
      concessions |           | 19,254.8043                   |              |              





The Mexican Mining Law was amended by a Congress Decree
dated February 22, 2005, published at the Official Diary of the Federation on
April 28, 2005.  According to this Amendment there will now exist only one
type of mining concession (exploitation mining concessions) with a period of
fifty years.  All existing exploration mining concessions were converted
into new mining concessions from January 1,  2006.



Ownership

Minera y
Metalurgica del Boléo holds a 100% interest in the Boleo Property free of
encumbrances.

Environmental

The Boleo Project was
initially presented to the Mexican Federal Environmental agency SEMERNAT
(Secretaria de Medio Ambiente y Recursos Naturales) during the pre-feasibility
baseline work which ended in 1998.  As a consequence, the project is well
known by federal and state authorities in Mexico.  The project
environmental permitting process, re-activated during the current definitive
feasibility study, involves a process of completing the earlier baseline data
collection program; a definition of air quality and water quality parameters;
inclusion of the engineered layouts for process facilities and mine, habitat
compensation measures and other socio-economic data.  The project has
already obtained authorization for the execution of exploration work, which
represents an important precedent for the final authorization of the mining
project.  This authorization has caused SEMERNAT to provide legal
requirements for the promoter of the project.  Consequently, a full
compliance and permit management plan has been implemented for the exploration
project.  The environmental consultants (Corporacion Ambiental de Mexico)
report that the Mexican authorities are in the mode of fast tracking all new
applications for mine development.



---

The following steps have been
completed by the Company to date:

·

Environmental Impact Resolution for Exploration
Activities – Permit issued on October 8, 2004;

·

Authorization of Exploration Activities in a Natural
Protected Area – Authorization issued on November 18, 2004;



·

Integration of Environmental Impact Manifest for Mining
and Ore Dressing – Climatology and biological field work concluded, plant and
process description and environmental impact evaluations pending.



As part of the Environmental
Impact Manifest, the submission is expected to include applications for a
variety of regulatory permit approvals related to development of the Boleo
Property.  In order to begin development of the property, we anticipate
that the following permits will be required:

·

Authorization of Mining and Ore Dressing in a Natural
Protected Area

·

Federal Land Occupation Permit (Tailings Dam)

·

Permit for Power Generation for Self Supply

·

Permit for the Operation of Low Level Radioactive Sources

·

Water Discharge Permit

The Environmental Impact
Manifest was scheduled for submission to SEMERNAT in late 2005, however as a
result of discussions with SEMARNAT the company elected to conduct an initial
series of informal discussions in regard to the content of the proposed Manifest
prior to submission.  The Environmental Impact Manifest was submitted to
SEMARNAT on May 8, 2006.  The applications are subject to governmental
review and, if deemed necessary, hearing.  We anticipate that the mining
permitting and review process will take approximately six (6) months from the
date of submission (May 8, 2006) of the environmental impact
manifest.

Legal Framework

Similar to many countries,
Mexican Environmental Statutes are enacted at the federal, the state and
municipal levels of government.

For economic activities
subject to Federal control, the Mexican environmental legal framework comprises
the following structure:

·

General Law for Ecological Equilibrium and the Protection
of the Environment

·

General Law for the Integral Management and Prevention of
Residues

·

General Law of Sustainable Forestry
Development

·

General Wildlife Law

·

Law of National Waters

Permitting Process for the
Boleo Mining Process

Prior to the initiation of
exploration or construction activities, all mining projects are required to
apply for and to obtain an environmental impact authorization and a land use
permit.

This requires the presentation
of an environmental impact manifest and a technical study, which deals with the
impacts, the environmental mitigation, and habitat compensation to the
satisfaction of the authorities having environmental jurisdiction.





Specific Restrictions
Applicable to the Boleo Project

The Boleo Project is located
within the boundaries of the Natural Protected Area known as "El Vizcaino".
 Natural Protected Areas are geographical zones that, due to its
environmental characteristics, are designated, by law, to conservation
purposes.

The need to meet the environmental requirements
associated with its location within the Vizcaino Natural Protected Area boundary
is a significant project issue.



Management Plan

The "El Vizcaino" Natural
Protected Area was established through a decree issued by the executive branch
of the Federal Government on December 5, 1988.  Its management plan was
published on September 1, 2000.

The major points of the
management plan as related to the Boleo Project are as follows:

a)

The
plan, officially and specifically, recognizes the existence of three mining
operations:

·

Salt production at Guerrero Negro;

·

Gypsum extraction at Santa Rosalia and;

·

Metallic mining project (copper and cobalt – El Boleo) in
its early stages of development at Santa Rosalia.

b)

The
zoning plan established for the Natural Protected Area allows for the execution
of new mining operations in the buffer zone once the Company has met Federal,
State and Municipal environmental requirements and has been granted an
environmental impact authorization.

Work By Previous
Operators

The discovery of copper in the
Boléo District occurred in 1868, and was followed in 1872 with mining and hand
sorting high-grade oxidized copper ores from trenches and open cuts for shipment
to smelters in Europe and Guaymas.

In 1885 the Compagnie du Boléo
(later to be known in Mexico as the Compania del Boléo, S.A. – the "Boléo
Company") was formed in Paris, and systematic mining operations were organised
later that same year with early work involving the development of several mines
and construction of a smelter, port facility, town site, and other
infrastructure.

The Boléo Company was active
from 1885 to 1938, when it went into liquidation.  However, operations
continued on a reduced scale until 1948, when the company was reorganized as the
Boléo Estudios y Inversiones Mineras, S.A.

Smelting operations were
initially suspended in 1954 when operations were taken over by the Compañ
ia
Minera Santa Rosalí
a, S.A., jointly owned by Federal and State Governments and
private Mexican interests and managed by the Comisió
n de Fomento Minera (Bureau
of Mines) ("Fomento Minera").  Fomento Minera attempted to sustain copper
production by re-opening the smelter and building a
leach-precipitation-flotation (Leach Precipitation Flotation) plant to treat
dump material and small amounts of underground ore.  The smelter continued
operation, treating material produced by poquiteros and concentrates from
offshore, until final closure in 1985.

During the 1960s and early 1970s, the Compañ
ia Minera
Santa Rosalí
a S.A, in an effort to find more mineralization for the Leach
Precipitation Flotation plant, commenced an underground program in which it
blocked out a measured resource of backfill material in the Apollo Mine area
reported to be in the order of 660,000 tonnes grading about 1.60% copper, with
an unknown cobalt and zinc content.  This material was never mined due to
lack of funding.



---



Historical
Mining Activities at Boleo

|                         |                    |                            |                             
|------------------------ | ------------------ | -------------------------- | ----------------------------
|Period
      of Activity | Tonnes
      Mined | Average
      Copper Grade | Tonnes
      Copper Produced
|To
    1884              | ~
    54,400       | 24.0%                      | ~
    10,400                
|1888-1947                | 13,622,327         | 4.81%                      | 540,334                     
|1948-1952                | 817,300            | 3.95%                      | ~
    27,000                
|1953-1972                | 1,118,200          | 3.95%                      | ~
    36,500                
|1973-1985                | 720,900            | 3.02%                      | ~
    18,000                
|1964-1972                | 2,500,000          | 1.40%                      | n/a                         



Between about 1964 and 1972,
about 2.5 million tonnes averaging 1.4% Cu are believed to have been recovered
from old dumps and to a lesser extent by independent miners from small
scale workings.

After cessation of operations
in the 1980's, the bulk of the district was placed into the Mexican Strategic
National Mining Reserve ("Mexican Strategic National Mining Reserve"). Some
months after the release of the ground from the Mexican Strategic National
Mining Reserve in 1991, much of the district was acquired by Minera Terra Gaia
S.A. de C.V. ("Minera Terra Gaia"), a Mexican company wholly-owned by Terratech.
 In 1993, Minera Terra Gaia optioned the concessions to International
Curator Resources Ltd. ("International Curator")(now known as Canadian Gold
Hunter Inc., a TSX listed company), retaining a significant net revenue interest
in the property.  Terratech is a wholly-owned subsidiary of Tek Terra
Corporation ("Tek Terra"), of Barbados, which company is owned by the
pre-Reverse Acquisition shareholders of Mintec.

Work by International Curator
culminated in the issuance of a pre-feasibility study. The study was preliminary
in nature and not intended to be a definitive statement of resource or reserve
estimates. The International Curator pre-feasibility study contemplated a
conventional open-pit mine with on-site processing utilizing a
hydrometallurgical plant producing copper, zinc, and cobalt cathode with an
option to produce a cobalt sulphide product instead of cathode.  Metal
recovery was expected to involve acid leaching with copper, cobalt, and zinc
recovered from the leach slurry using an in-pulp method of recovery.  In
2001, following a significant decline in metal prices, International Curator
withdrew from the project by reverting back its interest in Mintec and the Boléo
concessions to Terratech.

After regaining ownership,
Mintec (under the control of Terratech), carried out only limited field
exploration work. Instead, Minera y Metalurgica del Boléo concentrated on a
complete geological, mining, and processing review of the project.  This
included an independent review of the open-pit copper-cobalt-zinc reserves, a
preliminary determination of underground resources, an in-depth review of
alternate ore processing flowsheets, and an investigation into alternative
mining methods.  This review was followed in February 2002 by a
pre-feasibility study prepared by Bateman Engineering, Pty. Limited ("Bateman
Engineering Study (2002)"), which study utilized the then existing technical
data to develop a simpler hydrometallurgical flowsheet (from that proposed in
the International Curator pre-feasibility study); incorporating recent advances
in solid-liquid separation technology,   for the recovery of copper
metal, cobalt metal and zinc sulphate

Following Bateman Engineerings
assessment, Mintec embarked on a corporate re-organization based on the belief
that the process flowsheet proposed in the Bateman Engineering Study (2002), if
proved viable through future metallurgical testing, would improve project
economics and possible commercial viability.  In April 2002, as part of
this restructuring, Tek Terra caused its subsidiary corporations (Minera Tera
Gaia & Terratech) to transfer to Mintecs wholly owned Mexican subsidiary,
Minera y Metalurgica del Boléo, all of the rights to the copper-cobalt
concessions, as described above, such that Minera y Metalurgica del Boléo became
the registered owner of a 100% interest in the Boléo copper-cobalt-zinc
concessions.  Tek Terra subsequently distributed by dividend all of the
shares of Mintec to the shareholders of Tek Terra culminating in the completion
of the Reverse Acquisition in 2004.



Work by Baja

Baja commenced the preparation of a definitive
feasibility study on the El Boleo copper/cobalt/manganese/zinc project, located
at Santa Rosalia, Baja California Sur, Mexico in August, 2004 under the
direction of Bateman Engineering Inc. Canada.  The Bateman Engineering
pre-feasibility Study (2002) was a review of existing technical information and
an investigation into alternative mining and processing techniques on the basis
of existing data.  It included reviewing new technology, particularly in
the area of solid/liquid separation technology developed after the 1997 study
conducted by Curator.  All cost estimates were factored from information
Bateman had from comparable projects.  By comparison, the definitive
feasibility study will be to a level of engineering definition that would
provide capital and operating cost estimates to an order of accuracy of + 15% -
10% in aggregate and to a standard that would meet the requirements of both the
owners and financial institutions to support major capital investment decisions.
In addition to providing planning and design of the mine, process plant, and
infrastructure, the definitive feasibility study will also identify operational,
environmental, marketing, and financial risks and propose methods for their
management or mitigation. An essential part of the definitive feasibility study
will be the development of a project development and construction schedule.



The key components of the definitive feasibility
study include (1) testing of solid liquid separation utilizing high rate
thickeners in a counter-current decantation circuit (successfully completed);
(2) a two phase pilot plant to demonstrate the viability of the process
flowsheet for recovery of copper metal, cobalt metal and zinc sulphate (phase 1
"proof of concept" pilot plant successfully completed); (3) a test mining
program to demonstrate the viability of underground mining and confirm estimated
mining costs and percentage extraction of resources; and (4) in-fill drilling to
enhance the quality of resources that currently do not meet the definition of
measured or indicated resources as a result of drill hole spacing (initial 3500
metre program completed, of an anticipated plus 38,865  metre program). The
phase 1 "proof of concept" pilot plant was conducted to test on a reasonably
continuous basis the viability of the process flow sheet that was developed from
the 2002 pre-feasibility study.  It did not completely integrate all
processes.  In particular, the pilot plant was split into two sections.
 The phase 1 pilot plant integrated all steps through the production of
copper metal but accumulated the leach solutions stripped of copper for
subsequent processing through to cobalt metal and zinc sulphate at a later date.
 In addition, manganese recovery was not originally planned and accordingly
the processing of manganese leach solutions was conducted in a third test. It is
proposed to integrate all these steps in the phase 2 pilot plant.



The definitive feasibility study is being conducted to
comply with Canadian standards under National Instrument 43-101.  For
United States reporting purposes, U.S. Securities and Exchange Commission
Industry Guide 7 (as interpreted by the staff of the U.S. Securities and
Exchange Commission) applies different standards for the disclosure of reserves.
 U.S. investors are cautioned that the reserves, if any, presented in the
feasibility study, while in compliance with Canadian standards and regulations,
do not meet the following requirements of reserve disclosure under U.S.
Securities and Exchange Commission guidelines: the reserves may be based on a
feasibility level permitted under Canadian regulations rather than a "final" or
"bankable" level feasibility study as required by the U.S. Securities and
Exchange Commission; and, the reserves are is expected to be calculated using
current commodity prices rather than the historic three year average prices
required by the U.S. Securities and Exchange Commission.  In addition, a
primary environmental analysis or report must be filed with the appropriate
governmental authority under the rules of the U.S. Securities and Exchange
Commission.



In addition, as part of the definitive feasibility study,
Baja commissioned geological consultants Hellman & Schofield Pty. Ltd.
(Hellman & Schofield), of Sydney, Australia, in late 2004 to develop a
computerized 3D digital resource model of the El Boleo copper/cobalt/zinc
deposit and the consulting firm  Australian Mine Design & Development
Limited (Australian Mine Design and Development) for their expertise in
 mine design of flat lying deposits like Boleo.



---

Australian Mine Design and Development proposed the use
of modern, high productivity, continuous miners as used in the Australian and
South African coal mines.  A test mine site was selected which is
representative of the conditions to be encountered on Boleo and the test area
pre-developed from March to May 2005.  The Company purchased and
refurbished a Dosco LH 1300, 58 tonne continuous mining machine as the key piece
of equipment for the underground mining trial at Boleo.  All of the
equipment for the trial was sourced in August – September 2005 and the majority
acquired, and a test mine was commenced in mid-October 2005.  The test mine
consisted of the development of a Main Drive (see schematic below) consisting of
approximately 200 metres of a 5 metre wide by 3.5 metre high access ramp (an
underground roadway or "Drift"), which to the extent possible was driven in the
mineralized manto and which was completed in December 2005.  From the end
of the access ramp, a monitoring drift similar in cross section to the ramp was
driven plus a series of 3 cross –cuts in the mineralized mantos and the
mineralized backfill from historic mining.  The "Wings" shown in the
schematic below were then mined, starting with crosscut 3, to create a series of
mined-out "Rooms" with a support wall ("pillar") between the rooms.
Instrumentation was installed in the crosscuts, wings and rooms in order to
measure the build up of stress, and other geotechnical variables, in the
formations as a result of mining to assist in mine design.  The test mine
is expected to provide data to confirm projected production rates, ground
support conditions and costing requirements for the mine design related to the
definitive feasibility study and data for detailed capital and operating costs
estimates.  The test mine was completed in April 2006 and a report on the
results is expected to be delivered by the independent engineers monitoring the
test in June, 2006.





[form20fdec05003.jpg]



Plan view (looking at mine trial development from above)
of the trial mine layout.



Legend



Backfill (which comprises part of the
mineral resource) from previously mined areas

____

Portal
opening



---

An adequate power supply is
not commercially available in the area and current development plans call for
the Company installing a 15 megawatt diesel generated power plant. Required
power for the operation (mine and process facility) is approximately 38
megawatts.  The majority of this power (28 megawatts) will be provided by a
co-generation plant attached to the acid plant (utilizing high grade steam
generated by heat recovery from the acid plant).  An adequate supply of
potable water does not exist in the area.  Accordingly, any process
facility will primarily utilize sea water with required potable water generated
in a desalination plant.  The diesel power plant, acid plant and attached
co-generation power plant, and the desalination plant will be built by the
Company and will be included as part of the capital and operating cost
determined in the definitive feasibility study.  The cost of this item will
be included as part of the construction finance costs assuming the definitive
feasibility study recommends placing the property into production.

Geological Setting

The Boleo deposits were formed
as a result of rifting that caused the current separation of the Baja peninsula
from the mainland of Mexico during the period from 8 to 13 million years
ago.

This rifting has moved Baja
California approximately 350 km northwest relative to mainland Mexico and has
created a number of deep pull-apart basins (valleys) along the axis of the Gulf
of California.  The Boleo copper-cobalt-zinc-manganese district occurs
within a series  of layers (seams or mantos) of fine to coarse clastic
(derived from pre-existing rocks) sedimentary rocks of the Boleo formation,
lying unconformably (meaning they are not in immediate order of age to the rocks
below or in parallel positions) on volcanic rocks .  The Boleo Formation is
characterized by a number of coarsing upward cycles of sediment (resulting in a
series of beds or mantos) that are believed to represent deltaic deposition in a
shallow, near shore marine basin around volcanic islands.  Simplistically
the Boleo deposit was formed as a series of sedimentary layers (that became
enriched with copper, cobalt, zinc and manganese minerals) deposited at the
bottom of marine lagoons around volcanic islands in what is now the Gulf of
California.

Main Mineral Occurrences
and Commodities

Copper-cobalt-zinc-manganese
mineralization occurs throughout the Boléo District within widespread,
stratiform clay-rich horizons or beds known as "mantos".  Within Boléo
Formation stratigraphy, there are up to eight mantos including two of very
limited extent that occur as relatively flat to generally shallow dipping,
stratabound, and stratiform beds. These include, with increasing depth, Mantos
 0, 1, 1B (not shown in diagram below), 2, 3AA, 3A, 3 and 4.

Boléo – computer generated typical east-west vertical cross
section

(looking north) showing Mantos and major fault surfaces.

(Not to scale)

[form20fdec05005.gif]

Note:

Mantos Represented as
follows:





Manto 1

Red

Manto 3A

Green

Manto 2

Blue

Manto 3

Yellow

Manto 3AA

Orange

Manto 4

Magenta





Generally, ore grade material will only occur in one bed
in a given area although there are a couple of exceptions.  Historically,
Manto 3 has been the major producing manto, yielding approximately 83% of all
production between 1886 and 1985 when the mine shut down. Most of the remaining
production has come from Manto 1 in the southeast portion of the property where
Manto 3 is absent. A small amount of production has also come from the
widespread but generally thin Manto 2 and from Manto 3A which is limited in
extent.



Based on previous studies and
exploration work, the mantos which offer the most potential for hosting
significant economic underground reserves are assessed to be Manto 1 in the
southeast part of the Boléo District and Manto 3 throughout the district. Manto
2 has potential to host small mineralization in two restricted areas in the
central and north part of the district. Manto 3A is situated between 5 and 8
metres above Manto 3 and in some areas the two coalesce. Although Manto 3A can
exhibit good grades it may be too close to Manto 3 to be mined separately by
underground methods. Thus where the mantos coalesce they may be mined together,
however, where the parting is sufficiently thick to cause unacceptable dilution,
Manto 3A would not be mined.  Recent exploration suggests that considerable
potential exists for the establishment of reserves in Manto 4.

Metals of interest in the
mantos include copper, cobalt, manganese and zinc.  Ore minerals include a
fine grained, complex assemblage of primary sulfides including pyrite,
chalcocite, chalcopyrite, bornite, carrolite, sphalerite, and secondary minerals
including malachite, azurite, boleite, pseudoboleite, and cumengite.
 Mineralization is generally finely disseminated over intervals up to 20
metres thick.  The richest material typically occurs in the laminated basal
section of the mantos which historically (1886 to 1953) averaged about 80 cm
grading 4.76% Cu.  Cut-off grade for the smelter was reportedly above 3% Cu
meaning a large tonnage of "low grade" material was left behind.  The
historic mining methods employed concentrated on removing the basal part of the
manto, extracting an 80 cm thick copper rich zone  and then back-filling
the stope with the low grade material (often 2%-3% Cu plus Co, Manganese and Zn
credits) referred to as "retaque".  Historically, cobalt, manganese and
zinc were not recovered.

Gallium, indium, and germanium
occur in minor amounts in association with copper-cobalt mineralization.
Moreover, because of the sedimentary exhalative (Sedex) origins of the deposit
and the occurrence of abundant clays, attention has also been drawn to the
potential of the Rare Earths (RE) yttrium, lanthanum, cerium and neodymium.
Despite their low grade but because of their relatively high unit values,
gallium, indium and germanium were recognized as being potentially of economic
interest as by-products but technically challenging to recover.



Cautionary Note:  This section uses the terms
'measured resources', 'indicated resources' and 'inferred resources' which are
recognized and required by Canadian regulations (under NI 43-101 – Standards of
Disclosure for Mineral Projects).  It cannot be assumed that any part or
all of the mineral deposits in these categories will ever be converted to
reserves.  In addition, 'inferred resources' have a great amount of
uncertainty as to their existence and economic feasibility and it cannot be
assumed that all of or any part of an Inferred Mineral Resource will ever be
upgraded to a higher category.  Under Canadian rules, estimates of inferred
mineral resources may not form the basis of Feasibility or Pre-Feasibility
Studies, or economic studies except for a Preliminary Assessment as defined
under NI 43-101.

In 2004, in conjunction with
the definitive feasibility study, Minera y Metalurgica del Boléo commissioned a
resource study by geological consultants Hellman & Schofield Pty. Ltd., of
Sydney, Australia, to develop a 3D digital block model of the Boleo deposit that
could be used for conceptual mining studies.

Past resource studies modelled
the Boleo deposit as a gridded seam model, or GSM.  At a large scale the
deposit has characteristics typical of coal mines for which the GSMs are ideally
suited.  The mineralization is confined to narrow very continuous units
that are cut and offset by numerous post mineralization faults.  At Boleo,
however, unlike coal seams, the top of each Manto is not a sharp contact between
ore and waste.  Metal content tends to decrease upwards from ore grade to
waste.  Consequently, the top of each Manto will vary depending on the
economic criteria applied.

In a GSM the thickness of the model is defined by a
single composite grade for each drillhole intersection.  Since economic
parameters will determine the grade threshold to define a seam, different
composite lengths would be applicable with different parameters.

Definition of a seam based on
a grade threshold defined by a set of economic parameters will allocate samples
as either ore, to be included in the composite length, or waste, to be excluded
from the composite.  Where the grade threshold, to define the composite
grade is relatively high compared to the grade range, as would be the case if
mining cut-off grades were used, samples that are an integral part of the
mineralization would be excluded from the composites.  This would result in
high-grade composites and possible over estimation of grade.  Conversely if
a composite is defined at too low a grade, then a GSM, which has a fixed
thickness, will include material below economic grade, i.e. dilution, and the
estimated ore grade will be low.

Consequently Hellman &
Schofield decided to build a 3D block model.  This would allow the economic
parameters to define the top, and therefore the economic thickness of each
Manto.

A 3D digital geological
interpretation was developed from data and information supplied by Minera y
Metalurgica del Boléo; which incorporated both Manto surfaces and faults.

To account for the
displacement of Mantos by the numerous faults, (which are pre-dominantly
post-mineralization) block models and drill hole intersections, for each Manto,
were re-aligned at the same height, so that the data was effectively
re-positioned approximating pre-faulting locations.  This removed the need
to have a complex series of fault bounded data domains and significantly
simplified the estimation process.  These block models are referred to as
"flat" modes.  Block centroid heights in real space, taken from gridded
surfaces of the Manto footwalls, were used to translate flat model grade
estimates into true 3D blocks.

Resource classification was
determined by the number of composite data available for grade estimation, from
increasingly localised data search regimes:

·

Measured – search 200m x 250m x 2m – minimum data 18
individual assay composites

·

Indicated – search 280m x 350m x 2m – minimum data 8
individual assay composites

·

Inferred
– search 400m x 500m x 4m – minimum data 6 individual assay
composites





A model was created around the
historic mining areas of Mantos 1 and 3.  Material within this model was
classified as inferred due to the uncertainty in identifying original pillars,
back-filled areas, referred to as "retaque", and voids.  Tonnes were
factored down by 20% to account for material extracted and processed.

It was assumed that mining would initially be by open pit
method, hence the  model has block dimensions of 50 metres (east) by 100
metres (north) by 1 m vertically.  Grade estimates of copper, cobalt and
zinc were determined using Ordinary Kriging, parameters used in the grade
estimation are tabulated below:





|                 |                        |             |          |          |           |         
|---------------- | ---------------------- | ----------- | -------- | -------- | --------- | --------
|                 | Resource Estimates    
|Parameter        | Manto 2, 3aa, 3a, 3, 4 | Manto 0 & 1
|Pass             | Measured               | Indicated   | Inferred | Measured | Indicated | Inferred
|Search Radii (m) |                        |            
|X –direction     | 250                    | 350         | 500      | 500      | 750       | 1000    
|Y - direction    | 200                    | 280         | 400      | 500      | 750       | 1000    
|Z - direction    | 2                      | 2           | 4        | 2        | 2         | 4       
|Data Criteria    |                        |            
|Min data         | 18                     | 8           | 6        | 18       | 8         | 6       
|Max data         | 32                     | 32          | 32       | 32       | 32        | 32      
|                 |                        |             |          |          |           |         



---



In a report dated March 2005, prepared by independent
Qualified persons, William Yeo, MAusIMM, PhD., and Phillip Hellman, FAIG, PhD.,
of Hellman & Schofield (the "Hellman & Schofield Report"), in accordance
with national instrument 43-101, Hellman & Schofield reported a Measured and
Indicated resource estimates based on copper equivalent cut-off grades utilizing
metal prices of copper (Cu) US $0.95 per pound, cobalt (Co) US $12 per pound,
and zinc (Zn) US $0.45 per pound, and defined as Cu Equiv = Cu + Co*12/0.95 +
Zn*0.45/0.95, as follows:



The resource was further categorised as either oxide or
sulphide according to the dominant copper minerals present.  Only about
20-25% of the resource is sulphide ore.  The following tables summarize our
estimated Canadian NI 43-101 non-reserves (measured and indicated mineral
resources) as of March, 2005:



|          |                           |       |       |       |      
|--------- | ------------------------- | ----- | ----- | ----- | -----
|          | Cu Equiv. Cut-off
  Grade
|0.5%      | 1.0%                      | 1.5%  | 2.0% 
|Measured  | Tonnes (106)              | 51.7  | 45.7  | 35.3  | 24.7 
|          | CuEq %                    | 2.09  | 2.26  | 2.56  | 2.91 
|          | Cu %                      | 0.76  | 0.83  | 0.99  | 1.18 
|          | Co %                      | 0.089 | 0.096 | 0.107 | 0.119
|          | Zn %                      | 0.45  | 0.46  | 0.47  | 0.47 
|          |                           |       |       |       |      
|Indicated | Tonnes (106)              | 172.1 | 114.1 | 65.4  | 36.1 
|          | CuEq %                    | 1.49  | 1.86  | 2.33  | 2.82 
|          | Cu %                      | 0.57  | 0.78  | 1.09  | 1.46 
|          | Co %                      | 0.050 | 0.061 | 0.072 | 0.081
|          | Zn %                      | 0.58  | 0.66  | 0.68  | 0.68 
|          |                           |       |       |       |      
|Total     | Tonnes (106)              | 223.8 | 159.8 | 100.7 | 60.8 
|          | CuEq%                     | 1.63  | 1.97  | 2.41  | 2.86 
|          | Cu %                      | 0.62  | 0.79  | 1.06  | 1.35 
|          | Co %                      | 0.059 | 0.071 | 0.084 | 0.097
|          | Zn%                       | 0.55  | 0.60  | 0.61  | 0.61 



Cautionary Note to U.S. Investors concerning estimates
of Measured and Indicated Resources.



This section uses the terms "measured" and "indicated
resources." We advise U.S. investors that while those terms are recognized and
required by Canadian regulations, the U.S. Securities and Exchange Commission do
not recognize them.



U.S. investors are cautioned not to assume that any part
or all of mineral deposits in these categories will ever be converted into
reserves.



The following
tables summarize our estimated Canadian NI 43-101 non-reserves (inferred mineral
resources) as of March  2005:

|         |                           |       |        |        |      
|-------- | ------------------------- | ----- | ------ | ------ | -----
|         | Cu Equiv. Cut-off
  Grade
|0.5%     | 1.0%                      | 1.5%  | 2.0%  
|Inferred | Tonnes (106)              | 310.3 | 188.13 | 112.34 | 65.6 
|         | CuEq %                    | 1.47  | 1.95   | 2.43   | 2.94 
|         | Cu %                      | 0.57  | 0.83   | 1.14   | 1.51 
|         | Co %                      | 0.045 | 0.057  | 0.067  | 0.074
|         | Zn %                      | 0.69  | 0.85   | 0.95   | 1.03 

---

Cautionary
Note to U.S. Investors concerning estimates of Inferred Resources.

This section uses the term
"inferred resources." We advise U.S. investors that while this term is
recognized and required by Canadian regulations, the U.S. Securities and
Exchange Commission do not recognize it. "Inferred resources" have a great
amount of uncertainty as to their existence, and great uncertainty as to their
economic and legal feasibility. It cannot be assumed that all or any part of an
Inferred Mineral Resource will ever be upgraded to a higher category. Under
Canadian rules, estimates of Inferred Mineral Resources may not form the basis
of feasibility or pre-feasibility studies, except in rare cases.

U.S. investors are cautioned
not to assume that part or all of an inferred resource exists, or is
economically or legally minable.

The Hellman & Schofield
Report concluded the following:

·

A Measured and Indicated Resource has
been defined, amounting to:

·

160 Mt @ 1.97% Cu Equivalent at a
cut-off grade of 1% Cu Equivalent.

·

60 Mt @ 2.86% Cu Equivalent at a
cut-off grade of 2% Cu Equivalent.

·

In addition an Inferred Resource has
been defined, amounting to:

·

188 Mt @ 1.95% Cu Equivalent at a
cut-off grade of 1% Cu Equivalent.

·

Manto 1 has been classified entirely
as Inferred.  This is due to the wider drill hole spacing (500m x 500m)
typical of the Rancheria – Montado area.

·

The area disturbed by the old mine
workings has been identified and all 3D blocks that fall within the limits of
the workings have been flagged.  All material within the old workings is
classified as inferred.  This is due to uncertainty, as to the precise
location of voids, "retaque" and pillars.

·

The 3D block model approach used
provides a versatile tool for mine development planning at various cut-off
thresholds that would not be available with a single seam model.





Metallurgical
Test Work

A significant amount of
metallurgical testing on the Boleo deposit has been carried out to date,
initially by International Curator and more recently by the Company under the
direction of Bateman Engineering.  The Bateman Engineering report contained
a flowsheet (see figure 1) for the recovery of copper and cobalt metal and zinc
sulphate.

[form20fdec05007.gif]

Figure 1

---

Under the proposed flowsheet,
the recovery of copper and cobalt metal and zinc sulphate consists of
conventional crushing and attribution of the run-of-mine ore followed by a two
stage atmospheric leach that places the copper, cobalt, manganese and zinc into
solution.  The clayey waste is then separated (and discharged to a tailing
pond) from the metal rich aqueous solution in a series of conventional high rate
thickeners in a counter current decantation circuit ("CCD").  The
metal rich aqueous solution then proceeds to standard copper solvent extraction
and electrowinning - producing high-grade copper cathode (metal).  The
stripped solution (the "Copper Raffinate") then proceeds to a further solvent
extraction phase where residual copper and the contained cobalt and zinc are
loaded in a direct solvent extraction circuit ("DSX"), utilizing a proprietary
(to Commonwealth Scientific and Industrial Research Organization of Perth,
Australia – "Commonwealth Scientific and Industrial Research Organization")
mixture of commercially available solvent extraction reagents. (The Company has
a non-exclusive royalty free licence to utilize the Commonwealth Scientific and
Industrial Research Organization direct solvent extraction process at the Boleo
deposit.)  The residual copper is then stripped and sent to copper
electrowinning.  The zinc is stripped utilizing sulphuric acid and the
resultant zinc sulphate is evaporated into hydrated zinc sulphate crystals (a
saleable product).  The cobalt is then stripped and processed in an
electrowinning circuit to produce high purity cobalt metal.

After stripping of the cobalt
and zinc in the Commonwealth Scientific and Industrial Research Organization
circuit, the stripped solutions (the "DSX Raffinate") is currently utilized as
wash water in the CCD circuit.  This DSX raffinate contains a significant
portion (96%) of the manganese leached in the initial two phase leach circuit
and is currently the subject of preliminary testing to determine its
recoverability as manganese metal or as an intermediate manganese (possibly
manganese carbonate) product for further off-site treatment.

The  Bateman Engineering
 flowsheet was the subject of an initial Phase I "Proof of Concept" pilot
plant at SGS Lakefield Research Ltd. ("Lakefield"), Lakefield, Ontario, from the
15th – 28th November 2004 at a cost of approximately $1.6
million.

The pilot plant treated a 2 tonne bulk sample of Boleo
ore grading 1.85% Cu, 0.095% Co, 0.59% Zn, 4.3% Mn and 7.9% Fe.





SGS - Lakefield and Bateman
Engineering Engineering have jointly reported the summary findings from the
pilot plant as follows:

·

The pilot plant operated continuously for a total of 12
days in leaching, 11.5 days in CCD, 9.5 days in Copper SX/EW and 9 days in
Cobalt and Zinc SX using DSX technology.

·

The oxidation, reduction leaching circuit gave excellent
extractions of copper, cobalt and zinc. Copper extraction exceeded 90% during
pilot operation.  Cobalt extraction was as high as 90%.  Zinc
extraction was generally above 70%.  These numbers are indicative of the
potential of the Boleo process to extract the three pay metals Cu, Co, Zn.
 Final extractions will be calculated once all samples have been assayed
and metallurgical balances completed.

·

The CCD circuit worked very well.  The CCD was set
up to simulate the use of the "high rate" type of thickeners with recirculation
of overflow solution to dilute the feed slurry prior to flocculation.  This
method of settling and washing was based on recommendations from benchscale
testing by Outokumpu and Pocock Industrial and proved to be highly effective.
 The leach residue settled quickly producing clear overflow solutions to
advance to copper, cobalt and zinc recovery.

·

The copper SX/EW circuit performed very well.  15.5
kg of copper metal were electrowon from the solvent extraction strip solutions
at high efficiency.

·

The iron removal circuit was designed to remove iron,
aluminum and other impurities from the solution prior to recovery of cobalt and
zinc using DSX technology from Commonwealth Scientific and Industrial Research
Organization.  The iron removal circuit consistently produced very low
concentrations of key impurities in solution with negligible losses of cobalt
and zinc.

---

·

The Commonwealth Scientific and Industrial Research
Organization DSX circuit for cobalt and zinc recovery performed very well.
 The advantage of the DSX circuit for Boleo plant design is that cobalt and
zinc are separated from manganese and magnesium in the Boleo leach solutions.
 In the SGS Lakefield pilot plant, cobalt and zinc were recovered with high
overall efficiency (+95%) to produce a concentrated zinc sulfate solution (for
production of zinc sulfate monohydrate crystals for sale) and a concentrated
cobalt solution (for production of cobalt metal cathode).

·

Overall metal recoveries of approximately 87% copper (as
high grade copper metal), 82% cobalt (as high purity cobalt metal), 68% zinc (as
zinc sulphate) and 96% manganese (as manganese sulphate) were achieved.

·

The pilot plant data will be used by Bateman Engineering
in developing design data for the Feasibility Study.

Two further metallurgical
tests were performed on the products from the pilot plant.

·

Production of zinc sulfate monohydrate crystals.
 Zinc sulfate monohydrate was recovered by evaporative crystallization of
the zinc strip solution from the Commonwealth Scientific and Industrial Research
Organization DSX circuit.

·

Production of cobalt cathode.  The cobalt strip
solution from the DSX circuit containing cobalt along with small amounts of zinc
and nickel was treated by a further miniature SX/EW circuit to purify the cobalt
solution for electrolysis as high grade (+99.9%) cobalt cathode.

A further program of follow-up benchscale testwork was
underway at SGS Lakefield Research to obtain additional data for final
feasibility study engineering.



·

Environmental testing of residues and solutions produced
in the pilot plant program.



·

Characterization of High Acid Consuming (HAC) material
from the Boleo site containing limestone and other alkali minerals.  HAC
material will be used as a low cost neutralizing agent in the commercial Boleo
plant.

·

Ore scrubbing and grinding test work for developing final
design for ore preparation circuit.

·

Test work on oxidation and precipitation of iron prior to
Commonwealth Scientific and Industrial Research Organization DSX circuit to
ensure maximum removal of iron with minimum treatment time and reagent
consumption.

·

Leach tests on 24 samples of ore that were composited to
form the pilot plant feed.  These tests will be used to assess leach
variability of the ore.

A second pilot campaign, with an
estimated duration of six weeks, is proposed to be completed as part of the
definitive feasibility study.  This second pilot campaign, to be completed
by mid to late June 2006, is to allow Bateman Engineering to obtain sufficient
design information so that process guarantees can be provided.  An integral
part of a second piloting campaign will be the involvement of Original Equipment
Manufacturers (OEMs) who would be part of the financing effort (in the form of
supplier credits) and individual process guarantees.

---

Proposed
 Mining Method

When the copper and cobalt grades in the Hellman &
Schofield block models for Mantos 1, 2 and 3 were composited over the height of
each manto it became apparent that the highest grade zones are in the deeper
areas where open pit optimisation studies were not able to form economic open
pit shells.  The seam-like structure and the low material strength of the
mantos suggested some form of continuous mining similar to underground coal,
potash or salt mining.  The alternatives available are longwall mining,
bord and pillar mining and shortwall mining.



