Filed by Automated Filing Services Inc. (604) 609-0244 - Farallon Resources Ltd. - Form 20-F






No securities regulatory authority in Canada
has expressed an opinion about these securities and it is an offence to claim
otherwise. This short form prospectus constitutes a public offering of these
securities only in those jurisdictions where they may be lawfully offered for
sale and therein only by persons permitted to sell such securities. These
securities have not been and will not be registered under the United States
Securities Act of 1933, as amended (the “U.S. Securities Act”). Accordingly,
subject to certain exceptions, these securities may not be offered or sold
within the United States of America and this short form prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any of these
securities within the United States of America. See “Plan of
Distribution”. 

Information has been incorporated by
reference in this prospectus from documents filed with the securities
commissions or similar authorities in Canada. Copies of the documents
incorporated herein by reference may be obtained on request without charge from
the Secretary, Farallon Resources Ltd., #1020, 800 West Pender Street,
Vancouver, British Columbia, V6C 2V6 (Telephone (604) 684-6365), and are also
available electronically at www.sedar.com. 

SHORT FORM PROSPECTUS 

	New Issue 	December 14, 2006 


 

UP TO $80,000,000 

160,000,000 Subscription Receipts, each
representing the right to receive One Common Share 
and
One-Half of One Common Share Purchase Warrant 

          This
short form prospectus (“Prospectus”) qualifies the distribution (the “Offering”)
of up to 160,000,000 subscription receipts (the “Subscription Receipts”) of
Farallon Resources Ltd. (the “Company”) at a price of $0.50 per Subscription
Receipt (the “Offering Price”). Each Subscription Receipt will entitle the
holder thereof to receive one common share (each, a “Common Share”) and one-half
of one common share purchase warrant (each whole common share purchase warrant,
a “Warrant”), without payment of additional consideration and without any
further action by holders of Subscription Receipts, upon satisfaction of the
Escrow Release Conditions (as defined herein). Each Warrant will entitle the
holder thereof to purchase one Common Share at a price of $0.70 at any time
before 5:00 p.m. (Vancouver time) on the date that is 24 months after the
closing date of the Offering (the “Closing Date”). The expiry of the Warrants
may be accelerated in certain events, as described under “Plan of Distribution”.
The Subscription Receipts will be issued and sold pursuant to an agency
agreement (the “Agency Agreement”) between Paradigm Capital Inc., Canaccord
Capital Corporation and MGI Securities Inc. (collectively, the “Agents”) and the
Company. The Offering Price was determined by negotiation between the Company
and the Agents. See “Plan of Distribution”. 

          On
the Closing Date 25% (up to $20,000,000) of the Offering proceeds will be
released to the Company and the Agents will receive one-half of the Agents’ Fee
and all of the Agents’ out-of-pocket expenses. The Subscription Receipts
represented by that portion of the Offering proceeds released on the Closing
Date will be automatically exchanged on the Closing Date on a pro rata
basis for one Common Share and one-half of one Warrant, without payment of
additional consideration and without any further action by holders of
Subscription Receipts. The remainder of the Offering proceeds (the “Escrowed
Funds”) will be deposited in escrow with Computershare Trust Company of Canada,
as escrow agent (the “Escrow Agent”), and invested in short term investment
grade debt obligations pending satisfaction of the Escrow Release Conditions, as
defined below. If the Escrow Release Conditions are satisfied before 5:00 p.m.
(Vancouver time) on the date that is 90 days after the Closing Date (the
“Condition Deadline”), the remainder of the Subscription Receipts will be
automatically exchanged for one Common Share and one-half of one Warrant,
without payment of additional consideration and without any further action by
holders of Subscription Receipts, and the Escrow Agent will pay to the Agents
the remainder of their fee and release the balance of the Escrowed Funds
(together with interest or other income earned 




thereon) to the Company (the “Escrow Release Date”). If the
Escrow Release Conditions are not satisfied before the Condition Deadline,
commencing on the third business day after the Notice Date (as defined herein),
the Escrow Agent will return to each holder of the Subscription Receipts (unless
otherwise directed by such holder), such holder’s pro rata share of the
Escrowed Funds and interest or other income earned thereon (less applicable
withholding tax, if any). After the Closing Date and before the Condition
Deadline, Subscription Receipt holders may, at their option, exchange their
Subscription Receipts for one Common Share and one-half of one Warrant, without
payment of additional consideration, the Escrowed Funds attributable to such
exchanged Subscription Receipts will be released to the Company and the Agents
will receive one-half of the Agents’ Fee attributable to such Subscription
Receipts. Each holder will receive Common Shares and Warrants for the unrefunded
Subscription Receipts. See “Use of Proceeds”, “Plan of Distribution” and
“Details of the Offering”. 

          The
Company’s Common Shares are listed and posted for trading on the Toronto Stock
Exchange (“TSX”) under the symbol “FAN”. The Company will apply to list the
Common Shares, as well as the Common Shares issuable upon exercise of the
Warrants and the Compensation Options (together the “Underlying Shares”), on the
TSX. Listing will be subject to the Company fulfilling all of the requirements
of the TSX. The closing price of the Common Shares on the TSX on December 13,
2006 (the last trading day before the date hereof) was $0.59. 

          Investing
in the Subscription Receipts, and the Common Shares and Warrants issuable upon
exchange thereof, involves risk. Prospective investors should consider the risk
factors described under “Risk Factors” before purchasing Subscription Receipts.


______________________________

Price: $0.50
per Subscription Receipt 
______________________________

	  	  	 	  	 	Net Proceeds to the 
	  	Price to Public 	 	Agents’ Fee(1) 	 	       Company(2)
    
	  	  	 	  	 	  
	Per Subscription Receipt 	$0.50 	 	$0.03 	 	$0.47 
	Total 	$80,000,000 	 	$4,800,000 	 	$75,200,000


______________________________



	(1) 	
      In consideration of the services rendered by the Agents
      in connection with the Offering, the Company has agreed to pay a cash
      commission to the Agents equal to 6% of the gross proceeds raised in the
      Offering (the “Agents’ Fee”). The Agents’ Fee will be paid as to one-half
      on the Closing Date, and one-half on the Escrow Release Date.

	 	 
	(2) 	
      Before deducting the expenses of the Offering, estimated
      to be $400,000, which will be paid out of the general funds of the
      Company.




          The
Offering is being made on a best efforts basis. 

          This
Prospectus also qualifies the issue by the Company of non-transferable
compensation options (“Compensation Options”) to the Agents. The Compensation
Options entitle the Agents to purchase an aggregate number of Common Shares
equal to 6% of the number of Subscription Receipts sold pursuant to the Offering
at the Offering Price at any time until 5:00 p.m., Vancouver time, on the second
anniversary of the Closing Date. 

	  	 	  	 	  	 	Exercise Price 
	  	 	  	 	  	 	or Average 
	  	 	Maximum Size or Number of 	 	Exercise Period/ 	 	Acquisition 
	Agents’
      Position 	 	Securities Held 	 	Acquisition Date 	 	Price 
	  	 	  	 	  	 	  
	Compensation Options 	 	9,600,000 Common Shares 	 	24 months 	 	$0.50 
	  	 	  	 	  	 	  
	Any other option granted by 
issuer or
      insider of issuer 	
	Nil 
	
	— 
	
	— 

	  	 	  	 	  	 	  
	Total Securities under option 	 	9,600,000 Common Shares 	 	— 	 	— 


          The
Agents conditionally offer the Subscription Receipts, subject to prior sale, on
a best efforts basis, if, as and when issued and sold by the Company in
accordance with the conditions contained in the Agency Agreement referred to
under “Plan of Distribution” and subject to the approval of certain legal
matters on behalf of the 

- ii - 




Company by Lang Michener LLP, Vancouver, British Columbia, and
on behalf of the Agents by Heenan Blaikie LLP, Toronto, Ontario. See “Plan of
Distribution”. 

          Subject
to applicable laws and in connection with the Offering, the Agents may
over-allot or effect transactions which stabilize or maintain the market price
of the Common Shares at levels other than those which otherwise might prevail on
the open market. Such transactions, if commenced, may be discontinued at any
time. See “Plan of Distribution”. 

          Subscriptions
will be received subject to rejection or allotment in whole or in part and the
right is reserved to close the subscription books at any time without notice. It
is expected that certificates evidencing the Subscription Receipts will be
available for delivery at closing, which is expected to take place on or about
December 21, 2006 or such later date as may be agreed between the Company and
the Agents, but in any event not later January 26, 2007 (the “Closing
Date”).

- iii - 




TABLE OF CONTENTS 

	Documents Incorporated by Reference 	1 	 	Interests of Experts 	14 
	Eligibility for Investment 	3 	 	Risk Factors 	15 
	Forward Looking Statements 	3 	 	Certain Canadian Federal Income
      Tax 	  
	The Company 	4 	 	Considerations 	16 
	Recent Developments 	6 	 	Auditors, Transfer Agent and
      Registrar 	18 
	Use of Proceeds 	8 	 	Purchasers’ Statutory Rights
      	18 
	Plan of Distribution 	9 	 	Auditors’ Consent 	19 
	Details of the Offering 	10 	 	Certificate of the Company
    	C-1 
	Capitalization 	14 	 	Certificate of the Agents 	C-2 


In this Prospectus: 


	Company 	means Farallon Resources Ltd.; 
	 	 
	Farallon, we, our, us 	means the Company and its subsidiaries; 
	 	 
	g/t 	means grams per tonne; 
	 	 
	GMV/t 	means gross metal value per tonne, calculated
      by multiplying metal grade by a specific metal price; 
	 	 
	m 	means metre; 
	 	 
	NI43-101 	means Canadian Securities Administrators’
      National Instrument 43-101, Standards of Disclosure for Mineral Projects;
    
	 	 
	Qualifying 
Jurisdictions 	means British Columbia, Alberta, Manitoba, New
      Brunswick and Ontario; 

	 	 
	ton 	means 2,000 pounds; and 
	 	 
	tonne 	means 1.102 tons. 



All currency amounts in this Prospectus
are in Canadian dollars unless otherwise indicated. 

DOCUMENTS INCORPORATED BY REFERENCE 

          The
following documents filed with the securities commission or similar regulatory
authority in British Columbia, Alberta, Manitoba, Ontario and New Brunswick are
specifically incorporated by reference into, and form an integral part of, this
Prospectus: 

	
  the Annual Information Form of the Company dated September 25, 2006 for the
  fiscal year ended June 30, 2006; 

  
	
  the audited consolidated financial statements and the notes thereto as at
  June 30, 2006 and 2005 and for each of the years in the three-year period
  ended June 30, 2006, together with the auditors’ report thereon; 






	
  management’s discussion and analysis of financial condition and results of
  operations for the fiscal year ended June 30, 2006; 

  
	
  the unaudited interim consolidated financial statements as at September 30,
  2006 and for the three months ended September 30, 2006 and 2005 and the notes
  thereto, and management’s discussion and analysis of financial condition and
  results of operations for the three months ended September 30, 2006; 

  
	
  the material change report dated July 13, 2006 relating to a proposed
  private placement; 

  
	
  the material change report dated August 28, 2006 relating to the filing of
  a preliminary prospectus for an offering of common shares; 

  
	
  the material change report dated September 25, 2006 relating to an update
  from drilling at the G-9 Deposit on the Campo Morado Project; 

  
	
  the material change report dated September 25, 2006 relating to the
  appointment of Constructora Necaxa, S.A. De C.V. as contractor to complete the
  underground access decline to the G-9 Deposit at the Campo Morado Project;


  
	
  the material change report dated October 13, 2006 relating to a private
  placement of 18.75 million units of the Company; 

  
	
  the material change report dated October 24, 2006 relating to the results
  of recent flotation tests conducted at the G-9 Deposit at the Campo Morado
  Project; 

  
	
  the material change report dated November 14, 2006 relating to the results
  of a resource estimate and new assays from core drilling for the G-9 Deposit
  at the Campo Morado Project; 

  
	
  the material change report dated November 17, 2006 relating to the closing
  of the previously announced private placement of 18.75 million units of the
  Company; 

  
	
  the material change report dated November 21, 2006 relating to the filing
  of a preliminary prospectus; 

  
	
  the material change report dated December 13, 2006 relating to the size and
  pricing of the Offering; and 

  
	
  the information circular dated November 17, 2006 in connection with the
  annual general meeting of shareholders to be held on December 14, 2006
  (excluding information which, pursuant to National Instrument 44-101 Short
  Form Prospectus Distributions issued by the Canadian Securities Administrators
  is not required to be incorporated by reference). 



          Material
change reports (other than confidential reports) and all other documents of the
type referred to above, filed by the Company with a securities commission or
similar regulatory authority in Canada after the date of this Prospectus and
before completion or withdrawal of this Offering, will be deemed to be
incorporated by reference into this Prospectus. 

          Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein will be deemed to be modified or superseded for the purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that is also incorporated or is deemed to be
incorporated by reference herein modifies or supersedes such statement. The
modifying or superseding statement need not state that it has modified or
superseded a prior statement or include any other information set forth in the
document that it modifies or supersedes. The making of a modifying or
superseding statement will not be deemed an admission for any purpose that the
modified or superseded statement, when made, constituted a misrepresentation, an
untrue statement of a material fact or an omission to state a material fact that
is required to be stated or that is necessary to make a statement not misleading
in 

- 2 - 




light of the circumstances in which it was made. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus. 

          Information
has been incorporated by reference in this prospectus from documents filed with
the securities commissions or similar authorities in Canada. Copies of the
documents incorporated herein by reference may be obtained on request without
charge from the Secretary, Farallon Resources Ltd., #1020, 800 West Pender
Street, Vancouver, British Columbia, V6C 2V6 (Telephone (604) 684-6365), and are
also available electronically at www.sedar.com. The Company’s filings through SEDAR are
not incorporated by reference in this Prospectus except as specifically set out
herein. 

ELIGIBILITY FOR INVESTMENT 

          Provided
the outstanding Common Shares of the Company remain listed on the TSX, the
Subscription Receipts offered hereby and the Common Shares and Warrants issuable
pursuant to the Subscription Receipts, will be qualified investments for trusts
governed by registered retirement savings plans, registered retirement income
funds, deferred profit-sharing plans and registered education savings plans
(collectively, “Exempt Plans”) provided that each annuitant, beneficiary,
employer or subscriber under the governing plan of the particular Exempt Plan
deals at arm's length with the Company at all relevant times. 