Longwall mining uses a shearer to work back and forwards
across a face, which is normally around 200 metres wide.  The shearer works
under a set of hydraulic shields, which support the roof above the face.
 The shearer drops ore onto an armoured conveyor belt attached to the
shields.  As the shearer moves along the face the shields behind it slide
forward to support the newly cut face and in doing so they snake the armoured
conveyor forward ready for the next shearer pass.  The armoured conveyor
feeds onto a conventional conveyor belt at the end of the face and the ore is
conveyed to surface.  Longwall mining provides high production rates with
low operating costs.  However it requires large areas with little or no
faulting, regular floors and seam heights and the capital costs for the
equipment and pre-development are very high



Bord and pillar mining uses continuous miners to drive a
series of roadways through the manto to form a pattern of wide pillars.
 The miners then split these pillars in an order designed to provide
maximum support of the roof.  The miner retreats through the pillars
splitting them to a point where they support the roof just long enough for the
miner to be a safe distance back from the collapsing roof.  Bord and pillar
mining is more flexible than longwall mining in that the mining panels can be
designed to fit the irregular target boundaries around faults, steep dips and
low grades and the continuous miners can work across uneven floors and in
variable manto heights.  The main disadvantage of bord and pillar mining
for Boleo is that a relatively high percentage of the ore must be left in the
supporting pillars and this percentage increases as the strength of the manto
decreases such as in the previously mined areas.  Operating costs for bord
and pillar mining are higher than for longwall mining but the capital cost is
much lower.  Production rates are limited by ground support requirements
and the number of continuous miners that can work in each area.  Once more
than three miners are used, the ventilation, power and conveyor arrangements
tend to become unworkable.





Shortwall mining uses hydraulic shields to provide roof
support for a continuous miner working backwards and forwards across a face.
 With the shields providing the support there is much less need for pillars
to be left behind and the continuous miner can achieve higher production rates
because less time is spent installing roof supports.  The face can be as
little as 50 metres wide and can be varied by using more or less shields.
 Since there are fewer shields and no shearer or armoured face conveyor the
capital cost is much less than longwall mining.  The system can be tailored
to the irregular target boundaries by using bord and pillar mining to mine out
the sections where a shortwall panel will not fit.



Preliminary production schedules assumed shortwall mining
with some bord and pillar to develop access roadways and to mine areas where the
manto structures do not allow shortwall panels to be laid out, however
preliminary results of the test mine have demonstrated the presence of localized
faulting which may preclude the use of shortwall mining.  Accordingly it is
currently anticipated that mining will be conducted utilizing bord and pillar
mining utilizing continuous mining machines operating under mobile hydraulic
roof supports (a technique that is common in coal mines).  Information
gathered in the test mining trial will be used to further assess the application
of both methods (shortwall and bord and pillar).



Recommended Course of
Action



The Hunter Report recommended proceeding with the
underground mining trial at an estimated cost of US$1.5 million.
  Once the underground mining concept has been tested and the
necessary planning parameters determined, an interim economic assessment was
recommended to confirm that the project remained potentially economically viable
before proceeding with staged project development that would include completion
of a bankable definitive feasibility study.  While the final report on the
test mine has not been received, the work to date has confirmed the viability of
mining at Boleo utilizing bord and pillar mining methods and the Company is now
proceeding with the completion of the definitive feasibility study.



---

The recommended definitive feasibility study would be to
a level of engineering definition that would provide capital and operating cost
estimates to an order of accuracy of + 15% - 10% in aggregate and to a standard
that would meet the requirements of both the owners and financial institutions
to support major capital investment decisions. In addition to providing planning
and design of the mine, process plant, and infrastructure, the definitive
feasibility study would also identify operational, environmental, marketing, and
financial risks and propose methods for their management or mitigation. An
essential part of the definitive feasibility study will be the development of a
project development and construction schedule. Environmental permitting
requirements and timeline will also be determined.



The principal activities to be undertaken as part of the
feasibility program include the following:



·

Geology and resource estimation to NI 43-101 compliant
standard;

·

Mine design and engineering based on the outcomes of the
mining trial;

·

Development of a Reserve Statement to NI 43-101 compliant
standard;

·

Mine, plant and civil infrastructure geotechnical
assessment and design;

·

Mine waste characterization;

·

Geochemical assessment of ore and waste rock;

·

Metallurgical process flowsheet design;

·

Process plant and related infrastructure engineering and
design;

·

Infrastructural requirements including power and water
supply and bulk reagent importation arrangements;

·

Tailings disposal engineering and design, including
geotechnical, environmental, and seismic stability considerations;

·

Whole-of-site hydrological and hydro-geological
assessments with particular regard to environmental considerations and storm
event run-off management;

·

Environmental baseline studies and impact
assessment;

·

Environmental permitting requirements and timeline
determination;

·

Marketing studies;

·

Project risk assessment and risk
mitigation/management;

·

Cost estimation; and

·

Construction schedule and
commissioning plan and schedule.



In addition to the underground mining
trial, the following field activities are seen as an integral part of the
proposed definitive feasibility study:



·

Additional resource
drilling;

·

Collection of metallurgical samples
for pilot scale metallurgical test work;

·

Soils and geotechnical investigation
and field work including trenching and drilling of the proposed plant and
tailings dam sites; and

·

On-going environmental data
collection.



---



An indicative cost estimate for the proposed staged
development of the definitive feasibility study is shown in the table below.



Recommended definitive feasibility study
Activities, Duration and Cost Estimates.



|                                                                              |                         |                    |                             |                                        
|----------------------------------------------------------------------------- | ----------------------- | ------------------ | --------------------------- | ---------------------------------------
|Activity                                                                      | Duration
      (months) | Approx. Start Date | Estimated Cost
      (US$M) | Estimated Cost to Complete
      (US$M)
|Bateman Engineering – Principal
      Contractor                              |                         |                    |                             |                                        
|Process design & infrastructure, cost estimates
      and overall supervision | 14                      | August 2004        | 2.080                       | 0.776                                  
|Pilot Plant Test Work – Phase
1                                               | 3                       | October 2004       | 1.416                       | 0                                      
|Pilot Plant Test Work – Phase
2                                               | 1.5                     | February 2006      | 2.25                        | 2.25                                   
|Hydrology & Hydrogeology                                                      | 4                       | Aug 2005           | 0.180                       | 0.180                                  
|Geotechnical investigation                                                    | 4                       | Aug 2005           | 0.120                       | 0.120                                  
|Tailings design                                                               | 3                       | June 2005          | 0.160                       | 0.060                                  
|Infrastructure                                                                |                         | Feb 2006           | 0.180                       | 0.180                                  
|                                                                              |                         |                    |                             |                                        
|Drilling                                                                      |                         |                    |                             |                                        
|Montado Phase 1                                                               | 3                       | Dec 2004           | 0.290                       | 0.                                     
|In-fill Drilling                                                              | 4                       | Jan 2006           | 5.3                         | 4.95                                   
|Metallurgical sample drilling                                                 | 8                       | Jan 2006           | 0.040                       | 0                                      
|Assays                                                                        | 8                       | Feb 2006           | 0.200                       | 0.105                                  
|                                                                              |                         |                    |                             |                                        
|Resources                                                                     |                         |                    |                             |                                        
|Resource consultant Hellman & Schofield                                       | 5                       | Nov 2004           | 0.100                       | 0.040                                  
|                                                                              |                         |                    |                             |                                        
|Mining                                                                        |                         |                    |                             |                                        
|Mining consultant Australian Mine Design and
      Development                | 5                       | Nov 2004           | 0.260                       | 0.050                                  
|Mine test – Phase 1                                                           | 3                       | Nov 2004           | 0.175                       | 0                                      
|Mine Test – Phase 2                                                           | 3                       | Oct 2005           | 1.500                       | 0                                      
|                                                                              |                         |                    |                             |                                        
|Environmental                                                                 |                         |                    |                             |                                        
|Field work & reports for
      Environmental Impact Study                     | 15                      | Sept 2004          | 0.520                       | 0.085                                  
|                                                                              |                         |                    |                             |                                        
|                                                                              |                         |                    |                             |                                        
|Marketing Studies                                                             |                         |                    |                             |                                        
|External consultants                                                          | 15                      | Feb 2005           | 0.050                       | 0.025                                  
|                                                                              |                         |                    |                             |                                        
|Owners Costs                                                                 |                         |                    |                             |                                        
|Consultants & miscellaneous supervision                                       | 17                      | May 2004           | 0.250                       | 0.250                                  
|                                                                              |                         |                    |                             |                                        
|TOTAL                                                                         |                         |                    | US$15.017.m                 | US$9.071m                              



The above table has been derived from the Hunter report
and modified by the Company in discussions with Bateman Engineering Canada.
 As of the date of this filing, our current estimate of the cost to
complete the definitive feasibility study is approximately US $9.071, say Cdn
$10.1 million. The in-fill drill program recommended by the Hunter Report was
adequate for reserve definition for the definitive feasibility study however,
the Company has elected to increase this program to a total in-fill drill
program of 38,865 metres at an estimated total cost of $5.894 million in order
to attempt to enhance all reserves during the initial 20 year mine life to
"Measured or Indicated" status.  The company currently has approximately
$22 million in available funds, which is more than adequate to fund all
currently proposed work.

---

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND
PROSPECTS



The following discussion of the financial condition,
changes in financial condition and results of operations of the Company for the
years ended December 31, 2005, 2004 and 2003, for the three month period ended
March 31, 2006 and 2005, and should be read in conjunction with the consolidated
financial statements of the Company and related notes therein, prepared in
accordance with Canadian generally accepted accounting principles. Unless
expressly stated otherwise, all references to dollar amounts in this section are
to Canadian dollars. Please refer to Note 13 of the consolidated audited
financial statements for the years ended December 31, 2005, 2004 and 2003 and
Note 13 for the unaudited interim consolidated financial statements for the
three month period ended March 31, 2006 and 2005 and for the reconciliation to
generally accepted accounting principles in the U.S.



Managements Discussion and Analysis ("MD&A")
contains certain "forward-looking statements" All statements, other than
statements of historical fact included herein, including without limitation,
statements regarding resources and future plans of the Company are forward
looking statements that involve various risks and uncertainties.  There can
be no assurance that such statements will prove to be accurate and actual
results and future events could differ materially from those acknowledged in
such statements.  See "Item 3.D – Risk Factors."



Critical Accounting Policies



The Companys consolidated financial statements are
prepared in accordance with Canadian generally accepted accounting principles.
 The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities.  These estimates are based upon historical experience and
various other assumptions that management believes to be reasonable under the
circumstances, and require judgment on matters, which are inherently uncertain.
 Actual results may differ from those estimates.  Set forth below are
the significant accounting policies of the Company.



Estimates Related to Mineral Properties



The Company is in the process of developing its mineral
properties and has capitalized the acquisition costs for its property rights and
mining concessions.  The Company has adopted the policy of expensing
mineral exploration costs incurred prior to the completion of an economic
feasibility study.  Capitalized costs for a producing prospect are
amortized on a unit-of-production method based on the estimated life of the ore
reserves, while capitalized costs for prospects abandoned are written off.



Management periodically reviews the estimated future
operating cash flows of its mining operations in determining if adjustments to
the carrying values of its mining assets are required to record those assets at
the net recoverable amount.  The ultimate recoverability of the amounts
capitalized for the mining assets is dependent upon the delineation of
economically recoverable ore reserves, the Companys ability to obtain the
necessary financing to complete their development and realize profitable
production or proceeds from the disposition thereof.  Managements
estimates of recoverability of the Companys investment in the mining assets
have been based on best estimates.  However, it is reasonably possible that
changes could occur in the near term, which could adversely affect managements
estimates and may result in further write-downs of capitalized carrying
values.



In accordance with SFAS 144, "Accounting for the
Impairment and Disposal of Long-Lived Assets," we review our long-lived assets
for impairments. Impairment losses on long-lived assets are recognized when
events or changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value and,
accordingly, all or a portion of such carrying value may not be recoverable.
Impairment losses then are measured by comparing the fair value of assets to
their carrying amounts.

---

Foreign
Exchange



Transactions denominated in foreign currencies have been
translated into Canadian dollars as follows:



i)

Monetary assets
and liabilities at year-end rates,

ii)

All other assets
and liabilities at historical rates,

iii)

Revenue and expense items at the
average rate of exchange prevailing during the year, and

iv)

Gains and losses arising on
translation are charged to the statement of operations in the period in which
they occur.



The Canadian dollar is the functional currency of the
Company.  Transactions involving foreign currencies for items included in
operations are translated into Canadian dollars as set forth above.
 Translation gains and losses are included in the determination of net
income.



Stock-based
compensation



On January 1, 2004, the Company adopted the amended CICA
Handbook Section 3870 – "Stock-based Compensation and Other Stock-based
Payments.  This change in accounting policy has been applied retroactively
with no restatement of prior periods presented for the consolidated statements
of Loss, deficit, cash flows and shareholders equity.  Under this amended
standard, the Company must account for compensation expense based on fair value
of rights granted under its stock-based compensation plan.  Under this
method, compensation costs attributable to share options granted to employees,
directors or officers is measured at a fair value at the grant date, and
expenses over the expected options, consideration paid by the option holder,
together with the amount previously recognized in contributed surplus is
recorded as an increase to share capital.



Environmental Expenditure Estimates



The operations of the Company may, in the future, be
affected by changes in environmental regulations, including those for future
reclamation and site restoration costs.  Both the likelihood of new
regulations and their overall effect upon the Company vary greatly and are not
predictable.  The Companys policy is to comply with legal requirements, as
instigated by government agencies or appropriate authorities, as a minimum where
necessary to conduct its business responsibly and in accordance with the
principles of economically sustainable development.



Environmental remediation costs are accrued based on
estimates of known environmental remediation exposure. Such accruals are
recorded even if significant uncertainties exist over the ultimate cost of the
remediation. It is reasonably possible that our estimates of reclamation
liabilities, if any, could change as a result of changes in regulations, extent
of environmental remediation required, means of reclamation or cost estimates.
Ongoing environmental compliance costs, including maintenance and monitoring
costs, are expensed as incurred.



First Quarter ended March 31,
2006 compared to first quarter ended March 31, 2005.

For the first quarter ended March
31, 2006, the Company recorded a net loss of $1,930,508 or $0.03 loss per share.
 In comparison, the Company had net loss of $2,017,441 for the first
quarter of 2005.  The Company incurred $1,272,847 of exploration expenses
in the quarter ended March 31, 2006, as compared to $1,411,494 in the comparable
period in 2005.  In this first quarter, the Company granted 1,175,000 stock
options to directors and consultants of the company resulting in stock
compensation expense of $420,536, which was split between exploration ($261,036)
and administrative expenses ($159,500).

The Company incurred $254,053
(2005 - $346,315) in management and consulting fees in the first quarter of
2006.  Of this amount $121,468 (2005 - $127,898) was paid to related parties and a consulting fee of $35,228 (2005 - $6,160) was paid to a financial consulting firm in connection with general corporate financial advice with respect to construction financing and development of the Boleo project.   Consenquently, management and consulting fees decreased compared with the first quarter of the prior year.

Foreign currency gains for the
first quarter ended March 31, 2006, were $85,066 compared to $9,855 in the same
quarter of 2005.

---

Year
ended December 31, 2005 compared to year ended December 31, 2004



The Company recorded a loss in 2005
of $6,996,731 ($0.11 loss per share) compared to a loss in 2004 of $5,391,685
($0.10 loss per share). The loss in 2005 was primarily attributable to the
increase in exploration and operating activities, noticeably in feasibility
study expenditures of $1,206,270 incurred (2004 - $507,930).  The Company
recorded general and administrative expenses of $1,853,818 in 2005 compared to
$1,645,228 in 2004 representing an increase of $208,590.   Increases
were mainly in the following areas:



·

amortization: $137,532 (2004 - $19,864) The increase is
related to the acquisition of $599,385 of capital assets, of which $153,903 was
in Canada and $445,482 was in Mexico.



·

audit
and legal fees: $271,839 (2004 - $51,653) Comprised of the following: audit fees
$89,272 (2004 - $33,311), accounting fees 35,078 (2004 - $Nil) and legal fees
$147,489 (2004 - $18,342). Audit fees were underprovided for in the 2004
financial year resulting in additional charges in the 2005 financial year.
Extensive legal costs were incurred relating to consultations with legal council
regarding listing the Company as a Tier 1 filer on the Toronto Stock
Exchange.



·

management and consulting fees: $224,235 (2004 -
$173,740) Consulting fees of $101,302 were paid to a financial consulting firm
in connection with general corporate financial advice with respect to
construction financing and development of the Boleo project, and $122,933 paid
to management and related parties of the Company.



·

rent:
$133,946 (2004 - $70,595) In July 2005 the Company relocated its Vancouver
office to more spacious premises resulting in an increase in
expenses.



·

stock
based compensation: $954,030 (2004 - $817,324) During the year ended December
31, 2005, the Company granted 3,705,000 stock options to directors and
consultants of the Company at an exercise price of $0.35. A further 1,350,000
stock options were granted to investor relations consultants at an exercise
price of $0.35. The fair value of options granted was estimated using the
Black-Scholes option pricing model. Accordingly, stock based compensation
expenses in the amount of $954,030 have been recognised and charged to expenses,
accounting for 13.6% of total expenses. The exercise price of stock options
granted prior to September 15, 2005 was amended from $0.75 to $0.35, subject to
the approval of disinterested shareholders of the Company. A revaluation of
options, granted but not yet exercised, and which are subject to this amendment,
has been performed. In the opinion of management, no adjustment to the
contributed surplus is necessary.



·

wages:
$184,578 (2004 - $116,162) Due to recruitment of additional staff, payroll costs
increased accordingly.



During 2005, the Company incurred exploration expenses of
$5,161,437 compared to $3,825,698 in 2004.  The increased activity in 2005
related to the increased expenditures in regard to work related to the
definitive feasibility study on the Boleo property.



---

Foreign Currency Risk.



The Company operates internationally. Its head office is
in Canada and it has historically   raised all equity funds in
Canadian dollars, although equity funds were raised from investors in Canada,
the United Kingdom and Europe.  The Companys wholly owned subsidiary, and
its sole mineral property, are located in Mexico.  The principal
consultants involved in the completion of the definitive feasibility study on
the Boleo Property are based in Australia. As a consequence of the foregoing,
the Company incurs expenditures principally Canadian and United States dollars
and Mexican pesos, although it also incurs smaller expenditures in British
pounds, Euros and Australian dollars.





The result of the foregoing has been to expose the
Company to gains and losses on Foreign currency exchange.  The Company has
not previously entered into foreign currency contracts to hedge its risk against
foreign currency fluctuations.  However, if the definitive feasibility
study on the Boleo Property recommends proceeding to place the property into
production the Company anticipates that it will be a condition of any financial
arrangements to fund such construction that the Company agree to enter into such
hedging arrangements.



Foreign currency losses for the year ended December 31,
2005 were $7,616 compared to $15,040 for the year ended December 31, 2004.



Year ended December 31, 2004 compared to year ended
December 31, 2003



The Company recorded a loss in 2004 of $5,391,685 ($0.10
loss per share) compared to a loss of $404,029 ($0.01 loss per share) in 2003.
 The loss in 2004 was primarily attributed to exploration expenses and
ongoing activity with respect to the Companys Boleo Property.  The Company
recorded general and administrative expenses of $1,645,228 in 2004 compared to
$94,033 in 2003 representing an increase of $1,551,195.  The increase was a
result of a stock-based compensation expense of $817,324, investor relations
activities of $103,566, increased stock exchange and transfer agent fees related
to the reverse acquisition and increased staff expenses related to the increased
exploration activity.



During 2004, the Company incurred exploration expenses of
$3,825,698 compared to $381,698 in 2003.  The increased activity in 2004
related to the re-activation of exploration and development of the Boleo
Property as part of the reverse acquisition and the resultant increase in
exploration expenditures over the earlier year as the Company commenced work on
the definitive feasibility study.



During 2004, the Company incurred $1,364,224 in
expenditures related to the phase 1 pilot plant as part of the definitive
feasibility study on the Boleo Property.  A further approximately $201,495
was incurred in 2005 on the completion of the phase 1 pilot plant for a total
cost of such pilot plant of $1,565,719.  The Company proposes to conduct a
Phase 2 pilot plant in 2006 at a currently estimated cost of $2,500,000.
 The phase 1 and 2 pilot plants are part of the work program required to
complete the definitive feasibility study.  Assuming the Phase 2 pilot
plant results are consistent with the results achieved in phase 1 and other
aspects of the definitive feasibility study result in a positive recommendation
to proceed to place the property into production, then these expenditures will
be non-recurring.  However if the phase 2 results are not consistent with
phase 1 or other problems develop during such phase 2 pilot plant then it is
possible a third pilot plant could be conducted.  The cost of any further
pilot plant work beyond phase 2 can not be predicted at this time.  The
Company has adequate funding to complete the phase 2 pilot plant.



---



B. Liquidity and Capital
Resources



Changes in Annual Financial Condition



As a consequence of the Reverse Acquisition on or about
April 20, 2004, Baja became a reporting company the shares of which were listed
for trading on the TSX Venture Exchange.  Prior to such Reverse
Acquisition, the Company was a private Barbados company.  During the period
from March 2001 through April 2004 necessary funding to maintain and advance the
Boleo property was provided by loans from its then sole shareholder Tek Terra or
related parties and by the sale of certain tax losses of its Mexican subsidiary.
As discussed elsewhere herein, in March 2001, the Company (Mintec) was acquired
by Tek Terra when Curator withdrew from the Boleo Property. Upon Tek Terra
reacquiring control of the Company it advanced $589,937, as a shareholders
loan, which funds were used to maintain the Boleo property and to commence a
pre-feasibility study on such property.



During the fiscal year ended December 31, 2002, the
Company sold the tax losses of its Mexican subsidiary which generated a gain of
$1,054,082, which provided further working capital to maintain the Boleo
property, conduct metallurgical testing on the property, and permit repayment of
monies due Tek Terra.



During 2003, Tek Terra or related parties advanced
approximately $463,677 to the Company, which funds were utilized to maintain the
property, for further metallurgical testing and to commence negotiations and
documentation in regard to the Reverse Acquisition.  In order to provide
easier access to capital markets the Company proceeded with the Reverse
Acquisition, which included the completion of an equity issue in April 2004 that
generated net proceeds of $8,942,375; from which $746,846 was utilized to repay
monies due to Tek Terra.  The Reverse Acquisition and associated equity
financing permitted the Company to commence the current definitive feasibility
study.



During the year ended December 31, 2005, the Company
completed further equity funding raising net proceeds of $4,833,892.  This
funding was not adequate to complete the definitive feasibility study on the
Boleo property.  Subsequent to year end December 31, 2005, and the quarter
ended March 31, 2006, the Company completed a further equity issue for gross
proceeds of $23,000,000..  During the quarter ended March 31, 2006, the
Company received $395,000 from exercise of share purchase warrants and options.
 The Company, as of May 8th, 2006 had approximately $22 million
in available funds, which funds are adequate to complete the definitive
feasibility study and provide the Company adequate working capital for at least
a further 18 months.



Potential Restrictions on Transfer of Funds by
Subsidiaries



The Company has three subsidiary companies, Mintec
Processing Ltd, a British Columbia company, Boleo Trading Ltd, a United Kingdom
company and Minera y Metalurgica del Boleo S.A. de C.V., a Mexican company.
 Mintec Processing owns the shares of Minera y Metalurgica del Boleo S.A.
de C.V., but is otherwise inactive. Boleo Trading Ltd., was incorporated to
market products from the Boleo properrty if production is achieved from the
Boleo property and is currently inactive.  Minera y Metalurgica del Boleo
S.A. de C.V. owns the Boleo property and conducts all activities in Mexico.
 Minera y Metalurgica del Boleo S.A. de C.V. does not have a source of
income and all operating funds are provided to it by the Company as either
equity contributions or as loans.  If the Boleo property is successfully
placed into commercial production, any operating revenue received from such
property would be received by Minera y Metalurgica del Boleo S.A. de C.V. and
could be utilized to repay  loans to the Company or dividended to the
Company from after tax profits in Mexico. There are no currency restrictions on
transfer of funds from Mexico.



The Companys current cash obligations are provided by
equity financings.  Should the definitive feasibility study be positive and
if the Company is able to place such property into commercial production then
potential cash flow from such property to Minera y Metalurgica del Boleo S.A. de
C.V. could become available to the Company to assist in meeting its then
financial obligations.





---



Working Capital



As at December 31, 2005 the Company had working
capital of approximately $2.5 million and a cash balance of approximately $2.78
million. As at March 31, 2006, the Company had working capital of
 $6,106,644 (2005 - $3,746,352). Subsequent to March 31, 2006, the Company
received net proceeds of $21,692,576 from the closing of  a private
placement.



In April 2004, the Company completed an equity financing
in conjunction with the Reverse Acquisition, which equity financing provided the
Company with net proceeds, after repayment of monies due to Tek Terra, of
$8,205,529 and thereafter commenced preliminary work leading to the commencement
of the definitive feasibility study and phase 1 pilot plant.  Work on the
definitive feasibility study continued into 2005 with completion of the phase 1
pilot plant, commencement of infill drilling, relogging of historic drill core,
development of a 3 dimensional computer geological model of the Boleo deposit,
calculation of geological resources, continuation of environmental studies, and
commencement of an underground test mine.



Operating Activities



For the year ended December 31, 2005, the Company had a
net cash outflow of $6,713,911 compared to a net cash outflow of $2,990,098 for
the year ended December 31, 2004 from operating activities.  The decrease
in cash related to operating activities was mainly as a result of increased
activities toward the completion of a definitive feasibility study on the Boleo
Property.



For the quarter ended March 31, 2006, the Company had a
net cash outflow of $1,791,114 compared to a net cash outflow of $2,536,943 for
the quarter ended March 31, 2005. The higher amount in 2005 was as a result of
the timing of expenditures related to the Definitive Feasibility Study in 2005,
particularly in regard  to drilling expenses.



Investing Activities



For the year ended December 31, 2005, the Company had a
net cash outflow of $608,279 compared to a net cash outflow of $58,043 for the
year ended December 31, 2004 from investing activities.  The activity for
both periods mainly related to the investment in and the maturing of short-term
deposits and the acquisition of property, plant and equipment related to
activities on the Boleo Property.



For the quarter ended March 31, 2006, the Company had a
net cash outflow of $164,253 compared to a net cash outflow of $89,580 for the
quarter ended March 31, 2005 from investing activities.  The increase was
related to increased equipment acquisitions in 2006.



Financing Activities

For the quarter ended March 31, 2006, the Company had a
net cash inflow of $5,136,712 compared to a net cash inflow of $1,160,700 for
the quarter ended March 31, 2005 from financing activities. The increase related
to a partial receipt of funds in regard to the equity issue at $0.90 per Unit
that was completed in April 2006.



For the year ended December 31, 2005, the Company had a
net cash inflow of $4,833,892 compared to a net cash inflow of $8,240,519 for
the year ended December 31, 2004 from financing activities. The decrease in cash
related to financing activities was mainly as a result of less financing
activity in the period.



During the year ended December 31, 2004, in connection
with the acquisition of the Boleo Property, and resulting reverse acquisition,
the Company completed two equity financings for 10,666,666 Units at a price of
$0.75 per Unit and 2,666,666 Units at a price of $0.75 per Unit for total net
proceeds of approximately $8,883,187, after deducting share issuance costs of
$1,116,813.

---



For the year ended December 31, 2005, the Company
completed (a) two equity financings in March 2005 consisting of 2,100,000 Units
at a price of $0.60 per unit for net proceeds of $1,160,700, after deducting
share issuance costs of $99,300. Each unit consisting of one share and one-half
a share purchase warrant. One whole share purchase warrant will entitle the
holder to purchase a further common share for a period of two years from closing
(extendable to five years if the Company attains Tier 1 status on the TSX) at a
price of $1.15 per share; and (b)   the Company raised an aggregate of
$3,141,674 in two private placements in November and December 2005.  The
Company closed a non-brokered private placement with various accredited
investors to raise $1,495,404 by issuance of 4,405,149 Units at a price of $0.35
per Unit, consisting of one common share and a one-half a share purchase
warrant.  Each whole share purchase warrant will entitle the holder to
purchase a further common share for a period of two (2) years from closing at a
price of $0.45 per common share.  In addition, the Company closed a
brokered private placement of 5,255,715 Units at $0.35 per Unit to raise net
proceeds of $1,646,270. Each Unit consisted of one common share and one-half of
one transferable share purchase warrant.  Each whole warrant allows the
holder to purchase one common share of the Company until December 21, 2007 at a
price of $0.45 per share. All securities issued are subject to a hold period
until April 22, 2006.  The agent was paid a commission for its services and
issued an aggregate of 525,571 Agents Options (equal to 10.0% of the number of
Units sold). Each Agents Option is convertible into one Unit at a price of
$0.35 for a period of two years.  The financings were made to non-U.S.
persons outside the United States in off-shore transaction in reliance upon and
exemption from registration available under Regulation S of the Securities Act
of 1933, as amended, and to accredited investors in the United States in
reliance upon Rule 506 of Regulation D and Section 4(2) of the Securities Act.
 There was no advertising or general solicitation or directed selling
efforts in the United States.



The Companys current exploration and development
expenditure commitments are principally allocated to the Boleo Property and are
set out in detail in table entitled "Recommended definitive feasibility study
Activities, Duration and Cost Estimates" on page17 hereof.



The Company plans to spend approximately $10.1 million on
the definitive feasibility study  during the nine month period from May 1,
 2006 through December 31, 2006 on exploration work related to Boleo, and
estimate that our general operating expenses during this period will be
approximately $1,000,000, with the completion of an equity issue to raise gross
proceeds of $23 million in early 2006 the Company has adequate funding to meet
these requirements. Upon completion of the definitive feasibility study, and
assuming such study demonstrates that the Boleo deposit can be economically
mined and generate an adequate rate of return on investment, the next stage of
development will require us to raise the necessary funds to develop the mine.
 Failure to obtain sufficient financing may result in delaying or
indefinite postponement of  development or production, on any or all of our
properties or even a loss of property interest.  Management cannot be
certain that additional capital or other types of financing will be available if
needed or that, if available, the terms of such financing will be favorable or
acceptable to the Company.





Research and Development, Patents and Licenses, Etc.



The Company does not engage in research and development
activities.  See Item 4, Information on the Company, D. Property, Plant and
Equipment, for a review of the Companys exploration activities.



---

D. Trend Information



While the Company does not have any producing mines it is
directly affected by trends in the metal industry. The Boleo property is a
polymetallic project containing copper, cobalt, zinc and manganese.  At the
present time global metal prices are extremely volatile.  Base metal prices
and, in particular copper and zinc prices (which are relevant to the Boleo
property), driven by rising global demand, have climbed dramatically and are
approaching near historic highs.  Prices for copper and zinc are forecast
to remain high for the near term.  The effect of these metal prices and the
outlook that these metal prices may remain at elevated prices for the near term
has had a significant positive impact on the ability to raise equity capital and
to attract interest from potential sources of required capital to fund the costs
of placing the Boleo property into production if the definitive feasibility
study is positive.



Overall market prices for securities in the mineral
resource sector and factors affecting such prices, including base metal prices,
political trends in the countries such companies operate and general economic
conditions, may have an effect on the terms on which financing is available to
the Company, if at all.



There are no negative trends, commitments, events or
uncertainties presently known to management that are reasonably expected to have
a material effect on the Companys business, financial condition or results of
operation other than uncertainty as to the speculative nature of the business
(Refer to the heading entitled "Risk Factors").



E. Off-Balance Sheet Arrangements



The Company has no material off-balance sheet
arrangements such as guarantee contracts, contingent interest in assets
transferred to an entity, derivative instruments obligations and any obligations
that trigger financing, liquidity, market or credit risk to the Company.



F. Tabular Disclosure of Contractual
Obligations



On June 30, 2006, the Company did not have any long-term
debt, capital lease obligations, operating leases, purchase obligations or
commitments, other than as described below:





|                            |                                               |                  |           |           |                   | 
|--------------------------- | --------------------------------------------- | ---------------- | --------- | --------- | ----------------- | 
|Contractual Obligations     | Payments due by period
      Canadian dollars
|                            | Total                                         | Less than 1 year | 1-3 years | 3-5 years | More than 5 years
|Long-term debt              | Nil                                           | Nil              | nil       | Nil       | nil              
|Capital lease obligations   | $742,500                                      | nil              | nil       | $742,5001 | nil              
|Operating lease obligations | $372,300                                      | $74,480          | $223,340  | $74,480   | nil              
|Purchase obligations        | nil                                           | nil              | nil       | Nil       | nil              
|Other long term liabilities | $6,888,000                                    | $6,600,0002      | $288,0003 |           |                  
|Total                       | $8,002,800                                    | $6,674,480       | $511,340  | $816,980  |                  





1

During 2005, the Company entered into a 5-year sub-lease agreement
on its head office lease at an annual triple net rental of $74,250. Operating
costs under the lease are anticipated to be equal to the annual triple net
rental, resulting in a combined aggregate commitment of approximately $742,500
for the 5 year lease.

2

The Company signed an agreement with Bateman Engineering Inc.
Canada to complete the Definitive Feasibility Study on the Boleo Project in 2004
with an estimated contract amount of $8.9 million.  As at December 31, 2004
the Company had paid or accrued a total of $2.3 million under the agreement, for
a remaining terminable commitment of $6.6 million.

3

During 2004, the Company signed a number of management consulting
agreements with directors and officers of the Company with future commitments
for 2005 and 2006 aggregating $288,000.



Other than the five year sublease on head office space
entered into in 2005, there are no material changes outside the ordinary course
of the Companys business in the specified contractual obligations since
December 31, 2004.





---

G. Safe Harbor



See Note Regarding Forward-Looking Statements.



ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES



A.

Directors and Senior
Management



Each Director serves until the next annual general
meeting or until his/her successor is duly elected, unless his/her office is
vacated in accordance with the Articles of the Company.



Casual vacancies on the Board of Directors are filled by
election from nominees by the remaining Directors and the persons filling those
vacancies hold office until the next Annual General Meeting, at which time they
may be re-elected or replaced.



The following table sets out the name of the directors as
at June 30, 2006, the country in which each is ordinarily a resident, all offices
of the Company now held by each of them, their principal occupations, the period
of time for which each has been a director of the Company, and the number of
common shares of the Company beneficially owned by each, directly or indirectly,
or over which control or direction is exercised, as at the date hereof.



---



|NAME, ADDRESS AND PRESENT OFFICE HELD                                                                                                          | PRINCIPAL OCCUPATION FOR THE PAST FIVE
      YEARS                                                                                                                                                    | SHARES BENEFICIALLY OWNED DIRECTLY OR
      INDIRECTLY | DATE OF ELECTION OR APPOINTMENT                       
|---------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ------------------------------------------------------
|John W. Greenslade
      West Vancouver, B.C.
      Chief Executive Officer, President, Director                                               | President of the Company since April 20, 2004,
      President Minterra Resource Corp. (a mineral exploration company) Partner
      Holmes Greenslade (Barristers & Solicitors)                      | Nil1                                                   | April 20, 2004                                        
|Robert Mouat2,
      Nassau, Bahamas
      Director, Chief Financial Officer, Corporate
      Secretary                                        | Chief Financial Officer of the Company, Managing
      Director Mintec International Limited, Director Terra Gaia Inc (an
      environmental company)                                                | Nil3                                                   | Director
      April 20, 2004
      CFO April 22, 2005
|William Murray,
      Richmond. B.C.
      Director, Vice-President Operations                                                                 | Vice President, Operations of the Company,
      Consulting Engineer, President of Polymet Mining Corp. (a mineral
      development company)                                                         | Nil4                                                   | April 20, 2004                                        
|Graham Thody2, North Vancouver, B.C.
      Director                                                                                            | Chartered Accountant, Partner Nemeth Thody
      Anderson                                                                                                                                             | Nil                                                    | May 25, 2004                                          
|Charles Thomas Ogryzlo2, P.Eng.
      Toronto, Ontario
      Director                                                                          | President  & CEO Canatec Development Corp,
      Previously, Chairman, Kilborn SNC Lavalin Inc. (an engineering consulting
      firm); Vice-President of Triton Energy Inc. and Polaris Energy
Corp. | Nil                                                    | May 25, 2004                                          
|                                                                                                                                               |                                                                                                                                                                                                       |                                                        |                                                       
|Ross Glanville, P.Eng. Burnaby, British
Columbia
      Director                                                                                | President  Ross Glanville & Associates
      since 1990                                                                                                                                               | Nil                                                    | April 12, 2004                                        
|David Dreisinger, PhD.
      5233 Bentley Crescent, Delta,
      B.C.
      Vice President Metallurgy                                          | Vice President Metallurgy,   Professor
      Faculty of Applied Science, Department of Metal and Materials Engineering
      at University of British Columbia, VP. Metallurgy of the Company         | Nil                                                    | May 17, 2004                                          
|Gaston Reymenants
      Boortmeerbeek, Belgium
      Vice President Marketing                                                                  | Vice President Marketing,  Managing Director,
      GMS Metals, Dublin, Ireland,                                                                                                                      | Nil                                                    | May 17, 2004                                          
|Tawn Albinson
      Sinaloa #106 Desp. 301
      Col. Roma 06700
      Mexico, D.F.
      Managing Director Minera y Metalurgica del
    Boléo | Manager and Director Minera y Metalurgica del
      Boléo, Consulting Geologist                                                                                                                       | Nil5                                                   | January 22,2002                                       
|Eric Norton, P. Eng.
      Rossland, British Columbia                                                                                          | Project Director of the Company, Previously,
      Manager, Exploration Business Development, Teck Cominco,                                                                                           | 300,000                                                | March 17, 2006                                        
|George Gauld, P.Eng.
      White Rock, British Columbia                                                                                        | Project Manager of the Company, President G. Gauld
      & Associates Ltd., Director, Applied Technology Enterprises
Inc.                                                                             | 40,000                                                 | August 20,
2004                                       



---

1.

4,450,000
shares are owned by a trust located in the Cayman Islands in which John
Greenslade and his family are, indirectly, potential discretionary
beneficiaries. Mr. Greenslade and his family have no legal interest in such
shares nor do they exercise direction or control over such shares or over the
trustee. The trust received 4,900,000 shares on completion of the Reverse
Acquisition and, after release of a portion of such shares from escrow, sold
250,000 shares through the facilities of the TSX Venture Exchange.

2.

Denotes
a member of the audit committee.

3.

14,700,000
shares are owned by a trust located in Guernsey, Channel Islands, in which
Robert Mouat is a discretionary beneficiary. Mr. Mouat has no legal interest in
such shares nor does he exercise direction or control over such shares or over
the trustee.