FORWARD LOOKING STATEMENTS 

          This
Prospectus, including the documents incorporated by reference, contains
forward-looking statements which may not be based on historical fact.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Farallon to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, reliance on key personnel, the actual results of
exploration activities, actual results of reclamation activities, the estimation
or realization of mineral reserves and resources, the timing and amount of
estimated future production, capital expenditures, costs and timing of the
development of new deposits, requirements for additional capital, future prices
of precious and base metals, possible variations in ore grade or recovery rates,
failure of plant, equipment or processes to operate as anticipated, accidents,
labour disputes and other risks of the mining industry, delays in obtaining
governmental approvals, permits or financing or in the completion of development
or construction activities, currency fluctuations, title disputes or claims
limitations on insurance coverage and the timing and possible outcome of pending
litigation. Although we have attempted to identify important factors that could
cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that cause
actions, events or results not to be as anticipated, estimated or intended. 

          Prospective
investors can identify many of these statements by looking for words such as
“believe’’, “expects’’, “will’’, “intends’’, “projects’’, “anticipates’’,
“estimates’’, “continues’’ or similar words or the negative thereof. There can
be no assurance that the plans, intentions or expectations upon which these
forward-looking statements are based will occur. Forward-looking statements are
subject to risks, uncertainties and assumptions, including those discussed under
“Risk Factors” in this Prospectus and in our Annual Information Form.

          The
forward-looking statements contained herein are made as of the date of this
Prospectus and are expressly qualified in their entirety by this cautionary
statement. Readers should not place undue reliance on the forward-looking
statements, which reflect management’s plans, estimates, projections and views
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect subsequent events or
circumstances, except as may be required by law. 

- 3 - 




THE COMPANY 

General 

          The
Company was incorporated on July 4, 1991 under the laws of British Columbia. The
head office of the Company is located at Suite 1020, 800 West Pender Street,
Vancouver, British Columbia, V6C 2V6. 

          We
are engaged in the business of acquiring ownership of, and exploring and
developing precious and base metals deposits. We have focused on exploring the
“Campo Morado Project” since 1995, except for a period from 2001 to 2003 when
the Project was placed in care and maintenance status. The Campo Morado Project
is located in Guerrero State, Mexico and comprises several government-granted
concessions totalling approximately 11,563 hectares.

Campo Morado Project 

          The
area comprising the Campo Morado Project contains former producing mines that
produced limited amounts of lead, silver and gold from oxidized massive sulphide
material. Farallon holds six concessions for the Campo Morado Project.

          As
at September 30, 2006, Farallon incurred aggregate exploration expenditures of
approximately US$49.3 million and acquisition costs of approximately US$9
million on the Campo Morado Project . (The consolidated schedules of exploration
expenses contained in the interim financial statements for the three months
ended September 30, 2006, incorrectly disclosed the September 30, 2006
cumulative exploration expenses, beginning of the period and end of period as
US$37,239,416 and US$39,948,784, respectively. The correct September 30, 2006
cumulative exploration expenses, beginning of the period and end of period, are
$46,602,699 and $49,312,067, respectively.) 

Mexico Mining Laws

          Both
the Dirección General de Minas (“Dirección General”) and Servicio Geologico
Mexicano (“Servicio”) are branches of the Coordinación de Minas of the
Secretaría de Economía, Mexico. The Dirección General grants and controls mining
claims. The Servicio is a decentralized entity with independent legal capacity
under the Mexican Federal Ministry of Economy. The Servicio is obligated, under
the Mining Law of Mexico, to identify and record the potential mineral
resources of Mexico, to assist the government with the promotion and development
of such resources and to determine which should be made available as
concessions. The Servicio also does exploration work and stakes mineral claims,
which eventually are granted to companies or individuals in exchange for option
payments and finder’s fees. 

          Concessions
are valid for fifty years and are renewable for an additional fifty years. They
may be located to an unlimited size. An annual surface tax must be paid. In
addition, an investment in, or production from, the concession in accordance
with a sliding scale based on the area and age of the concession must be
demonstrated. Concession holders must negotiate with the surface owners for
compensation for any losses occasioned by their activities. 

Mexico Environmental Law 

          At
the time of the exploration phase for certain mineral projects, such as Campo
Morado, Mexican environmental law requires a concession holder to submit a
preventive report (prepared by an independent registered environmental
consultant) to the Mexican National Institute of Ecology (or “INE”) before the
concessionaire commences exploration activities. This report provides the
government with the concessionaire’s plans for developing the project and sets
out actions it will take to minimize impacts to the environment. The INE reviews
the preventive report to ensure that the information fulfils the requirements of
Mexican Environmental Laws.

          Once
this report is approved a permit is granted. The INE was previously in charge of
issuing environmental permits, however this authority has recently been assigned
to an agency under the Secretary of the Environment and Natural Resources
(“SEMARNAT”). 

- 4 - 




          The
environmental permit authorizes the concessionaire to proceed with its
exploration activities, in compliance with the requirements imposed by the
environmental permit, for a specific period of time after the permit’s date of
issue. Modifications to the approved project activities and extensions of the
term of the permit are allowed. 

Campo Morado Permits 

          The
original environmental permit for the Campo Morado Project was submitted on
April 2, 1995, and has been renewed and modified on several occasions. The most
recent extension was granted until November 14, 2006 and a further extension has
been applied for. The permit covers the Campo Morado Project during the
exploration phase only and allows for certain disturbances, including
rehabilitation of old roads and underground workings, development of new access
roads, development camp and other facilities, and development of exploration
pits, surface drill pads, underground drill pads, surface and underground drill
holes. The permit prohibits hunting or collection of flora and fauna. The permit
requires compliance with noise and air pollution standards, reclamation of
abandoned areas, storage of spent lubricants until they are shipped to a
recycling facility, reclamation of any oil or fuel spills, and preparation of an
endangered species and reforestation study.

          Farallon
is conducting its current exploration work in compliance with the Campo Morado
permit. On June 7, 2006 SEMARNAT confirmed that the existing Campo Morado permit
is sufficient for the purposes of the proposed work plan outlined under “Recent
Developments” and “Use of Proceeds”. 

          Farallon
  has not yet been required to post a reclamation bond for the Campo Morado Project.
  However the environmental permit requirements for the exploitation phase of
  operations will require an extension and modification of the current permit,
  to be based on a new Environmental Impact Statement. The Company expects that
  the next exploitation phase will require, among other things, surface rights,
  water rights, water discharge permits, change of use of land permits, reclamation
  bonds, reforestation bonds, hazardous waste management permits, emission permits
  and social, anthropological and archaeological studies.

Estimates of Mineralization at Campo Morado Project


          In
2005, new estimates of the mineral resources outlined by drilling at the
Reforma, El Rey, Naranjo and El Largo Deposits at Campo Morado were announced.
These estimates were completed according to the standards of the Canadian
Institute of Mining and Metallurgy (2000) as required for mining projects under
NI43-101 and described in the “Technical Report on the Campo Morado Project –
Revised Update on Exploration, Resources and Metallurgical Activities for the
G-9 Deposit” dated December 2006 (the “Technical Report”), prepared by Ross
Banner, P. Eng., David Gaunt, P.Geo., Daniel Kilby, P. Eng., Peter Taggart, P.
Eng., Qingping Deng, CPG and David Dreisinger, P. Eng., all of whom are
qualified persons as defined in NI 43-101. Qingping Deng, CPG. of Behre Dolbear
& Company (USA) Inc., an independent qualified person as defined by
NI43-101, is responsible for each of the Reforma, El Rey, Naranjo and El Largo
estimates. 

Indicated and Inferred Mineral Resources 
at a
US$90GMV/t(1) cut-off – September 2005 


  	Deposit 	Category 	Tonnes 	Gold 	Silver 	Copper 	Zinc 	Lead 
	  	 
    	(000’s) 	(g/t) 	(g/t) 	(%)
    	(%)
    	(%)
    
	  	  	  	  	  	  	  	  
	Reforma 	Indicated 	3,972 	4.20 	224 	0.92 	3.86 	1.71 
	  	Inferred 	1
	1.31
    	392
    	0.24
    	0.04
    	0.50
    
	  	  	  	  	  	  	  	  
	El Rey 	Indicated 	1,051 	2.74 	154 	0.52 	4.45 	1.20 
	  	Inferred 	15
      	2.37
      	91
      	0.54
      	4.63
      	1.47
      
	  	  	  	  	  	  	  	  
	Naranjo 	Indicated 	2,056 	2.77 	136 	0.82 	4.12 	1.24 
	  	Inferred 	236
    	4.28
    	104
    	1.05
    	1.76
    	0.50
    
	  	  	  	  	  	  	  	  
	El Largo 	Indicated 	4,130 	1.12 	128 	0.40 	5.76 	1.33 
	  	Inferred 	1,258 	1.54
      	122
      	0.85
      	3.99
      	0.84
      



- 5 - 






  	Deposit 	Category 	Tonnes 	Gold 	Silver 	Copper 	Zinc 	Lead 
	  	 
    	(000’s) 	(g/t) 	(g/t) 	(%)
    	(%)
    	(%)
    
	  	  	  	  	  	  	  	  
	Total 	Indicated 	11,209 	2.67 	166 	0.67 	4.66 	1.44 
	  	Inferred 	1,510 	1.98
    	119
    	0.88
    	3.65
    	0.79
    




	(1) 	
      GMV/t is the sum of the metal grade multiplied by the
      following metal prices: US$375/oz for gold; US$5.50/oz for silver;
      US$1.00/lb for copper; US$0.51/lb for zinc and US$0.25/lb for lead
      converted to metric units.



          Mineral
resources that are not mineral reserves do not have demonstrated economic
viability. None of the foregoing mineralization has been determined to be ore
nor is considered to be a mineral reserve. 

Operations 

          Farallon
does not have any operating revenue although, historically, it has had annual
interest revenue as a consequence of investing surplus funds pending the
completion of exploration programs. 

Audit Committee 

          Pursuant
to Multilateral Instrument 52-110 – Audit Committees (“MI52-110”), the
Company is required to have an audit committee composed entirely of board
members that are “independent” of the Company, as that term is defined in
MI52-110 and meaning generally free from material relationships with the Company
which could be reasonably expected to interfere with the exercise of the
person’s independent judgement. Presently, David Copeland, Scott Cousens and
Robert Dickinson are members of the Company’s audit committee. In September,
2006, the Company determined that none of the members of its audit committee
were independent and shortly thereafter initiated its search for independent
board members. As of the date of this Prospectus, the Company is not in
compliance with the audit committee composition rule set out in MI52-110, as
none of the members of the Company’s audit committee are considered independent
as a consequence of their employment positions with Hunter Dickinson Inc., a
service provider to the Company. The Company is currently undertaking steps to
remedy such non-compliance, including actively recruiting new board members that
are independent and financially literate. The Company expects to appoint at
least one new, independent, financially literate board member that will serve on
the audit committee within 90 days of completion of the Offering. While it is
difficult to set a firm deadline by which the Company will completely rectify
the non-compliance given the high demand for qualified individuals, the Company
does intend to take the required steps in order to reach this goal as soon as
practicable. 

          The
Company is taking steps to ensure that the duties generally performed by
independent directors are being performed by the current directors. The board
members have extensive experience as directors of public companies and are
sensitive to the related corporate governance and financial reporting
obligations associated with such positions. Thus the board members are
reasonably well versed in the obligations of directors and the expectations of
independence from management. Given the Company’s recent activities in raising
additional capital over the last six months, the board has been particularly
sensitive to the appropriateness of board and management interaction, checks and
balances. 

RECENT DEVELOPMENTS 

Private Placement 

          On
November 17, 2006 the Company completed a private placement of 18,750,000 units
at $0.40 each (the “Private Placement”) and raised gross proceeds of $7,500,000.
Each unit consisted of one Common Share and one Common Share purchase warrant.
Each warrant entitles the holder to purchase one additional Common Share at a
price of $0.60 on or before the second anniversary of the closing of the Private
Placement. 

          Shareholders’
approval is required for the exercise of 11,044,417 of the warrants. Such
approval will be sought at the general shareholders meeting to be held December
14, 2006. If shareholder approval for those warrants is not obtained, the
Company will refund to the purchasers of such warrants, $0.02 per warrant.

- 6 - 




          The
net proceeds from the Private Placement, after payment of expenses associated
therewith, will be used for work on the Campo Morado Project and for general
working capital purposes. 

Recent Work at Campo Morado Project 

          Since
the beginning of the 2006 financial year and in preparation for a
pre-feasibility study, Farallon has undertaken a series of scoping level option
investigations. In the course of those investigations drilling expanded the G-9
Deposit at the Campo Morado Project. Farallon completed an initial estimate of
the resources for the G-9 Deposit in November 2005, as a result of which
subsequent drilling has been almost exclusively focused on the G-9
Deposit.

          In
November 2006 Farallon announced a revised estimate of inferred mineral
resources for the G-9 Deposit at the Campo Morado Project, as described in the
Technical Report. The G-9 estimates were completed by Farallon’s in-house
Qualified Person, David Gaunt, P.Geo. 

G-9 Deposit Inferred Resources 


	Cutoff(1) 	Tonnes 	Gold 	Silver 	Copper 	Zinc 	Lead 
	(% Zinc) 	(000’s) 	(g/t) 	(g/t) 	(%)
    	(%)
    	(%)
    
	2.0 	5,570 	2.8
    	186
    	1.3
    	7.3
    	1.0
    
	4.0 	3,840 	3.0
    	200
    	1.5
    	9.3
    	1.2
    
	6.0 	2,590 	3.0
    	205
    	1.7
    	11.4
    	1.3
    
	8.0 	1,770 	2.9
    	201
    	1.9
    	13.4
    	1.3
    
	10.0 	1,250 	2.6
    	195
    	2.0
    	15.3
    	1.2
    




	 	(1) 	
      In an operating situation a decreasing cutoff grade
      production schedule would be used to maximize rate of return. A decreasing
      cutoff grade procedure would commence with a 10% Zinc cutoff grade in the
      early years, likely finalizing with a 5% cutoff grade in the later years.
      Hence the inferred resources are presented at a range of cutoff
    grades.



          Mineral
resources that are not mineral reserves do not have demonstrated economic
viability. None of the foregoing mineralization has been determined to be ore
nor is considered to be a mineral reserve. 

          Based
on continuing positive drill results at the G-9 Deposit and preliminary
metallurgical tests which have indicated that the mineralization can be treated
by flotation techniques, Farallon has shifted its strategic focus for the Campo
Morado Project towards expediting the development of a mine at the G-9 Deposit.
Farallon has reset the target date for completion of a preliminary assessment to
early 2007 to enable the G-9 Deposit to be the focus of the preliminary
assessment. Accordingly, the date for delivery of the results of the
pre-feasibility study has been deferred to mid-2007. 