4.

5,100,000
shares are owned by a trust located in Nassau, Bahamas, in which William Murray
and his family are indirectly potential discretionary beneficiaries. Mr. Murray
and his family have no legal interest in such shares nor do they exercise
direction or control over such shares or over the trustees.

5.

600,000
shares are owned by a trust located in Nassau, Bahamas, in which Tawn Albinsons
wife and infant son are discretionary beneficiaries, although they have no legal
interest in such shares nor do they exercise direction or control over such
shares or over the trustee.



Currently the only executive committee of
its Board of Directors is the audit committee.





John Greenslade, P.Eng. LLB., President &
Director. Age 57 years

Mr. Greenslade began his career in the mining industry in
1968.  He graduated from the University of British Columbia ("UBC") in 1972
with a Bachelor of Applied Science in Mineral Engineering and joined Placer
Development Corp. (now Placer Dome Inc.) as a metallurgist.  Mr. Greenslade
received a Master of Engineering degree in 1975 from UBC and subsequently
graduated with a Bachelor of Laws in 1978 from the UBC Faculty of Law.  Mr.
Greenslade was admitted as a member of the Association of Professional Engineers
for the Province of British Columbia in 1976 and was admitted as a Member of the
Law Society of British Columbia in 1979.  He practiced law with the firm of
Clark Wilson until 1981 when he co-formed the law firm Holmes Greenslade.
 His legal practice focused on mining, corporate and securities law, as
well as cross border tax issues and offshore trusts.  Mr. Greenslade has
been involved in the funding of numerous mining projects, at all stages of
exploration, development and production, in various capacities, including legal
counsel and director of a TSE listed company, from October 1995 to July 1999 and
a TSX Venture Exchange company from 1992 to present.  Mr. Greenslade has
been involved with the Boleo Property since 1992, initially in its'
identification and staking and thereafter as a director of Terratech or Mintec.
 He is retained through Kendron Petroleum Management Corporation to provide
management services to the Company and devotes the majority of his time to the
Company. He is also (sjnce 1991) the President and a director of Minterra
Resource Corp., a TSX Venture Exchange listed company.



Robert Mouat, Director, Chief Financial Officer,
Corporate Secretary. Age 55 years.

Mr. Mouat has two degrees from UBC, graduating in 1974
with a BASc in Geological Engineering and in 1977 with a MSc in Business
Administration.  In 1978, Mr. Mouat passed the Canadian Securities Course.
 In the early 1980's, Mr. Mouat worked for Cominco (now Teck Cominco) and
then for 14 years with Wright Engineers (later Fluor Daniel Wright) a large
mining engineering firm.  During his time at Wright, he evaluated over 500
mining projects.  He lectured in Mine Valuation at UBC, presented papers at
conferences at the CIM and SME and assisted in the preparation of reports
submitted as expert's reports in the Supreme Courts of British Columbia and
Ontario.  In addition, Mr. Mouat has appeared as an expert witness in the
area of mining valuations before the British Columbia Assessment Appeals Board
and the British Columbia Expropriation Board.  Mr. Mouat's management
experience has largely been as a director with private companies, but he also
served as a Director of Britannia Minerals Corp. (now Minterra Resource Corp.),
a TSX Venture Exchange listed company from September 1992 to June 1995. He will
be devoting the majority of his time to the Company in 2006.  He is also
(since 1989) a director and the President of Terra Gaia Inc., a private
company.



William Murray, P.Eng., Director. Age 56 years

Mr. Murray has been involved in the mining industry as an
engineer for 33 years with experience in maintenance, engineering, construction
management, project evaluation and mine evaluations in North America and Africa.
 Mr. Murray is currently a principal of Optimum Project Services Ltd., a
consulting firm. Optimum is retained by Minera y Metalurgica del Boléo to
provide management and engineering services as an independent contractor. Before
moving to Optimum Projects, Mr. Murray worked as Director of Business
Development for Fluor Daniel Wright in the mining group. Fluor Daniel Wright is
a US engineering and construction contractor that was involved in most of the
large new mine developments worldwide in the early nineties.  Mr. Murray's
initial work experience in Canada was as director of Project Services at Denison
Mines for construction of the Quintette Coal project.  Prior to working in
Canada, Mr. Murray worked for Anglo American in South Africa gaining eleven
years experience, at increasing levels of management responsibility in
engineering design and project management at mines in the Anglo American group
of companies.  This included construction of the process plant and
underground equipment in the gold, coal and diamond sectors.  Mr. Murray
has served as a Director of a number of TSX listed companies including Bonanza
Silver Corporation from November 1999 to May 2002, Minterra Resources Corp. from
June 1995 to December 1999, Kernow Resources & Developments from June 1995
to present and Polymet Mining Corp. from March 2003 to present.
   He currently devotes approximately half his time to the
Company. He is also  (since March 2003) the President and a director of
Polymet Mining Corp.



C. Thomas Ogryzlo – P. Eng, Director. Age 66
years

Mr. Ogryzlo has over thirty years of experience in the
mining and engineering contractor industries in development, financing, design,
construction and operation of mining, industrial and energy projects in many
parts of the world. He holds a Bachelor of Mechanical Engineering (1961) from
McGill University in Montreal, Quebec, Canada.  He is the principal
shareholder of Canatec Development Corporation, a company dedicated to managing
the development of major projects in the resource industries.



Mr. Ogryzlo has been President of several well respected
mining companies, including, Triton Mining Corporation and Black Hawk Mining.
 He has also held the positions of President and CEO of Kilborn
SNC-Lavalin, a large mining engineering company.  His experience in
exploration and development of multi-million dollar projects spans the world.
Over a six year period, he directed process development work for Hanna Mining,
initially as project manager and subsequently as President and General Manager,
for the Cerro Matoso ferro-nickel project in Columbia where he was instrumental
in organizing of a US$450 million financing involving World Bank, Exim, and a
group of 52 private banks lead by Chase Manhattan.



Before joining Kilborn, Mr. Ogryzlo was Senior Vice
President and a principal of Wright Engineers Ltd, a well-known private Canadian
engineering company dedicated to the mining and metallurgical industry. He was
based in Toronto and was responsible for operations in Eastern Canada, Latin
America, and Europe.



Mr. Ogryzlo has been a director of many public companies,
most notably including Franco-Nevada Mining Corp Ltd commencing in May of 1997.
  He is an independent director and is  not involved in the day
to day affairs of the Company.



Graham Thody – Chartered Accountant, Director.
 Age 55 years

Mr. Thody has been a Partner of Nemeth Thody Anderson,
Chartered Accountants of Vancouver B.C. since 1980.  During the past
fourteen years, Mr. Thodys practice has focused on corporate mergers and
acquisitions as well as domestic and international tax issues.  Prior to
this his practice focused on the auditing of publicly listed companies as well
as participation in the Initial Public Offering process for several
corporations. In addition to the Company, he is currently a Director of
four corporations listed on the TSXV, Minterra Resource Corp., Geologic
Explorations Inc., GoldSource Mines Inc., and SilverCrest Mines Inc.  ,as
well as two corporations listed on the TSX, Pioneer Metals Corporation and UEX
Corporation,  all of which companies are involved in mining exploration
throughout either North, Central, and South America.



Mr. Thody is a member of the British Columbia Institute
of Chartered Accountants ("BCICA") as well as the Canadian Institute of
Chartered Accountants.  He is formerly a member of the BCICA By-Laws
Committee.  Mr. Thody is a Director and the Chairman of the Finance
Committee for the Lions Gate Hospital Foundation. He holds a Bachelor of
Commerce degree (Marketing) from the University of British Columbia.  He is
an independent director and is not involved in the day to day affairs of the
Company.



Ross Glanville, P.Eng, Director.  Age 58
years

Mr. Glanville graduated from the University of British
Columbia in 1970 with a Bachelor of Applied Science Degree (Mining Engineering)
and became a member of the Association of Professional Engineers of British
Columbia in 1972 (P.Eng.). In 1974, he obtained a Master of Business
Administration Degree (MBA), specializing in finance and securities analysis. In
1980, he became a member of the Certified General Accountants of B.C. (CGA). Mr.
Glanville has thirty-five years of experience in mining, exploration, finance,
marketing, and management, and held senior executive positions with major and
junior mining and consulting companies. As an independent consultant over the
past twenty years, Mr. Glanville has specialized in valuations of
exploration/development/mining companies and properties; and has also provided
many fairness opinions, and acted as an expert witness in court cases involving
valuation disputes related to financial and technical issues.  Mr.
Glanville has valued more than 500 mining and exploration companies in Canada,
the U.S.A., Australia, and Mexico, as well as over 150 in many other areas of
the world, including Africa, South America, Europe, and Asia. He has formed
public companies (listed on the Toronto Stock Exchange, the Australian Stock
Exchange, NASDAQ, and the TSX Venture Exchange) and has served on the Boards of
Directors of three companies with producing mines. Mr. Glanville has also acted
in more than 50 court cases and assessment appeal board hearings in Canada, the
U.S.A., Australia, and the U.K. He has written several articles, and given many
presentations, related to the valuation of exploration and mining companies.
Some of these articles were published by the United Nations, the Society of
Mining Engineers, and by various Canadian magazines and newspapers.



Mr. Glanville has provided a large number of fairness
opinions (more than 200) for mergers, amalgamations, and acquisitions of public
and private companies. These assignments were undertaken for investment dealers,
regulatory bodies (including stock exchanges), banks, various government
agencies, venture capital firms, forestry companies, mining and exploration
companies, oil and gas companies, and others.  He is an independent
director and is not involved in the day to day affairs of the Company.  He
is a director of three other corporations listed on the TSXV, Archon Minerals
Limited, Oremex Resources Inc., and Starfield Resources Inc.



David Dreisinger, Ph.D, P.Eng, Vice President
Metallurgy.  Age 48 years.

Dr. Dreisinger holds the position of Professor and
Industrial Research Chair in Hydrometallurgy at the University of British
Columbia.  He has published over 100 papers and has been involved as a
process consultant in industrial research programs with metallurgical companies.
He has participated in 11 U.S. patents for work in areas such as pressure
leaching, ion exchange removal of impurities from process solutions, use of
thiosulfate as an alternative to cyanide in gold leaching, and
leach-electrolysis treatment of copper matte.  Dr. Dreisinger also
co-invented the Mt. Gordon Copper Process for copper recovery from sulfide ores
and the Sepon Copper Process for copper recovery from sulfidic-clayey ores.
 He has been actively involved in the development of the proposed
metallurgical flow sheet for Boleo and is one of the recognized experts in the
world in the area of hydrometallurgy.  He devotes such time as is necessary
to the Company, which is typically less than twenty-five percent of his time. He
is also a director of Polymet Mining Corp.



Gaston Reymenants, Vice President Marketing.  Age
56 years

Mr. Reymenants had a long career with a major mining
company as a metals trader. He now works as an independent with specific
expertise in the nickel and cobalt markets. Unlike copper and zinc, the
marketing of cobalt requires special knowledge and expertise.  Mr.
Reymenants expertise will prove invaluable to the Company in securing potential
long-term off-take contracts, particularly for cobalt.  He is involved
primarily in identifying possible off-take candidates for metal products the
Company may produce, particularly cobalt products, and devotes approximately
thirty to forty percent of his time to the Company. He is also Vice-President
Marketing of Polymet Mining Corp.  The Company and Polymet Mining Corp.
each plan to produce and sell copper metal and cobalt.   Copper is
readily marketable through the London Metal Exchange or the New York Comex
Exchange.  The sale of Cobalt is a more limited and specialized market,
which may give rise to a potential conflict.  However, the cobalt products
anticipated to be produced by the Company and Polymet are expected to be
significantly different and the markets for these products are not expected to
conflict.



Tawn Albinson, M.Sc. (geology), Managing Director
Minera y Metalurgica del Boleo S.A. de C.V.  Age 55 years

Mr. Albinson holds a Bachelor of Science in geology from
Macalester College and a Master of Science in economic geology from the
University of Minnesota.  Mr. Albinson has been an exploration geologist in
Mexico throughout the majority of his career and has run a large number of
drilling programs during such period.  He also runs a fluid inclusion
laboratory in Mexico City, providing consulting services to various companies in
the gold mining industry.



He devotes the majority of his time to the Company.



Eric Norton, P.Eng., Director of Project Development.
 Age 53 years.

Mr. Norton graduated from the University of Toronto in
1974, with a Bachelor of Applied Science (Honours) in Metallurgy and Materials
Science.  He worked for Teck Cominco for 31 years as a Manager in the
various operating plants at the trail, B.C. zinc smelter and Riddle, Oregon
nickel smelter and recently as a Manager in the Exploration Business Development
Group in Vancouver, B.C.  He devotes all his time to the Company.





George Gauld, M.Eng., P.Eng.  Project Manager.
 Age 66 years.

Mr. Gauld holds a diploma in Civil Engineering from the
Royal College of Science and Technology, Glasgow, Scotland, as well as a Masters
of Science in Structural Engineering from Glasgow University.  Mr. Gauld
has over 20 years experience in project management, design and construction of
industrial, marine, and transportation facilities, construction management, and
project evaluation.  For the past five years  Mr. Gauld has been the

President of  G. Gauld & Associates Ltd. and a
director of Applied Technology Enterprises  Inc.  He devotes in excess
of fifty percent of his time to the Company.



There are no family relationships among the named
persons, or any arrangement or understanding regarding the selection of named
persons.



B.

Compensation



EXECUTIVE COMPENSATION



Executive
Compensation



During the fiscal year ended December 31,
2005, the Company had six Named Executive Officers (for the purposes of
applicable securities legislation), namely:



(a)

John W. Greenslade,
President and Chief Executive Officer

(b)

William Murray, Vice
President – Operations

(c)

Gaston Reymenants –
Vice President – Marketing

(d)

David Dreisinger – Vice
President – Metallurgy

(e)

Robert Mouat –
Corporate Secretary and Chief Financial Officer

(f)

Tawn Albinson, Managing
Director, Minera y Metalurgica del Boleo S.A.de C.V.



---

The Chief Executive Officer is a
shareholder in a private British Columbia company, which is entitled under a
management agreement to receive compensation of $108,000 per year.



Executive "Named
the (collectively year financial completed recently most of end at officer an
such as serving not was individual that fact for but criteria these satisfied
have would who any and $150,000 exceeded bonus salary total whose 2005 31,
December Company officers executive compensated highly three other 2005, Officer
Financial Chief comprised individuals each respect in Rules) by required extent
(to years subsidiaries its to capacities all services compensation term long
annual forth sets Columbia)) (British Act Securities under made Rules")>

Summary Compensation Table



|                                                                                  |                          |                                           |                                                 |                                                             |                               |                                   |                       |                       | 
|--------------------------------------------------------------------------------- | ------------------------ | ----------------------------------------- | ----------------------------------------------- | ----------------------------------------------------------- | ----------------------------- | --------------------------------- | --------------------- | --------------------- | 
|Name &
      Principal Position                                                   | Year                     | Annual
      Compensation                 | Long
      Term Compensation                   
|Salary
      ($)                                                                  | Bonus
      ($)          | Other Annual
      Compensation
      ($) | Awards
                                 Payouts
|                                                                                  |                          |                                           | Securities Under Option
      (#)               | Restricted Shares or Restricted Share
      Units
      ($) | LTIP
      Payouts
      ($)  | All Other Compen-sation
      ($)
|John
      Greenslade
      President and
      Chief Executive Officer           | 2005
      2004
    2003 | $108,0001
      75,2731
      Nil         | Nil
      Nil
    Nil                           | Nil
      130,0002
    Nil                                  | 390,000
      310,000
    Nil | Nil
      Nil
    Nil             | Nil
      Nil
    Nil | Nil
      Nil
    Nil
|Robert Mouat
      Corporate Secretary and Chief Financial Officer                | 2005
      2004
    2003 | Nil
      Nil
    Nil                     | Nil
      Nil
    Nil                           | Nil
      Nil
    Nil                                       | 140,000
      310,000
    Nil | Nil
      Nil
    Nil             | Nil
      Nil
    Nil | Nil
      Nil
    Nil
|Tawn Albinson,
      Managing Director Minera y Metalurgica del Boleo S.A.de C.V. | 2005
      2004
    2003 | $36,0003
      $36,0003
    Nil           | Nil
      Nil
    Nil                           | 132,0004
      96,000
    66,3004                           | 100,000
      600,000
    Nil | Nil
      Nil
    Nil             | Nil
      Nil
    Nil | Nil
      Nil
    NIl



1.

Paid
to Kendron Petroleum Management Corporation, a company in which such person has
an interest, for providing his management services to the Company

2.

Paid
to a law firm, Holmes Greenslade, in which such person was a partner, for legal
services rendered to the Company in regard to the Reverse Acquisition.

3.

Paid
for administrative duties as Managing Director of Minera y Metalurgica del Boleo
S.A. de C.V.

4.

Paid
for consulting geological services outside the scope of his administrative
duties as Managing Director of Minera y Metalurgica del Boleo S.A. de C.V.

Long Term Incentive Plan (LTIP)
Awards



The Company does not have a LTIP pursuant to which cash
or non-cash compensation intended to serve as an incentive for performance
(whereby performance is measured by reference to financial performance or the
price of the Bajas securities), was paid or distributed to the Named Executive
Officers during the most recently completed financial year or the Interim
Period.



---

Option/SAR Grants During the Two Most Recently Completed
Financial Year



The following options to purchase common shares of the
Company were granted to or exercised by the Company's Named Executive Officers
during the Companys fiscal year ended December 31, 2004:



|                        |                                            |                                                                             |                                          |                                                                                                |                    
|----------------------- | ------------------------------------------ | --------------------------------------------------------------------------- | ---------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------
|Name and
      Office   | Securities
    Under Options/ SARs Granted | Percentage of
    Total Options/SARs Granted to Employees in Financial Year | Exercise or
    Base Price ($/Security)1 | Market Value
      of Securities Underlying Options/SARs on the date of Grant
    ($/Security) | Expiration
    Date
|John
      Greenslade   | 310,000                                    | 6.998%                                                                      | $0.75                                    | $0.50                                                                                          | March 22,
    2009 
|William
      Murray    | 310,000                                    | 6.998%                                                                      | $0.75                                    | $0.50                                                                                          | March 22,
    2009 
|Robert
    Mouat        | 310,000                                    | 6.998%                                                                      | $0.75                                    | $0.50                                                                                          | March 22,
    2009 
|Thomas
      Pressello  | 550,000                                    | 12.415%                                                                     | $0.75                                    | $0.50                                                                                          | March 22,
    2009 
|David
      Dreisinger  | 200,000                                    | 4.515%                                                                      | $0.75                                    | $0.59                                                                                          | May 17,
    2009   
|Gaston
      Reymenants | 250,000                                    | 5.643%                                                                      | $0.75                                    | $0.59                                                                                          | May 17,
    2009   
|C. Thomas
      Ogryzlo | 310,000                                    | 6.998%                                                                      | $0.75                                    | $0.64                                                                                          | August 13,
    2009
|Graham
    Thody        | 310,000                                    | 6.998%                                                                      | $0.75                                    | $0.64                                                                                          | August 13,
    2009



1.
 Note: the exercise of all options was reduced to $0.35 per share on
September 15, 2005. Under TSX Venture Exchange Rules an option may be repriced
if six months have elapsed since the date of grant.  The options were
repriced to refect a decline in the market price of the Companys shares from
the date of grant and to a price that was equivalent to the price at which
shares were been offered in a private placement to qualified investors by a
Canadian brokerage firm. There were no disinterested directors in regard to the
repricing however in accordance with TSX Venture Exchange rules such price
reduction in regard to directors and insiders is subject to receipt of
disinterested shareholder approval. Such approval will de requested at the
annual general meeting of shareholders to be held in June 2006.



The above described options were granted at the
discretion of the Companys board of directors, at the market price of the
Companys common shares set in accordance with the policies then in effect as
established by regulatory authorities having jurisdiction over the Company's
affairs.  During the year ended December 31, 2004 all directors, other than
Tom Pressello, were granted an equal number of options (310,000 each).  Tom
Pressello was granted granted a greater number of options (550,000) for assuming
the role of Chief Financial Officer. Tawn Albinson was granted options to
purchase 600,000 shares in consideration of his position of Managing Director of
Minera y Metalurgica del Boleo S.A. de C.V. and his daily contribution to the
exploration and development of the Boleo property as a result of his geological
expertise and knowledge of doing business in Mexico.  Options granted to
David Dreisinger and Gaston Reymenants were negotiated as part of there monthly
consulting agreements.



---

During the fiscal year ended December 31, 2005 further
options were granted to directors and officers of the Company.  Directors
and Officers that are actively involved in the day to day affairs of the Company
were granted a greater number of options.  Options granted during 2005 are
set out in the table below:





|                        |                                            |                                                                             |                                         |                                                                                                |                       
|----------------------- | ------------------------------------------ | --------------------------------------------------------------------------- | --------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------
|Name and
      Office   | Securities
    Under Options/ SARs Granted | Percentage of
    Total Options/SARs Granted to Employees in Financial Year | Exercise or
    Base Price ($/Security) | Market Value
      of Securities Underlying Options/SARs on the date of Grant
    ($/Security) | Expiration
    Date   
|John
      Greenslade   | 390,000                                    | 20.86%                                                                      | $0.35                                   | $0..35                                                                                         | September 15,
    2010
|William
      Murray    | 390,000                                    | 20.86%                                                                      | $0.35                                   | $0.35                                                                                          | September 15,
    2010
|Robert
    Mouat        | 140,000                                    | 7.45%                                                                       | $0.35                                   | $0.35                                                                                          | September 15,
    2010
|Tawn
    Albinson       | 100,000                                    | 5.35%                                                                       | $0.35                                   | $0.35                                                                                          | September 15,
    2010
|David
      Dreisinger  | 150,000                                    | 8.02%                                                                       | $0.35                                   | $0.35                                                                                          | September 15,
    2010
|C. Thomas
      Ogryzlo | 40,000                                     | 2.14%                                                                       | $0.35                                   | $0.35                                                                                          | September 15,
    2010
|                        |                                            |                                                                             |                                         |                                                                                                |                       
|Graham
    Thody        | 40,000                                     | 2.14%                                                                       | $0.35                                   | $0.35                                                                                          | September 15,
    2010
|Ross
      Glanville    | 40,000                                     | 2.14%                                                                       | $0.35                                   | $0.35                                                                                          | September 15,
    2010







Aggregated Option Exercises
During the Most Recently Complete Financial Year and Financial Year-End Option
Values

No options were exercised by any
of the named executives during 2004 or 2005.  At December 31, 2005, the
trading price of the Companys shares on the TSX Venture Exchange was $0.43 per
share and accordingly the exercise price of options granted to the named
executives was below the market price of the Companys shares.

Defined Benefit or Actuarial
Plan Disclosure

The Company does not have any
defined benefit or actuarial plans.

Termination of Employment,
Changes in Responsibilities and Employment Contracts

Neither the Company nor Minera y
Metalurgica del Boléo has entered into any employment agreements during the most
recently completed financial year.



Except as disclosed, neither the Company or Minera y
Metalurgica del Boléo has any compensatory plan or arrangement in respect of
compensation received or that may be received by any Executive Officer in the
Mintec or Minera y Metalurgica del Boléos most recently completed or current
financial year to compensate such Executive Officer in the event of the
termination of employment (resignation, retirement, change of control) or in the
event of a change in responsibilities following a change in control.
  However, the consulting agreement among the Company, Minera y
Metalurgica del Boleo S.A. de C.V., Kendron Petroleum Management Corporation and
Optimum Project Services Limited provides that such contract cannot be
terminated for a period of 180 days from a change of control of the Company.
 If such contract is terminated during such period, Kendron Petroleum
Management Corporation and Optimum Project Services Limited would remain
entitled to receive their normal monthly remuneration until the end of the
contract term.

Management Contracts



The Company and Minera y Metalurgica del Boléo entered
into a Services Agreement effective the 22nd day of April 2004 with
Optimum Project Services Inc. ("Optimum")(a company owned or controlled by
William Murray), William Murray, Kendron Petroleum Management Services Inc.
("Kendron") (a company controlled by John Greenslade and his family) and John
Greenslade, pursuant to which the day to day management of the Company and a
significant portion of the supervision of the proposed work programs is under
the guidance of John Greenslade, as President, and William Murray, as
Vice-President Operations. Kendron and Optimum receive combined remuneration of
$18,000 per month, to date such remuneration has been paid as to $9,000 per
month to each company. In such regard Optimum is retained and paid by Minera y
Metalugica del Boleo S.A. de C.V. (a Mexican company indirectly owned 100% by
the Company) and Kendron is retained and paid by the Company.  Mr. Murray
is subject to an agreement with Optimum under which he has an exclusive
obligation to provide consulting services related to the resource industry
through Optimum.  Optimum was established as an estate and tax planning
entity.  Mr. Greenslade has similar obligations to Kendron.  The
Company and Kendron have agreed to replace the above Services Agreement with a
separate agreement solely between the Company and Kendron on the substantially
the same terms and conditions with the exception that Kendons remuneration has
been increased to $23,000 per month effective March 1, 2006.  A formal
contract is currently been prepared by the Companys legal counsel.



The Company also had a management agreement dated January
22, 2004 with Tom Pressello for his services as Chief Financial Officer of the
Company at a remuneration of $4,000 per month, which contract expired on April
22, 2005.



The Company has a consulting agreement with Gaston
Reymenants as Vice-President Marketing pursuant to which he receives a monthly
retainer of US$2,000 and was granted options to purchase 200,000 shares
(subsequently increased to 250,000 shares) in the capital stock of the Company
for a period of 5 years at an exercise of $0.75 per share (the option exercise
price was reduced to $0.35 per share on September 15, 2005). The options vest in
four equal installments over a period of 24 months.  In addition, Mr.
Reymenants is entitled to receive a finders fee in accordance with TSX Venture
Exchange policy if he is instrumental in arranging financing for the Company,
and, in particular, a "forward sale" of metal that provides for a financial
contribution to the definitive feasibility study or construction of a mine in
accordance with the definitive feasibility study.



The Company has a verbal consulting agreement with Dr.
David Dreisinger pursuant to which he acts as Vice-President Metallurgy and is
entitled to be remunerated for time spent on the Companys affairs at a rate of
$140 per/hr. and was granted options to purchase 200,000 shares in the capital
stock of the Company for a period of 5 years at an exercise price of $0.75 share
(the option exercise was reduced to $0.35 per share on September 15, 2005).
 On September 15, 2005, Dr. Dreisinger was granted an additional option to
purchase a further 150,000 shares at a price of $0.35 per share for a period of
5 years, expiring September 15, 2010.

Directors
Compensation

Except for Albinson, who
receives $3,000 per month compensation for acting as Managing Director of Minera
y Metalurgica del Boléo and $11,000 per month for providing geological services
to Minera y Metalurgica del Boléo, none of the Companys or Minera y Metalurgica
del Boléos current directors have received any manner of compensation for
services provided in their capacity as directors during the most recently
completed financial year.



Indebtedness of Directors and Officers



None of the directors or officers of Minera y Metalurgica
del Boléo or the Company is, or at any time during the most recently completed
financial year, or any associate of any such person, has been indebted to the
the Company or Minera y Metalurgica del Boléo.



Stock Option Plan



In accordance with the TSX-V Exchange policies, the
Company has adopted by resolution of the shareholders at the 2003 annual
shareholders meeting the Baja Stock Option Plan (the "Plan").  The Plan
complies with the requirements of the Policies of the TSX-V Exchange Policy 4.4,
Incentive Stock Options.  Under the Plan the maximum number of shares in
respect of which options may be outstanding under the Plan at any given time is
equivalent to 10% of the issued and outstanding shares of the Company at that
time.



Principal terms of Stock Option Plan



The purpose of the Plan is to attract, retain and
motivate management, staff, consultants and other qualified individuals by
providing them with the opportunity, through share options, to acquire
proprietary interest in the Company and benefit from its growth.  The
options are non-assignable and may be granted for a term not exceeding that
permitted by the TSX-VE, currently five years.  Other material aspects of
the Plan are as follows:



·

the Plan
will be administered by the Companys Board of Directors or, if the Board so
designates, a Committee of the Board appointed in accordance with the Plan to
administer the Plan;



·

the
maximum number of shares in respect of which options may be outstanding under
the Plan at any given time is equivalent to 10% of the issued and outstanding
shares of the Company at that time;



·

following termination of an optionees employment,
directorship, consulting agreement, or other qualified position, the optionees
option shall terminate upon the expiry of such period of time following
termination, not to exceed 90 days (30 days if the optionee is engaged in
providing investor relations services), as has been determined by
directors;



·

an
option granted under the Plan will terminate one year following the death of the
optionee.  These provisions do not have the effect of extending the term of
an option which would have expired earlier in accordance with its terms, and do
not apply to any portion of an option which had not vested at the time of death
or other termination;



·

as long
as required by TSX Venture Exchange policy, no one individual may receive
options on more than 5% of the issued and outstanding shares of the Company (the
"Outstanding Shares") in any 12 month period, no one consultant may receive
options on more than 2% of the Outstanding Shares in any 12 month period, and
options granted to persons employed to provide investor relations services may
not exceed, in the aggregate, 2% of the Outstanding Shares in any 12 month
period;



·

options
may not be granted at prices that are less than the Discounted Market Price as
defined in TSX-Venture Exchange policy, which, subject to certain exceptions,
generally means the most recent closing price of the Companys shares on the TSX
Venture Exchange, less a discount of from 15% to 25% depending on the trading
value of the Companys shares;



·

any
amendment of the terms of an option shall be subject to any required regulatory
and shareholder approvals; and



·

in the
event of a reorganization of the Company or the amalgamation, merger of
consolidation of the shares of the Company the Board of Directors shall make
such appropriate provision for the protection of the rights of the optionee as
it may deem advisable.

---



C.

Board Practices



During the period ended December 31, 2005 reporting
period the board of directors of the Company (the "Board") was comprised of
three related and three unrelated directors.  Neither the Company nor its
subsidiary companies, have contracts with its directors providing for benefits
upon termination of employment.  The consulting agreement among the
Company, Minera y Metalurgica del Boleo S.A. de C.V., Kendron Petroleum
Management Corporation and Optimum Project Services Limited provides that such
contract cannot be terminated for a period of 180 days from a change of control
of the Company.  If such contract is terminated during such period, Kendron
Petroleum Management Corporation and Optimum Project Services Limited would
remain entitled to receive their normal monthly remuneration until the end of
the contract term.



The role of the directors is to oversee the conduct of
the Companys business and to supervise management, which is responsible to the
directors for the day-to-day conduct of business. However, given the size of the
Company, transactions of moderate value are of relative importance to the
Company and are addressed by the directors.  The directors discharge five
specific responsibilities as part of their overall "stewardship responsibility."
These are:



·

Strategic planning process: The Companys
strategic plan is prepared by and elaborated on directly by the directors with
the assistance of management;



·

Managing risk: The directors directly
oversee most aspects of the business of the Company and thus, do not require
specific systems or the creation of committees to effectively monitor and manage
the principal risks of all aspects of the business of the Company;



·

Appointing, training and monitoring senior
management: No system of selection, training and assessment of
management has been currently established, as they would be too costly. However
the directors closely monitor managements performance, which is measured
against the overall strategic plan, through reports by and regular meetings with
management;



·

Communication policy: it is and has always
been the directors unwritten policy to communicate effectively with the
shareholders of the Company and the public generally through statutory filings
and mailings, as well as press releases. Shareholders are also given an
opportunity to make comments or suggestions at shareholders meetings. These
comments and suggestions are considered by the directors.



·

Ensuring the integrity of the Companys internal
control and management information systems: Given the involvement of
the directors in operations, the current size of the Company and the reports
from and meetings with management, the directors believe that they effectively
track and monitor the implementation of approved strategies.



Committees of the Board



The Companys board for the ensuing year shall be
comprised of six directors, of which three can be defined as "unrelated
directors" or "director who is independent of management and is free from any
interest and any business or other relationship which could, or could reasonably
be perceived to, materially interfere with the directors ability to act with a
view to the best interests of the Company, other than interests and
relationships arising from shareholdings" and do not have interests in or
relationships with the Company.



The Board has established two standing committees, the
Audit Committee and the Compensation Committee.



The Audit Committee



The Audit Committee currently has three members, Robert
Mouat, Graham Thody, C.A., and Tom Ogryzlo.  The Audit Committee Charter
requires that the audit committee consist of three directors, the majority of
which are independent.  The committee is appointed annually by the board of
directors immediately after the annual general meeting of  the Company.
 Each member of the Committee must be financially literate, meaning that he
must be able to read and understand financial statements.  The Committees
duties are to monitor and oversee the operations of management and the external
auditor.  Specific duties of the Committee include:



---

·

Management Oversight:



o

Review and evaluate the Companys processes for
identifying, analyzing and managing financial risks that may prevent the Company
from achieving its objectives;

o

Review and evaluate the Companys internal controls, as
established by Management;

o

Review and evaluate the status and adequacy of internal
information systems and security;

o

Meet with the external auditor at least one a year in the
absence of Management;

o

Request the external auditors assessment of the
Companys financial and accounting personnel;

o

Review and evaluate the adequacy of the Companys
procedures and practices relating to currency exchange rates; and

o

Review and evaluate the Companys banking
arrangements.



·

External
Auditor Oversight



o

Review and evaluate the external auditors process for
identifying and responding to key audit and internal control risks;

o

Review the scope and approach of the annual
audit;

o

Inform the external auditor of the Committees
expectations;

o

Recommend the appointment of the external auditor to the
Board;

o

Meet with Management at least once a year in the absence
of the external auditor;

o

Review the independence of the external auditor on an
annual basis;

o

Review with the external auditor both the acceptability
and the quality of the Companys accounting principles; and

o

Confirm with the external auditor that the external
auditor is ultimately accountable to the Board of Directors and the Committee,
as representatives of the shareholders.

·

Financial Statement Oversight



o

Review the quarterly reports with both Management and the
external auditor;

o

Discuss with the external auditor the quality and the
acceptability of the generally accepted accounting principles applied by
Management;

o

Review and discuss with Management the annual audited
financial statements; and

o

Recommend to the Board whether the annual audited
financial statements should be accepted, filed with the securities regulatory
bodies and publicly disclosed.





The Compensation
Committee



The
Compensation Committee consists of three directors,  Robert Mouat, the
Companys Chief Financial Officer, Graham Thody and Ross Glanville.  The
majority of the members of the Compensation Committee are independent
directors.



The Compensation Committee has the authority to engage
and compensate any outside advisors that it determines to be necessary to permit
it to carry out its duties and to conduct or authorize investigations into any
matters within the scope of its responsibilities.  The Committee may create
one or more subcommittees and may delegate, in whole or in part, its duties and
responsibilities to such subcommittees or to individual members of the
Committee.



---

Specific duties of the Compensation Committee
include:



·

Compare,
periodically, the total remuneration and the main components thereof (such as
base salary, bonus and other performance incentives) of the officers of the
Company with the remuneration practices of similar companies in the mining
exploration industry.



·

Establish and review the overall compensation philosophy
of the Company.



·

Establish and review, at least annually, the Companys
general compensation policies applicable to the chief executive officer and
other officers, including the corporate goals and objectives and annual
performance objectives relevant to them.



·

Evaluate
the performance of the chief executive officer and other officers in light of
those goals and objectives, and based on such evaluation, determine and approve
the annual salary, bonus, options and other benefits, direct and indirect, of
the chief executive officer and other officers.  In determining the
compensation, the Committee should consider the Companys performance, the value
of similar incentive awards to chief executive officers and other officers at
comparable companies, the awards given to the chief executive officer and other
officers in past years and any other facts it deems relevant.



·

Review
and recommend to the Board for approval, or approve if the Board has delegated
to the Committee such approval, all employment, consulting, retirement and
severance agreements and arrangements involving officers, key employees and
directors of the Company and periodically evaluate existing agreements and
arrangements for continuing appropriateness.



·

Review
and recommend to the Board for approval, or approve if the Board has delegated
to the committee such approval, any incentive-compensation plans and
equity-based plans that the Company proposes to establish for its directors,
officers, employees and consultants.



·

Review
and make recommendations to the Board, or approve if the Board has delegated to
the Committee such approval, all awards of shares, option or other securities
pursuant to the Companys equity-based Plans.

·

Review
the adequacy and form of compensation of Directors and ensure that the
compensation realistically reflects the responsibilities and risk involved in
being a director, and recommend to the Board for approval the remuneration of
the Directors and the amount to which each such director shall be entitled to
each meeting of the Board or a committee thereof attended.



·

Review
compensation disclosure relating to the Directors and the officers of the
Company before the Company publicly discloses this information.



·

Prepare
an annual report on executive compensation for inclusion in the Companys
management information circular in accordance with applicable securities
laws.



Since the Compensation Committee is largely made up of
independent directors who are unable to vote on their own compensation, a table
of compensation for all independent directors has been established as
follows:



Position

Compensation

Independent
Director

$1,000 per month

Member of a
Committee

additional $250 per committee per
month

Chairing of
a Committee

additional $250 per committee per
month



i.e.:  Independent Director who
is a Committee Chairman and member would be paid $1500/month



---

The Boards Performance and Directors Compensation
and Indemnification



Without convening a special meeting for the specific
purpose, the directors periodically undertake an assessment exercise addressing
the effectiveness of the directors with input from management. The remuneration
of the directors is disclosed in the management proxy circulars which are sent
to shareholders prior to shareholder meetings.





The Boards Relations with Management



The Board recognizes that with Boards present size and
composition it does not have a majority of directors being unrelated, but at
this time it makes it impractical to implement such policies.



The directors remain sensitive to corporate governance
issues and seek to set up the necessary structures to ensure an effective
discharge of its responsibilities without creating additional overhead costs.
The directors remain committed to ensuring the long term viability and
profitability of the Company, as well as the well-being of its employees and of
the communities in which it operates.





D. Employees



As at June 30, 2006, the Company had four
employees.



E. Share Ownership



See A. Directors and Senior Management and
Item 10. A. Share Capital.