          In
the Technical Report the authors recommended an interim $55 million budget and
work plan that is designed to advance the G-9 Deposit to the pre-feasibility
stage in a manner that in management’s opinion is likely to expedite mine
development at the G-9 Deposit. The report recommended a surface and underground
drilling program to define, reclassify and expand the mineral resources of the
G-9 Deposit in order to enable mine planning and design work for the deposit to
be undertaken. The report also recommended test mining and bulk sampling, as
well as a comprehensive metallurgical test program to enable the development of
a process plant flow sheet, layout and detailed design. Additional engineering,
socio-economic and environmental studies to provide feasibility level
information for design engineering are also recommended. The information will
collectively be used to assist in the ongoing assessment of making a production
decision to develop a mine at G-9. 

          In
particular, the work plan includes: $7 million for 45,000 m of surface drilling
(40,000 m for exploration to test for extensions of the G-9 Deposit and other
targets (to test more property scale, structural and stratigraphic concepts, and
5,000 m geotechnical and condemnation); $20 million for surface improvements,
including water, 

- 7 - 




tailings, storage and infrastructure studies, metallurgical
pilot plant and equipment; $25 million for approximately 1,800 m of underground
work (1,400 m decline and 400 m in crosscuts) including, underground drill
stations, test mining and bulk sampling; $2 million for 10,000 m of underground
exploration drilling; and $1 million for socioeconomic and environmental
studies. The decline and related site activity work will be done with a view
towards supporting later production of up to 1,500 tonnes per day. 

Proposed Debt Financing 

          In
conjunction with this Offering, and to ensure sufficient funds are available for
work and related equipment in connection with the Campo Morado Project, Farallon
anticipates arranging debt financing (“Debt Financing”) which may include,
without limitation, senior or subordinated debt, loans from industry partners
and/or commitments of underwriting for non-convertible notes or bonds from
investment banks. 

          Management
understands that, before one or more lenders would commit to terms of a Debt
Financing, such lenders may require an independent engineer to review the Campo
Morado Project and the proposed work program. 

          Receipt
by the Company of a binding letter of commitment or duly-executed term sheet for
a Debt Financing is one of the Escrow Release Conditions. See “Details of the
Offering – Release of Offering Proceeds” and “Risk Factors”. 

USE OF PROCEEDS 

          The
net proceeds to be received by the Company from the sale of the Subscription
Receipts, after deducting the Agents’ commission and before expenses of the
Offering estimated to be $400,000, are estimated to approximately
$75,200,000.

          The
net proceeds, together with a portion of the proceeds from the Private
Placement, will be used for the work program described above, funding
complementary activities that management believes will ultimately support
potential mine development at the G-9 Deposit, and working capital necessary to
administer the work program.

          We
anticipate allocating net proceeds with the following priorities: 

	Priority 	Use of Proceeds 	Funds 	Total 
	  	  	  	  
	1 	Underground Exploration 	  	  
	  	- Decline/Crosscuts 	$25,000,000 	  
	  	- Drilling 	$2,000,000 	$27,000,000 
	  	  	  	  
	2 	Surface Exploration 	  	  
	  	- Drilling 	$7,000,000 	  
	  	- Design and Site Facilities Development 	$20,000,000 	$27,000,000 
	  	  	  	  
	3 	Permitting and Socio-Economic Costs 	$1,000,000 	$1,000,000 
	  	  	  	  
	4 	Working Capital 	$20,200,000 	$20,200,000



          Pending
the uses described above, the Company may invest all or a portion of the net
proceeds in high quality short-term interest-bearing corporate securities. 

          As
the work program outlined above proceeds, and depending on the results derived
therefrom, the Company may find it necessary or advisable to use portions of the
funds for other purposes (for example, activities that in management’s opinion
could expedite mine development in an orderly manner). The Company may also find
it necessary to obtain additional financing, either by debt, public offerings or
private placements.

- 8 - 




PLAN OF DISTRIBUTION 

          Pursuant
to an agreement dated December 14, 2006 (the “Agency Agreement”) between the
Company and the Agents, the Company has appointed the Agents as its agents to
offer the Subscription Receipts for sale to the public, either directly or
through authorized sub-agents, on a best efforts basis in the Qualifying
Jurisdictions, subject to compliance with all necessary legal requirements and
the terms and conditions of the Agency Agreement.

          The
Subscription Receipts are being sold at an Offering Price of $0.50 per
Subscription Receipt. The Offering Price was negotiated between the Company and
the Agents in the context of prevailing market conditions. The Agency Agreement
provides that the closing of this Offering will occur on December 21, 2006
or such later date as the Company and the Agents may agree, but in any event
not later than January 26, 2007. 

          The
Agency Agreement provides for payment by the Company of a fee to the Agents
equal to 6% of the gross proceeds raised in the Offering for various services
rendered to the Company in connection with the Offering. The Company has also
agreed to issue to the Agents the Compensation Options, which entitle the Agents
to purchase an aggregate number of Common Shares equal to 6% of the number of
Subscription Receipts sold in the Offering at the Offering Price at any time
until 5:00 p.m., Vancouver time, on the second anniversary of the Closing Date.
This Prospectus also qualifies the distribution of the Compensation Options. No
additional fee has been or will be paid to the Agents in connection with any
issue of Common Shares upon the exercise of the Warrants or the Compensation
Options. 

          While
the Agents have agreed to use their best efforts to sell the Subscription
Receipts, the Agents are not obliged to purchase any Subscription Receipts which
are not sold. The obligations of the Agents under the Agency Agreement are
several and not joint and may be terminated at their discretion on the basis of
their assessment of the state of the financial markets and upon the occurrence
of certain stated events.

          Conditional
on receiving gross Offering proceeds of not less than $55 million 

	
  the Company has agreed that it will not, directly or indirectly, sell,
  issue or announce the issuance of, or enter into any agreement to sell or
  issue, any securities of the Company, without the prior consent of the Agents,
  such consent not to be unreasonably withheld, for a period of 90 days
  following the Escrow Release Date, other than: (a) pursuant to the Offering;
  (b) pursuant to the exercise of outstanding warrants and or Warrants or
  Compensation Options issued under the Offering; (c) the grant of options
  pursuant to and in accordance with the Company’s employee stock option plan
  which limits options (existing or new) to 8% of the post-Offering Common
  Shares outstanding; (d) upon conversion of Subscription Receipts sold pursuant
  to the Offering; (e) pursuant to share issuance obligations under existing
  mineral property agreements; or (f) in connection with the acquisition by the
  Company of the shares and assets of other corporations or entities, and 

  
	
  each of the directors and executive officers of the Company and their
  associates will enter into a lock-up agreement with the Agents under which
  such persons will agree, directly or indirectly, not to sell, transfer,
  assign, pledge or otherwise dispose of any securities of the Company owned by
  any such persons, directly or indirectly, until the 90th day
  following the Escrow Release Date, without the prior written consent of the
  Agents, such consent to not be unreasonably held or delayed, or there occurs a
  take-over bid or similar transaction involving a change of control of the
  Company. 



          Pursuant
to policies of certain Canadian securities regulatory authorities, the Agents
may not, throughout the period of distribution under the Offering, bid for or
purchase Common Shares for their own account or for accounts over which they
exercise control or discretion. The foregoing restriction is subject to certain
exceptions, on the condition that the bid or purchase not be engaged in for the
purpose of creating actual or apparent active trading in or raising the price of
the Common Shares. These exceptions include a bid or purchase permitted under
the Universal Market Integrity Rules for Canadian marketplaces administered by
Market Regulation Services Inc. relating to market stabilization and passive
market making activities, and a bid or purchase made for or on behalf of a
customer where the order was not solicited during the period of distribution.
Subject to the foregoing, the Agents may over-allot or effect transactions which
stabilize or maintain the market price of the Company’s Common Shares 

- 9 - 




at levels other than those which otherwise might prevail on the
open market. Such transactions, if commenced, may be discontinued at any time.


          The
Subscription Receipts have not been and will not be registered under the U.S.
Securities Act or any state securities laws, and, subject to certain exceptions,
may not be offered, or delivered, directly or indirectly, or sold in the United
States except in certain transactions exempt from the registration requirements
of the U.S. Securities Act and in compliance with any applicable state
securities laws. The Agents have agreed that they will not offer or sell the
Subscription Receipts within the United States, its territories, its possessions
and other areas subject to its jurisdiction or to, or for the account or benefit
of, a “U.S. person” (as defined in Regulation S under the U.S. Securities Act),
except in accordance with the Agency Agreement and pursuant to exemptions from
the registration requirements of the U.S. Securities Act and in compliance with
applicable state securities laws.

          The
Company has agreed to indemnify the Agents against certain liabilities and
expenses, including liabilities under applicable securities legislation in
certain circumstances, or to contribute to payments the Agents may have to make
in respect thereof. 

          Subscriptions
for Subscription Receipts will be received subject to rejection or allotment in
whole or in part and the right is reserved to close the subscription books at
any time without notice.

          The
Company will apply to list the Common Shares issuable upon exercise of the
Subscription Receipts and the Underlying Shares on the TSX. Listing will be
subject to the Company fulfilling all the listing requirements of the TSX. 

DETAILS OF THE OFFERING 

Subscription Receipts 

          The
Subscription Receipts will be created and issued pursuant to the terms of a
subscription receipt agreement (the “Subscription Receipt Agreement”) to be
entered into among the Company, Paradigm Capital Inc. and the Escrow Agent. The
following summary of the Subscription Receipt Agreement is not complete and is
qualified in its entirety by reference to the Subscription Receipt Agreement
which will be available for review on the SEDAR website located at www.sedar.com
under the Company’s profile after the Closing Date. 

          Upon
exchange, each Subscription Receipt will entitle the holder thereof to acquire
one Common Share and one-half of one Warrant for no additional consideration.
The number of Common Shares issuable upon exchange will be subject to adjustment
in certain circumstances, as more fully described below. Subscription Receipts
representing the proceeds (up to $20 million) released to the Company on the
Closing Date will be automatically exchanged on a pro rata basis on the
Closing Date for the applicable number of Common Shares and Warrants. If the
Escrow Release Conditions are satisfied before the Condition Deadline,
outstanding Subscription Receipts will be automatically exchanged with no action
required by the holders thereof. If the Escrow Release Conditions are not
satisfied before the Condition Deadline the Escrow Agent will send a notice to
each holder of Subscription Receipts advising that, unless before a specified
date (the “Notice Date”) the holder directs the Escrow Agent to exchange such
holder’s Subscription Receipts and release the applicable Escrowed Funds to the
Company, the Escrow Agent will use available Escrowed Funds to refund the
maximum number of whole Subscription Receipts that can be so refunded (without
refunding or creating fractional Subscription Receipts) using and returning to
each holder of Subscription Receipts that portion of the Escrowed Funds
attributable to such holder’s subscription for Subscription Receipts and
interest or other income earned thereon (less applicable withholding tax, if
any). The refund of Escrowed Funds will commence on the third business day after
the Notice Date.

          The
Subscription Receipt Agreement will provide for adjustment in the number of
Common Shares issuable upon the exchange of the Subscription Receipts upon the
occurrence of certain events, including:

	(i) 	
      the issuance of Common Shares or securities exchangeable
      for or convertible into Common Shares to all or substantially all of the
      holders of the Common Shares as a stock dividend or other distribution
      (other than a “dividend paid in the ordinary course”, as defined in the
      Subscription Receipt Agreement, or a distribution



- 10 - 





		
      of Common Shares upon the exercise of the Subscription
      Receipts or pursuant to the exercise of directors, officers or employee
      stock options granted under the Company’s stock option plans);

	 	 
	(ii) 	
      the subdivision, redivision or change of the Common
      Shares into a greater number of shares;

	 	 
	(iii) 	
      the reduction, combination or consolidation of the Common
      Shares into a lesser number of shares;

	 	 
	(iv) 	
      the issuance to all or substantially all of the holders
      of the Common Shares of rights, options or warrants under which such
      holders are entitled, during a period expiring not more than 45 days after
      the record date for such issuance, to subscribe for or purchase Common
      Shares, or securities exchangeable for or convertible into Common Shares,
      at a price per share to the holder (or at an exchange or conversion price
      per share) of less than 95% of the “current market price”, as defined in
      the Subscription Receipt Agreement, for the Common Shares on such record
      date; and

	 	 
	(v) 	
      the issuance or distribution to all or substantially all
      of the holders of the Common Shares of shares of any class other than the
      Common Shares, rights, options or warrants to acquire Common Shares or
      securities exchangeable or convertible into Common Shares, of evidences of
      indebtedness or cash, securities or any property or other
  assets.



          The
Subscription Receipt Agreement will also provide for adjustment in the class or
number of securities issuable upon the exercise of the Subscription Receipts in
the event of the following: (1) reclassifications of the Common Shares; (2)
consolidations, amalgamations, plans of arrangement or mergers with or into
another entity (other than consolidations, amalgamations, plans of arrangement
or mergers which do not result in any reclassification of the Common Shares or a
change of the Common Shares into other shares); or (3) the transfer (other than
to one of the Company’s subsidiaries) of the undertaking or assets of the
Company as an entirety or substantially as an entirety to another company or
other entity. 

          No
adjustment in the number of Common Shares issuable upon the exercise of the
Subscription Receipts will be required to be made unless the cumulative effect
of such adjustment or adjustments would change the number of Common Shares to be
received upon exchange by at least one one-hundredth of a Common Share.

          No
fractional Common Shares will be issuable upon the exercise of Subscription
Receipts, and no cash or other consideration will be paid in lieu of fractional
shares. Holders of Subscription Receipts will not have any voting or pre-emptive
rights or any other rights which a holder of Common Shares would have.

          From
time to time, the Company, Paradigm Capital Inc. and the Escrow Agent, without
the consent of the holders of Subscription Receipts, may amend or supplement the
Subscription Receipts for certain purposes, including curing defects or
inconsistencies or making any change that does not adversely affect the rights
of any holder of Subscription Receipts. Any amendment or supplement to the
Subscription Receipt Agreement that adversely affects the interests of the
holders of the Subscription Receipts may only be made by “extraordinary
resolution”, which is defined in the Subscription Receipt Agreement as a
resolution either (1) passed at a meeting of the holders of Subscription
Receipts (at which there are holders of Subscription Receipts present in person
or represented by proxy representing at least 25% of the aggregate number of the
then outstanding Subscription Receipts) by the affirmative vote of holders of
Subscription Receipts representing not less than two-thirds of the number of
then outstanding Subscription Receipts represented at the meeting and voted on
such resolution or (2) adopted by an instrument in writing signed by the holders
of Subscription Receipts representing not less than two-thirds of the number of
then outstanding Subscription Receipts.

          Under
the Subscription Receipt Agreement, original purchasers of Subscription Receipts
under the Offering will have a contractual right of rescission following the
issuance of Common Shares and Warrants to them upon the exchange of the
Subscription Receipts, to receive the amount paid for the Subscription Receipts
if this Prospectus (including documents incorporated by reference herein) and
any amendment contains a misrepresentation or is not delivered to such
purchaser, provided such remedy for rescission is exercised within 180 days
after the Closing Date. 