The following table sets forth, as of June
30, 2006, all stock options held by the directors and members of senior
management of the Company, individually, including the title and amount of
securities called for by the options, the exercise price and the expiration date
of the options.



|                                                        |                        |                               |                                                            
|------------------------------------------------------- | ---------------------- | ----------------------------- | -----------------------------------------------------------
|Title of Class Underlying Options                       | Name of Optionee       | Exercise Price (Cdn.)         | Expiration Date                                            
|310,000    Common
      390,000*   Common
      300,000 | John Greenslade        | $0.35
      $0.35
      $0.81 | March 22, 2009
      September 15, 2010
      March 1, 2011
|310,000    Common
      390,000*  Common                | William Murray         | $0.35
      $0.35             | March 22, 2009
      September 15, 2010                    
|310,000    Common
      140,000*  Common                | Robert Mouat           | $0.35
      $0.35             | March 22, 2009
      September 15, 2010                    
|600,000    Common
      100,000*   Common               | Tawn Albinson          | $0.35
      $0.35             | March 22, 2009
      September 15, 2010                    
|310,000    Common
      40,000*    Common               | Graham Thody           | $0.35
      $0.35             | August 13, 2009
      September 15, 2010                   
|310,000 Common
      40,000* Common                     | C.
      Thomas Ogrylo | $0.35
      $0.35             | August 13, 2009
      September 15, 2010                   
|310,000  Common
      40,000*  Common                   | Ross Glanville         | $0.35
      $0.35             | April 12, 2010
      September 15, 2010                    
|250,000 Common                                          | Gaston Reymenants      | $0.35                         | May 17, 2009                                               
|200,000 Common
      150,000 Common                     | David Dreisinger       | $0.35
      $0.35             | May 17, 2009
      September 15, 2010                      
|400,000 Common                                          | Eric Norton            | $1.13                         | March 17, 2011                                             
|100,000 Common
      100,000 Common                     | George Gauld           | $0.35
      $0.35             | August 20, 2009
      September 15, 2010                   
|45,000 Common
      80,000 Common                       | Kendra Greenslade      | $0.35
      $0.35             | May 17, 2009
      September 15, 2010                      



* Subject to receipt of disinterested
shareholder approval at a meeting of shareholders prior to exercise.





---





ITEM 7.  MAJOR SHAREHOLDERS AND
RELATED PARTY TRANSACTIONS



A.

Major
Shareholders



To the best of the knowledge of the
directors and senior officers of the Company, the following are the only
shareholders of the Company that beneficially owns, directly or indirectly, or
exercises control over, shares carrying more than 5% of the outstanding voting
rights attached to the Company's Common Shares as at May 8, 2006:



Name of
Shareholder

No. of Shares

% of Issued Shares



BARFIELD NOMINEES LIMITED

14,700,000

14.2%



ATC TRUSTEES CAYMAN LIMITED

As Trustees for the EC2
Trust

7,350,000

7.1%



RICHARD EVANS & MCGREGOR

ROBERTSON – GOLD TRUST

7,350,000

7.1%



CDS & CO

42,490,097

40.9%



The Companys major shareholders do not have different
voting rights from other shareholders.



To the best of the Companys knowledge,
there are no arrangements the operation of which may result in a change in
control of the Company.



As at May 8, 2006, there were 319 holders
of record of the Company's Common Shares of which 51 were U.S. residents owning
5,088,967 (48.98%) of the Company's outstanding shares.



The Company is a publicly owned Canadian
corporation, the shares of which are owned by Canadian residents, US residents,
and residents of other countries.



B. Related Party Transactions



The Company on completion of the Reverse
Acquisition did not have office premises in Vancouver, British Columbia.
 Until the Company entered into an independent sublease on its current
premises in 2005, it sublet office space, under an informal verbal arrangement,
from a Lexcorp International Ltd., a British Columbia company owned by Kendron
Petroleum Management Corporation and Trilex Management Corp., which corporations
are owned by John Greenslade and Stephen Holmes, respectively, and their
respective families.  Lexcorp International Ltd. provided office space,
secretarial and accounting services to Holmes Greenslade, a law firm in which
John Greenslade and Stephen Holmes were partners.  The law firm was wound
up December 31, 2004.  Holmes Greenslade provided legal services in regard
to the Reverse Acquisition and received compensation in regard thereto.



During 2005, the Company entered into an arms-length
sublease on 5500 square feet of head office space in Vancouver, British Columbia
on the belief that it would need at least this much space if it proceeds to
construction and production at the Property.  In the interim it sublets
office space on a month to month basis under a verbal arrangement with Polymet
Mining Corp., and Minterra Resource Corp.



Pacific Harbour Capital Corp. is a company in which Tom
Pressello is a director and officer.  As part of the Reverse Acquisition
the Company agreed to retain the services of Tom Pressello as Chief Financial
Officer for a period of one year and to pay Pacific Harbour Capital Corp. office
rent of $4,000 per month.  This agreement has now terminated.. In addition,
a company owned by Tom Pressello, PressReal Consulting, was paid a one time
agreed fee for his involvement in the completion of the Reverse Acquisition.
 Further, prior to the Reverse Acquisition, Optimum Project Services Ltd.,
a company owned by William Murray and his family, was retained by the Company
(then Mintec) as a consultant, this has now been replaced by the contract with
the Company, Minera y Metalurgica del Boleo S.A. de C.V, Optimum Project
Services Ltd., and Kendron Petroleum Management Corp. (which contract is in part
being replaced by a separate contract between the Company and Kendron).



Currently Optimum Project Services Ltd. and Kendron
Petroleum Management Corporation provide the services of William Murray and John
Greenslade to the Company.   In addition, Gaston Reymenants and Dr.
David Dreisinger provide their services to the Company under consulting
arrangements.



As a consequence of the foregoing, the Company has
conducted, and continues to conduct, transactions with officers, directors and
persons or companies related to directors which transactions are specifically
detailed below:



(a)

The Company
incurred the following transactions with current or former directors or officers
of the Company or with companies with current or former directors or officers in
common:



|                                                                                                     |          |             |          |         
|---------------------------------------------------------------------------------------------------- | -------- | ----------- | -------- | --------
|                                                                                                     | March 31 | December 31
|Related Party transaction                                                                            | 2006     | 2005        | 2004     | 2003    
|Project management fees paid/accrued to companies
      controlled by directors and officers(1)      | $125,719 | $452,045    | $335,157 | $71,420 
|Legal fees accrued or paid to a firm in which and
      insider is a partner(2)                      | -        | -           | $97,640  | $70,011 
|Financing fees paid to a company controlled by a
      former director and officer of the Company(3) | -        | -           | $65,000  | -       
|Rent and administration to companies with directors
      in common(4)                               | -        | $32,754     | $64,000  | -       
|Salaries and wages paid to employees related to a
      director of the Company(5)                   | $15,000  | $68,502     | $42,751  | -       
|Consulting services received from a director as
      consideration for a property(6)                | -        | -           | $27,000  | -       
|Total                                                                                                | $140,719 | $553,301    | $631,548 | $141,431







(1)

Fees paid to the following directors and officers (or former
directors and officers):

|                                                |                      |                   |                   |                  
|----------------------------------------------- | -------------------- | ----------------- | ----------------- | -----------------
|Related Party                                   | March 31,
      2006 | December 31, 2005 | December 31, 2004 | December 31, 2003
|Tom
      Pressello                             | -                    | 14,933            | 48,000            |                  
|Tawn
      Albinson                             | 33,000               | 132,000           | 103,884           |                  
|Optimum
      Project Services Limiteda         | 27,000               | 108,000           | 108,000           | 71,420           
|Kendron
      Petroleum Management Corporationb | 42,000               | 108,000           | 75,273            |                  
|David
      Dreisinger                          | 8,813                | 44,590            |                   |                  
|GMS
      Metals Inc.c                          | 10,656               | 44,522            |                   |                  
|Graham
      Thody                              | 1,750                |                   |                   |                  
|Thomas
      Ogryzlo                            | 1,250                |                   |                   |                  
|Ross
      Glanville                            | 1,250                |                   |                   |                  
|Totals                                          | 125,719              | 452,045           | 335,157           | 71,420           







| |  |  |  | 
| |  |  |  | 

(a)

a company owned by William Murray

(b

a company owned by John Greenslade and his family;

(c)

a company controlled  by Gaston Reymenants

---

Tom Pressello ceased to be involved with the Company on April 22,
2005 and accordingly no further fees will be paid to him.

(2)

Legal fees accrued or paid to Holmes Greenslade, a firm in which
John Greenslade was a partner.  The firm of Holmes Greenslade ceased to
exist on December 31, 2004 and the Company is now using the services of only
independent legal firms.

(3)

Financing fees paid to a company controlled by Tom
Pressello, a former director and officer of the Company.  These were one
time fees paid as part of the Reverse Acquisition.

(5)

Rent and administration paid to Lexcorp International Limited, a
company owned as to 50% by a company owned by John Greenslade and his family or
to Pacific Harbour Capital Corp, a company in which Tom Pressello is a director
and officer.  The Company now subleases all office space from independent
third parties.

6)

Fees paid to Francis Cozier a former director of a subsidiary of
the Company.  These fees were paid by Mintec for director services in
Barbados prior to the Reverse Acquisition.  Mr Cozier is no longer involved
with the Company.

(7)

Salaries and wages paid to employees related to John Greenslade.

(8)

Consulting services paid to Allen Sewell a former director of the
Company.



(b)

The Company had the following
amounts due to a company of a former director of the Company or to companies
with directors in common:



|                                          |         |             |         |         
|----------------------------------------- | ------- | ----------- | ------- | --------
|                                          | March   | December 31
|Due to related
      parties              | 2006    | 2005        | 2004    | 2003    
|Tek Terra
      Corporation (i)           | $21,560 | $46,971     | $42,413 | $612,581
|Minera Terra
      Gaia S.A. de C.V. (ii) | $10,342 | $11,570     | $1,945  | $26,146 
|Other
    (iii)                           | -       | -           | -       | $66,122 
|Other
    (iv)                            | $2,645  | $2,645      | $2,645  | $89,000 
|Total                                     | $34,547 | $61,186     | $47,003 | $793,849





Amounts due to related
parties are unsecured, due on demand and are non-interest bearing.



(i)

Effective 29 May 2002
and prior to the Reverse Acquisition, Tek Terra Corporation owned 100% of
Mintec.

(ii)

Owned 90% by Terratech
Environmental Corporation, a 100% subsidiary of Tek Terra Corporation.

(iii)

Optimum Project
Services Ltd. ("Optimum"), a company controlled by William Murray, a
director.

(iv)

A law firm (Holmes
Greenslade)  in which John Greenslade, President and a director of the
Company, was a partner



---



C. Interest of experts and
counsel



Not Applicable.



ITEM 8.  FINANCIAL
INFORMATION



A.

Consolidated
Statements and Other Financial Information



See Item 17.





Dividend Policy



Since its incorporation, the Company has not declared or
paid, and has no present intention to declare or to pay in the foreseeable
future, any cash dividends with respect to its Common Shares.  Earnings
will be retained to finance further growth and development of the business of
the Company. However, if the Board of Directors declares dividends, all Common
Shares will participate equally in the dividends, and, in the event of
liquidation, in the net assets, of the Company.



B.

Significant Changes



Since March 31, 2006, the Company has completed a private
placement of 25,555,556 Units at $0.90 per Unit for net proceeds of $21,692,576.
 Each Unit consists of one share and one-half share purchase warrant.
 Each whole share purchase warrant entitles the holder to purchase one
share at a price of $1.25 per share until April 13, 2008, which expiry date will
be extended to April 13, 2010 should the Company achieve Tier 1 status prior to
April 13, 2008.  The warrants provide that in the event that the Common
Shares trade at a closing price on the TSX of greater than $2.50 per share for a
period of 20 consecutive trading days at any time after four months and one day
after the Closing Date, the Company may accelerate the expiry date of the
Warrants by giving notice to the holders thereof and in such case the Warrants
will expire on the 60th day after the date on which such notice is
given by the CompanyIn addition, the Company granted its agents warrants
to purchase 887,193 shares at a price of $0.90 per share until April 13,
2008.







ITEM 9.THE OFFER AND LISTING



A.

The Offer and Listing
Details



The following table outlines the annual
high and low market prices for the five most recent fiscal periods:



|                  |       |       
|----------------- | ----- | ------
|Fiscal Period     | High  | Low   
|December 31, 2005 | $0.81 | $0.275
|December 31, 2004 | $0.84 | $0.58 
|December 31, 2003 | $0.50 | $0.105
|December 31, 2002 | $0.21 | $0.19 
|December 31, 2001 | $0.29 | $0.09 



---

The following table outlines the high and
low market prices for each fiscal financial quarter for the two most recent
fiscal periods and any subsequent period:



|                   |       |       
|------------------ | ----- | ------
|Fiscal Quarter     | High  | Low   
|March 31, 2006     | $1.70 | $0.40 
|December 31, 2005  | $0.61 | $.0.29
|September 30, 2005 | $0.45 | $0.275
|June 30, 2005      | $0.67 | $0.35 
|March 31, 2005     | $0.81 | $0.55 
|December 31, 2004  | $0.74 | $0.58 
|September 30, 2004 | $.074 | $0.62 
|June 30, 2004      | $0.66 | $0.50 
|March 31, 2004*    | n/a   | N/a   



*The shares of the Company were
halted from trading during the first quarter of 2004 pending completion of the
Reverse Acquisition.



The following table outlines the high and
low market prices for each of the most recent six months:



|                   |       |       
|------------------ | ----- | ------
|Month              | High  | Low   
|May 31, 2006       | $1.98 | $1.50 
|April 30, 2006     | $2.10 | $1.50 
|March 31, 2006     | $1.70 | $0.81 
|February 28, 2006  | $1.12 | $0.82 
|January 31, 2006   | $0.94 | $0.40 
|December 31., 2005 | $0.51 | $0.355





The Companys Common Shares are in registered form and
listed for trading on the TSX Venture Exchange.  During the period since
January 1, 2002, the Common Shares have not been subject to any significant
trading suspensions.  The closing price of the Common Shares on the TSX
Venture Exchange was $1.50 per Common Share on June 29, 2006.



B.

Plan of Distribution



Not applicable.



C.

Markets



The Company's common shares trade on the TSX Venture
Exchange in British Columbia, Canada under the symbol "BAJ".  The Company's
common shares commenced trading in 1987.



D.

Selling Shareholders



Not applicable.



E.

Dilution



Not applicable.



F.

Expense of the issue



Not applicable.



---





ITEM 10.  ADDITIONAL INFORMATION



A.

Share Capital



a)

Authorized:





200,000,000 common shares without par
value



b)

Issued and Outstanding:



The Company has only one class of shares.   As
of June 8, 2006, the Company had 103,885,876 common shares without par value
issued and outstanding as fully paid and non-assessable. The holders of common
shares are entitled to one vote per common share at all meetings of
shareholders, to receive dividends as and when declared by the directors and to
receive a pro rata share of the assets of the Company available for
distribution to shareholders in the event of liquidation, dissolution or
winding-up.  There are no pre-emptive, conversion or redemption rights
attached to the common shares.



|                                                                                                 |              |            
|------------------------------------------------------------------------------------------------ | ------------ | -----------
|                                                                                                 | Common Stock
|                                                                                                 | Shares       | Amount     
|                                                                                                 |              |            
|Balance –
      December 31, 2002                                                                | 1,016,149    | $31,577,900
|Shares issued
      (i)                                                                          | 5,137,455    | -          
|Balance –
      December 31, 2003                                                                | 6,153,604    | 31,577,900 
|Shares issued
      (i)                                                                          | 600,000      | -          
|Shares for
      property:                                                                       |              |            
|- Shares issued
      on   Reverse Acquisition  (ii)                                             | 40,000,000   | 46,371     
|For cash:                                                                                        |              |            
|- pursuant to a
      private placement – at $0.75 (iii)                                         | 10,666,666   | 8,000,000  
|- pursuant to a
      short form offering – at $0.75                                             | 2,666,666    | 2,000,000  
|For non cash
      compensation:                                                                 |              |            
|- corporate
      finance fees and commission on private placement and short form
      offering | 77,370       | (58,028)   
|Share issuance
      costs                                                                       | -            | (1,116,813)
|Shares issued on
      exercise of options                                                       | 20,000       | 4,400      
|Fair value of
      options exercised                                                            | -            | 5,517      
|Shares issued on
      exercise of warrants                                                      | 52,000       | 6,760      
|Balance,
      December 31, 2004                                                                 | 60,236,306   | 40,582,163 
|Shares issued on
      brokered private placement                                                | 7,255,715    | 3,039,500  
|Shares issued on
      non-brokered private placement                                            | 4,505,249    | 1,601,837  
|Share
      issuance costs                                                                       |              | (415,748)  
|Shares issued on
      exercise of warrants                                                      | 4,243,550    | 585,322    
|Shares issued on
      exercise of stock options                                                 | 40,000       | 8,800      
|Fair
      value of options exercised                                                            |              | 4,498      
|Balance December
      31, 2005                                                                  | 76,280,820   | 45,406,370 
|Shares
      issued on exercise of warrants                                                      | 25,000       | 11,250     
|Shares
      issued on exercise of stock options                                                 | 370,000      | 129,500    
|Fair
      value of options exercised                                                            |              | 130,816    
|Balance March
      31, 2006                                                                     | 76,675,820   | 45,677,938 
|Shares
      issued on exercise of warrants                                                      | 869,500      | 916,275    
|Shares
      issued on exercise of stock options                                                 | 785,000      | 274,750    
|Fair
      value of options exercised                                                            |              | 262,052    
|Shares
      issued on brokered private placement                                                | 25,555,556   | 23,000,000 
|Share
      issuance costs                                                                       |              | (1,307,424)
|Balance June 8,
      2006                                                                       | 103,885,876  | 68,823,591 





---

(ii)

In
accordance with the principles of reverse takeover accounting, the authorized
share capital and number of common shares issued are those of the legal parent
(the Company). The amount of the share capital proceeds to the date of the
reverse takeover, represents the share capital proceeds of Mintec and is not
related to the issuance of shares of First Goldwater. As a result although First
Goldwater issued 5,137,455 shares in the year ended December 31, 2003 and
600,000 in the 2004 period to the reverse takeover, Mintec did not issue any
shares and did not have any share capital proceeds. The proceeds raised by First
Goldwater are included in the net assets acquired by Mintec in the reverse
takeover transaction.



(iii)

Effective
April 20, 2004, pursuant to a share purchase agreement, the Company acquired all
the issued and outstanding shares of Mintec in exchange for 40,000,000 shares.
 The share exchange resulted in a change of control, which is accounted for
as a reverse takeover.



(iv)

Private
Placement:



a)

In
connection with the noted acquisition, the Company completed a brokered private
placement of 10,666,666 units at $0.75 per unit on April 20, 2004.  Each
unit consists of one common share and one half warrant.  Each whole warrant
is exercisable into one common share for a period of five years at $1.15 per
share. The warrants are listed for trading on the TSX Venture Exchange.



b)

Short
Form Offering



The
Company also completed a public offering in Canada of 2,666,666 units at $0.75
per unit. Each unit consists of one common share and one-half warrant.
 Each whole warrant is exercisable into one common share for a period of
five years at $1.15.  The warrants are listed for trading on the TSX
Venture Exchange.



c)

The Company completed a non-brokered private placement of
2,100,000 Units at a price of $0.60 per Unit on June 7, 2005.  Each Unit
consisted of one common share and one half warrant.  Each whole warrant is
exercisable into one common share for a period of two  years (which will be
increased to five years if the Company becomes and Tier 1 issuer on the TSX
Venture Exchange or lists its shares on the TSX Exchange) at $1.15.



d)

The Company completed a non-brokered private placement of
4,405,249 Units at a price of $0.35 per Unit in three tranches: tranche 1 on
November 2, 2005 (1,426,678 Units); tranche on December 15, 2005 (1,978,571
Units) and tranche 3 on December 20, 2005 (1,000,000 Units).  Each Unit
consisted of one common share and one half warrant.  Each whole warrant is
exercisable into one common share for a period of two years at $0.45.



e)

The Company completed a brokered private placement of 5,255,715
Units at a price of $0.35 per Unit on December 21, 2005.  Each Unit
consisted of one common share and one half warrant.  Each whole warrant is
exercisable into one common share for a period of two years at $0.45.





The Company
completed a brokered private placement of 25,555,556 Units at a price of $0.90
per Unit on April 13, 2006 for gross proceeds of $23,000,000.  Each Unit
consisted of one common share and one-half warrant.  Each whole warrant is
exercisable into one common share for a period of two years at $1.25, the expiry
date of the warrants is extendable to 5 years if the Company becomes a Tier 1
issuer on the Exchange prior to the two year expiry date.  The warrants
provide that in the event that the Common Shares trade at a closing price on the
TSX of greater than $2.50 per share for a period of 20 consecutive trading days
at any time after four months and one day after the Closing Date, the Company
may accelerate the expiry date of the Warrants by giving notice to the holders
thereof and in such case the Warrants will expire on the 60th day
after the date on which such notice is given by the Company



---

c)

Share Purchase
Options

From time to time, the Company grants share purchase
options to directors and employees to purchase common shares of the Company at
market related prices.  Information regarding the Companys outstanding
share purchase options is summarized below:





|                                          |                |                    
|----------------------------------------- | -------------- | -------------------
|Number of Shares as at
      June 8, 2006 | Exercise Price | Expiry Date        
|1,530,000                                 | $0.35          | March 22, 2009     
|475,000                                   | $0.35          | May
      17, 2009 
|225,000                                   | $0.35          | July
      22, 2009
|620,000                                   | $0.35          | August 13, 2009    
|310,000                                   | $0.35          | April 12, 2010     
|375,000                                   | $0.35          | March 15, 2010     
|1,460,000                                 | $0.35          | September 15, 2010 
|375,000                                   | $0.35          | November 30, 2010  
|300,000                                   | $0.81          | March 1, 2011      
|100,000                                   | $1.45          | April 11,2011      
|200,000                                   | $0.56          | January 31, 2011   
|200,000                                   | $0.94          | February 10, 2011  
|75,000                                    | $1.21          | March 16, 2011     
|400,000                                   | $1.13          | March 17,2011      
|6,645,000                                 |                |                    



The company retained the services of Endeavor Financial
Limited to assist in raising construction financing for the El Boleo Project. As
part of Endeavours remuneration it was granted an option to purchase 1,000,000
common shares at $0.75 per share, subsequently amended to $0.35 per share as set
out in the table above.  Endeavour has exercised options to acquire 625,000
shares to date and holds options to purchase a further 375,000 shares.



d)

Share purchase
warrants



|                                           |                |                  
|------------------------------------------ | -------------- | -----------------
|Number of Warrants as at
      May 8, 2006 | Exercise Price | Expiry Date      
|1,050,000                                  | $1.15          | June 8, 20071    
|703,339                                    | $0.45          | November 2, 2007 
|989,285                                    | $0.45          | December 16, 2007
|3,112,858                                  | $0.45          | December 21, 2007
|5,922.351                                  | $1.15          | April 20, 20091  
|12,777,778                                 | $1.25          | April 13, 20082  
|24,555,611                                 |                |                  



1

The
expiry date will be extended to June 8, 2010 when the Company becomes a Tier 1
issuer on the TSX Venture Exchange or moves its listing to the TSX.



2

The warrants provide that in the
event that the Common Shares trade at a closing price on the TSX of greater than
$2.50 per share for a period of 20 consecutive trading days at any time after
four months and one day after the Closing Date, the Company may accelerate the
expiry date of the Warrants by giving notice to the holders thereof and in such
case the Warrants will expire on the 60th day after the date on which
such notice is given by the Company



---

Escrow Shares



There were previously no escrow shares outstanding.
 However upon completion of the Reverse Acquisition and Short Form
Offering, 40,000,000 common shares were deposited in escrow representing 67.24%
of the then issued and outstanding shares. 55% of such shares have now been
released from escrow.







The names of the escrow shareholders and the number of
escrow shares owned by each such shareholder is as follows:



|                                                         |                                  |                                
|-------------------------------------------------------- | -------------------------------- | -------------------------------
|Name                                                     | Original Number of escrow shares | Current Number of escrow shares
|Barfield
      Nominees Limited                          | 14,700,0001                      | 4,410,000                      
|ATC Trustees
      (Cayman) Limited                      | 7,350,0002                       | 2,205,000                      
|ATC Trustees
      (Cayman) Limited                      | 4,900,000 3                      | 1,470,000                      
|J. Richard Evans
      & MacGregor Robertson as Trustees | 13,050,0004                      | 3,915,000                      
|Total                                                    | 40,000,000                       | 12,000,000                     



1.

Barfield
is a nominee corporation for Barings Trustees Guernsey Limited, who hold the
shares as the trustees of a Guernsey trust in which Robert Mouat is a
discretionary beneficiary.



2.

ATC
Trustees Cayman Limited holds such shares as trustee of a discretionary trust,
of which Stephen Holmes, of West Vancouver, British Columbia is indirectly a
potential discretionary beneficiary.



3.

ATC
Trustees Cayman Limited holds such shares as trustee of a discretionary trust,
of which John Greenslade and his family are indirectly potential discretionary
beneficiaries.



4.

J.
Richard Evans & Macgregor Robertson hold such shares as trustees for various
trusts of which the following parties and their respective families are directly
or indirectly potential discretionary beneficiaries:

(i)

William
Murray, of Richmond, British Columbia, originally as to 5,100,000 shares,
currently 1,530,000 shares;

(ii)

Michael
Northrop, of Riyadh, Saudi Arabia, originally as to 7,350,000 shares, currently
2,205,000 shares; and

(iii)

The
wife and infant son of Tawn Albinson, of Mexico City, Mexico, originally as to
600,000 shares, currently 108,000 shares.



The Escrow Shares are held in escrow by Computershare
Trust Company of Canada pursuant to a "Value Escrow Agreement" dated the 30th
day of January, 2004; which provides that, until released, the holder of such
shares, may not be sell, transfer, assign, mortgage, enter into a derivative
transaction concerning, or otherwise deal in any way with the escrow shares or
any related share certificates or other evidence of the escrowed shares except
in accordance with such escrow agreement. With prior TSX Venture Exchange
approval, the escrow shares may be pledged or mortgaged to a financial
institution as collateral for a loan, provided that such shares are not
transferred or delivered to the financial institution for such purpose. The
holders of such escrow shares may exercise voting rights attached to such escrow
shares, other than in support of one or more arrangements that would result in
repayment of capital being made on the escrow shares prior to a winding up of
Baja. Any additional escrow shares issued to the holders as a dividend or other
distribution will also be escrowed under such agreement. Transfers within in
escrow may be permitted, with prior approval of the TSX Venture Exchange, to a
registered plan or fund where the beneficiaries thereof are the holder or the
holders spouse, children or parents, to existing or incoming directors or
senior officers, to other Principals, to a trustee in bankruptcy, upon
realization by a financial institution of escrow shares pledged to such
institution, upon death of the holder upon notice, or as otherwise permitted by
the TSX Venture Exchange. The escrow shares will be released from escrow on the
following basis:



---





|                       |                                                               |                                                         
|---------------------- | ------------------------------------------------------------- | --------------------------------------------------------
|Release
      Dates    | Percentage of
      Total Escrowed Securities to be Released* | Total Number
      of Escrowed Securities to be Released
|April 19,
      2004   | 1/10 of the
      escrowed securities                         | 4,000,000                                               
|October 19,
      2004 | 1/6 of the
      remaining escrow securities                  | 6,000,000                                               
|April 19,
      2005   | 1/5 of the
      remaining escrow securities                  | 6,000,000                                               
|October 19,
      2005 | 1/4 of the
      remaining escrow securities                  | 6,000,000                                               
|April 19,
      2006   | 1/3 of the
      remaining escrow securities                  | 6,000,000                                               
|October 19,
      2006 | 1/2 of the
      remaining escrow securities                  | 6,000,000                                               
|April 19,
      2007   | all of the
      remaining escrow securities                  | 6,000,000                                               
|TOTAL                  | 100%                                                          | 40,000,000                                              



*

Where
there are no changes to the escrow securities initially deposited and no
additional escrow securities, then the above release schedule results in the
escrow securities being released, after the first release in equal tranches of
15%. If the Company becomes a Tier 1 Issuer the escrow release formula will be
revised to the Tier 1 formula, which would result in all such shares being
released from escrow over an 18 month, period.



e)

Pooling Agreement



The shareholders of Mintec imposed a condition
precedent to the Reverse Acquisition that the Company complete an equity issue
to raise a minimum of $10 million in gross proceeds.  This equity issue
consisted of a private placement of 10,666,666 Units (each unit consisting of
one common share and one-half a transferable share purchase warrant) at a price
of $0.75 per Unit for gross proceeds of $8 million.  Each whole share
purchase warrant entitled the holder to purchase a further share for a period of
5 years expiring April 19, 2009 at a price of $1.15 per share.  The share
purchase warrants are listed for trading on the TSX Venture Exchange.  The
Company retained the services of Canaccord International Ltd, a Barbados
company, as its agent to complete the private placement.  In addition, the
Company retained the services of Canaccord Capital Corp., of Vancouver, British
Columbia, to act as its agent to complete an offering of a further 2,666,667
Units (with identical terms) pursuant to  a short form offering (a public
offering) through the facilities of the TSX Venture Exchange.  Canaccord
International Ltd. and Canaccord Capital Corp, as a condition to completing the
above funding required that in addition to the shares issued to the shareholders
of Mintec (the Escrow Shareholders) being held in escrow as disclosed above,
that the shareholders of Mintec agree that on release of the shares received by
them on the Reverse Acquisition that such shares be held under the provisions of
the Pooling Agreement terms set out below.  The purpose of the Pooling
Agreement was to restrict the ability of the shareholders of Mintec to sell the
shares received by them on the Reverse Acquisition



Accordingly, in addition to the provisions of the escrow
agreements, the Escrow Shareholders entered into a Pooling Agreement with
Canaccord International, the Company and Computershare Trust Company dated the
30th day of January 2004 pursuant to which the Escrow Shareholders
have agreed to voluntarily pool all the escrow shares upon release from escrow.
 Fifty percent (50%) of the shares (i.e. 8 million shares) were released
from the Pooling Agreement on April 19, 2005, a further 25% will be released on
October 19, 2005 and the balance of pooled shares will be released on April 19,
2006. In addition, with the consent of Canaccord, shares may be released from
the terms of the Pooling Agreement at any time. As of September 30, 2005,
7,750,000 were held in pool.



The Pooling Agreement expired as of April 19, 2006 and
all shares held in pool were released to the pooled shareholders.

B.

Articles of Incorporation



1.

The Company, incorporated under
Certificate of Incorporation No. 295358 issued by the Registrar of Companies on
registration of its Memorandum and Articles under the Business Corporations
Act,S.B.C. 2002, c.57 (British Columbia) (the "Act")the Company, is
permitted to conduct any lawful business that it is not restricted from
conducting by its memorandum and articles, neither of which contain any
restriction on the business the Company may conduct.



2.

A director, who has a disclosable
interest in a proposed contract or transaction with the Company shall be liable
to account the Company for any profits that accrue to the director under or as a
result of the contract or transaction unless disclosure is made thereof and the
contract or transaction is approved in accordance with the provisions of the
Act. A director who holds a disclosable interest in a contract or
transaction into which the Company has entered or proposes to enter in is not
entitled to vote on any directors resolution to approve that contract or
transaction, unless all the directors have a disclosable interest in that
contract or transaction, in which case any or all of those directors may vote on
such resolution. The Articles of the Company permit an interested director to be
counted in the quorum at the meeting whether or not the directors votes on any
or all of the resolutions considered at the meeting. The board of directors has
an unlimited power to borrow, issue debt obligations and to charge the assets of
the Company, provided only that such power is exercised bona fide and in the
best interests of the Company. There is no mandatory retirement age for
directors. A director is not required to have any share qualification.



3.

The Company has only one class of
common shares, without any special rights or restrictions. The dividend
entitlement of a shareholder of record is fixed at the time of declaration by
the board of directors. A vested dividend entitlement does not lapse, but
unclaimed dividends are subject to a statutory six-year contract debts
limitation. Each common share is entitled to one vote on the election of each
director. There are no cumulative voting rights, in consequence of which a
simple majority of votes at the annual meeting can elect all the directors of
the Company. Each common share carries with it the right to share equally with
every other common share in dividends declared and in any distribution of
surplus assets of the Company after payment to creditors on any winding up,
liquidation or dissolution. There are no sinking fund provisions. All common
shares must be fully paid prior to issue and are thereafter subject to no
further capital calls by the Company. There exists no discriminatory provision
affecting any existing or prospective holder of common shares as a result of
such shareholder owning a substantial number of shares.



4.

Under the Act, the rights
of shareholders may be changed only by the shareholders passing a special
resolution approved by 75% of the votes cast at a general meeting of the
Company, the notice of which is accompanied by a circular describing the
proposed action and its effect on the shareholders. Shareholders representing
10% of the Company who vote against such a resolution may apply to the Court to
set aside the resolution and the Court may set aside, affirm or affirm and order
the Company to purchase the shares of any member at a price determined by the
Court.



5.

The Board of Directors must call
an annual general meeting once in each calendar year and not later than 15
months after the last such meeting. The Board may call an extraordinary general
meeting at any time. Notice of such meetings must be accompanied by an
information circular describing the proposed business to be dealt with and
making disclosures as prescribed by statute. A shareholder or shareholders
having in the aggregate 5% of the issued shares of the Company may requisition a
meeting and the Board is required to hold such meeting within four months of
such requisition. Admission to such meetings is open to registered shareholders
and their duly appointed proxies. Others may be admitted subject to the pleasure
of the meeting.



6.

The memorandum and articles of the
Company contain no limitations on the rights of non-resident or foreign
shareholders to hold or exercise rights on the shares of the Company.



7.

There is no limitation at law upon
the right of a non-resident to hold shares in a Canadian company. However, the
Investment Canada Act(Canada) requires certain non-Canadian individuals,
governments, corporations, agencies or entities who wish to acquire 'a Canadian
business' or to establish 'a new Canadian business' as those terms are defined
in that Act, to file a notification or an application for review with Investment
Canada, a Canadian federal governmental agency. The Investment Canada Actrequires that certain acquisitions of control of a Canadian business by a
non-Canadian must be reviewed by the Minister responsible for the Act and
approved on the basis that the Minister is satisfied that the acquisition is
likely to be of net benefit to Canada, having regard to the criteria set forth
in the Act. The Act makes the acquisition of control a reviewable event. The Act
sets out detailed rules for determining whether control has been acquired. The
acquisition of one-third or more of the voting shares of a corporation may, in
some circumstances, be deemed to constitute acquisition of control. A reviewable
acquisition of control may not be implemented before being approved by the
Minister. If not ultimately approved, a reviewable acquisition that has been
completed may be subject to an order to divest, enforceable by injunction or a
court order directing disposition of assets or shares.



8.

There are no provisions in the
Companys memorandum and articles that would have an effect of delaying,
deferring or preventing a change in control of the Company and that would
operate only with respect to a merger, acquisition or corporate restructuring
involving the Company or any of its subsidiaries.





C.

Material Contracts



a)

Letter Agreement among the Mintec
Shareholders and the Company dated December 2, 2003 and subsequently amended by
letter agreements dated February 12, 2004 and March 8, 2004 (See Item 4.A.
Business Overview);



b)

Value Escrow Agreement dated the
30th day of January 2004 with Computershare Trust Company of Canada (See Item
10.A. Share Capital, section (e));



c)

Pooling Agreement with Canaccord
International, the Company and Computershare Trust Company dated the
30th day of January 2004 (See Item 10.A. Share Capital, section
(e));



d)

License Agreement between
Commonwealth Scientific & Industrial Research Organization and the Company
dated September 3, 2004, pursuant to which  the Company has a non-exclusive
royalty free licence to utilize a proprietary mixture of solvent extraction
reagents for the selective extraction of copper, cobalt and manganese at the
Boleo property;



e)

Sublease agreement dated March 15,
2005, between the Company and Sierra Systems Group Limited, pursuant to which
the Company sublets 5500 square feet of office space for use as its head office
at an annual lease rate of $74,250 plus operating costs until July 2010;



f)

Agreement with Endeavor Financial
International Limited dated March 15th, 2005 as amended and restated
by an agreement dated October, 13, 2005, to provide general corporate financial
advice with respect to the financing and development of the Boleo
copper/cobalt/manganese/zinc Project, California Sur, Mexico;



g)

Bateman Engineering Feasibility
Study Agreement dated August 31, 2004 (See Item 5.F. Tabular Disclosure of
Contractual Obligations);



h)

The Company and Minera y
Metalurgica del Boléo entered into a Services Agreement effective the
22nd day of April 2004 with Optimum Project Services Inc.
("Optimum")(a company owned or controlled by William Murray), William Murray,
Kendron Petroleum Management Services Inc.("Kendron") (a company controlled by
John Greenslade and his family) and John Greenslade, pursuant to which the day
to day management of the Company and a significant portion of the supervision of
the proposed work programs is under the guidance of John Greenslade, as
President, and William Murray, as Vice-President Operations. Kendron and Optimum
receive combined remuneration of $18,000 per month. In such regard Optimum is
retained and paid by Minera y Metalugica del Boleo S.A. de C.V. (a Mexican
company indirectly owned 100% by the Company) and Kendron is retained and paid
by the Company.  The Compensation Committee approved an amendment to the
Services Agreement to provide for Kendron being retained under an independent
contract with the Company for remuneration of $24,000 per month.  Options
will continue to be released under the original contract at a rate of $9,000.
 The Company, Optimum and Kendron are proceeding on the amended basis
pending completion of written amending contracts by legal counsel for the
Company.



i)

The Company has a consulting
agreement (recently verbally amended to increase the monthly retainer from
US$2,000 to US$3,000) with Gaston Reymenants as Vice-President Marketing
pursuant to which he receives a monthly retainer of US$3,000 and was granted
options to purchase 200,000 shares (increased to 250,000) in the capital stock
of the Company for a period of 5 years at an exercise of $0.75 per share (the
exercise price was reduced to $0.35 per share on September 15, 2010). The
options vest in four equal installments over a period of 24 months.  In
addition, Mr. Reymenants is entitled to receive a finders fee in accordance with
TSX Venture Exchange policy if he is instrumental in arranging financing for the
Company, and, in particular, a "forward sale" of metal that provides for a
financial contribution to the definitive feasibility study or construction of a
mine in accordance with the definitive feasibility study;



j)

The Company has a verbal consulting
agreement with Dr. David Dreisinger pursuant to which he acts as Vice-President
Metallurgy and is entitled to be remunerated for time spent on the Companys
affairs at a rate of $140 per/hr. and was granted options to purchase 200,000
shares in the capital stock of the Company for a period of 5 years at an
exercise price of $0.75 per share (which exercise price was reduced to $0.35 per
share on September 15, 2005). He was subsequently granted an additional option
to purchase 150,000 shares at a price of $0.35 for a further 5 years expiring
September 15, 2010;



k)

The Company has a marketing and
investor communications agreement with Scott F. Gibson & Company dated
September 15, 2005.  Scott Gibson & Company received remuneration of
$4500 per month and was granted options to acquire 350,000 shares at $0.35 per
share which vest in increments of 25% each six months from grant and are for a
term of five years;



l)

The Company entered into an
agreement dated November 30, 2005 with Robert Douglas Corporation ("Douglas
Corp.") to provide Investor Relations ("IR") services to the Company.  Mr.
Douglas will be paid a monthly fee of $1200, plus applicable taxes, for
performing up to 12 hours of work per month for the Company, as well as being
compensated for up to 6 additional days per month at a rate of $600 per day up
to a maximum of $3600, plus applicable taxes, from working capital of the
Company.  The total cash payments or commitments to Douglas Corp. for one
year of service totals up to $57,600. Mr. Douglas has been granted options to
purchase 150,000 shares of the Company at a price of $0.35 per share for a
period of 5 years;



m)

As part of the Reverse Acquisition
the Company entered into an agreement with Pacific Harbour Capital Corp., a
company in which Tom Pressello, the Companys former Chief Financial Officer,
pursuant to which Pacific Harbour provided office and secretarial services to
Company personnel located at such office;



n)

On completion of the Reverse
Acquisition, the Company had a verbal agreement with Lexcorp International Ltd.
pursuant to which the Company sublet furnished office space, and office
equipment and provide secretarial services to the Company at its out-of-pocket
cost.



o)

Letter Agreement between the
Company and Westwind Partners (UK) Limited pursuant to which Westwind agreed to
act as lead agent to place up to $20,000,000 (subsequently increased to
$23,000,000) in Units at a price of $0.90 per Unit, each Unit consisting of one
share and one-half share purchase warrant.  Each whole warrant entitles the
holder to purchase a further share at a price of $1.25.  This letter
agreement was replaced with a formal agency agreement dated April 13, 2006,
among the Company, Westwind Partners (UK) Limited and Haywood Securities
Limited



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D.