- 11 - 




Common Shares and Preferred Shares 

          Each
Common Share carries the right to attend and vote at all general meetings of
shareholders, to receive dividends if, as and when declared by the directors,
and to participate in any dissolution or winding up of the Company. Each
Preferred share carries the right to attend and vote at all general meetings of
shareholders. The Preferred shares are issuable in series and the directors may
affix rights to dividends and exchange for Common Shares. The Preferred shares
rank in priority to the Common Shares with respect to payment of dividends and
return of capital on winding up or dissolution of the Company. 

Warrants 

          The
Warrants will be created and issued pursuant to the terms of a warrant indenture
(the “Warrant Indenture”) to be dated as of the Closing Date between the Company
and Computershare Trust Company of Canada, as warrant agent thereunder (the
“Warrant Agent”). The Company will appoint the principal transfer office of the
Warrant Agent in Vancouver, British Columbia as the location at which Warrants
may be surrendered for exercise or transfer.

          The
following summary of certain provisions of the Warrant Indenture does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Warrant Indenture.

          Each
Warrant will entitle the holder thereof to purchase one Common Share at a price
of $0.70 at any time before 5:00 p.m. (Vancouver time) on the date which is 24
months after the Closing Date, after which time the Warrants will expire and be
void and of no value. If, at any time after the Escrow Release Date, the volume
weighted average trading price of the Common Shares of the Company on the TSX is
greater than $1.50 for any 20 consecutive trading days, the Company may
accelerate the expiry of the Warrants by providing written notice to the holders
of Warrants and issuing a press release to the effect that the Warrants will
expire 30 days following the date of such notice. The Warrant Indenture will
contain provisions designed to protect the holders of Warrants against dilution
upon the happening of certain events. No fractional Common Shares will be issued
upon the exercise of Warrants. 

          The
Warrant Indenture will provide for adjustment in the number of Common Shares
issuable upon the exercise of the Warrants and/or the exercise price per Common
Share upon the occurrence of certain events, including:

	(i) 	
      the issuance of Common Shares or securities exchangeable
      for or convertible into Common Shares to all or substantially all of the
      holders of the Common Shares as a stock dividend or other distribution
      (other than a “dividend paid in the ordinary course”, as defined in the
      Warrant Indenture, or a distribution of Common Shares upon the exercise of
      the Warrants or pursuant to the exercise of directors, officers or
      employee stock options granted under the Company’s stock option
    plans);

	 	 
	(ii) 	
      the subdivision, redivision or change of the Common
      Shares into a greater number of shares;

	 	 
	(iii) 	
      the reduction, combination or consolidation of the Common
      Shares into a lesser number of shares;

	 	 
	(iv) 	
      the issuance to all or substantially all of the holders
      of the Common Shares of rights, options or warrants under which such
      holders are entitled, during a period expiring not more than 45 days after
      the record date for such issuance, to subscribe for or purchase Common
      Shares, or securities exchangeable for or convertible into Common Shares,
      at a price per share to the holder (or at an exchange or conversion price
      per share) of less than 95% of the “current market price”, as defined in
      the Warrant Indenture, for the Common Shares on such record date;
    and

	 	 
	(v) 	
      the issuance or distribution to all or substantially all
      of the holders of the Common Shares of shares of any class other than the
      Common Shares, rights, options or warrants to acquire Common Shares or
      securities exchangeable or convertible into Common Shares, or evidences of
      indebtedness or cash, securities or any property or other assets. The
      Warrant Indenture will also provide for adjustment in the class and/or
      number of securities issuable upon the exercise of the Warrants and/or
      exercise price per security in the event of the



- 12 - 




following additional events: (1)
reclassifications of the Common Shares; (2) consolidations, amalgamations, plans
of arrangement or mergers of the Company with or into another entity (other than
consolidations, amalgamations, plans of arrangement or mergers which do not
result in any reclassification of the Common Shares or a change of the Common
Shares into other shares); or (3) the transfer (other than to one of the
Company’s subsidiaries) of the undertaking or assets of the Company as an
entirety or substantially as an entirety to another corporation or other
entity.

          No
adjustment in the exercise price or the number of Common Shares purchasable upon
the exercise of the Warrants will be required to be made unless the cumulative
effect of such adjustment or adjustments would change the exercise price by at
least 1% or the number of Common Shares purchasable upon exercise by at least
one one-hundredth of a Common Share.

          The
Company will also covenant in the Warrant Indenture that, during the period in
which the Warrants are exercisable, it will give notice to holders of Warrants
of certain stated events, including events that would result in an adjustment to
the exercise price for the Warrants or the number of Common Shares issuable upon
exercise of the Warrants, at least 14 days before the record date or effective
date, as the case may be, of such event. 

          No
fractional Common Shares will be issuable upon the exercise of Warrants, and no
cash or other consideration will be paid in lieu of fractional shares. Holders
of Warrants will not have any voting or pre-emptive rights or any other rights
which a holder of Common Shares would have.

          From
time to time, the Company and the Warrant Agent, without the consent of the
holders of Warrants, may amend or supplement the Warrant Indenture for certain
purposes, including curing defects or inconsistencies or making any change that
does not adversely affect the rights of any holder of Warrants. Any amendment or
supplement to the Warrant Indenture that adversely affects the interests of the
holders of the Warrants may only be made by ‘‘extraordinary resolution’’, which
is defined in the Warrant Indenture as a resolution either (1) passed at a
meeting of the holders of Warrants (at which there are holders of Warrants
present in person or represented by proxy representing at least 25% of the
aggregate number of the then outstanding Warrants) by the affirmative vote of
holders of Warrants representing not less than two-thirds of the aggregate
number of then outstanding Warrants represented at the meeting and voted on such
resolution or (2) adopted by an instrument in writing signed by the holders of
Warrants representing not less than two-thirds of the aggregate number of then
outstanding Warrants. 

Release of Offering Proceeds 

          On
the Closing Date 25% (up to $20,000,000) of the Offering proceeds will be
released to the Company, the Subscription Receipts represented by that portion
of the Offering proceeds will be automatically exchanged on the Closing Date for
one Common Share and one-half of one Warrant, without payment of additional
consideration and without any further action by holders of Subscription
Receipts, and the Agents will receive one-half of the Agents’ Fee and all of the
Agents’ out-of-pocket expenses. The remainder of the Offering proceeds,
estimated at $60,000,000, will be deposited in escrow with the Escrow Agent, and
invested in short term investment grade debt obligations pending satisfaction of
the Escrow Release Conditions described below. After the Closing Date and before
the Condition Deadline, Subscription Receipt holders may, at their option,
exchange their Subscription Receipts for one Common Share and one-half of one
Warrant, without payment of additional consideration, the Escrowed Funds
attributable to such exchanged Subscription Receipts will be released to the
Company and the Agents will receive one-half of the Agents’ Fee attributable to
such Subscription Receipts. If the Escrow Release Conditions are not satisfied
on or before the Condition Deadline, commencing on the third business day after
the Notice Date the Escrow Agent will return to the Subscribers their pro
rata share of the Escrowed Funds, plus accrued interest thereon.
Subscription Receipt holders will not be refunded any of the Escrowed Funds
attributable to Subscription Receipts which have been exchanged prior to the
Condition Deadline. The Escrowed Funds will be less than the full amount of the
Offering proceeds.