Exchange Controls



There are currently no governmental laws, decrees,
regulations or other legislation of Canada, which affects the import or export
of capital, including the availability of cash and cash equivalents for use by
the Company.  For a general discussion of the remittance of dividends,
interest or other payments to non-resident holders of the Common Shares. See "E.
Taxation".



E.

Taxation



U.S. Federal Income Tax
Consequences

The following is a summary of the anticipated material
U.S. federal income tax consequences to a U.S. Holder (as defined below) arising
from and relating to the acquisition, ownership, and disposition of common
shares of the Company ("Common Shares").



This summary is for general information purposes only and
does not purport to be a complete analysis or listing of all potential U.S.
federal income tax consequences that may apply to a U.S. Holder as a result of
the acquisition, ownership, and disposition of Common Shares.  In addition,
this summary does not take into account the individual facts and circumstances
of any particular U.S. Holder that may affect the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Shares.
 Accordingly, this summary is not intended to be, and should not be
construed as, legal or U.S. federal income tax advice with respect to any U.S.
Holder.  Each U.S. Holder should consult its own financial advisor, legal
counsel, or accountant regarding the U.S. federal, U.S. state and local, and
foreign tax consequences of the acquisition, ownership, and disposition of
Common Shares.



Scope of this Disclosure



Authorities



This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations (whether final, temporary,
or proposed), published rulings of the Internal Revenue Service ("IRS"),
published administrative positions of the IRS, the Convention Between Canada and
the United States of America with Respect to Taxes on Income and on Capital,
signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"), and
U.S. court decisions that are applicable and, in each case, as in effect and
available, as of the date of this Annual Report.  Any of the authorities on
which this summary is based could be changed in a material and adverse manner at
any time, and any such change could be applied on a retroactive basis.
 This summary does not discuss the potential effects, whether adverse or
beneficial, of any proposed legislation that, if enacted, could be applied on a
retroactive basis.



U.S. Holders



For purposes of this summary, a "U.S. Holder" is a
beneficial owner of Common Shares that, for U.S. federal income tax purposes, is
(a) an individual who is a citizen or resident of the U.S., (b) a
corporation, or any other entity classified as a corporation for U.S. federal
income tax purposes, that is created or organized in or under the laws of the
U.S. or any state in the U.S., including the District of Columbia, (c) an
estate if the income of such estate is subject to U.S. federal income tax
regardless of the source of such income, or (d) a trust if (i) such
trust has validly elected to be treated as a U.S. person for U.S. federal income
tax purposes or (ii) a U.S. court is able to exercise primary supervision
over the administration of such trust and one or more U.S. persons have the
authority to control all substantial decisions of such trust.



---

Non-U.S. Holders



For purposes of this summary, a "non-U.S. Holder" is a
beneficial owner of Common Shares other than a U.S. Holder.  This summary
does not address the U.S. federal income tax consequences of the acquisition,
ownership, and disposition of Common Shares to non-U.S. Holders.
 Accordingly, a non-U.S. Holder should consult its own financial advisor,
legal counsel, or accountant regarding the U.S. federal, U.S. state and local,
and foreign tax consequences (including the potential application of and
operation of any tax treaties) of the acquisition, ownership, and disposition of
Common Shares.



U.S. Holders Subject to Special U.S. Federal Income
Tax Rules Not Addressed



This summary does not address the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common Shares to
U.S. Holders that are subject to special provisions under the Code, including
the following U.S. Holders:  (a) U.S. Holders that are tax-exempt
organizations, qualified retirement plans, individual retirement accounts, or
other tax-deferred accounts; (b) U.S. Holders that are financial
institutions, insurance companies, real estate investment trusts, or regulated
investment companies; (c) U.S. Holders that are dealers in securities or
currencies or U.S. Holders that are traders in securities that elect to apply a
mark-to-market accounting method; (d) U.S. Holders that have a "functional
currency" other than the U.S. dollar; (e) U.S. Holders that are liable for
the alternative minimum tax under the Code; (f) U.S. Holders that own
Common Shares as part of a straddle, hedging transaction, conversion
transaction, constructive sale, or other arrangement involving more than one
position; (g) U.S. Holders that acquired Common Shares in connection with
the exercise of employee stock options or otherwise as compensation for
services; (h) U.S. Holders that hold Common Shares other than as a capital
asset within the meaning of Section 1221 of the Code; or (i) U.S.
Holders that own, directly or indirectly, 10% or more, by voting power or value,
of the outstanding shares of the Company.  U.S. Holders that are subject to
special provisions under the Code, including U.S. Holders described immediately
above, should consult their own financial advisor, legal counsel or accountant
regarding the U.S. federal, U.S. state and local, and foreign tax consequences
of the acquisition, ownership, and disposition of Common Shares.



If an entity that is classified as a partnership (or
"pass-through" entity) for U.S. federal income tax purposes holds Common Shares,
the U.S. federal income tax consequences to such partnership (or "pass-through"
entity) and the partners of such partnership (or owners of such "pass-through"
entity) generally will depend on the activities of the partnership (or
"pass-through" entity) and the status of such partners (or owners).
 Partners of entities that are classified as partnerships (or owners of
"pass-through" entities) for U.S. federal income tax purposes should consult
their own financial advisor, legal counsel or accountant regarding the U.S.
federal income tax consequences of the acquisition, ownership, and disposition
of Common Shares.



Tax Consequences Other than U.S. Federal Income Tax
Consequences Not Addressed



This summary does not address the U.S. state and local,
U.S. federal estate and gift, or foreign tax consequences to U.S. Holders of the
acquisition, ownership, and disposition of Common Shares.  Each U.S. Holder
should consult its own financial advisor, legal counsel, or accountant regarding
the U.S. state and local, U.S. federal estate and gift, and foreign tax
consequences of the acquisition, ownership, and disposition of Common Shares.
 (See "Taxation-Canadian Federal Income Tax Consequences" above).



U.S. Federal Income Tax
Consequences of the Acquisition, Ownership, and Disposition of Common
Shares

---

Distributions on Common Shares



General Taxation of Distributions



A U.S. Holder that receives a distribution, including a
constructive distribution, with respect to the Common Shares will be required to
include the amount of such distribution in gross income as a dividend (without
reduction for any Canadian income tax withheld from such distribution) to the
extent of the current or accumulated "earnings and profits" of the Company.
 To the extent that a distribution exceeds the current and accumulated
"earnings and profits" of the Company, such distribution will be treated
(a) first, as a tax-free return of capital to the extent of a U.S. Holders
tax basis in the Common Shares and, (b) thereafter, as gain from the sale
or exchange of such Common Shares.  (See more detailed discussion at
"Disposition of Common Shares" below).





Reduced Tax Rates for Certain Dividends



For taxable years beginning after December 31, 2002 and
before January 1, 2009, a dividend paid by the Company generally will be taxed
at the preferential tax rates applicable to long-term capital gains if
(a) the Company is a "qualified foreign corporation" (as defined below),
(b) the U.S. Holder receiving such dividend is an individual, estate, or
trust, and (c) such dividend is paid on Common Shares that have been held
by such U.S. Holder for at least 61 days during the 121-day period beginning 60
days before the "ex-dividend date" (i.e., the first date that a purchaser of
such Common Shares will not be entitled to receive such dividend).



The Company generally will be a "qualified foreign
corporation" under Section 1(h)(11) of the Code (a "QFC") if (a) the
Company is incorporated in a possession of the U.S., (b) the Company is
eligible for the benefits of the Canada-U.S. Tax Convention, or (c) the
Common Shares are readily tradable on an established securities market in the
U.S.  However, even if the Company satisfies one or more of such
requirements, the Company will not be treated as a QFC if the Company is a
"passive foreign investment company" (as defined below) for the taxable year
during which the Company pays a dividend or for the preceding taxable year.
 In 2003, the U.S. Department of the Treasury (the "Treasury") and the IRS
announced that they intended to issue Treasury Regulations providing procedures
for a foreign corporation to certify that it is a QFC.  Although these
Treasury Regulations were not issued in 2004, the Treasury and the IRS have
confirmed their intention to issue these Treasury Regulations.  It is
expected that these Treasury Regulations will obligate persons required to file
information returns to report a distribution with respect to a foreign security
issued by a foreign corporation as a dividend from a QFC if the foreign
corporation has, among other things, certified under penalties of perjury that
the foreign corporation was not a "passive foreign investment company" for the
taxable year during which the foreign corporation paid the dividend or for the
preceding taxable year.



As discussed below, the Company believes that it was a
"passive foreign investment company" for the taxable year ended December 31,
2004, and expects that it will be a "passive foreign investment company" for the
taxable year ending December 31, 2005.  (See more detailed discussion at
"Additional Rules that May Apply to U.S. Holders-Passive Foreign Investment
Company" below).  Accordingly, the Company does not expect to be a QFC for
the taxable year ending December 31, 2005.



If the Company is not a QFC, a dividend paid by the
Company to a U.S. Holder, including a U.S. Holder that is an individual, estate,
or trust, generally will be taxed at ordinary income tax rates (and not at the
preferential tax rates applicable to long-term capital gains).  The
dividend rules are complex, and each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the dividend
rules.



Distributions Paid in Foreign Currency



The amount of a distribution paid to a U.S. Holder in
foreign currency generally will be equal to the U.S. dollar value of such
distribution based on the exchange rate applicable on the date of receipt.
 A U.S. Holder that does not convert foreign currency received as a
distribution into U.S. dollars on the date of receipt generally will have a tax
basis in such foreign currency equal to the U.S. dollar value of such foreign
currency on the date of receipt.  Such a U.S. Holder generally will
recognize ordinary income or loss on the subsequent sale or other taxable
disposition of such foreign currency (including an exchange for U.S. dollars).



---

Dividends Received Deduction



Dividends paid on the Common Shares generally will not be
eligible for the "dividends received deduction."  The availability of the
dividends received deduction is subject to complex limitations that are beyond
the scope of this discussion, and a U.S. Holder that is a corporation should
consult its own financial advisor, legal counsel, or accountant regarding the
dividends received deduction.



Disposition of Common Shares



A U.S. Holder will recognize gain or loss on the sale or
other taxable disposition of Common Shares in an amount equal to the difference,
if any, between (a) the amount of cash plus the fair market value of any
property received and (b) such U.S. Holders tax basis in the Common Shares
sold or otherwise disposed of.  Any such gain or loss generally will be
capital gain or loss, which will be long-term capital gain or loss if the Common
Shares are held for more than one year.  Gain or loss recognized by a U.S.
Holder on the sale or other taxable disposition of Common Shares generally will
be treated as "U.S. source" for purposes of applying the U.S. foreign tax credit
rules.   (See more detailed discussion at "Foreign Tax Credit"
below).



Preferential tax rates apply to long-term capital gains
of a U.S. Holder that is an individual, estate, or trust.  There are
currently no preferential tax rates for long-term capital gains of a U.S. Holder
that is a corporation.  Deductions for capital losses are subject to
significant limitations under the Code.



Foreign Tax Credit



A U.S. Holder who pays (whether directly or through
withholding) Canadian income tax with respect to dividends paid on the Common
Shares generally will be entitled, at the election of such U.S. Holder, to
receive either a deduction or a credit for such Canadian income tax paid.
 Generally, a credit will reduce a U.S. Holders U.S. federal income tax
liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S.
Holders income subject to U.S. federal income tax.  This election is made
on a year-by-year basis and applies to all foreign taxes paid (whether directly
or through withholding) by a U.S. Holder during a year.



Complex limitations apply to the foreign tax credit,
including the general limitation that the credit cannot exceed the proportionate
share of a U.S. Holders U.S. federal income tax liability that such U.S.
Holders "foreign source" taxable income bears to such U.S. Holders worldwide
taxable income.  In applying this limitation, a U.S. Holders various items
of income and deduction must be classified, under complex rules, as either
"foreign source" or "U.S. source."  In addition, this limitation is
calculated separately with respect to specific categories of income (including
"passive income," "high withholding tax interest," "financial services income,"
"general income," and certain other categories of income).  Dividends paid
by the Company generally will constitute "foreign source" income and generally
will be categorized as "passive income" or, in the case of certain U.S. Holders,
"financial services income."  However, for taxable years beginning after
December 31, 2006, the foreign tax credit limitation categories are reduced to
"passive income" and "general income" (and the other categories of income,
including "financial services income," are eliminated).  The foreign tax
credit rules are complex, and each U.S. Holder should consult its own financial
advisor, legal counsel, or accountant regarding the foreign tax credit rules.



Information Reporting; Backup Withholding Tax



Payments made within the U.S., or by a U.S. payor or U.S.
middleman, of dividends on, and proceeds arising from certain sales or other
taxable dispositions of, Common Shares generally will be subject to information
reporting and backup withholding tax, at the rate of 28%, if a U.S. Holder
(a) fails to furnish such U.S. Holders correct U.S. taxpayer
identification number (generally on Form W-9), (b) furnishes an incorrect
U.S. taxpayer identification number, (c) is notified by the IRS that such
U.S. Holder has previously failed to properly report items subject to backup
withholding tax, or (d) fails to certify, under penalty of perjury, that
such U.S. Holder has furnished its correct U.S. taxpayer identification number
and that the IRS has not notified such U.S. Holder that it is subject to backup
withholding tax.  However, U.S. Holders that are corporations generally are
excluded from these information reporting and backup withholding tax rules.
 Any amounts withheld under the U.S. backup withholding tax rules will be
allowed as a credit against a U.S. Holders U.S. federal income tax liability,
if any, or will be refunded, if such U.S. Holder furnishes required information
to the IRS.  Each U.S. Holder should consult its own financial advisor,
legal counsel, or accountant regarding the information reporting and backup
withholding tax rules.



---

Additional Rules that May
Apply to U.S. Holders



If the Company is a "controlled foreign corporation" or a
"passive foreign investment company" (each as defined below), the preceding
sections of this summary may not describe the U.S. federal income tax
consequences to U.S. Holders of the acquisition, ownership, and disposition of
Common Shares.



Controlled Foreign Corporation



The Company generally will be a "controlled foreign
corporation" under Section 957 of the Code (a "CFC") if more than 50% of
the total voting power or the total value of the outstanding shares of the
Company is owned, directly or indirectly, by citizens or residents of the U.S.,
domestic partnerships, domestic corporations, domestic estates, or domestic
trusts (each as defined in Section 7701(a)(30) of the Code), each of which
own, directly or indirectly, 10% or more of the total voting power of the
outstanding shares of the Company (a "10% Shareholder").



If the Company is a CFC, a 10% Shareholder generally
will be subject to current U.S. federal income tax with respect to (a) such
10% Shareholders pro rata share of the "subpart F income" (as defined in
Section 952 of the Code) of the Company and (b) such
10% Shareholders pro rata share of the earnings of the Company invested in
"United States property" (as defined in Section 956 of the Code).  In
addition, under Section 1248 of the Code, any gain recognized on the sale
or other taxable disposition of Common Shares by a U.S. Holder that was a
10% Shareholder at any time during the five-year period ending with such
sale or other taxable disposition generally will be treated as a dividend to the
extent of the "earnings and profits" of the Company that are attributable to
such Common Shares.  If the Company is both a CFC and a "passive foreign
investment company" (as defined below), the Company generally will be treated as
a CFC (and not as a "passive foreign investment company") with respect to any
10% Shareholder.



The Company does not believe that it has previously been,
or currently is, a CFC.  However, there can be no assurance that the
Company will not be a CFC for the current or any future taxable year.



Passive Foreign Investment Company



The Company generally will be a "passive foreign
investment company" under Section 1297 of the Code (a "PFIC") if, for a
taxable year, (a) 75% or more of the gross income of the Company for such
taxable year is passive income or (b) 50% or more of the assets held by the
Company either produce passive income or are held for the production of passive
income, based on the fair market value of such assets (or on the adjusted tax
basis of such assets, if the Company is not publicly traded and either is a
"controlled foreign corporation" or makes an election).  "Passive income"
includes, for example, dividends, interest, certain rents and royalties, certain
gains from the sale of stock and securities, and certain gains from commodities
transactions.



For purposes of the PFIC income test and asset test
described above, if the Company owns, directly or indirectly, 25% or more of the
total value of the outstanding shares of another foreign corporation, the
Company will be treated as if it (a) held a proportionate share of the
assets of such other foreign corporation and (b) received directly a
proportionate share of the income of such other foreign corporation.  In
addition, for purposes of the PFIC income test and asset test described above,
"passive income" does not include any interest, dividends, rents, or royalties
that are received or accrued by the Company from a "related person" (as defined
in Section 954(d)(3) of the Code), to the extent such items are properly
allocable to the income of such related person that is not passive income.



The Company believes that it was a PFIC for the taxable
year ended December 31, 2004, and expects that it will be a PFIC for the taxable
year ending December 31, 2005.  Whether the Company will, in fact, be a
PFIC for the taxable year ending December 31, 2005 depends on the assets and
income of the Company over the course of the taxable year ending December 31,
2005 and, as a result, cannot be predicted with certainty as of the date of this
Annual Report.  In addition, there can be no assurance that the IRS will
not challenge the determination made by the Company concerning its PFIC status
or that the Company will not be a PFIC for the current or any future taxable
year.



---



Default PFIC Rules Under
Section 1291 of the Code



If the Company is a PFIC, the U.S. federal
income tax consequences to a U.S. Holder of the acquisition, ownership, and
disposition of Common Shares will depend on whether such U.S. Holder makes an
election to treat the Company as a "qualified electing fund" or "QEF" under
Section 1295 of the Code (a "QEF Election") or a mark-to-market election
under Section 1296 of the Code (a "Mark-to-Market Election").  A U.S.
Holder that does not make either a QEF Election or a Mark-to-Market Election
will be referred to in this summary as a "Non-Electing U.S. Holder."



A Non-Electing U.S. Holder will be subject
to the rules of Section 1291 of the Code with respect to (a) any gain
recognized on the sale or other taxable disposition of Common Shares and
(b) any excess distribution paid on the Common Shares.  A distribution
generally will be an "excess distribution" to the extent that such distribution
(together with all other distributions received in the current taxable year)
exceeds 125% of the average distributions received during the three preceding
taxable years (or during a U.S. Holders holding period for the Common Shares,
if shorter).



Under Section 1291 of the Code, any
gain recognized on the sale or other taxable disposition of Common Shares, and
any excess distribution paid on the Common Shares, must be ratably allocated to
each day in a Non-Electing U.S. Holders holding period for the Common Shares.
 The amount of any such gain or excess distribution allocated to prior
years of such Non-Electing U.S. Holders holding period for the Common Shares
(other than years prior to the first taxable year of the Company beginning after
December 31, 1986 for which the Company was not a PFIC) will be subject to U.S.
federal income tax at the highest tax applicable to ordinary income in each such
prior year.  A Non-Electing U.S. Holder will be required to pay interest on
the resulting tax liability for each such prior year, calculated as if such tax
liability had been due in each such prior year.  Such a Non-Electing U.S.
Holder that is not a corporation must treat any such interest paid as "personal
interest," which is not deductible.  The amount of any such gain or excess
distribution allocated to the current year of such Non-Electing U.S. Holders
holding period for the Common Shares will be treated as ordinary income in the
current year, and no interest charge will be incurred with respect to the
resulting tax liability for the current year.



If the Company is a PFIC for any taxable
year during which a Non-Electing U.S. Holder holds Common Shares, the Company
will continue to be treated as a PFIC with respect to such Non-Electing U.S.
Holder, regardless of whether the Company ceases to be a PFIC in one or more
subsequent years.  A Non-Electing U.S. Holder may terminate this deemed
PFIC status by electing to recognize gain (which will be taxed under the rules
of Section 1291 of the Code discussed above) as if such Common Shares were
sold on the last day of the last taxable year for which the Company was a PFIC.



QEF Election



A U.S. Holder that makes a QEF Election
generally will not be subject to the rules of Section 1291 of the Code
discussed above.  However, a U.S. Holder that makes a QEF Election will be
subject to U.S. federal income tax on such U.S. Holders pro rata share of
(a) the net capital gain of the Company, which will be taxed as long-term
capital gain to such U.S. Holder, and (b) and the ordinary earnings of the
Company, which will be taxed as ordinary income to such U.S. Holder.
 Generally, "net capital gain" is the excess of (a) net long-term
capital gain over (b) net short-term capital loss, and "ordinary earnings"
are the excess of (a) "earnings and profits" over (b) net capital
gain.  A U.S. Holder that makes a QEF Election will be subject to U.S.
federal income tax on such amounts for each taxable year in which the Company is
a PFIC, regardless of whether such amounts are actually distributed to such U.S.
Holder by the Company.  However, a U.S. Holder that makes a QEF Election
may, subject to certain limitations, elect to defer payment of current U.S.
federal income tax on such amounts, subject to an interest charge.  If such
U.S. Holder is not a corporation, any such interest paid will be treated as
"personal interest," which is not deductible.



A U.S. Holder that makes a QEF Election
generally (a) may receive a tax-free distribution from the Company to the
extent that such distribution represents "earnings and profits" of the Company
that were previously included in income by the U.S. Holder because of such QEF
Election and (b) will adjust such U.S. Holders tax basis in the Common
Shares to reflect the amount included in income or allowed as a tax-free
distribution because of such QEF Election.  In addition, a U.S. Holder that
makes a QEF Election generally will recognize capital gain or loss on the sale
or other taxable disposition of Common Shares.



---



The procedure for making a QEF Election,
and the U.S. federal income tax consequences of making a QEF Election, will
depend on whether such QEF Election is timely.  A QEF Election will be
treated as "timely" if such QEF Election is made for the first year in the U.S.
Holders holding period for the Common Shares in which the Company was a PFIC.
 A U.S. Holder may make a timely QEF Election by filing the appropriate QEF
Election documents at the time such U.S. Holder files a U.S. federal income tax
return for such first year.  However, if the Company was a PFIC in a prior
year, then in addition to filing the QEF Election documents, a U.S. Holder must
elect to recognize (a) gain (which will be taxed under the rules of
Section 1291 of the Code discussed above) as if the Common Shares were sold
on the qualification date or (b) if the Company was also a CFC, such U.S.
Holders pro rata share of the post-1986 "earnings and profits" of the Company
as of the qualification date.  The "qualification date" is the first day of
the first taxable year in which the Company was a QEF with respect to such U.S.
Holder.  The election to recognize such gain or "earnings and profits" can
only be made if such U.S. Holders holding period for the Common Shares includes
the qualification date.  By electing to recognize such gain or "earnings
and profits," such U.S. Holder will be deemed to have made a timely QEF
Election.  In addition, under very limited circumstances, a U.S. Holder may
make a retroactive QEF Election if such U.S. Holder failed to file the QEF
Election documents in a timely manner.



A QEF Election will apply to the taxable
year for which such QEF Election is made and to all subsequent taxable years,
unless such QEF Election is invalidated or terminated or the IRS consents to
revocation of such QEF Election.  If a U.S. Holder makes a QEF Election
and, in a subsequent taxable year, the Company ceases to be a PFIC, the QEF
Election will remain in effect (although it will not be applicable) during those
taxable years in which the Company is not a PFIC.  Accordingly, if the
Company becomes a PFIC in another subsequent taxable year, the QEF Election will
be effective and the U.S. Holder will be subject to the QEF rules described
above during any such subsequent taxable year in which the Company qualifies as
a PFIC.  In addition, the QEF Election will remain in effect (although it
will not be applicable) with respect to a U.S. Holder even after such U.S.
Holder disposes of all of such U.S. Holders direct and indirect interest in the
Common Shares.  Accordingly, if such U.S. Holder reacquires an interest in
the Company, such U.S. Holder will be subject to the QEF rules described above
for each taxable year in which the Company is a PFIC.



Each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the availability of,
and procedure for making, a QEF Election.  U.S. Holders should be aware
that there can be no assurance that the Company will satisfy record keeping
requirements that apply to a QEF, or that the Company will supply U.S. Holders
with information that such U.S. Holders require to report under the QEF rules,
in event that the Company is a PFIC and a U.S. Holder wishes to make a QEF
Election.



Mark-to-Market Election



A U.S. Holder may make a Mark-to-Market Election only if
the Common Shares are marketable stock.  The Common Shares generally will
be "marketable stock" if the Common Shares are regularly traded on (a) a
national securities exchange that is registered with the Securities and Exchange
Commission, (b) the national market system established pursuant to section
11A of the Securities and Exchange Act of 1934, or (c) a foreign securities
exchange that is regulated or supervised by a governmental authority of the
country in which the market is located, provided that (i) such foreign
exchange has trading volume, listing, financial disclosure, and other
requirements and the laws of the country in which such foreign exchange is
located, together with the rules of such foreign exchange, ensure that such
requirements are actually enforced and (ii) the rules of such foreign
exchange ensure active trading of listed stocks.



A U.S. Holder that makes a Mark-to-Market Election
generally will not be subject to the rules of Section 1291 of the Code
discussed above.  However, if a U.S. Holder makes a Mark-to-Market Election
after the beginning of such U.S. Holders holding period for the Common Shares
and such U.S. Holder has not made a timely QEF Election, the rules of
Section 1291 of the Code discussed above will apply to certain dispositions
of, and distributions on, the Common Shares.



---



A U.S. Holder that makes a Mark-to-Market Election will
include in ordinary income, for each taxable year in which the Company is a
PFIC, an amount equal to the excess, if any, of (a) the fair market value
of the Common Shares as of the close of such taxable year over (b) such
U.S. Holders tax basis in such Common Shares.  A U.S. Holder that makes a
Mark-to-Market Election will be allowed a deduction in an amount equal to the
lesser of (a) the excess, if any, of (i) such U.S. Holders adjusted
tax basis in the Common Shares over (ii) the fair market value of such
Common Shares as of the close of such taxable year or (b) the excess, if
any, of (i) the amount included in ordinary income because of such
Mark-to-Market Election for prior taxable years over (ii) the amount
allowed as a deduction because of such Mark-to-Market Election for prior taxable
years.



A U.S. Holder that makes a Mark-to-Market Election
generally also will adjust such U.S. Holders tax basis in the Common Shares to
reflect the amount included in gross income or allowed as a deduction because of
such Mark-to-Market Election.  In addition, upon a sale or other taxable
disposition of Common Shares, a U.S. Holder that makes a Mark-to-Market Election
will recognize ordinary income or loss (not to exceed the excess, if any, of
(a) the amount included in ordinary income because of such Mark-to-Market
Election for prior taxable years over (b) the amount allowed as a deduction
because of such Mark-to-Market Election for prior taxable years).



A Mark-to-Market Election applies to the taxable year in
which such Mark-to-Market Election is made and to each subsequent taxable year,
unless the Common Shares cease to be "marketable stock" or the IRS consents to
revocation of such election.  Each U.S. Holder should consult its own
financial advisor, legal counsel, or accountant regarding the availability of,
and procedure for making, a Mark-to-Market Election.



Other PFIC Rules



Under Section 1291(f) of the Code, the IRS has
issued proposed Treasury Regulations that, subject to certain exceptions, would
cause a U.S. Holder that had not made a timely QEF Election to recognize gain
(but not loss) upon certain transfers of Common Shares that would otherwise be
tax-deferred (e.g., gifts and exchanges pursuant to corporate reorganizations).
 However, the specific U.S. federal income tax consequences to a U.S.
Holder may vary based on the manner in which Common Shares are transferred.



Certain additional adverse rules will apply with respect
to a U.S. Holder if the Company is a PFIC, regardless of whether such U.S.
Holder makes a QEF Election.  For example under Section 1298(b)(6) of
the Code, a U.S. Holder that uses Common Shares as security for a loan will,
except as may be provided in Treasury Regulations, be treated as having made a
taxable disposition of such Common Shares.



The PFIC rules are complex, and each U.S. Holder should
consult its own financial advisor, legal counsel, or accountant regarding the
PFIC rules and how the PFIC rules may affect the U.S. federal income tax
consequences of the acquisition, ownership, and disposition of Common
Shares.



F.

Dividends and Paying Agents



Not applicable.





G.

Statements by Experts



Reference is made in this application to experts (i.e.
"qualified persons as defined in NI-43-101) statements by David Mehner, P.Geo.,
William Yeo, MAusIMM, PhD., and Phillip Hellman, FAIG, PhD., of Hellman &
Schofield, John Wyche, MAusIMM, MMICA, CPMin, of Australian Mine Design and
Development Corp., Michael Richard Holmes, MSAIMM, of Bateman Engineering Pty.
Ltd., John Greenslade, B.Ap.Sc., M.Eng., LL.B, P.Eng., President of the Company
and Donald Hunter, CP (Mining), C.Eng., of Hunter Mine Engineering Services Pty.
Ltd.



---

David Mehner – 233 Scenic Drive, Coldstream, British
Columbia, Canada



Mr. David Mehner holds a Bachelor of
Science (1976) and Master of Science (geology) (1982) from the University of
Manitoba.

He is a Member of the Association of
Professional Engineers and Geoscientists of British Columbia and a Fellow of the
Geological Association of Canada.



Mr. David Mehner is responsible for
the preparation of the technical report entitled an "Underground
Resource Calculation and Review", Boleo District dated
November 27, 2003, which is included in this application.  Mr. David Mehner
consented to the inclusion of the report in the form and context in which it is
included in this registration statement.



William Yeo – Level 4, 46 Edward Street, Brisbane QLD
4000, Australia



Mr. Yeo graduated with a BSc(Hons)
degree in geology from Oxford Polytechnic, UK in 1979 and a PhD. In geochemistry
and petrology from the University of Bristol, UK, in 1984.  He is a member
of the Australian institute of Mining and Metallurgy.



Phillip Hellman, - Suite 6, 3 Trelawney Street, Eastwood,
NSW 2122, Australia



Mr Hellman graduated with a BSC
(Hons) degree in geology from the University of Sydney in 1973 and obtained a
PhD in geochemistry and petrology from Macquarie University in 1979 and Diploma
of Education from Sydney University in 1974.  He is a fellow of the
Australian Institute of Geoscientists.



Mr. Yeo and Mr. Hellman co-authored
and were responsible for the preparation of the technical report titled
"Resource Estimate Study, the El Boleo Copper-Cobalt-Zinc Deposit" dated March
2005, which is included in this application. In addition, the resource data
contained within this report was also included within the "Bateman Engineering
Preliminary Assessment of the El Boleo Copper-Cobalt Project" assembled and
partially authored by Bateman Engineering Pty. Ltd..  Mr. Yeo and Mr.
Hellman consented to the inclusion of the report in the form and context in
which it is included in this registration statement.



John Wyche - Level 4, 46 Edward Street, Brisbane QLD
4000, Australia

Mr. Wyche graduated with a BE(Hons)
degree in mining from Queensland University, Australia, in 1981.  He also
obtained a Bcomm. from Queensland University in 1990.  He is a member of
the Australian Institute of Mining and Metallurgy and a member of the Mineral
Industry Consultants Association (Aust) and a Chartered Practising Engineer
(Mining).



He was responsible for the
preparation of the mining concepts and preliminary mine design that are
incorporated in the Hunter Report and in the Bateman Engineering Preliminary
Assessment of the El Boleo Copper-Cobalt Project" assembled by and partially
authored by Bateman Engineering Pty. Ltd. Mr. Wyche consented to the inclusion
of the report in the form and context in which it is included in this
registration statement.



Michael Richard Holmes – Level 8, 301 Coronation Drive,
Milton, QLD 4064, Australia





Mr. Holmes graduated with a BSc
Engineering degree in Metallurgy from the University of Witwatersrand, RSA in
1985. He obtained a BComm. from UNISA in 1994 and a MBA from the Wits Business
Scholl in 1997.  He is a Member of the South African Institute of Mining
and Metallurgy (Membership No. 40334) and is a registered Professional Engineer
with ECSA- the Engineering Council of South Africa (Pr. Eng No. 910429).



He was responsible for various inputs
to the technical report titled "Preliminary Assessment of the El Boleo
Copper-Cobalt Project" dated August 12, 2005., including all metallurgical input
as well as the capital and operating costs projections. Mr. Holmes consented to
the inclusion of the report in the form and context in which it is included in
this registration statement.



---

Donald Hunter – 9 Wildwood Street, Kenmore Hills, QLD,
4069, Australia.



Mr. Hunter graduated from the Royal
School of Mines, Imperial College of Science & Technology, university of
London, with a Bachelor of Science Degree in Mining Engineering in 1973. He is a
Fellow of the Australasian Institute of Mining and Metallurgy and a Member of
the Institution of Materials, Metallurgy and Mining, an Associate of the Royal
School of Mines, a Chartered Professional (Mining) as recognized by the AusIMM
and a Chartered Engineer as recognized by the IOMMM.



He was responsible for the
preparation of the technical report entitled "A Review of the Potential to
develop a Mining Operation in the Boleo District together with Recommendations
for Future Project Development" dated June 15, 2005. In addition he provided the
independent technical review of the preliminary economic assessment contained
within the Bateman Engineering Preliminary Assessment. Mr. Hunters consented to
the inclusion of the report in the form and context in which it is included in
this registration statement.



John Greenslade – 2350 – 1177 West Hastings Street,
Vancouver, British Columbia, Canada V6E 2K3



Mr. Greenslade graduated from the
University of British Columbia ("UBC") with a Bachelor of Applied Science
(Mineral Engineering) in 1972. He received a Masters of Engineering Degree in
1975 from UBC  and a Bachelor of Laws from UBC in 1978. He is a Barrister
and Solicitor and member of the Law Society of British Columbia. He is also a
member of the Canadian Institute of Mining, Metallurgy and Petroleum, and a
Registered Professional Engineer in the Province of British Columbia.



He was responsible for the
preparation of the preliminary economic assessment contained within the Bateman
Engineering Preliminary Assessment.  As he is President of the Company and
accordingly not "independent", Donald Hunter was retained to review the
preliminary economic assessment and provide the necessary independence under
N.I. 43-101. Mr. Greenslade consented to the inclusion of the report in the form
and context in which it is included in this registration statement.



Staley Okada & Partners, Chartered Accountants,
3rd Floor, 10190 – 152A Street, Surrey, British Columbia ("Staley
Okada") is the Companys independent Auditor.  Staley, Okada & Partners
are members of the Institute of Chartered Accountants of British Columbia and
are properly registered with the United States Public Company Accounting
Oversight Board and Canadian Public Accountability Board.



H.

Documents on
Display



All documents referred to in this Form 20-F
are available for inspection at the office of the Company, listed below, during
normal office hours.



Baja Mining Corp.

2350 - 1177 West
Hastings Street

Vancouver, British
Columbia

V6E 2K3  Canada



I.

Subsidiary
Information



Not Applicable.



---

ITEM 11.  QUANTITATIVE AND
QUALITATIVE DISCLOSURE ABOUT MARKET RISK



The Company has no publicly or privately traded
securities or market instruments aside from its own equity.  The only
publicly traded securities are the Common Shares of the Company, which trade on
the TSX Venture Exchange.  The Company has no debt instruments subject to
interest payments, sales contracts, swaps, derivatives, or forward agreements or
contracts, or inventory.



The Company has no currency or commodity contracts, and
the Company does not trade in such instruments.



The Company has no cash flow or revenue from operations.
 The Companys operating funds are currently provided by equity issues.
 It has to date always raised funds in Canadian dollars although it incurs
the majority of its expenditures in Canadian and United States dollars and
Mexican pesos.  The shares of the Company are listed for trading on the TSX
Venture Exchange and accordingly its ability to raise equity funds and the price
at which such are sold is directly related to the activity and price of the
Companys shares on such exchange.  In addition, as the Company incurs
expenditures in various currencies it has exposure to foreign currency gains or
losses.  The Company does not currently enter into any contracts or
arrangements to hedge against currency fluctuations.



The Company has no debt instruments, which are subject to
interest payments.



The Company periodically accesses the capital markets
with the issuance of new shares to fund operating expenses, and the Company does
not maintain significant cash reserves over periods of time that could be
materially affected by fluctuations in interest rates or foreign exchange
rates.



ITEM 12.  DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES



A.

Debt Securities



Not applicable.



B.

Warrants and Rights



Not applicable.



C.

Other
Securities



Not applicable.



D.

American
Depositary Shares



Not applicable.





---



PART 11



Item
13.

Defaults, Dividend
Arrearages and Delinquencies.



None



Item
14.

Material
Modifications to the Rights of Security Holders and Use of Proceeds.



Not Applicable



Item
15.

Controls and
Procedures



Not Applicable



Item
16.

[Reserved]



Item
16A.

Audit Committee
Financial Expert



Not Applicable



Item
16B.

Code of
Ethics



Not Applicable



Item
16C.

Principal
Accountant Fees and Services



Not Applicable



Item
16D.

Exemptions from
the Listing Standards for Audit Committees.



Not Applicable



Item
16E.

Purchases of
Equity Securities by the Issuer and Affiliated Purchasers.



Not Applicable



---





PART III





ITEM 17.  FINANCIAL
STATEMENTS



The Company's financial statements are
stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian
Generally Accepted Accounting Principles (GAAP).



The following financial statements and
notes thereto required under ITEM #17 are attached hereto and found immediately
preceding the signature page of this Form 20-F Registration:



Management prepared
unaudited financial statements at March 31, 2006. Audited Financial
Statements for years ended December 31, 2005, December 31, 2004 and December 31, 2003.
2002.



ITEM 18.  FINANCIAL STATEMENTS



See "Item 17 Financial Statements"





ITEM 19.  EXHIBITS



(a)

Audited Financial Statements for the years ened December 31, 2005, 2004 and 2003.
and consent of Auditor, Staley Okada



(b)

Management prepared
Financial Statements and Management Discussion and Analysis for the period ended
March 31, 2006.



1.1(1)

Certificate of
Incorporation



1.2(1)

Memorandum of
Articles



4.1(1)

Letter Agreement among
the Mintec Shareholders and the Company dated December 2, 2003 and subsequently
amended by letter agreements dated February 12, 2004 and March 8, 2004;



4.2(1)

Value Escrow Agreement
dated the 30th day of January 2004 with Computershare Trust Company of
Canada;



4.3(1)

Pooling Agreement with
Canaccord International, the Company and Computershare Trust Company dated the
30th day of January 2004;



4.4

License Agreement dated
September 3, 2004 with Commonwealth Scientific & Industrial Research
Organization ("Commonwealth Scientific and Industrial Research Organization")
granting the Company a non-exclusive royalty free licence to certain
intellectual property owned by Commonwealth Scientific and Industrial Research
Organization relating to synergistic direct solvent extraction for the recovery
of coabalt, zinc and copper from leach solutions.





4.5(1)

Agreement with
Endeavour Financial International Limited dated March 15, 2005 to provide
general corporate financial advice with respect to the financing and development
of the Boleo copper/cobalt/zinc Project, Baja California Sur, Mexico;



4.6(1)

Stock Option Plan
approved by shareholders on October 30 2003, by the TSX Venture Exchange on
November 27, 2003, and re-approved by shareholders on June 2, 2005 and by the
TSX Venture Exchange on September 29, 2005.



4.7(1)

Sublease agreement
dated March 15, 2005, between the Company and Sierra Systems Group Limited.



4.8(1)

Bateman Engineering
Feasibility Study Agreement dated August 31, 2004.



4.9(1)

Services Agreement
effective as of the 22nd day of April 2004 with Optimum Project
Services Inc., William Murray, Kendron Petroleum Management Services Inc. and
John Greenslade.



4.10(1)

Consulting Agreement
with Gaston Reymenants.



4.11(1)

Marketing and
Communications Agreement with Scott F. Gibson & Company



4.12(1)

Investor Relation
services agreement with Robert Douglas Corporation.





8.

List of
Subsidiaries



Mintec Processing Ltd.,
a British Columbia Company

Minera y Metalurgica del Boleo S.A. de C.V., a Mexican company



11.1

Consent of Don Hunter, FAusIMM, MIOM,CPEng, C.Eng., related to
independent technical report (the "Hunter Report") on the Boleo property
entitled "Independent Technical Report on the Boleo Copper Cobalt Project
located in Baja California Sur, Mexico - A Review of the Potential to Develop a
Mining Operation in the Boleo District together with Recommendations for Further
Project Development" and the "Preliminary Economic Assessment" contained in the
Bateman Engineering Preliminary Assessment.

11.2

Consent of David Mehner ("David Mehner"), P.Geo., related to
report entitled an "Underground Resource Calculation and Review, Boleo
District"

11.3

Consent of William Yeo, MAusIMM, PhD., related to technical report
dated August 12, 2005, entitled "Baja Mining Corporation – A Preliminary
Assessment of the El Boleo Copper Cobalt Project"

11.4

Consent of Hellman & Schofield Pty. Ltd. of Sydney, Australia,
and Phillip Hellman, FAIG, PhD., of Hellman & Schofield, related to
technical report dated August 12, 2005, entitled "Baja Mining Corporation – A
Preliminary Assessment of the El Boleo Copper Cobalt Project" and report dated
March 2005 prepared by Hellman & Schofield, entitled "Resource Estimate
Study The El Boleo Copper-Cobalt-Zinc Deposit, Baja California, Mexico

11.5

Consent of John Wyche, MAusIMM, MMICA,CPMin, of Australian Mine
Design and Development, related to technical report dated August 12, 2005,
entitled "Baja Mining Corporation – A Preliminary Assessment of the El Boleo
Copper Cobalt Project

11.6

Consent of John W.
Greenslade related to the technical report titled "Baja Mining Corp. – A
Preliminary Assessment of the El Boleo Copper Cobalt Project" dated August 12,
2005.



11.7

Consent of Michael
Holmes related to the technical report titled "Baja Mining Corp. – A Preliminary
Assessment of the El Boleo Copper Cobalt Project" dated August 12, 2005.



23.1

Consent of
 Staley, Okada & Partners



12.1.

Section 302
Certification of the CEO



12.2.

Section 302
Certification of the CFO



13.1.

Section 906
Certification of the CEO



13.2.

Section 906
Certification of the CFO







(1)  Previously filed as an
exhibit to Form 20-F filed on December 22, 2005 (SEC File Number 000-51690) and
incorporated herein by reference.



(2)Previously filed
as an exhibit to Form 20-F/A filed on February 16, 2006 (SEC File Number
000-51690) and incorporated herein by reference.























---







BAJA MINING CORP.



Consolidated Financial Statements

December 31, 2005 and 2004



















---



|                             | 
|---------------------------- | 
|[finalfinancialdec05002.gif] | 



Report of
Independent Registered Public Accounting Firm[finalfinancialdec05004.gif]





To the Shareholders of Baja Mining Corp.:



We
have audited the accompanying consolidated balance sheets of Baja Mining Corp.
(the "Company") as at December 31, 2005 and 2004 and the related consolidated
statements of loss and deficit and cash flows for each of the years in the
three-year period ended December 31, 2005.  These financial statements are
the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.



We
conducted our audits in accordance with the Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement.  The Company is not required to have, nor
were we engaged to perform an audit of its internal control over financial
reporting.  Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial
reporting.  Accordingly, we express no such opinion.  An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.



In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 2005 and 2004, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2005, in
accordance with Canadian generally accepted accounting principles.



"Staley, Okada & Partners"



|                                                                          |                         
|------------------------------------------------------------------------- | ------------------------
|Vancouver, B.C.                                                           | STALEY, OKADA & PARTNERS
|March 21, 2006, except as to Note 12a, which
      is as of April 6, 2006 | CHARTERED ACCOUNTANTS   







Comments By
Auditors For U.S. Reader On Canada - U.S. Reporting Conflict





In the
United States, reporting standards for auditors require the addition of an
explanatory paragraph (following the opinion paragraph) when financial
statements are affected by future events, the outcome of which is
indeterminable.  As discussed in Note 1, the Companys continued existence
as a going concern is dependent upon the future economic success of its
exploration and development activities, the Companys ability to continue to
secure adequate financing and the Company achieving a positive cash flow and
profitable operations.  Our report to the shareholders dated March 21,
2006, except as to Note 12a, which is as of April 6, 2006, is expressed in
accordance with Canadian reporting standards, which do not require a reference
to such going concern considerations in the auditors report when the situation
is adequately disclosed in the financial statements.



"Staley, Okada & Partners"



|                                                                          |                         
|------------------------------------------------------------------------- | ------------------------
|Vancouver, B.C.                                                           | STALEY, OKADA & PARTNERS
|March 21, 2006, except as to Note 12a, which
      is as of April 6, 2006 | CHARTERED ACCOUNTANTS   





[finalfinancialdec05006.gif]



---





Baja Mining Corp.

Consolidated Balance Sheets

As at December 31



|                                                   |   |              |   |             
|-------------------------------------------------- | - | ------------ | - | ------------
|ASSETS                                             |   | 2005         |   | 2004        
|                                                   |   |              |   |             
|Current assets                                     |   |              |   |             
|Cash and cash equivalents                          | $ | 2,760,084    | $ | 5,248,382   
|Accounts receivable                                |   | 216,657      |   | 176,981     
|Due from related party (Note 7b)                   |   | 43,884       |   | 34,990      
|                                                   |   |              |   |             
|                                                   |   | 3,020,625    |   | 5,460,353   
|                                                   |   |              |   |             
|Mineral properties and mining concessions (Note 4) |   | 757,793      |   | 757,793     
|                                                   |   |              |   |             
|Property, plant and equipment (Note 5)             |   | 598,714      |   | 136,861     
|                                                   |   |              |   |             
|                                                   | $ | 4,377,132    | $ | 6,355,007   
|                                                   |   |              |   |             
|                                                   |   |              |   |             
|LIABILITIES                                        |   |              |   |             
|                                                   |   |              |   |             
|Current liabilities                                |   |              |   |             
|Accounts payable and accrued liabilities           | $ | 392,129      | $ | 1,161,195   
|Due to related parties (Note 7c)                   |   | 61,186       |   | 47,003      
|                                                   |   |              |   |             
|                                                   |   | 453,315      |   | 1,208,198   
|                                                   |   |              |   |             
|SHAREHOLDERS EQUITY                               |   |              |   |             
|                                                   |   |              |   |             
|Share capital (Note 6)                             |   | 45,406,370   |   | 40,582,163  
|Contributed surplus (Note 6g)                      |   | 2,339,721    |   | 1,390,189   
|Deficit                                            |   | (43,822,274) |   | (36,825,543)
|                                                   |   |              |   |             
|                                                   |   | 3,923,817    |   | 5,146,809   
|                                                   |   |              |   |             
|                                                   | $ | 4,377,132    | $ | 6,355,007   
|                                                   |   |              |   |             
|Commitments(Note 10)                               |   |              |   |             





ON BEHALF OF THE BOARD:





John W. Greenslade, Director





Robert L. Mouat, Director



See accompanying Notes to the Consolidated Financial Statements





---







Baja Mining Corp.

Consolidated Statements of Loss and Deficit

For the years ended December 31



|                                                         |   |              |   |              |   |             
|-------------------------------------------------------- | - | ------------ | - | ------------ | - | ------------
|                                                         |   | 2005         |   | 2004         |   | 2003        
|                                                         |   |              |   |              |   |             
|Exploration expenses                                     |   |              |   |              |   |             
|Camp, general and travel                                 | $ | 471,457      | $ | 230,530      | $ | 22,510      
|Concession and claim fees                                |   | 184,412      |   | 163,481      |   | 102,014     
|Drilling                                                 |   | 706,062      |   | 128,071      |   | -           
|Feasibility studies                                      |   | 1,206,270    |   | 507,930      |   | -           
|Geological and environmental                             |   | 425,153      |   | 238,738      |   | 881         
|Metallurgical                                            |   | 279,165      |   | 64,533       |   | 138,617     
|Pilot plant costs                                        |   | 705,870      |   | 1,364,224    |   | -           
|Professional and consulting fees
Related Party (Note 7a) |   | 329,112      |   | 211,884      |   | 71,420      
|Other                                                    |   | 438,421      |   | 337,925      |   | 46,256      
|Stock-based compensation expense (Note 6f)               |   | 415,515      |   | 578,382      |   | -           
|                                                         |   | 5,161,437    |   | 3,825,698    |   | 381,698     
|General and administrative expenses                      |   |              |   |              |   |             
|Amortization                                             |   | 137,532      |   | 19,864       |   | 8,311       
|Audit and legal fees                                     |   | 271,839      |   | 51,653       |   | 50,398      
|Filing, exchange and transfer agent fees                 |   | 48,758       |   | 40,110       |   | -           
|Interest and bank charges                                |   | 6,220        |   | 3,178        |   | 3,013       
|Management and consulting fees
Related party (Note 7a)   |   | 122,933      |   | 123,273      |   | -           
|Other                                                    |   | 101,302      |   | 50,467       |   | -           
|Office and general                                       |   | 73,663       |   | 42,348       |   | 7,926       
|Promotion, trade show and marketing                      |   | 159,988      |   | 187,049      |   | -           
|Rent                                                     |   | 133,946      |   | 70,595       |   | -           
|Stock-based compensation expense (Note 6f)               |   | 538,515      |   | 817,324      |   | -           
|Telephone                                                |   | 38,734       |   | 20,860       |   | 3,029       
|Travel                                                   |   | 35,810       |   | 102,345      |   | 5,622       
|Wages and subcontract                                    |   | 184,578      |   | 116,162      |   | 16,594      
|                                                         |   | 1,853,818    |   | 1,645,228    |   | 94,893      
|Loss before other items                                  |   | (7,015,255)  |   | (5,470,926)  |   | (476,591)   
|Foreign exchange gain (loss)                             |   | (7,616)      |   | (15,040)     |   | 72,562      
|Interest income and other                                |   | 26,140       |   | 94,281       |   | -           
|Net loss for the year                                    |   | (6,996,731)  |   | (5,391,685)  |   | (404,029)   
|                                                         |   |              |   |              |   |             
|Deficit - beginning of year                              |   | (36,825,543) |   | (31,433,858) |   | (31,029,829)
|                                                         |   |              |   |              |   |             
|Deficit - end of year                                    | $ | (43,822,274) | $ | (36,825,543) | $ | (31,433,858)
|                                                         |   |              |   |              |   |             
|Basic and diluted loss per share for the year            | $ | (0.11)       | $ | (0.10)       | $ | (0.01)      
|                                                         |   |              |   |              |   |             
|Weighted average number of shares outstanding            |   | 64,643,324   |   | 54,172,505   |   | 40,000,000  





See accompanying Notes to the Consolidated Financial Statements





---







Baja Mining Corp.

Consolidated Statements of Cash Flows

For the years ended December 31

|                                                                              |   |             |   |             |   |          
|----------------------------------------------------------------------------- | - | ----------- | - | ----------- | - | ---------
|                                                                              |   | 2005        |   | 2004        |   | 2003     
|                                                                              |   |             |   |             |   |          
|Operating activities                                                          |   |             |   |             |   |          
|Net loss for the year                                                         | $ | (6,996,731) | $ | (5,391,685) | $ | (404,029)
|Items not involving cash:                                                     |   |             |   |             |   |          
|Amortization                                                                  |   | 137,532     |   | 19,864      |   | 8,311    
|Consulting fees settled by sale of subsidiary                                 |   | -           |   | 27,000      |   | -        
|Stock-based compensation expense                                              |   | 954,030     |   | 1,395,706   |   | -        
|                                                                              |   | (5,905,169) |   | (3,949,115) |   | (395,718)
|Net changes in working capital balances                                       |   |             |   |             |   |          
|Accounts receivable and advances                                              |   | (39,676)    |   | (106,196)   |   | (42,382) 
|Accounts payable and accrued liabilities                                      |   | (769,066)   |   | 1,065,213   |   | 18,046   
|                                                                              |   | (6,713,911) |   | (2,990,098) |   | (420,054)
|Investing activities                                                          |   |             |   |             |   |          
|Advances (repayments) of amounts due from related parties                     |   | (8,894)     |   | (34,990)    |   | -        
|Proceeds of merger                                                            |   | -           |   | 81,339      |   | -        
|Acquisition of concessions                                                    |   | -           |   | -           |   | (1,272)  
|Acquisition of property, plant and equipment                                  |   | (599,385)   |   | (104,392)   |   | -        
|                                                                              |   | (608,279)   |   | (58,043)    |   | (1,272)  
|Financing activities                                                          |   |             |   |             |   |          
|Advances (repayments) of amounts due to related parties                       |   | 14,183      |   | (711,856)   |   | 463,677  
|Net proceeds from issuance of common shares                                   |   | 4,819,709   |   | 8,952,375   |   | -        
|                                                                              |   | 4,833,892   |   | 8,240,519   |   | 463,677  
|                                                                              |   |             |   |             |   |          
|Increase (decrease) in cash and equivalents                                   |   | (2,488,298) |   | 5,192,378   |   | 42,351   
|                                                                              |   |             |   |             |   |          
|Cash and equivalents - beginning of year                                      |   | 5,248,382   |   | 56,004      |   | 13,653   
|                                                                              |   |             |   |             |   |          
|Cash and equivalents - end of year                                            | $ | 2,760,084   | $ | 5,248,382   | $ | 56,004   
|                                                                              |   |             |   |             |   |          
|Supplemental Schedule of Non-Cash Investing and Financing Activities(Note 11) |   |             |   |             |   |          























See accompanying Notes to the Consolidated Financial Statements





---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





1.

Nature and continuance of operations

Baja Mining Corp. (the Company), formerly First Goldwater Resources Inc., was incorporated on July 15, 1985 under the Company Act of British Columbia. The Company is a reporting issuer in British Columbia and trades on the TSX Venture Exchange. Effective April 20, 2004, the Company completed a business combination with Mintec International Corporation through a reverse takeover.

The Company is in the process of exploring its resource properties in Mexico and is considered to be in the exploration stage.

These financial statements are presented in Canadian dollars and have been prepared in accordance with Canadian generally accepted accounting principles applicable to a going concern which assume that the Company will realize its assets and discharge its liabilities in the normal course of business. The Companys ability to meet its obligations and maintain its operations is contingent upon successful completion of additional financing arrangements and/or the ability to generate profitable operations in the future.



2

Reverse takeover of Mintec International Corporation



Effective April 20, 2004, pursuant to a share exchange agreement, the Company acquired all the issued and outstanding shares of Mintec International Corporation (Mintec) by issuing 40,000,000 common shares of the Company. The transaction resulted in a change of control and therefore, the transaction is treated as a reverse takeover for accounting purposes whereby Mintec is identified as the acquirer. Accounting for the business combination as reverse takeover results in the following:



(a)

The consolidated financial statements of the combined entities are issued under the legal parent (Baja Mining Corp.) but are considered a continuation of the financial statements of the legal subsidiary, Mintec.

(b)

Since Mintec is deemed to be the acquirer for accounting purposes, its assets and liabilities are included in the consolidated financial statements at their historical carrying values.

(c)

The fair value of net assets acquired were as follows:



|                  |   |         
|----------------- | - | --------
|Total assets      | $ | 110,167 
|Total liabilities |   | (63,796)
|                  |   |         
|                  | $ | 46,371  









---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





3

Summary of Significant Accounting Policies



(a)

Principles of consolidation



These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  The Companys significant subsidiary is Mintec International Corporation and its wholly owned subsidiary, Minera y Metalurgica Del Boleo, S.A de C.V., which has been accounted for using the purchase method.  All significant inter-company transactions and balances have been eliminated.



(b)

Resource interests



The Company is in the process of developing its mineral properties and has capitalized the acquisition costs for its property rights and mining concessions. The Company has adopted the policy of expensing mineral exploration costs incurred prior to the completion of an economic feasibility study.



Capitalized costs for a producing prospect are amortized on a unit-of-production method based on the estimated life of ore reserves, while capitalized costs for prospects abandoned are written off.



Management periodically reviews the estimated future operating cash flows of its mining operations in determining if adjustments to the carrying values of its mining assets are required to record those assets at the net recoverable amount. The ultimate recoverability of the amounts capitalized for the mining assets is dependent upon the delineation of economically recoverable ore reserves, the Companys ability to obtain the necessary financing to complete their development and realize profitable production or proceeds from the disposition thereof. Managements estimates of recoverability of the Companys investment in the mining assets have been based on best estimates. However, it is reasonably possible that changes could occur in the near term, which could adversely affect managements estimates and may result in further write-downs of capitalized carrying values.



Ownership in mineral properties involves certain inherent risks due to the difficulties of determining and obtaining clear title to claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristics of many mineral properties. The Company has investigated ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.









---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003







3

Summary of Significant Accounting Policies  (contd)



(c)

Property, plant and equipment and amortization

Property, plant and equipment are recorded at cost. Amortization of assets held in Canada is calculated using the declining balance method at the following annual rates:



|                               |     
|------------------------------ | ----
|Office equipment and furniture | 20% 
|Leasehold improvements         | 20% 
|Computer equipment             | 30% 
|Vehicles                       | 30% 
|Software                       | 100%



Amortization of assets held in Mexico is calculated using the straight-line method at the following annual rates:



|                               |    
|------------------------------ | ---
|Warehouse                      | 5% 
|Office equipment and furniture | 10%
|Machinery and equipment        | 25%
|Transportation equipment       | 25%
|Computer equipment             | 30%
|Test mining equipment          | 50%



One-half the normal rate is applied in the year of acquisition.

(d)

Management estimates

These consolidated financial statements have been prepared in accordance Canadian generally accepted accounting principles.  These principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results may differ from these estimates.



(e)

Fair market value of financial instruments

The Companys financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and amounts due to related parties. The fair value of these financial instruments approximates their carrying values, unless otherwise noted. The Company is not exposed to significant interest, currency or credit risks arising from these financial instruments, except for the currency risk (Note 3f).







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





3

Summary of Significant Accounting Policies  (contd)



(f)

Foreign currency translation and currency risk

Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates of exchange in effect at the date of the balance sheet. Non-monetary assets, liabilities and other items are translated at historical rates. Revenue and expenses are translated at average rates of exchange prevailing during the year. Exchange gains or losses arising from these translations are included in income of the year.



The Company operates internationally, which gives rise to the risk that cash flows may be adversely impacted by exchange rate fluctuations. The Company has not entered into foreign currency contracts to hedge its risk against foreign currency fluctuations.



As at December 31, 2005, the Company has the following foreign denominated financial instruments:



|                                               |                         |                       
|---------------------------------------------- | ----------------------- | ----------------------
|                                               | Foreign currency amount | Canadian dollar amount
|                                               |                         |                       
|Cash in United States Dollars                  | 243,579                 | 284,104               
|Cash in Mexican Pesos                          | 262,449                 | 28,791                
|Value added taxes recoverable in Mexican Pesos | 1,028,217               | 112,795               



(g)

Basic and diluted loss per share



Basic earnings per share are computed by dividing the loss for the year by the weighted average number of common shares outstanding during the year.  Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock.  The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the if converted method.  Fully diluted amounts are not presented when the effect of the computations are anti-dilutive due to the losses incurred.  Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.



(h)

Income taxes

The Company follows the asset and liability method of accounting for income taxes.  Under this method, current income taxes are recognized for the estimated income taxes payable for the current period.  Future income tax assets and liabilities are recognized for temporary differences between the tax and accounting basis of assets and liabilities as well as for the benefit of losses available to be carried forward to future years for tax purposes only if it is more likely than not that they can be realized.









---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





3

Summary of Significant Accounting Policies  (contd)



(i)

Cash and cash equivalents

Cash and cash equivalents include cash on hand, term deposits and short term highly liquid investments with the original term to maturity of three months or less, which are readily convertible to known amounts of cash and which, in the opinion of management, are subject to an insignificant risk of changes in value.



(j)

Stock based compensation

On January 1, 2004, the Company adopted the amended CICA Handbook Section 3870 Stock-based Compensation and Other Stock-based Payments. In terms of this amended standard, all stock-based awards made to employees and non-employees are measured and recognized using a fair value based method.  Compensation costs attributable to share options granted are measured at a fair value at the grant date and charged to operations over the vesting period. Consideration paid by the option holder, at the time options are exercised, is recorded as an increase to share capital.



(k)

Property option agreements



From time to time, the Company may acquire or dispose of properties pursuant to the terms of option agreements.  Due to the fact that options are exercisable entirely at the discretion of the option holder, amounts payable or receivable are not recorded.  Option payments are recorded as resource property costs or recoveries when the payments are made or received.



(l)

Asset retirement obligations



The recommendations of CICA Handbook Section 3110, Asset Retirement Obligations (CICA 3110), became effective on January 1, 2004.  This section requires the recognition of a legal liability for obligations relating to the retirement of property, plant and equipment and obligations arising from the acquisition, construction, development, or normal operation of those assets.  Such asset retirement costs must be recognized at fair value, when a reasonable estimate of fair value can be estimated, in the period in which the liability is incurred.  A corresponding increase to the carrying amount of the related asset, where one is identifiable, is recorded and amortized over the life of the asset.  Where a related asset is not easily identifiable with a liability, the change in fair value over the course of the year is expensed.  The amount of the liability is subject to re-measurement at each reporting period.  The estimates are based principally on legal and regulatory requirements.  It is possible that the Companys estimates of its ultimate reclamation and closure liabilities could change as a result of changes in regulations, changes in the extent of environmental remediation required, changes in the means of reclamation or changes in cost estimates.  Changes in estimates are accounted for prospectively commencing in the period the estimate is revised.



No liability accrual has been recorded as the Company is in the exploration stage on its properties and no reasonable estimate of the fair value of the liability can be estimated.  There is no effect on prior years, as a result of adopting this new recommendation.







---





Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





3

Summary of Significant Accounting Policies  (contd)



(m)

Variable Interest Entities



The Company has adopted Accounting Guideline 15, consolidation of Variable Interest Entities for annual and interim financial statements beginning on or after November 1, 2004.  This guideline addresses the application of consolidation principles to entities that are subject to control on a basis other than ownership of voting interests.  The adoption of this guideline did not have any impact on the Companys consolidated financial statements.



(n)

Comparative Figures



Certain of the comparative figures have been reclassified to conform with the presentation of the current year.



4

Resource property costs



Boleo Project details are as follows:



|                             |   |         |   |        
|---------------------------- | - | ------- | - | -------
|                             |   | 2005    |   | 2004   
|Property rights (Note 4a)    | $ | 651,443 | $ | 651,443
|Mining concessions (Note 4b) |   | 106,350 |   | 106,350
|                             |   |         |   |        
|Total at cost                | $ | 757,793 | $ | 757,793



(a)

Property rights

The Company owns three properties covering approximately 6,692 hectares, located near Santa Rosalia, Baja California Sur, Mexico. The annual property tax on these properties is approximately $5,800.



(b)

Mining concessions

The Company acquired certain concessions covered by 16 separate titles and covering approximately 18,084.8 hectares, located near Santa Rosalia, Baja California Sur, Mexico. The annual fees related to these concessions are approximately $154,700.







---





Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





4

Resource property costs - (contd)

(c)

Details of cumulative expenditures on the Boleo Project are as follows:



|                                    |   |            |   |           
|----------------------------------- | - | ---------- | - | ----------
|                                    |   | 2005       |   | 2004      
|Camp, general and travel            | $ | 1,041,342  | $ | 569,885   
|Concession fees and other           |   | 1,803,328  |   | 1,618,916 
|Drilling                            |   | 7,891,311  |   | 7,185,249 
|Ecological                          |   | 1,034,426  |   | 1,034,426 
|Feasibility studies                 |   | 2,844,457  |   | 1,638,187 
|Geological and geochemical          |   | 6,758,341  |   | 6,333,188 
|Hydrological                        |   | 56,186     |   | 56,186    
|Management fees                     |   | 2,893,966  |   | 2,893,966 
|Metallurgical and contract services |   | 7,756,895  |   | 6,771,860 
|Payroll and social security         |   | 1,259,261  |   | 1,259,261 
|Professional fees                   |   | 3,658,299  |   | 2,890,766 
|Roads                               |   | 687,494    |   | 687,494   
|Stock based compensation expenses   |   | 993,897    |   | 578,382   
|                                    |   |            |   |           
|                                    | $ | 38,679,203 | $ | 33,517,766



5

Property, Plant and Equipment



Comprised of the following:

|                                |   |         |   |                          |   |               
|------------------------------- | - | ------- | - | ------------------------ | - | --------------
|As at December 31, 2005         |   | Cost    |   | Accumulated
Amortization |   | Net
Book Value
|Computer equipment and software | $ | 131,626 | $ | 92,915                   | $ | 38,711        
|Leasehold improvements          |   | 101,559 |   | 10,152                   |   | 91,407        
|Machinery and equipment         |   | 274,924 |   | 42,749                   |   | 232,175       
|Mining equipment                |   | 86,262  |   | 55,176                   |   | 31,086        
|Office equipment and furniture  |   | 79,714  |   | 33,566                   |   | 46,148        
|Transportation equipment        |   | 46,922  |   | 28,482                   |   | 18,440        
|Warehouse                       |   | 167,149 |   | 26,402                   |   | 140,747       
|                                |   |         |   |                          |   |               
|                                | $ | 888,156 | $ | 289,442                  | $ | 598,714       



|As at December 31, 2004         |   | Cost    |   | Accumulated Amortization |   | Net
Book Value
|------------------------------- | - | ------- | - | ------------------------ | - | --------------
|Computer equipment and software | $ | 113,302 | $ | 57,093                   | $ | 56,209        
|Leasehold improvements          |   | -       |   | -                        |   | -             
|Machinery and equipment         |   | 12,395  |   | 6,834                    |   | 5,561         
|Mining equipment                |   | 41,945  |   | 23,125                   |   | 18,820        
|Office equipment and furniture  |   | 49,422  |   | 25,325                   |   | 24,097        
|Transportation equipment        |   | 32,923  |   | 18,151                   |   | 14,772        
|Warehouse                       |   | 38,784  |   | 21,382                   |   | 17,402        
|                                |   |         |   |                          |   |               
|                                | $ | 288,771 | $ | 151,910                  | $ | 136,861       









---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





6

Share Capital



(a)

Authorized

200,000,000 common shares without par value



(b)

Details of transactions are as follows:



|                                              |  |            |   |            
|--------------------------------------------- |  | ---------- | - | -----------
|                                              |  | Shares     |   | Amount     
|Balance  December 31, 2002                   |  | 1,016,149  | $ | 31,577,900 
|Shares issued (i)                             |  | 5,137,455  |   | -          
|Balance  December 31, 2003                   |  | 6,153,604  |   | 31,577,900 
|Shares issued (i)                             |  | 600,000    |   | -          
|Shares issued on reverse takeover transaction |  | 40,000,000 |   | 46,371     
|Brokered private placement (Note 6d)          |  | 10,666,666 |   | 8,000,000  
|Short form prospectus offering (Note 6d)      |  | 2,666,666  |   | 2,000,000  
|Shares issued for agents fees                |  | 77,370     |   | 58,028     
|Share issue costs                             |  | -          |   | (1,116,813)
|Shares issued on exercise of stock options    |  | 20,000     |   | 4,400      
|Fair value of options exercised (Note 6g)     |  | -          |   | 5,517      
|Shares issued on exercise of warrants         |  | 52,000     |   | 6,760      
|Balance  December 31, 2004                   |  | 60,236,306 |   | 40,582,163 
|Brokered private placements  (Note 6d)        |  | 8,255,715  |   | 3,389,500  
|Non-brokered private placements (Note 6d)     |  | 3,505,249  |   | 1,251,837  
|Share issue costs                             |  | -          |   | (415,750)  
|Shares issued on exercise of warrants         |  | 4,243,550  |   | 585,322    
|Shares issued on exercise of stock options    |  | 40,000     |   | 8,800      
|Fair value of options exercised (Note 6g)     |  | -          |   | 4,498      
|Balance  December 31, 2005                   |  | 76,280,820 | $ | 45,406,370 



(i) In accordance with the principles of reverse takeover accounting, the authorized share capital and number of common shares issued are those of the legal parent.  The amount of share capital proceeds, to the date of the reverse takeover, represents that share capital proceeds of Mintec and is not related to the issuance of the shares by First Goldwater Resources Inc.  As a result, although First Goldwater Resources Inc. issued 5,137,455 shares in the year ended December 31, 2003 and 600,000 in the 2004 period prior to the reverse takeover, Mintec did not issue any shares and did not have any share capital proceeds. The proceeds raised by First Goldwater Resources Inc. are included in the net assets acquired by Mintec in the reverse takeover transaction.



(c)

Share issued to acquire Mintec International Corporation

Effective April 20, 2004, pursuant to a share purchase agreement, the Company acquired all the issued and outstanding shares of Mintec International Corporation in exchange for 40,000,000 shares. The share exchange resulted in a change of control, which is accounted for as a reverse takeover.







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





6

Share Capital - (contd)



(d)

Private Placements

During the financial year ended December 31, 2004, the following share placements were completed:



(i) April 2004 - In connection with the acquisition of Mintec International Corporation, the Company completed a brokered private placement of 10,666,666 units at $0.75 per unit on April 20, 2004. Each unit consists of one common share and one half warrant. Each whole warrant is exercisable for a period of five years at $1.15 per share.  In connection with the private placement, the Company paid the agent a 6% cash commission, a $48,000 corporate finance fee and granted the agent 533,333 non-transferable share purchase warrants, exercisable into 533,333 common shares at $0.75 until October 19, 2005.

(ii) April 2004 - The Company also completed a public offering of 2,666,666 units at $0.75 per unit. Each unit consists of one common share and one-half warrant. Each whole warrant is exercisable for a period of five years at $1.15.  In connection with the offering, the Company paid the agent a 6% commission of which $84,473 was in cash and the agent elected to receive 47,370 units for the balance of the commission), a $10,000 administration fee, issued the agent 30,000 units as a corporate finance fee and granted the agent 133,333 non-transferable share purchase warrants, exercisable into 133,333 common shares at $0.75 until October 19, 2005.

During the financial year ended December 31, 2005, the following share placements were completed:

(iii) March 2005  a private brokered placement of 2,000,000 units at $0.60 per unit, realizing gross proceeds of $1,200,000. Each unit consists of one share and one half-share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $1.15 within two years of issue.  The expiration date for the warrants will be extended to five years, should the Company achieve Tier 1 status, on the TSX, prior to expiry of the two-year term.  Agents fees relating to this placement amounted to $92,500 settled in cash.



(iv) March 2005  a private non-brokered placement of 100,000 units at $0.60 per unit, realizing gross proceeds of $60,000. Each unit consists of one share and one half-share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $1.15 within two years of issue.  The expiration date for the warrants will be extended to five years, should the Company achieve Tier 1 status, on the TSX, prior to expiry of the two-year term.



(v) November 2005 - a private non-brokered placement of 1,426,678 units at $0.35 per unit, realizing gross proceeds of $499,337. Each unit consists of one share and one half-share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $0.45 within two years of issue.







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





6

Share Capital - (contd)



(d)

Private Placements - (contd)

(vi) December 2005 - a private non-brokered placement of 1,978,571 units at $0.35 per unit, realizing gross proceeds of $692,500. Each unit consists of one share and one half-

share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $0.45 within two years of issue.

(vii) December 2005 - a private brokered placement of 1,000,000 units at $0.35 per unit, realizing gross proceeds of $350,000. Each unit consists of one share and one half-share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $0.45 within two years of issue. Agents fees relating to this issue amounted to $33,750 settled in cash.

(viii) December 2005 - a private brokered placement of 5,255,715 units at $0.35 per unit, realizing gross proceeds of $1,839,500. Each unit consists of one share and one half-share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $0.45 within two years of issue. Agents fees relating to this issue amounted to $186,581 settled in cash.  In addition, the agent was granted Agent's Options ("Agent's Option") equal to ten percent of the number of units placed. Each Agent's Option will be convertible into one unit of the Company ("Agent's Units") for a period of two years from the closing date, at a price of $0.35 per Agent's Unit. Each Agent's Unit is comprised of one share and one-half share purchase warrant. Two share purchase warrants entitle the holder to acquire one share for a period of two years from the closing date, at a price of $0.45 per share.



(e)

Warrants



As at December 31, 2005 the following warrants are outstanding:



|             |              |                |              |              |                |                  
|------------ | ------------ | -------------- | ------------ | ------------ | -------------- | -----------------
|Balance
2004 | Granted
2005 | Exercised
2005 | Expired
2005 | Balance
2005 | Exercise
Price | Expiry
Date      
|             |              |                |              |              |                |                  
|666,666      | -            | -              | 666,666      | -            | $0.75          | October 19, 2005 
|4,210,550    | -            | 4,210,550      | -            | -            | $0.13          | July 11, 2005 (i)
|-            | 1,050,000    | -              | -            | 1,050,000    | $1.15          | June 8, 2007 (ii)
|-            | 713,339      | -              | -            | 713,339      | $0.45          | November 2, 2007 
|-            | 989,285      | -              | -            | 989,285      | $0.45          | December 16, 2007
|-            | 3,127,858    | -              | -            | 3,127,858    | $0.45          | December 21, 2007
|6,705,351    | -            | 33,000         | -            | 6,672,351    | $1.15          | April 20, 2009   
|             |              |                |              |              |                |                  
|11,582,567   | 5,880,482    | 4,243,550      | 666,666      | 12,552,833   |                |                  



|             |              |                |              |              |                |                  
|------------ | ------------ | -------------- | ------------ | ------------ | -------------- | -----------------
|Balance
2003 | Granted
2004 | Exercised
2004 | Expired
2004 | Balance
2004 | Exercise
Price | Expiry
Date      
|             |              |                |              |              |                |                  
|-            | 4,262,550    | 52,000         | -            | 4,210,550    | $0.13          | July 11, 2005 (i)
|-            | 666,666      | -              | -            | 666,666      | $0.75          | October 19, 2005 
|-            | 6,705,351    | -              | -            | 6,705,351    | $1.15          | April 20, 2009   
|             |              |                |              |              |                |                  
|-            | 11,634,567   | 52,000         | -            | 11,582,567   |                |                  



(i)

These warrants, originated in First Goldwater Resources Inc., prior to the reverse takeover transaction (Note 2).

(ii)

The expiration date for the warrants will be extended from two to five years, should the Company achieve Tier 1 status, on the TSX, prior to expiry of the two-year term.







---





Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





6

Share Capital - (contd)



(f)

Stock Options



As at December 31, 2005 and 2004 the following stock options are outstanding:



|             |              |                |              |              |                |                   
|------------ | ------------ | -------------- | ------------ | ------------ | -------------- | ------------------
|Balance
2004 | Granted
2005 | Exercised
2005 | Expired
2005 | Balance
2005 | Exercise
Price | Expiry
Date       
|             |              |                |              |              |                |                   
|240,000      | -            | 40,000         | 200,000      | -            | $0.22          | October 1, 2005   
|2,290,000    | -            | -              | 760,000      | 1,530,000    | $0.35(i)       | March 22, 2009    
|695,000      | -            | -              | 200,000      | 495,000      | $0.35(i)       | May 17, 2009      
|225,000      | -            | -              | -            | 225,000      | $0.35(i)       | July 22, 2009     
|620,000      | -            | -              | -            | 620,000      | $0.35(i)       | August 13, 2009   
|500,000      | -            | -              | 500,000      | -            | $0.35(i)       | August 17, 2009   
|100,000      | -            | -              | -            | 100,000      | $0.35(i)       | August 20, 2009   
|-            | 1,000,000    | -              | -            | 1,000,000    | $0.35(i)       | March 15, 2010    
|-            | 310,000      | -              | -            | 310,000      | $0.35(i)       | April 12, 2010    
|-            | 150,000      | -              | 150,000      | -            | $0.35(i)       | June 1, 2010      
|-            | 1,870,000    | -              | -            | 1,870,000    | $0.35          | September 15, 2010
|-            | 375,000      | -              | -            | 375,000      | $0.35          | November 30, 2010 
|             |              |                |              |              |                |                   
|4,670,000    | 3,705,000    | 40,000         | 1,810,000    | 6,525,000    |                |                   



|             |              |                |              |              |                |                     
|------------ | ------------ | -------------- | ------------ | ------------ | -------------- | --------------------
|Balance
2003 | Granted
2004 | Exercised
2004 | Expired
2004 | Balance
2004 | Exercise
Price | Expiry
Date         
|             |              |                |              |              |                |                     
|-            | 260,000      | 20,000         | -            | 240,000      | $0.22          | October 1, 2005 (ii)
|-            | 2,290,000    | -              | -            | 2,290,000    | $0.75          | March 22, 2009      
|-            | 695,000      | -              | -            | 695,000      | $0.75          | May 17, 2009        
|-            | 225,000      | -              | -            | 225,000      | $0.75          | July 22, 2009       
|-            | 620,000      | -              | -            | 620,000      | $0.75          | August 13, 2009     
|-            | 500,000      | -              | -            | 500,000      | $0.75          | August 17, 2009     
|-            | 100,000      | -              | -            | 100,000      | $0.75          | August 20, 2009     
|             |              |                |              |              |                |                     
|-            | 4,690,000    | 20,000         | -            | 4,670,000    |                |                     



(i)

The exercise price of stock options granted prior to September 15, 2005 was amended from prices ranging from $0.60 - $0.75 to $0.35, subject to the approval of disinterested shareholders of the Company. A revaluation of options granted, not yet exercised, and which are subject to this amendment, has been performed.

(ii)

These options originated in First Goldwater Resources Inc., prior to the reverse takeover transaction (Note 2).



The Company adopted a stock option plan (the plan) whereby, the Company may grant stock options up to a maximum of ten percent of the number of issued shares of the Company. At December 31, 2005, the Company has reserved 7,628,082 common shares under the plan (2004 - 6,023,630).



The option plan has the following vesting requirement:

(i)   Options granted to employee and consultants conducting investor relations activities will vest with the right to exercise one-quarter of the option upon conclusion of every three months subsequent to the grant date.

(ii) Options granted to other employees, consultants, directors and officers vest immediately.







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





6

Share Capital - (contd)



(f)

Stock Options - (contd)



The fair value of the options granted during the year was estimated at each grant date using the Black-Scholes option-pricing model. During the year, the Company granted 3,705,000 five year stock options at an exercise price of $0.35; 1,830,000 of which were granted to directors and 1,875,000 granted to consultants and employees. Stock-based compensation costs, in the amount of $954,030 (2004 - $1,395,706), have been recognized and charged to expenses, with an offsetting amount recorded as a credit to contributed surplus.  The exercise price of stock options granted prior to September 15, 2005 was amended from $0.75 to $0.35, subject to the approval of disinterested shareholders of the company. A revaluation of options granted, not yet exercised, and which are subject to this amendment, has been performed.



The fair value of stock options granted was estimated at each grant date based on the Black-Scholes option-pricing model, using the following weighted average assumptions:



|                                                     |         |         
|---------------------------------------------------- | ------- | --------
|                                                     | 2005    | 2004    
|Risk free interest rate                              | 3.89%   | 3.61%   
|Dividend yield                                       | 0%      | 0%      
|Expected volatility                                  | 56.65%  | 80.52%  
|Expected stock option life                           | 5 years | 4.8years
|Weighted average fair value of stock
options granted | $0.27   | $0.30   



(g)

Contributed Surplus



|                                                 |   |          
|------------------------------------------------ | - | ---------
|Fair value of options granted (Note 6f)          | $ | 1,395,706
|Fair value of 20,000 options exercised (Note 6b) |   | (5,517)  
|Balance December 31, 2004                        |   | 1,390,189
|Fair value of options granted (Note 6f)          |   | 954,030  
|Fair value of 40,000 options exercised (Note 6b) |   | (4,498)  
|Balance December 31, 2005                        | $ | 2,339,721



(h)

Escrow Shares



On April 20, 2004, 40,000,000 shares issued on the acquisition of Mintec International Corporation were placed into escrow and will be released from escrow over a three-year period.  The three-year release period includes 4,000,000 shares released upon exchange approval and 6,000,000 shares released every six months thereafter.  As at December 31, 2005 there are 18,000,000 shares in escrow.



A pooling agreement also covers the escrow shares, in terms of which half of these shares were released by April 20, 2005, a further quarter were released by October 20, 2005. The balance of 10,000,000 shares will be released by April 20, 2006.









---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





7

Related Party Transactions



(a)

The Company entered into the following transactions with current or former directors or officers of the Company or with companies with current or former directors or officers in common:

|                                                                                      |   |         |   |         |   |         |  |  |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------- | - | ------- | - | ------- | - | ------- |  |  |  |  |  |  |  |  | 
|                                                                                      |   | 2005    |   | 2004    |   | 2003   
|Management fees paid or accrued                                                       | $ | 452,045 | $ | 335,157 | $ | 71,420 
|Legal fees paid or accrued                                                            |   | -       |   | 97,640  |   | 70,011 
|Financing fees paid or accrued                                                        |   | -       |   | 65,000  |   | -      
|Rent and administration costs paid or accrued                                         |   | 32,754  |   | 64,000  |   | -      
|Salaries and wages paid to employees related to directors and officers of the Company |   | 68,502  |   | 42,751  |   | -      
|Consulting services paid or accrued                                                   |   | -       |   | 27,000  |   | -      
|                                                                                      |   |         |   |         |   |         |  | 
|                                                                                      | $ | 553,301 | $ | 631,548 | $ | 141,431



(b)

The Company had the following amounts due from a company with directors in common. The amount is non-interest bearing, unsecured and is due on demand.

|                        |   |        |   |       
|----------------------- | - | ------ | - | ------
|                        |   | 2005   |   | 2004  
|Minterra Resource Corp. | $ | 43,884 | $ | 34,990



(c)

The Company had the following amounts due to a company of a former director of the Company or companies with directors in common:

|                                                                      |   |        |   |        |  |  |  |  |  |  | 
|--------------------------------------------------------------------- | - | ------ | - | ------ |  |  |  |  |  |  | 
|                                                                      |   | 2005   |   | 2004  
|Tek Terra Corporation                                                 | $ | 46,971 | $ | 42,413
|Minera Terra Gaia, S.A. de C.V.                                       |   | 11,570 |   | 1,945 
|Holmes Greenslade, a law firm of which an insider is a former partner |   | 2,645  |   | 2,645 
|                                                                      |   |        |   |        |  | 
|                                                                      | $ | 61,186 | $ | 47,003



The amounts are non-interest bearing, unsecured and are due on demand.



The above transactions, occurring in the normal course of operations, are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





8

Income Taxes



(a)

The Company operates in Canada and Mexico and is subject to varying rates of taxation.  In addition, the Company has various non-capital tax losses and deferred exploration expenditures that are available for carry forward to reduce taxable income of future years.  Details of income tax expense for the years ended December 31 are as follows:



|                                                                   |   |             |   |            
|------------------------------------------------------------------ | - | ----------- | - | -----------
|                                                                   |   | 2005        |   | 2004       
|Loss before income taxes for accounting purposes                   | $ | 6,996,731   | $ | 5,391,685  
|Adjustments for differences between accounting and
taxable income: |   |             |   |            
|Amortization                                                       |   | (137,533)   |   | (19,936)   
|Stock-based compensation                                           |   | (954,030)   |   | (1,395,706)
|Share issuance costs deductible for taxes                          |   | 306,513     |   | 223,363    
|Non-deductible and other items                                     |   | (742,783)   |   | (675,903)  
|Consolidated loss for tax purposes                                 |   | 5,468,898   |   | 3,523,503  
|Tax rate                                                           |   | 35.6%       |   | 35.6%      
|Expected tax recovery for the year                                 |   | 1,946,928   |   | 1,254,367  
|Increase (decrease) in taxes due to:                               |   |             |   |            
|Foreign income at different tax rates                              |   | (264,091)   |   | (150,879)  
|Current valuation allowance                                        |   | (1,682,837) |   | (1,103,488)
|Tax recovery for the year                                          | $ | -           | $ | -          



(b)

Future income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The significant components of the Companys future income tax assets as at December 31 are as follows:

|                                |   |             |   |            
|------------------------------- | - | ----------- | - | -----------
|                                |   | 2005        |   | 2004       
|Non-capital loss carry-forwards | $ | 3,470,563   | $ | 1,924,355  
|Property, plant and equipment   |   | 8,266       |   | 879        
|Share issuance costs            |   | 356,956     |   | 318,068    
|                                |   | 3,835,785   |   | 2,243,302  
|Valuation allowance             |   | (3,835,785) |   | (2,243,302)
|Future income tax asset         | $ | -           | $ | -          









---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





8

Income Taxes- (contd)



(c)

The Company has incurred non-capital losses for income tax purposes in Canada of approximately $3,478,000, which may be used to reduce future taxable income.  The income tax benefits, if any, of these losses have not been recorded in these financial statements because of uncertainty of their recovery.  These losses will expire as follows:



|               |   |          
|-------------- | - | ---------
|Year of Expiry |   | Amount   
|2006           | $ | 436,000  
|2007           |   | 373,000  
|2008           |   | 213,000  
|2009           |   | 61,000   
|2010           |   | 98,000   
|2011           |   | 829,000  
|2015           |   | 1,468,000
|               |   |          
|               | $ | 3,478,000



(d)

The Company has incurred non-capital losses for income tax purposes in Mexico of approximately $7,697,000, which may be used to reduce future taxable income.  The income tax benefits, if any, of these losses have not been recorded in these financial statements because of uncertainty of their recovery.  These losses will expire as follows:



|               |   |          
|-------------- | - | ---------
|Year of Expiry |   | Amount   
|2011           | $ | 139,000  
|2012           |   | 321,000  
|2013           |   | 542,000  
|2014           |   | 2,694,000
|2015           |   | 4,001,000
|               |   |          
|               | $ | 7,697,000











---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





9

Segmented Information



The Companys only business activity is exploration and development of mineral reserves.  This activity is carried out primarily in Mexico.



The breakdown by geographic region for the year ended December 31, 2005 is as follows:



|                     |   |           |   |           |   |             
|-------------------- | - | --------- | - | --------- | - | ------------
|                     |   | Canada    |   | Mexico    |   | Consolidated
|Exploration expenses | $ | -         | $ | 5,161,437 | $ | 5,161,437   
|Capital expenditures | $ | 153,903   | $ | 445,482   | $ | 599,385     
|Segment loss         | $ | 1,318,551 | $ | 5,678,180 | $ | 6,996,731   
|Total assets         | $ | 2,733,758 | $ | 1,643,374 | $ | 4,377,132   



The breakdown by geographic region for the year ended December 31, 2004 is as follows:



|                     |   |           |   |           |   |             
|-------------------- | - | --------- | - | --------- | - | ------------
|                     |   | Canada    |   | Mexico    |   | Consolidated
|Exploration expenses | $ | -         | $ | 3,825,698 | $ | 3,825,698   
|Capital expenditures | $ | 16,386    | $ | 88,006    | $ | 104,392     
|Segment loss         | $ | 1,565,987 | $ | 3,825,698 | $ | 5,391,685   
|Total assets         | $ | 4,448,173 | $ | 1,906,834 | $ | 6,355,007   



10

Commitments



(a)

On September 22, 2004, the Company signed an agreement with Bateman Engineering Pty Ltd. (Bateman) to complete a definitive feasibility study on the Boleo Project. The estimated contract value is $8.9 million. The definitive feasibility study is scheduled to be completed by July 2006 and the agreement may be terminated upon thirty days written notice. As at December 31, 2005, the Company has paid or accrued a total of approximately $3.2 million under the agreement, for a remaining terminable commitment of $5.7 million.



(b)

During the current year, the Company signed a number of management and consulting agreements with directors and officers of the Company.  The future commitments under these contracts, which expire at April 30, 2006, amount to $54,000 at December 31, 2005.  Subsequent to December 31, 2005, one of these contracts was extended to April 30, 2007, for an additional commitment of $216,000 during 2006 and $72,000 during 2007.



(c)

The Company has committed to an operating lease for office space for a term of 63 months expiring September 2010.  The minimum lease payment is $74,480 per annum.







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





11

Supplemental Schedule of Non-Cash Investing and Financing Activities



The following are the non-cash investing and financing activities of the Company:



|                                                                                         |   |        |   |        |   |     
|---------------------------------------------------------------------------------------- | - | ------ | - | ------ | - | ----
|                                                                                         |   | 2005   |   | 2004   |   | 2003
|                                                                                         |   |        |   |        |   |     
|Fair value of options exercised transferred from contributed surplus to share capital    | $ | 4,498  | $ | 5,517  | $ | -   
|Shares issued for acquisition of Mintec International Corporation                        | $ | -      | $ | 46,371 | $ | -   
|Property, plant and equipment acquired on business combination                           | $ | -      | $ | 1,828  | $ | -   
|Resource property acquired on business combination                                       | $ | -      | $ | 27,000 | $ | -   
|Accounts payable assumed on business combination                                         | $ | -      | $ | 63,796 | $ | -   
|Sale of subsidiary with a resource property in exchange for consulting services received | $ | -      | $ | 27,000 | $ | -   
|Interest received                                                                        | $ | 26,140 | $ | 94,281 | $ | -   
|Interest paid                                                                            | $ | -      | $ | -      | $ | -   



12

Subsequent Events



(a)

Subsequent to year-end, the Company announced that it has arranged on a best efforts basis, a private placement of up to 25,555,556 units at $0.90 per unit for a maximum gross proceeds of $23,000,000. Each unit consists of one share and one half-share purchase warrant. Two share purchase warrants entitle the holder to acquire one share at $1.25 within two years of issue.  The expiration date for the warrants will be extended to five years, should the Company achieve Tier 1 status, on the TSX, prior to expiry of the two-year term.



(b)

Subsequent to year-end, the Company listed its shares on the Frankfurt Exchange.



(c)

Subsequent to year-end, the Company granted 675,000 stock options to consultants of the Company at prices ranging from $0.94 to $1.21 per share, for a period of five years from the date of grant.



(d)

Subsequent to year-end, the Company granted 300,000 stock options to a director of the Company at $0.81 per share, for a period of five years from the date of grant.







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")



These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada.  Except as set out below, these financial statements also comply, in all material aspects, with accounting principles generally accepted in the United States and the rules and regulations of the Securities Exchange Commission.



(a)

Under Canadian GAAP, the mineral properties are carried at cost and written off or written down if the properties are abandoned, sold or if management decides not to pursue the properties.  Under United States GAAP, the Company would periodically review and obtain independent reports in determining adjustments to the mineral properties and record properties at net realizable value.  The Company has not yet obtained an independent report for United States GAAP purposes, therefore, the Companys mineral property costs would have been written off.



(b)

Under United States GAAP, adjustments arising from foreign currency translations are deferred until realization and are included as a separate component of shareholders equity as a component of comprehensive income or loss.  Therefore, translation adjustments are not included in determining net income but reported as other comprehensive income.  Under Canadian GAAP, translation adjustments are included in net income.  There is no comprehensive income category in Canada.



(c)

The impact of the above differences between Canadian and United States GAAP on losses for the years ended December 31 is as follows:



|                                                                            |      |             |      |             |   |          
|--------------------------------------------------------------------------- | ---- | ----------- | ---- | ----------- | - | ---------
|                                                                            | 2005 | 2004        | 2003
|Income (Loss) for the year as reported                                      | $    | (6,996,731) | $    | (5,391,685) | $ | (404,029)
|Foreign exchange adjustment                                                 |      | 7,616       |      | 15,040      |   | (72,562) 
|Less mineral property expenditures during the year                          |      | -           |      | -           |   | (1,272)  
|Adjustment Income (Loss) for the year in accordance with United States GAAP | $    | (6,989,115) | $    | (5,376,645) | $ | (477,863)



|                                                                          |      |        |      |        |   |       
|------------------------------------------------------------------------- | ---- | ------ | ---- | ------ | - | ------
|                                                                          | 2005 | 2004   | 2003
|Primary loss per share for the year in accordance with United States GAAP | $    | (0.11) | $    | (0.10) | $ | (0.01)





---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")  (contd)



(d)

The impact of the above differences between Canadian and United States GAAP on the deficits as at December 31, as reported, is as follows:



|                                              |      |              |      |              |   |             
|--------------------------------------------- | ---- | ------------ | ---- | ------------ | - | ------------
|                                              | 2005 | 2004         | 2003
|Deficit - As reported                         | $    | (43,822,274) | $    | (36,825,543) | $ | (31,433,858)
|Less capitalized mineral property costs       |      | (757,793)    |      | (757,793)    |   | (757,793)   
|Foreign exchange adjustment                   |      | (25,429)     |      | (33,045)     |   | (48,085)    
|Deficit in accordance with United States GAAP | $    | (44,605,496) | $    | (37,616,381) | $ | (32,239,736)



(e)

The impact of the above differences between Canadian and United States GAAP on the statement of changes in shareholders equity, as reported, is as follows:



|                                                                                |               |   |            |   |                     |   |              |                      |        |       |          
|------------------------------------------------------------------------------- | ------------- | - | ---------- | - | ------------------- | - | ------------ | -------------------- | ------ | ----- | ---------
|                                                                                | Common Shares |   |            |   |                     |   |              |                      |       
|                                                                                | Number        |   | Amount     |   | Contributed
Surplus |   | Deficit      | Comprehensive
Income |        | Total
|Shareholders equity balance as reported at December 31, 2003                   | 6,153,604     | $ | 31,577,900 | $ | -                   | $ | (31,433,858) | $                    | -      | $     | 144,042  
|Add back write-off of mineral property costs                                    | -             |   | -          |   | -                   |   | (757,793)    |                      | -      |       | (757,793)
|Foreign exchange adjustment                                                     | -             |   | -          |   | -                   |   | (48,085)     |                      | 48,085 |       | -        
|Shareholders equity in accordance with United States GAAP at December 31, 2003 | 1,016,149     | $ | 31,577,900 | $ | -                   | $ | (32,239,736) | $                    | 48,085 | $     | (613,751)
|Shareholders equity balance as reported at December 31, 2004                   | 60,236,306    | $ | 40,582,163 | $ | 1,390,189           | $ | (36,825,543) | $                    | -      | $     | 5,146,809
|Less capitalized mineral property costs                                         | -             |   | -          |   | -                   |   | (757,793)    |                      | -      |       | (757,793)
|Foreign exchange adjustment                                                     | -             |   | -          |   | -                   |   | (33,045)     |                      | 33,045 |       | -        
|Shareholders equity in accordance with United States GAAP at December 31, 2004 | 60,236,306    | $ | 40,582,163 | $ | 1,390,189           | $ | (37,616,381) | $                    | 33,045 | $     | 4,389,016
|Shareholders equity balance as reported at December 31, 2005                   | 76,280,820    | $ | 45,406,370 | $ | 2,339,721           | $ | (43,822,274) | $                    | -      | $     | 3,923,817
|Less capitalized mineral property costs                                         | -             |   | -          |   | -                   |   | (757,793)    |                      | -      |       | (757,793)
|Foreign exchange adjustment                                                     | -             |   | -          |   | -                   |   | (25,429)     |                      | 25,429 |       | -        
|Shareholders equity in accordance with United States GAAP at December 31, 2005 | 76,280,820    | $ | 45,406,370 | $ | 2,339,721           | $ | (44,605,496) | $                    | 25,429 | $     | 3,166,024







---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")  (contd)



(f)

The impact of the above difference between Canadian and United States GAAP on the statement of cash flows for the years ended December 31, as reported, is as follows:



|                                     |      |             |      |             |   |          
|------------------------------------ | ---- | ----------- | ---- | ----------- | - | ---------
|                                     | 2005 | 2004        | 2003
|Cash flows from operating activities |      |             |      |             |   |          
|As reported                          | $    | (6,713,911) | $    | (2,990,098) | $ | (420,054)
|Mineral property costs               |      | -           |      | -           |   | (1,272)  
|Per United States GAAP               | $    | (6,713,911) | $    | (2,990,098) | $ | (421,326)
|Cash flows from investing activities |      |             |      |             |   |          
|As reported                          | $    | (608,279)   | $    | (58,043)    | $ | (1,272)  
|Mineral property costs               |      | -           |      | -           |   | 1,272    
|Per United States GAAP               | $    | (608,279)   | $    | (58,043)    | $ | -        



(g)

New Accounting Pronouncements



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  SFAS No. 145 updates, clarifies and simplifies existing accounting pronouncements, by rescinding SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect.  As a result, the criteria in APB No. 30 will now be used to classify those gains and losses.  Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions.  Finally, SFAS No. 145 also makes technical corrections to existing pronouncements.  While those corrections are not substantive in nature, in some instances, they may change accounting practice.  The Company adopted the provisions of SFAS No. 145 that amended SFAS No. 13, as required, on May 15, 2002 for transactions occurring after such date with no material impact on its financial statements.  The Company adopted the remaining provisions of SFAS No. 145, as required, on January 1, 2003, with no material impact on its financial statements.





---







Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")  (contd)



(g)

New Accounting Pronouncements  (contd):



In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  SFAS No. 146 was issued to address the financial accounting and reporting for costs associated with exit or disposal activities, unless specifically excluded.  SFAS No. 146 requires that a liability for a cost associated with a covered exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred, except for a liability for one-time termination benefits that is incurred over time.  If employees are not required to render service until they are terminated in order to receive the one-time termination benefits or if employees will not be retained to render service beyond the minimum retention period (as dictated by existing law, statute or contract, or in the absence thereof, 60 days), a liability for the termination benefits shall be recognized and measured at its fair value at the communication date.  If employees are required to render service until they are terminated in order to receive the one-time termination benefits and will be retained to render service beyond the minimum retention period, a liability for the termination benefits shall be measured initially at the communication date based on the fair value of the liability as of the termination date.  The liability shall be recognized rateably over the future service period.  SFAS No. 146 also dictates that a liability for costs to terminate an operating lease or other contract before the end of its term shall be recognized and measured at its fair value when the entity terminates the contract in accordance with the contract terms.  A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity is to be recognized and measured at its fair value when the entity ceases using the right conveyed by the contract.  SFAS No. 146 further dictates that a liability for other covered costs associated with an exit or disposal activity be recognized and measured at its fair value in the period in which the liability is incurred.  The Company adopted SFAS No. 146, as required, on January 1, 2003 with no material impact on its financial statements.



In November 2002, the FASB issued FASB interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.FIN 45 requires that a liability be recorded in the guarantors balance sheet upon issuance of certain guarantees.  FIN 45 also requires disclosure about certain guarantees that an entity has issued.  The disclosure requirements of FIN 45 were effective for fiscal years ending after December 15, 2002. The Company adopted the provisions of FIN 45, as required, on January 1, 2002 with no material impact on its financial statements.





---





Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")  (contd)



(g)

New Accounting Pronouncements  (contd):



In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure".  SFAS No. 148 amends SFAS No. 123, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. SFAS No. 148 is effective for fiscal years beginning after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.  The Company effective January 1, 2003 has used APB25 therefore adoption of SFAS No. 148 is not required.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of APB No. 51.FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.  For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003.  The Company adopted the provisions of FIN 46, as required, with no material impact on its financial statements



On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities.".  SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The new guidance amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group ("DIG") process that effectively required amendments to SFAS No. 133, and decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative and characteristics of a derivative that contains financing components. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company adopted SFAS No. 149, as required, on July 1, 2003, with no material impact on its financial statements.





---





Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")  (contd)



(g)

New Accounting Pronouncements  (contd):



In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments created or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  The Company adopted SFAS No. 150, as required, on July 1, 2003, with no material impact on its financial statements.



In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.  SAB No. 104 revises or rescinds portions of the interpretive guidance included in Tope 13 of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations.  The adoption of SAB No. 104 did not have a material effect on the Companys financial statements.



In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which revised SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123R will supersede APB Opinion 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows.  The significant differences in accounting from Canadian GAAP under SFAS No. 123R include the requirement to measure and record to the financial statements the costs of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, recognized over the period during which an employee is required to provide services in exchange for such award.  SFAS 123R also requires forfeitures of unvested instruments such as stock options be estimated at the grant date to determine the total compensation to be recognized.  Under Canadian GAAP, the Company recognizes the fair value of an employees services award over the vesting period and accounts for forfeitures only as they occur.  SFAS No. 123R is effective January 1, 2006.  The Company is currently assessing the impact of these and other differences arising from the application of SFAS 123R.







---





Baja Mining Corp.

Notes to the Consolidated Statements

Years Ended December 31, 2005, 2004 and 2003





13

Differences Between United States and Canadian Generally Accepted Accounting

Principles ("GAAP")  (contd)



(g)

New Accounting Pronouncements  (contd):



In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle.  SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Companys results of operations or financial position.



In March 2005, the SEC staff issued Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, which provides guidance on the interaction between SFAS No. 123R and certain SEC rules and regulations, as well as on the valuation of share-based payments.  SAB No. 107 provides interpretive guidance related to valuation methods (including assumptions such as expected volatility and expected term), first time adoption of SFAS No. 123R in an interim period, the classification of compensation expense and disclosures subsequent to adoption of SFAS No. 123R.  The Company is currently evaluating the impact of SAB No. 107 on our consolidated financial statements.



In March 2005, the FASB issued Interpretation 47 (FIN 47), Accounting for Conditional Asset Retirement Obligationsan interpretation of FASB No. 143.  FIN 47 clarifies that the term conditional asset retirement obligation as used in SFAS No. 143 refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity.  The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement.  FIN 47 requires a liability to be recognized for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated.  FIN 47 was effective for fiscal years ending after December 15, 2005. The adoption of FIN 47 did not have a material impact on the Companys consolidated financial position, results of operations or cash flows.



In June 2005, the FASB issued FASB Staff Position Paper (FSP) 115-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments, superseding EITF 03-1.  Adoption of FSP 115-1 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.









---



BAJA MINING CORP.



Interim Consolidated Financial Statements

March 31, 2006 and 2005

(Unaudited)

---





Baja
Mining Corp.

Interim Consolidated Balance Sheets

As
at March 31, 2006 and December 31, 2005

(Unaudited
prepared by management)



|                                                         |   |              |   |              
|-------------------------------------------------------- | - | ------------ | - | -------------
|ASSETS                                                   |   | March 2006   |   | December 2005
|                                                         |   | Unaudited    |   | Audited      
|                                                         |   |              |   |              
|Current
      assets                                     |   |              |   |              
|Cash
      and cash equivalents                          | $ | 5,941,429    | $ | 2,760,084    
|Accounts
      receivable                                |   | 377,974      |   | 216,657      
|Due
      from related party (Note 6b)                   |   | 43,844       |   | 43,844       
|                                                         |   |              |   |              
|                                                         |   | 6,363,247    |   | 3,020,585    
|                                                         |   |              |   |              
|Mineral
      properties and mining concessions (Note 3) |   | 757,793      |   | 757,793      
|                                                         |   |              |   |              
|Property, plant
      and equipment (Note 4)             |   | 686,122      |   | 598,714      
|                                                         |   |              |   |              
|                                                         | $ | 7,807,162    | $ | 4,377,092    
|                                                         |   |              |   |              
|                                                         |   |              |   |              
|LIABILITIES                                              |   |              |   |              
|                                                         |   |              |   |              
|Current
      liabilities                                |   |              |   |              
|Accounts
      payable and accrued liabilities           | $ | 222,056      | $ | 392,129      
|Due
      to related parties (Note 6c)                   |   | 34,547       |   | 61,146       
|                                                         |   |              |   |              
|                                                         |   | 256,603      |   | 453,275      
|                                                         |   |              |   |              
|SHAREHOLDERS
      EQUITY                               |   |              |   |              
|                                                         |   |              |   |              
|Share capital
      (Note 5)                             |   | 45,677,938   |   | 45,406,370   
|Share
      subscriptions (Note 10a)                     |   | 4,995,962    |   | -            
|Contributed
      surplus (Note 5f)                      |   | 2,629,441    |   | 2,339,721    
|Deficit                                                  |   | (45,752,782) |   | (43,822,274) 
|                                                         |   |              |   |              
|                                                         |   | 7,550,559    |   | 3,923,817    
|                                                         |   |              |   |              
|                                                         | $ | 7,807,162    | $ | 4,377,092    
|                                                         |   |              |   |              
|Commitments
      (Note 8)                               |   |              |   |              



ON BEHALF OF THE
BOARD:



|                        |                     
|----------------------- | --------------------
|"John
      Greenslade" | "Robert
      Mouat"
|Director                | Director            



See accompanying Notes to the Consolidated
Financial Statements

---

Baja Mining Corp.

Interim Consolidated Statements of Loss and Deficit

For
the three months ended March 31

(Unaudited
prepared by management)



|                                                                           |   |              |   |             
|-------------------------------------------------------------------------- | - | ------------ | - | ------------
|                                                                           |   | 2006         |   | 2005        
|                                                                           |   |              |   |             
|Exploration
      expenses                                                 |   |              |   |             
|Camp,
      general and travel                                             | $ | 34,858       | $ | 147,583     
|Concession
      and claim fees                                            |   | 22,613       |   | 74,102      
|Drilling                                                                   |   | 79,954       |   | 221,440     
|Feasibility
      studies                                                  |   | 167,975      |   | 493,456     
|Geological
      and environmental                                         |   | 41,068       |   | 3,073       
|Metallurgical                                                              |   | 50,207       |   | -           
|Pilot
      plant costs                                                    |   | 438,311      |   | 175,229     
|Professional
      and consulting fees
      Related
      Party (Note 6a) |   | 176,825      |   | 296,611     
|Stock-based
      compensation expense (Note 5f)                           |   | 261,036      |   | -           
|                                                                           |   | 1,272,847    |   | 1,411,494   
|General and
      administrative expenses                                  |   |              |   |             
|Amortization                                                               |   | 50,248       |   | 4,366       
|Audit
      and legal fees                                                 |   | 38,388       |   | 10,853      
|Filing,
      exchange and transfer agent fees                             |   | 16,882       |   | 8,683       
|Interest
      and bank charges                                            |   | 1,417        |   | 783         
|Management
      and consulting fees
      Related
      party (Note 6a)   |   | 77,228       |   | 49,704      
|Office
      and general                                                   |   | 42,350       |   | 25,265      
|Promotion,
      trade show and marketing                                  |   | 68,977       |   | 51,232      
|Rent                                                                       |   | 17,975       |   | 27,616      
|Stock-based
      compensation expense (Note 5f)                           |   | 159,500      |   | 375,620     
|Telephone                                                                  |   | 10,390       |   | 3,242       
|Travel                                                                     |   | 128,592      |   | 27,605      
|Wages
      and subcontract                                                |   | 144,584      |   | 44,066      
|                                                                           |   | 756,531      |   | 629,035     
|Loss before
      other items                                              |   | (2,029,378)  |   | (2,040,529) 
|Foreign
      exchange gain                                                |   | 85,066       |   | 9,855       
|Interest
      income and other                                            |   | 13,804       |   | 13,233      
|Net loss for
      the period                                              |   | (1,930,508)  |   | (2,017,441) 
|                                                                           |   |              |   |             
|Deficit -
      beginning of period                                        |   | (43,822,274) |   | (36,825,543)
|                                                                           |   |              |   |             
|Deficit - end
      of period                                              | $ | (45,752,782) | $ | (38,842,984)
|                                                                           |   |              |   |             
|Basic and
      diluted loss per share for the period                      | $ | (0.03)       | $ | (0.03)      
|                                                                           |   |              |   |             
|Weighted
      average number of shares outstanding                        |   | 76,303,573   |   | 60,236,306  
|                                                                           |   |              |   |             



See accompanying Notes to the Consolidated
Financial Statements

---

Baja Mining Corp.

Interim Consolidated Statements of Cash Flows

For
the three months ended March 31

|                                                                                         |   |             |   |            
|---------------------------------------------------------------------------------------- | - | ----------- | - | -----------
|                                                                                         |   | 2006        |   | 2005       
|                                                                                         |   |             |   |            
|Operating
      activities                                                               |   |             |   |            
|Net
      loss for the period                                                            | $ | (1,930,508) | $ | (2,017,441)
|Items
      not involving cash:                                                          |   |             |   |            
|Amortization                                                                             |   | 50,248      |   | 4,366      
|Stock-based
      compensation expense                                                   |   | 420,536     |   | 375,620    
|                                                                                         |   | (1,459,724) |   | (1,637,455)
|Net
      changes in working capital balances                                            |   |             |   |            
|Accounts
      receivable and advances                                                   |   | (161,317)   |   | (22,961)   
|Accounts
      payable and accrued liabilities                                           |   | (170,073)   |   | (876,527)  
|                                                                                         |   | (1,791,114) |   | (2,536,943)
|Investing
      activities                                                               |   |             |   |            
|Advances
      (repayments) of amounts due to related parties                            |   | (26,599)    |   | (60,532)   
|Acquisition
      of property, plant and equipment                                       |   | (137,654)   |   | (29,048)   
|                                                                                         |   | (164,253)   |   | (89,580)   
|Financing
      activities                                                               |   |             |   |            
|Net
      proceeds from issuance of common shares                                        |   | 140,750     |   | -          
|Share
      subscriptions received                                                       |   | 4,995,962   |   | 1,160,700  
|                                                                                         |   | 5,136,712   |   | 1,160,700  
|                                                                                         |   |             |   |            
|Increase
      (decrease) in cash and equivalents                                        |   | 3,181,345   |   | (1,465,823)
|                                                                                         |   |             |   |            
|Cash and
      equivalents - beginning of period                                         |   | 2,760,084   |   | 5,248,382  
|                                                                                         |   |             |   |            
|Cash and
      equivalents - end of period                                               | $ | 5,941,429   | $ | 3,782,559  
|                                                                                         |   |             |   |            
|Supplemental
      Schedule of Non-Cash Investing and Financing Activities(Note
      9) |   |             |   |            



See accompanying Notes to the Consolidated
Financial Statements







---





1

Nature and continuance of operations



Baja Mining Corp. ("the Company"), formerly First Goldwater
Resources Inc., was incorporated on July 15, 1985 under the Company Act of
British Columbia. The Company is a reporting issuer in British Columbia and
trades on the TSX Venture Exchange. Effective April 20, 2004, the Company
completed a business combination with Mintec International Corporation through a
reverse takeover.

The
Company is in the process of exploring its resource properties in Mexico and is
considered to be in the exploration stage.

These
financial statements are presented in Canadian dollars and have been prepared in
accordance with Canadian generally accepted accounting principles applicable to
a going concern which assume that the Company will realize its assets and
discharge its liabilities in the normal course of business. The Companys
ability to meet its obligations and maintain its operations is contingent upon
successful completion of additional financing arrangements and/or the ability to
generate profitable operations in the future.



2

Summary of Significant Accounting Policies

These
unaudited interim financial statements are prepared by the Company in accordance
with Canadian generally accepted accounting principles. The preparation of
financial data is based on accounting policies and practices consistent with
those used in the annual audited financial statements. These interim financial
statements do not include all the disclosures included in the Companys annual
financial statements. Accordingly, these interim financial statements should be
read in conjunction with the Companys annual financial statements.



(a)

Principles
of consolidation



These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries.  The Companys significant subsidiary is Mintec
International Corporation and its wholly owned subsidiary, Minera y Metalurgica
Del Boleo, S.A de C.V., which has been accounted for using the purchase method.
 All significant inter-company transactions and balances have been
eliminated.

(b)

Management
estimates

These
consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles.  These principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reported periods.  Actual results may differ from these
estimates.



(c)

Fair
market value of financial instruments

The
Companys financial instruments consist of cash and cash equivalents, accounts
receivable, accounts payable and amounts due to/from related parties. The fair
value of these financial instruments approximates their carrying values, unless
otherwise noted. The Company is not exposed to significant interest, currency or
credit risks arising from these financial instruments, except for the currency
risk (Note 2d).





(d)

Foreign
currency translation and currency risk

Monetary
assets and liabilities denominated in foreign currencies are translated into
Canadian dollars at rates of exchange in effect at the date of the balance
sheet. Non-monetary assets, liabilities and other items are translated at
historical rates. Revenue and expenses are translated at average rates of
exchange prevailing during the period. Exchange gains or losses arising from
these translations are included in income of the period.



The
Company operates internationally, which gives rise to the risk that cash flows
may be adversely impacted by exchange rate fluctuations. The Company has not
entered into foreign currency contracts to hedge its risk against foreign
currency fluctuations.



As
at March 31, 2006, the Company has the following foreign denominated financial
instruments:



|                                                     |                         |                       
|---------------------------------------------------- | ----------------------- | ----------------------
|                                                     | Foreign currency amount | Canadian Dollar amount
|                                                     |                         |                       
|                                                     |                         |                       
|Cash in
      United States Dollars                  | 373,277                 | 435,552               
|Cash in
      Mexican Pesos                          | 590,644                 | 63,258                
|Value added
      taxes recoverable in Mexican Pesos | 1,674,570               | 179,346               



3

Mineral properties and mining concessions



Boleo
Project details are as follows:



|                                   |   |                |   |                  
|---------------------------------- | - | -------------- | - | -----------------
|                                   |   | March 31, 2006 |   | December 31, 2005
|Property
      rights (Note 3a)    | $ | 651,443        | $ | 651,443          
|Mining
      concessions (Note 3b) |   | 106,350        |   | 106,350          
|                                   |   |                |   |                  
|Total at
      cost                | $ | 757,793        | $ | 757,793          



(a)

Property rights

The Company owns three properties containing approximately 6,692
hectares, located near Santa Rosalia, Baja California Sur, Mexico. The annual
property tax on these properties is approximately $5,800.



(b)

Mining
concessions

The Company acquired certain concessions covered by 16 separate
titles and covering approximately 18,084 hectares, located near Santa Rosalia,
Baja California Sur, Mexico. The annual fees related to these concessions are
approximately $154,700.





(c)

Details
of cumulative expenditures on the Boleo Project are as follows:

|                                        |   |                |   |                  
|--------------------------------------- | - | -------------- | - | -----------------
|                                        |   | March 31, 2006 |   | December 31, 2005
|Camp,
      general and travel          | $ | 1,027,647      | $ | 1,041,342        
|Concession
      and claim fees         |   | 1,825,941      |   | 1,803,328        
|Drilling                                |   | 7,971,265      |   | 7,891,311        
|Ecological                              |   | 1,034,426      |   | 1,034,426        
|Feasibility
      studies               |   | 3,012,432      |   | 2,844,457        
|Geological
      and environmental      |   | 6,799,408      |   | 6,758,341        
|Hydrological                            |   | 56,186         |   | 56,186           
|Management
      fees                   |   | 3,058,966      |   | 2,893,966        
|Pilot plant
      costs                 |   | 8,245,413      |   | 7,756,895        
|Payroll and
      social security       |   | 1,307,814      |   | 1,259,261        
|Professional
      and consulting fees  |   | 3,670,125      |   | 3,658,299        
|Roads                                   |   | 687,494        |   | 687,494          
|Stock based
      compensation expenses |   | 1,254,933      |   | 993,897          
|                                        |   |                |   |                  
|                                        | $ | 39,952,050     | $ | 38,679,203       





---

4

Property, Plant and Equipment



Comprised of the following:

|                                      |  |                  |  |                          |  |                        
|------------------------------------- |  | ---------------- |  | ------------------------ |  | -----------------------
|March
      31, 2006                  |  | Cost             |  | Accumulated Amortization |  | Net Book Value         
|Computer
      equipment and software |  | $        134,481 |  | $
             102,359   |  | $
               32,122
|Leasehold
      improvements          |  | 101,559          |  | 14,722                   |  | 86,837                 
|Machinery
      and equipment         |  | 274,924          |  | 59,939                   |  | 214,985                
|Mining
      equipment                |  | 86,262           |  | 58,566                   |  | 27,696                 
|Office
      equipment and furniture  |  | 82,138           |  | 36,225                   |  | 45,913                 
|Transportation
      equipment        |  | 46,922           |  | 31,431                   |  | 15,491                 
|Warehouse                             |  | 292,105          |  | 29,027                   |  | 263,078                
|                                      |  |                  |  |                          |  |                        
|                                      |  | $     1,018,391  |  | $
             332,269   |  | $
            686,122  





|                                      |  |                  |  |                          |  |                       
|------------------------------------- |  | ---------------- |  | ------------------------ |  | ----------------------
|December
      31, 2005               |  | Cost             |  | Accumulated Amortization |  | Net Book Value        
|Computer
      equipment and software |  | $        131,626 |  | $
                92,915 |  | $
              38,711
|Leasehold
      improvements          |  | 101,559          |  | 10,152                   |  | 91,407                
|Machinery
      and equipment         |  | 274,924          |  | 42,749                   |  | 232,175               
|Mining
      equipment                |  | 86,262           |  | 55,176                   |  | 31,086                
|Office
      equipment and furniture  |  | 79,714           |  | 33,566                   |  | 46,148                
|Transportation
      equipment        |  | 46,922           |  | 28,482                   |  | 18,440                
|Warehouse                             |  | 167,149          |  | 26,402                   |  | 140,747               
|                                      |  |                  |  |                          |  |                       
|                                      |  | $        888,156 |  | $
              289,442  |  | $
            598,714 





5

Share Capital



(a)

Authorized

200,000,000 common shares without par value



(b)

Details
of transactions are as follows:



|                                                 |  |            |   |           
|------------------------------------------------ |  | ---------- | - | ----------
|                                                 |  | Shares     |   | Amount    
|Balance
      – December 31, 2004                |  | 60,236,306 | $ | 40,582,163
|Brokered
      private placements  (Note 5c)     |  | 7,255,715  |   | 3,039,500 
|Non-brokered
      private placement (Note 5c)   |  | 4,505,249  |   | 1,601,837 
|Share
      issue costs                          |  | -          |   | (415,748) 
|Shares
      issued on exercise of warrants      |  | 4,243,550  |   | 585,322   
|Shares
      issued on exercise of stock options |  | 40,000     |   | 8,800     
|Fair
      value of options exercised (Note 5f)  |  | -          |   | 4,498     
|Balance
      – December 31, 2005                |  | 76,280,820 |   | 45,406,372
|Shares
      issued on exercise of warrants      |  | 25,000     |   | 11,250    
|Shares
      issued on exercise of stock options |  | 370,000    |   | 129,500   
|Fair
      value of options exercised (Note 5f)  |  | -          |   | 130,816   
|Balance
      – March 31, 2006                   |  | 76,675,820 | $ | 45,677,938



(c)

Private
Placements

During
the financial year ended December 31, 2005, the following share placements were
completed:

(i)
March 2005 - a private brokered placement of 2,000,000 units at $0.60 per unit,
realizing gross proceeds of $1,200,000. Each unit consists of one share and one
half share purchase warrant. Two share purchase warrants entitle the holder to
acquire one share at $1.15 within two years of issue.  The expiration
period for the warrants will be extended to five years, should the Company
achieve Tier 1 status prior to expiry of the two year term.  Agents fees
relating to this placement amounted to $92,500 settled in cash.



(ii)
March 2005 - a private non-brokered placement of 100,000 units at $0.60 per
unit, realizing gross proceeds of $60,000. Each unit consists of one share and
one half share purchase warrant. Two share purchase warrants entitle the holder
to acquire one share at $1.15 within two years of issue.  The expiration
period for the warrants will be extended to five years, should the Company
achieve Tier 1 status prior to expiry of the two year term.



(iii)
October 2005 - a private non-brokered placement of 1,426,678 units at $0.35 per
unit, realizing gross proceeds of $499,337. Each unit consists of one share and
one half share purchase warrant. Two share purchase warrants entitle the holder
to acquire one share at $0.45 within two years of issue.





(iv)
November 2005 - a private non-brokered placement of 1,978,571 units at $0.35 per
unit, realizing gross proceeds of $692,500. Each unit consists of one share and
one half share purchase warrant. Two share purchase warrants entitle the holder
to acquire one share at $0.45 within two years of issue.



(v)
December 2005 - a private non-brokered placement of 1,000,000 units at $0.35 per
unit, realizing gross proceeds of $350,000. Each unit consists of one share and
one half share purchase warrant. Two share purchase warrants entitle the holder
to acquire one share at $0.45 within two years of issue. Finders fees relating
to this issue amounted to $33,750 settled in cash.



(vi)
December 2005 - a private brokered placement of 5,255,715 units at $0.35 per
unit, realizing gross proceeds of $1,839,500. Each unit consists of one share
and one half share purchase warrant. Two share purchase warrants entitle the
holder to acquire one share at $0.45 within two years of issue. Agents fees
relating to this issue amounted to $186,581 settled in cash.



---

(d)

Warrants



As at March 31, 2006 the following warrants are outstanding:



|                      |                    |                |              |                          |                |                  
|--------------------- | ------------------ | -------------- | ------------ | ------------------------ | -------------- | -----------------
|Balance December 2005 | Granted
      2006 | Exercised 2006 | Expired 2006 | Balance March
      2006 | Exercise Price | Expiry
      Date
|                      |                    |                |              |                          |                |                  
|1,050,000             | -                  | -              | -            | 1,050,000                | $1.15          | June 8, 2007 (ii)
|713,339               | -                  | 10,000         | -            | 703,339                  | $0.45          | November 2, 2007 
|989,285               | -                  | -              | -            | 989,285                  | $0.45          | December 16, 2007
|3,127,858             | -                  | 15,000         | -            | 3,112,858                | $0.45          | December 21, 2007
|6,672,351             | -                  | -              | -            | 6,672,351                | $1.15          | April 20, 2009   
|                      | -                  |                |              |                          |                |                  
|12,552,833            | -                  | 25,000         | -            | 12,527,833               |                |                  



As at December 31, 2005 the following warrants were
outstanding:



|                       |                    |                |              |                        |                |                  
|---------------------- | ------------------ | -------------- | ------------ | ---------------------- | -------------- | -----------------
|Balance December  2004 | Granted
      2005 | Exercised 2005 | Expired 2005 | Balance December  2005 | Exercise Price | Expiry
      Date
|                       |                    |                |              |                        |                |                  
|666,666                | -                  | -              | 666,666      | -                      | $0.75          | October 19, 2005 
|
|4,210,550              | -                  | 4,210,550      | -            | -                      | $0.13          | July 11, 2005 (i)
|-                      | 1,050,000          | -              | -            | 1,050,000              | $1.15          | June 8, 2007 (ii)
|-                      | 713,339            | -              | -            | 713,339                | $0.45          | November 2, 2007 
|-                      | 989,285            | -              | -            | 989,285                | $0.45          | December 16, 2007
|-                      | 3,127,858          | -              | -            | 3,127,858              | $0.45          | December 21, 2007
|6,705,351              | -                  | 33,000         |              | 6,672,351              | $1.15          | April 20, 2009   
|                       |                    |                |              |                        |                |                  
|11,582,567             | 5,880,482          | 4,243,550      | 666,666      | 12,552,833             |                |                  



(iii)

These
warrants, originated in First Goldwater Resources Inc., prior to the reverse
takeover transaction.

(iv)

The
expiration period for the warrants will be extended from two to five years,
should the Company achieve Tier 1 status prior to expiry of the two year
term.



(e)

Stock Options



As at March 31, 2006 the following stock options are
outstanding:



|                            |                    |                      |                    |                                |                      |                   
|--------------------------- | ------------------ | -------------------- | ------------------ | ------------------------------ | -------------------- | ------------------
|Balance
      December 2005 | Granted
      2006 | Exercised
      2006 | Expired
      2006 | Balance
      March
      2006 | Exercise
      Price | Expiry
      Date 
|                            |                    |                      |                    |                                |                      |                   
|1,530,000                   | -                  | -                    | -                  | 1,530,000                      | $0.35(i)             | March 22, 2009    
|495,000                     | -                  | 20,000               | -                  | 475,000                        | $0.35(i)             | May 17, 2009      
|225,000                     | -                  | -                    | -                  | 225,000                        | $0.35(i)             | July 22, 2009     
|620,000                     | -                  | -                    | -                  | 620,000                        | $0.35(i)             | August 13, 2009   
|100,000                     | -                  | 100,000              | -                  | -                              | $0.35(i)             | August 20, 2009   
|1,000,000                   | -                  | 250,000              | -                  | 750,000                        | $0.35(i)             | March 15, 2010    
|310,000                     | -                  | -                    | -                  | 310,000                        | $0.35(i)             | April 12, 2010    
|1,870,000                   | -                  | -                    | -                  | 1,870,000                      | $0.35                | September 15, 2010
|375,000                     | -                  | -                    | -                  | 375,000                        | $0.35                | November 30, 2010 
|-                           | 200,000            | -                    | -                  | 200,000                        | $0.56                | January 31, 2011  
|-                           | 200,000            | -                    | -                  | 200,000                        | $0.94                | February 10, 2011 
|-                           | 300,000            | -                    | -                  | 300,000                        | $0.81                | March 01, 2011    
|-                           | 75,000             |                      |                    | 75,000                         | $1.21                | March 16, 2011    
|-                           | 400,000            | -                    | -                  | 400,000                        | $1.13                | March 17, 2011    
|                            |                    |                      |                    |                                |                      |                   
|6,525,000                   | 1,175,000          | 370,000              | -                  | 7,330,000                      |                      |                   



---

As at December 31, 2005 the following stock options were
outstanding:



|                      |                    |                |              |                       |                |                   
|--------------------- | ------------------ | -------------- | ------------ | --------------------- | -------------- | ------------------
|Balance December 2004 | Granted
      2005 | Exercised 2005 | Expired 2005 | Balance December 2005 | Exercise Price | Expiry
      Date 
|                      |                    |                |              |                       |                |                   
|240,000               | -                  | 40,000         | 200,000      | -                     | $0.22          | October 1, 2005   
|2,290,000             | -                  | -              | 760,000      | 1,530,000             | $0.35(i)       | March 22, 2009    
|695,000               | -                  | -              | 200,000      | 495,000               | $0.35(i)       | May 17, 2009      
|225,000               | -                  | -              | -            | 225,000               | $0.35(i)       | July 22, 2009     
|620,000               | -                  | -              | -            | 620,000               | $0.35(i)       | August 13, 2009   
|500,000               |                    | -              | 500,000      | -                     | $0.35(i)       | August 17, 2009   
|100,000               | -                  | -              |              | 100,000               | $0.35(i)       | August 20, 2009   
|-                     | 1,000,000          | -              | -            | 1,000,000             | $0.35(i)       | March 15, 2010    
|-                     | 310,000            | -              | -            | 310,000               | $0.35(i)       | April 12, 2010    
|-                     | 150,000            | -              | 150,000      | -                     | $0.35(i)       | June 01, 2010     
|-                     | 1,870,000          | -              | -            | 1,870,000             | $0.35          | September 15, 2010
|-                     | 375,000            | -              | -            | 375,000               | $0.35          | November 30, 2010 
|                      |                    |                |              |                       |                |                   
|4,670,000             | 3,705,000          | 40,000         | 1,810,000    | 6,525,000             |                |                   







(e)

Stock Options - (contd)



(i)

The
exercise prices of stock options, with exercise prices ranging from $0.60 to
$0.75, granted prior to September 15, 2005, were amended to $0.35, subject to
the approval of disinterested shareholders of the Company. A revaluation of
options granted, not yet exercised, and which are subject to this amendment, has
been performed.



The Company adopted a stock option plan ("the plan") whereby, the
Company may grant stock options up to a maximum of ten percent of the number of
issued shares of the Company. At March 31, 2006, the Company has reserved
7,667,582 common shares under the plan (December 31, 2005 – 7,628,082).



The option plan has the following vesting requirement:

(i)   Options granted to employee and consultants
conducting investor relations activities will vest with the right to exercise
one-quarter of the option upon conclusion of every three months subsequent to
the grant date.

(ii) Options granted to other employees, consultants, directors
and officers vest  immediately.

The fair value of the options granted during the period was
estimated at each grant date using the Black-Scholes option-pricing model.
During the period, the Company granted 1,175,000 five year stock options at
exercise prices ranging between $0.56 and $1.21; 300,000 of which were granted
to a director and 875,000 to consultants and employees. Stock-based compensation
costs, in the amount of $420,536 have been recognized and charged to expenses,
with an offsetting amount recorded as a credit to contributed surplus.



The fair value of stock options granted was estimated at each
grant date based on the Black-Scholes option-pricing model, using the following
weighted average assumptions:



|                                           |               |              
|------------------------------------------ | ------------- | -------------
|                                           | March 2006    | December 2005
|Risk free
      interest rate              | 4.03%         | 3.89%        
|Dividend
      yield                       | 0%            | 0%           
|Expected
      volatility                  | 64.81%        | 56.65%       
|Expected
      stock option life           | 5
      years | 5
      years
|                                           |               |              
|Weighted
      average fair value of stock |               |              
|options
      granted                      | $0.44         | $0.27        
|                                           |               |              









(f)

Contributed Surplus



|                                                        |   |          
|------------------------------------------------------- | - | ---------
|Balance
      December 31, 2004                         | $ | 1,390,189
|Fair value
      of options granted (Note 6f)           |   | 954,030  
|Fair value
      of 40,000 options exercised (Note 6b)  |   | (4,498)  
|Balance
      December 31, 2005                         |   | 2,339,721
|Fair value
      of options granted (Note 6f)           |   | 420,536  
|Fair value
      of 370,000 options exercised (Note 6b) |   | (130,816)
|Balance
      March 31, 2006                            | $ | 2,629,441





(g)

Escrow Shares



On April 20, 2004, 40,000,000 shares issued on the acquisition of
Mintec International Corporation were placed into escrow and will be released
from escrow over a three-year period. 4,000,000 shares were released on April
20, 2004 and 6,000,000 shares are released every six months thereafter. Should
the Company become a Tier 1 issuer on the TSX, all remaining escrow shares will
be immediately released from escrow. The escrow shares are also subject to a
shareholder pooling agreement in terms of which fifty percent of the escrow
shares were issued by April 20, 2005, twenty five percent were released by
October 20, 2005 and, the balance were released on April 20, 2006.





Related Party Transactions



(d)

The
Company entered into the following transactions with current or former directors
or officers of the Company or with companies with current or former directors or
officers in common:

|                                                                                                  |   |                |   |               
|------------------------------------------------------------------------------------------------- | - | -------------- | - | --------------
|                                                                                                  |   | March 31, 2006 |   | March 31, 2005
|Management
      fees paid or accrued                                                             | $ | 121,468        | $ | 127,898       
|Rent and
      administration costs paid or accrued                                               |   | -              |   | 10,821        
|Salaries
      and wages paid to employees related to directors and officers of the
      Company |   | 15,000         |   | 13,750        
|Directors
      fees paid or accrued                                                              |   | 4,250          |   | -             
|                                                                                                  |   |                |   |               
|                                                                                                  | $ | 140,718        | $ | 152,469       



(e)

The
Company had the following amounts due from a company with directors in common.
The amount is non-interest bearing, unsecured and is due on demand.

|                              |   |                |   |                  
|----------------------------- | - | -------------- | - | -----------------
|                              |   | March 31, 2006 |   | December 31, 2005
|Minterra
      Resource Corp. | $ | 43,844         | $ | 43,844           



---

(f)

The
Company had the following amounts due to a company of a former director of the
Company or companies with directors in common:

|                                                                            |   |                |   |                  
|--------------------------------------------------------------------------- | - | -------------- | - | -----------------
|                                                                            |   | March 31, 2006 |   | December 31, 2005
|Tek Terra
      Corporation                                                 | $ | 21,560         | $ | 46,931           
|Minera
      Terra Gaia, S.A. de C.V.                                       |   | 10,342         |   | 11,570           
|Holmes
      Greenslade, a law firm of which an insider is a former partner |   | 2,645          |   | 2,645            
|                                                                            |   |                |   |                  
|                                                                            | $ | 34,547         | $ | 61,146           



The
amounts are non-interest bearing, unsecured and are due on demand.



The
above transactions, occurring in the normal course of operations, are measured
at the exchange amount, which is the amount of consideration established and
agreed to by the related parties.



7

Segmented
Information



The
Companys exclusive business activity is exploration and development of mineral
reserves.  This activity is carried out primarily in Mexico.



The
breakdown by geographic region for the three month period ended March 31, 2006
is as follows:



|                           |   |           |   |           |   |             
|-------------------------- | - | --------- | - | --------- | - | ------------
|                           |   | Canada    |   | Mexico    |   | Consolidated
|Exploration
      expenses | $ | -         | $ | 1,272,847 | $ | 1,272,847   
|Capital
      expenditures | $ | 4,451     | $ | 133,203   | $ | 137,654     
|Segment
    loss           | $ | 977,138   | $ | 953,370   | $ | 1,930,508   
|Total
    assets           | $ | 5,773,688 | $ | 2,033,474 | $ | 7,807,162   



The
breakdown by geographic region for the three month period ended March 31, 2005
is as follows:



|                           |   |           |   |           |   |             
|-------------------------- | - | --------- | - | --------- | - | ------------
|                           |   | Canada    |   | Mexico    |   | Consolidated
|Exploration
      expenses | $ | -         | $ | 1,411,494 | $ | 1,411,494   
|Capital
      expenditures | $ | -         | $ | 29,048    | $ | 29,048      
|Segment
    loss           | $ | 555,014   | $ | 1,462,427 | $ | 2,017,441   
|Total
    assets           | $ | 3,733,671 | $ | 1,259,098 | $ | 4,992,769   



8

Commitments



(a)

On
September 22, 2004, the Company signed an agreement with Bateman Engineering Pty
Ltd. ("Bateman") to complete a definitive feasibility study on the Boleo
Project. The estimated contract value is US $8.9 million. The definitive
feasibility report is scheduled to be delivered in September 2006. The agreement
may be terminated upon thirty days written notice. As at March 31, 2006, the
remaining terminable commitment under the agreement amounted to US $1.4
million.



(d)

The
Company has concluded a number of management and consulting agreements with
directors and officers of the Company.  The future commitments under these
contracts as at March 31, 2006 amount to $234,000 in respect of the year ended
December 31, 2006 and $96,000 in respect of the year ended December 31, 2007.



(e)

The
Company has committed to an operating lease for office space for a term of 63
months, expiring September 2010. The minimum lease payment is $74,480 per annum.



---

9

Supplemental
Schedule of Non-Cash Investing and Financing Activities



The following are the non-cash investing and financing activities
of the Company during the three months ended March 31:



|                                                                                                |   |         |   |       
|----------------------------------------------------------------------------------------------- | - | ------- | - | ------
|                                                                                                |   | 2006    |   | 2005  
|                                                                                                |   |         |   |       
|Fair value of
      options exercised transferred from contributed surplus to share
    capital | $ | 130,816 | $ | -     
|Interest
      received                                                                         | $ | 13,804  | $ | 13,233





10

Subsequent
Events



(e)

On
April 13, 2006, the Company completed a private placement of 25,555,556 units at
$0.90 per unit for gross proceeds of $23,000,000. Each unit consists of one
share and one half share purchase warrant. Two share purchase warrants entitle
the holder to acquire one share at $1.25 either within two years of issue or on
the occurrence of the share price maintaining a level of $2.50 for a period of
twenty consecutive days.  The expiry period for the warrants will be
extended to five years, should the Company achieve Tier 1 status prior to expiry
of the two year term. Of the gross proceeds, $4,995,962 was received during the
three months ending March 31, 2006.



(f)

Subsequent
to March 31, 2006, the Company granted 100,000 stock options at a price of $1.45
to employees of the Company with an expiry date five years from the date of
grant.









11

Differences
Between United States and Canadian Generally Accepted Accounting

Principles
("GAAP")



These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in Canada.  Except as set out
below, these financial statements also comply, in all material aspects, with
accounting principles generally accepted in the United States and the rules and
regulations of the Securities Exchange Commission.



(a)

Under
Canadian GAAP, the mineral properties are carried at cost and written off or
written down if the properties are abandoned, sold or if management decides not
to pursue the properties.  Under United States GAAP, the Company would
periodically review and obtain independent reports in determining adjustments to
the mineral properties and record properties at net realizable value.  The
Company has not yet obtained an independent report for United States GAAP
purposes, therefore, the Companys mineral property costs would have been
written off.



---

(b)

The impact of the above differences between Canadian and United
States GAAP on the deficits as at March 31, as reported, is as follows:



|                                                    |      |              |   |             
|--------------------------------------------------- | ---- | ------------ | - | ------------
|                                                    | 2006 | 2005        
|Deficit - As reported                               | $    | (45,752,782) | $ | (38,842,984)
|Less capitalized mineral property costs             |      | (757,793)    |   | (757,793)   
|Deficit
      in accordance with United States GAAP | $    | (46,510,575) | $ | (39,600,777)



(c) The impact of the above differences between Canadian and
United States GAAP on the statement of changes in shareholders equity, as
reported, is as follows:



|                                                                                   |               |   |            |   |                         |   |              |                         |           |       |          
|---------------------------------------------------------------------------------- | ------------- | - | ---------- | - | ----------------------- | - | ------------ | ----------------------- | --------- | ----- | ---------
|                                                                                   | Common Shares |   |            |   |                         |   |              |                         |          
|                                                                                   | Number        |   | Amount     |   | Contributed
    Surplus |   | Deficit      | Share
    Subscriptions |           | Total
|Shareholders
      equity balance as reported at March 31, 2006                   | 76,675,820    | $ | 45,677,938 | $ | 2,629,441               | $ | (45,752,782) | $                       | 4,995,962 | $     | 7,550,559
|Less
      capitalized mineral property costs                                      | -             |   | -          |   | -                       |   | (757,793)    |                         | -         |       | (757,793)
|Shareholders
      equity in accordance with United States GAAP at March 31, 2006 | 76,675,820    | $ | 45,677,938 | $ | 2,629,441               | $ | (46,510,575) | $                       | 4,995,962 | $     | 6,792,766



|                                                                    |               |   |            |   |                         |   |              |                         |   |       |          
|------------------------------------------------------------------- | ------------- | - | ---------- | - | ----------------------- | - | ------------ | ----------------------- | - | ----- | ---------
|                                                                    | Common Shares |   |            |   |                         |   |              |                         |  
|                                                                    | Number        |   | Amount     |   | Contributed
    Surplus |   | Deficit      | Share
    Subscriptions |   | Total
|Shareholders
      equity balance as reported at December 31, 2005 | 76,280,820    | $ | 45,406,372 | $ | 2,339,721               | $ | (43,822,274) | $                       | - | $     | 3,923,817
|Less
      capitalized mineral property  costs                      | -             |   | -          |   | -                       |   | (757,793)    |                         | - |       | (757,793)



|                                                                                      |            |   |            |   |           |  
|------------------------------------------------------------------------------------- | ---------- | - | ---------- | - | --------- | -
|Shareholders
      equity in accordance with United States GAAP at December 31, 2005 | 76,280,820 | $ | 45,406,372 | $ | 2,339,721 | $



| |  |  |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  |  |  | 







In
March 2005, the SEC staff issued Staff Accounting Bulletin ("SAB") No. 107,
"Share-Based Payment," which provides guidance on the interaction between SFAS
No. 123R and certain SEC rules and regulations, as well as on the valuation of
share-based payments.  SAB No. 107 provides interpretive guidance related
to valuation methods (including assumptions such as expected volatility and
expected term), first time adoption of SFAS No. 123R in an interim period, the
classification of compensation expense and disclosures subsequent to adoption of
SFAS No. 123R.  The Company is currently evaluating the impact of SAB No.
107 on our consolidated financial statements.



In
March 2005, the FASB issued Interpretation 47 ("FIN 47"), "Accounting for
Conditional Asset Retirement Obligations"-an interpretation of FASB No. 143.
 FIN 47 clarifies that the term "conditional asset retirement obligation"
as used in SFAS No. 143 refers to a legal obligation to perform an asset
retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity.  The obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing and/or method of
settlement.  FIN 47 requires a liability to be recognized for the fair
value of a conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated.  FIN 47 was effective for fiscal
years ending after December 15, 2005. The adoption of FIN 47 did not have a
material impact on the Companys consolidated financial position, results of
operations or cash flows.



In
June 2005, the FASB issued FASB Staff Position Paper ("FSP") 115-1, "The Meaning
of Other-Than-Temporary Impairment and its Application to Certain Investments,"
superseding EITF 03-1.  Adoption of FSP 115-1 is not expected to have a
material impact on our consolidated financial position, results of operations or
cash flows.









---





GLOSSARY OF TERMS



Boléo

El Boléo Property, Boléo District, Boléo Mining District, Boléo
copper-cobalt-zinc deposit – located just outside of Santa Rosalí
a, Baja
California Sur, Mexico.

CCD

Counter
Current Decantation

CIM Standards

Canadian Institute of Mining, Metallurgy and Petroleum Standards
on Mineral Resources and Reserves, as adopted by CIM Council.

Cu

Copper

FDW

Fluor Daniel
Wright

Fomento
Minera

Comisió
n de
Fomento Minera (Bureau of Mines)

Hellman
& Schofield

Hellman
& Schofield Pty Ltd., Sydney, Australia – economic geological
consultants

Ma

Millions of
years

Manto

Spanish
mining term for a "mineralized layer or stratum"

David Mehner

David Mehner
 P.Geo. – Consulting Geologist

Minera
Curator

Minera Curator, S.A. de
C.V. – Mexican subsidiary of International

Curator Resources Ltd.,
the name eventually changed to Minera Y Metalurgica del Boléo, S.A. de C.V.

Mintec

Mintec International Corporation, Barbados, formed as the parent
company of Minera Curator, S.A de C.V.  Mintec was continued to British
Columbia, Canada, under the British Columbia Business Corporation Act under the
name "Mintec Processing Ltd." on November 25, 2004.

Minera y Metalurgica del
Boléo

Minera y
Metalurgica del Boléo, S.A de C.V.

Minera Tera Gaia

Minera Tera Gaia, S.A. de C.V, Mexican subsidiary of Terratech
Environmental Corporation

NAFTA

North
American Free Trade Agreement

NI 43-101

Canadian
National Instrument 43-101

Ordinary Kriging

In the estimation of
ore reserves by geostatistical methods, Kriging is the use of a weighted,
moving-average approach both to account for the estimated values of spatially
distributed variables, and also to assess the probable error associated with the
estimates.  Ordinary Kriging is a variety of kriging which assumes that
local means are not necessarily closely related to the population mean, and
which therefore uses only the samples in the local neighborhood for the
estimate



Poquiteros

Spanish term
for small groups of independent miners

Retaque

Spanish term
meaning "back fill"

Stope

An
underground excavation made for the purpose of extracting mineral.

SX/EW

Solvent Extraction and Electro-winning -  Solvent extraction
(SX), sometimes called liquid ion exchange, is a means of selectively



concentrating and purifying a desired element after it has been
dissolved in some solution, frequently an acid leach liquor. Electro-winning
(EW) is the application of a direct electric current to a concentrated solution
of metal ions to cause the deposition of high purity metal.











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GUIDE 7 AND CIM REPORTING DEFINITIONS



We report mineralized material under two separate standards to
meet the requirements for reporting in both the U.S. and Canada.  U.S.
reporting requirements for disclosure of mineral properties are governed by the
United States Securities and Exchange Commission (SEC) Industry Guide 7.
 Canadian reporting requirements for disclosure of mineral properties are
governed by National Instrument 43-101, commonly referred to as NI 43-101.
 Canadian and United States standards are substantially different, and none
of our property has any probable or proven reserves under either Canadian or
United States standards.

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|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Mineralization                                                              | The concentration of metals
      and their chemical compounds within a body of rock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Mineralization, Mineralized
      material, mineralized deposits or Deposit | A mineralized
      body which has been intersected by sufficient closely spaced drill holes
      and/or sampling to support sufficient tonnage and average grade of
      metal(s) to warrant further exploration-development work.  This
      mineralized body does not qualify as a commercially mineable ore body, as
      prescribed under Securities and Exchange Commission standards, until a
      final and comprehensive economic, technical and legal feasibility study
      based upon the test results is concluded and supports Proven/Probable
      Reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Mineral Deposit                                                             | A mineralized
      body which has been delineated by appropriate drilling and/or underground
      sampling to support a sufficient tonnage and average grade of metal(s).
       Under SEC standards, such a deposit does not qualify as a reserve
      until comprehensive evaluation, based on unit cost, grade, recoveries and
      other factors, concludes economic feasibility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Mineral Reserve                                                             | Means that
      part of a measured mineral resource or indicated mineral resource that can
      be extracted legally and at a profit under economic conditions that are
      specified and generally accepted as reasonable by the mining industry and
      which is demonstrated by a preliminary feasibility study or feasibility
      study.
      THE TERMS
      "MINERAL RESERVE", "PROVEN MINERAL RESERVE", AND "PROBABLE MINERAL
      RESERVE" USED IN THIS ANNUAL REPORT ARE CANADIAN MINING TERMS AS DEFINED
      IN ACCORDANCE WITH NATIONAL INSTRUMENT 43-101 – STANDARDS OF DISCLOSURE
      FOR MINERAL PROJECTS UNDER THE GUIDELINES SET OUT IN THE CANADIAN
      INSTITUTE OF MINING, METALLURGY AND PETROLEUM (THE "CIM") STANDARDS ON
      MINERAL RESOURCES AND MINERAL RESERVES DEFINITIONS AND GUIDELINES ADOPTED
      BY THE CIM COUNCIL.  IN THE UNITED STATES, A MINERAL RESERVE IS
      DEFINED AS A PART OF A MINERAL DEPOSIT WHICH COULD BE ECONOMICALLY AND
      LEGALLY EXTRACTED OR PRODUCED AT THE TIME THE RESERVE DETERMINATION IS
      MADE.
      RESERVES
      ARE CATEGORIZED AS FOLLOWS ON THE BASIS OF THE DEGREE OF CONFIDENCE IN THE
      ESTIMATE OF THE QUALITY AND GRADE OF THE DEPOSIT.
      Proven
      Mineral Reserve means, in accordance with CIM Standards, for the part
      of a deposit which is being mined, or which is being developed and for
      which there is a detailed mining plan, the estimated quantity and grade or
      quality of that part of a measured mineral resource for which the size,
      configuration and grade or quality and distribution of values are so well
      established, and for which economic viability has been demonstrated by
      adequate information on engineering, operating, economic and other
      relevant factors, that there is the highest degree of confidence in the
      estimate.

| | 
| | 



|                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                 | THE DEFINITION FOR "PROVEN MINERAL RESERVES"
      UNDER CANADIAN STANDARDS DIFFERS FROM THE STANDARDS IN THE UNITED STATES,
      WHERE PROVEN OR MEASURED RESERVES ARE DEFINED AS RESERVES IN RESPECT OF
      WHICH (A) QUANTITY IS COMPUTED FROM DIMENSIONS REVEALED IN OUTCROPS,
      TRENCHES, WORKINGS OR DRILL HOLES; GRADE AND/OR QUALITY ARE COMPUTED FROM
      THE RESULTS OF DETAILED SAMPLING AND (B) THE SITES FOR INSPECTION,
      SAMPLING AND MEASUREMENT ARE SPACED SO CLOSELY AND THE GEOLOGIC CHARACTER
      IS SO WELL DEFINED THAT SIZE, SHAPE, DEPTH AND MINERAL CONTENT OF RESERVES
      ARE WELL ESTABLISHED.
      Probable
      Mineral Reserve:means, in accordance with CIM Standards, the
      estimated quantity and grade or quality of that part of an indicated
      mineral resource for which economic viability has been demonstrated by
      adequate information on engineering, operating, economic and other
      relevant factors, at a confidence level which would serve as a basis for
      decisions on major expenditures.
      THE
      DEFINITION FOR "PROBABLE MINERAL RESERVES" UNDER CANADIAN STANDARDS
      DIFFERS FROM THE STANDARDS IN THE UNITED STATES, WHERE PROBABLE RESERVES
      ARE DEFINED AS RESERVES IN RESPECT OF WHICH QUANTITY AND GRADE AND/OR
      QUALITY ARE COMPUTED FROM INFORMATION SIMILAR TO THAT USED FOR PROVEN
      RESERVES (UNDER UNITED STATES STANDARDS), BUT THE SITES FOR INSPECTION,
      SAMPLING AND MEASUREMENT ARE FURTHER APART OR ARE OTHERWISE LESS
      ADEQUATELY SPACED, AND THE DEGREE OF ASSURANCE, ALTHOUGH LOWER THAN THAT
      FOR PROVEN RESERVES, IS HIGH ENOUGH TO ASSUME CONTINUITY BETWEEN POINTS OF
      OBSERVATION.                                                                                                                                                                                                                                                                                                             
|Mineral Resource | Under CIM
      Standards, Mineral Resource is 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 TERMS
      "MINERAL RESOURCE", "MEASURED MINERAL RESOURCE", "INDICATED MINERAL
      RESOURCE", AND "INFERRED MINERAL RESOURCE" USED IN THIS ANNUAL REPORT ARE
      CANADIAN MINING TERMS AS DEFINED IN ACCORDANCE WITH NATIONAL INSTRUMENT
      43-101 – STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS UNDER THE GUIDELINES
      SET OUT IN THE CIM STANDARDS.  THEY ARE NOT DEFINED TERMS UNDER
      UNITED STATES STANDARDS AND MAY NOT GENERALLY BE USED IN DOCUMENTS FILED
      WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION BY U.S.
      COMPANIES.  AS SUCH, INFORMATION CONTAINED IN THIS ANNUAL REPORT
      CONCERNING DESCRIPTIONS OF MINERALIZATION AND RESOURCES MAY NOT BE
      COMPARABLE TO INFORMATION MADE PUBLIC BY U.S. COMPANIES SUBJECT TO THE
      REPORTING AND DISCLOSURE REQUIREMENTS OF THE UNITED STATES SECURITIES AND
      EXCHANGE COMMISSION.
      A mineral
      resource estimate is based on information on the geology of the deposit
      and the continuity of mineralization. Assumptions concerning economic and
      operating conditions including cut-off grades and economic mining widths,
      based on factors typical for the type of deposit, may be used if these
      factors have not been specifically established for the deposit at the time
      of the mineral resource estimate.A mineral resource is categorised on
      the basis of the degree of confidence in the estimate of quantity and
      grade or quality of the deposit, as follows:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inferred
      Mineral Resource:Under CIM Standards, an Inferred Mineral Resource is
      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 and drill holes.
      Indicated
      Mineral Resource: Under CIM Standards, an Indicated Mineral Resource
      is 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.
      Measured
      Mineral Resource:Under CIM Standards, a Measured Mineral Resource is
      that part of a Mineral Resource for which quantity, grade or quality,
      densities, shape, 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.



Cautionary Note to investors concerning
estimates of Measured and Indicated Mineral Resources:  The table below
uses the terms "measured mineral resources" and "indicated mineral resources."
 We advise investors that while those terms are recognized and required by
Canadian regulations, the SEC does not recognize them.  Investors are
cautioned not to assume that any part or all of the mineral deposits in these
categories will ever be converted into mineral reserves.









---





SIGNATURES



The Registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and has duly caused and
authorized the undersigned to sign this Registration Statement on its
behalf.



Dated:   June 30, 2006





BAJA MINING
CORP.





"John W.
Greenslade"



Name:
John W. Greenslade

Title:
Chief Executive Officer