          If
the Escrow Release Conditions are satisfied before the Condition Deadline, each
Subscription Receipt will be automatically exchanged for one Common Share and
one-half of one Warrant, without payment of additional consideration and without
any further action by holders of Subscription Receipts, and the Escrow Agent
will pay to the Agents the balance of their fee and release the balance of the
Escrowed Funds (together with interest or other income earned thereon) to the
Company.

- 13 - 




          The
Escrowed Funds will be released on satisfaction of certain conditions, including
the following (the “Escrow Release Conditions”): (i) a binding commitment letter
or term sheet having been executed for the Debt Financing and containing terms
and conditions acceptable to the Agents, acting reasonably; (ii) there having
been no material adverse change in the financial condition, business or
operations of the Company; (iii) the President and Chief Executive Officer and
Chief Financial Officer of the Company delivering certificates stating that
there has been no material adverse change in the financial condition, business
or operations of the Company and that the Debt Financing has been obtained; (iv)
the Company not being in breach or material default of any of its covenants or
obligations under the Agency Agreement or the Subscription Receipt Agreement
except as waived by the Agents; and (v) the Company and the Agents acting
reasonably having delivered a joint notice to the Escrow Agent confirming that
all conditions precedent to the release of the Escrowed Funds have been
satisfied or waived on terms satisfactory to the Company and the Agents. 

CAPITALIZATION 

          The
authorized share capital of the Company consists of an unlimited number of
Common Shares without par value, of which 124,572,331 were issued and
outstanding as at December 13, 2006, and an unlimited number of Preferred shares
without par value, of which none are currently issued or outstanding.

          The
following table shows the effect of the Offering on the issued Common Shares of
the Company: 


	Description of Security 
	Authorized 
	Issued at December 13, 2006 
	Issued after giving effect 
to
      Offering(1) 
	Common Shares 	Unlimited 	124,572,331 	374,172,331 



(1)      Assumes issuance of
9,600,000 Common Shares on full exercise of Compensation Options, and issuance
of 80,000,000 Common Shares on full exercise of Warrants. 

          As
at December 13, 2006, the Company had outstanding share purchase options to
purchase up to 6,356,500 Common Shares with a weighted average exercise price of
$0.79.

          As
at December 13, 2006, the Company had the following share purchase warrants,
each exercisable into one Common Share: 


	Number of Warrants 	Exercise Price 	Expiry Date 
	28,571,877 	$1.02 	December 17, 2006 
	18,750,000 	$0.60 	November 17, 2008 



          Since
June 30, 2006 no Common Shares have been issued pursuant to the exercise of
employee stock options or share purchase warrants.

INTERESTS OF EXPERTS 

          The
following individuals are named, in this Prospectus, as having prepared or
co-prepared a technical report on various aspects of the Campo Morado Project:
Daniel Kilby, P.Eng., Peter Taggart, P.Eng., Ross Banner, P.Eng., Qingping Deng,
Ph.D., CPG, David Dreisinger, P.Eng., and David Gaunt, P.Geo. 

          None
of those individuals holds, directly or indirectly, more than one percent of the
issued and outstanding Common Shares of the Company. 

          Certain
legal matters in connection with this Offering will be passed upon by Lang
Michener LLP on behalf of the Company and by Heenan Blaikie LLP, on behalf of
the Agents. As at the date hereof, the partners and associates of Lang Michener
LLP and Heenan Blaikie LLP, as a group, beneficially own, directly or
indirectly, less than one percent of the outstanding Common Shares of the
Company. 

- 14 - 




RISK FACTORS 

          An
investment in the Company’s Subscription Receipts, and the Common Shares and
Warrants issuable upon exchange therefor, is highly speculative and subject to a
number of risks. A prospective purchaser of such securities should carefully
consider the information described in this Prospectus as well as the risk
factors set out in our Annual Information Form incorporated herein by reference
and the following: 

There is no market for the active trading of Subscription
Receipts and no market is expected to develop. 

          There
is currently no market through which the Subscription Receipts may be sold.
Therefore, purchasers of Subscription Receipts may not be able to resell
Subscription Receipts. 

If Escrow Conditions are not satisfied, Subscribers will
only be entitled to a refund of a portion of the Subscription Price.


          On
the Closing Date 25% (up to $20,000,000) of the Offering proceeds will be
released to the Company and the Subscription Receipts represented by that
portion of the Offering proceeds will be automatically exchanged on the Closing
Date for the appropriate number of Common Shares and Warrants. Between the
Closing Date and the Condition Deadline, Subscribers may exchange Subscription
Receipts for Common Shares and Warrants. The balance of the Offering proceeds
will be held in escrow pending satisfaction of the Escrow Conditions. If the
Escrow Conditions are not satisfied by the Condition Deadline, Subscribers will
receive a refund of the Escrowed Funds attributable to such Subscriber’s
subscription and any interest or other income earned thereon, less withholding
tax, if any. Subscribers will not receive a refund of Offering proceeds released
to the Company on the Closing Date, nor will a Subscriber receive a refund for
Subscription Receipts exchanged for Common Shares and Warrants between the
Closing Date and the Condition Deadline. Accordingly, Subscribers will not
receive a full refund of the Offering Price in the event the Escrow Release
Conditions are not satisfied. See “Plan of Distribution – Release of Offering
Proceeds”. 

Loss of Entire Investment 

          An
investment in Common Shares and Warrants is highly speculative and may result in
the loss of an investor’s entire investment. Only potential investors who are
experienced in high risk investments and who can afford to lose their entire
investment should consider an investment in the Company. 

Our mineral resources are estimates only and may not
reflect the actual deposits or the economic viability of extraction.


          The
figures presented for mineral resources herein and in the documents incorporated
herein by reference are estimates only. The estimating of mineral resources is a
subjective process and the accuracy of reserve and resource estimates is a
function of the quantity and quality of available data and the assumptions used
and judgments made in interpreting engineering and geological information. There
is significant uncertainty in any resource estimate, and the actual deposits
encountered and the economic viability of mining a deposit may differ materially
from our estimates. 

          Estimated
mineral resources may have to be recalculated based on changes in metals prices,
further exploration or development activity or actual production experience.
This could materially and adversely affect estimates of the volume or grade of
mineralization, estimated recovery rates or other important factors that
influence resource estimates.

If Farallon were to lose the services of Dick Whittington
or other members of its management team, it may be delayed in its plan of
operations for the Campo Morado Project and operating expenses may be
increased.

          Farallon
relies on the services of Dick Whittington, who is president and Chief Executive
Officer of the Company, and other members of its management team to carry out
its plan of operations. Mr. Whittington is the only member of the Company’s
management team that provides his services on a full time basis. Farallon does
not maintain life insurance or key man insurance for such personnel. Farallon’s
success is dependent on the 

- 15 - 




performance of key personnel working in management, supervisory
and administrative capacities, or as consultants in advancing its corporate
objectives. The loss of the services of Mr. Whittington, senior management or
key personnel who are capable of managing Farallon’s business activities will
result in Farallon being required to identify and engage qualified management to
replace Mr. Whittington or other members of the management team. The time and
expense involved in this process could result in a delay in Farallon completing
its planned exploration programs. The loss of Mr. Whittington as Chief Executive
Officer and sole full time member of the management team could result in the
most extensive delay as Farallon would be required to locate, engage and orient
a new chief executive officer. Mr. Whittington and other members of Farallon’s
management team are seconded from Hunter Dickinson Inc, a related party by
virtue of common directors, and do not have a direct employment contract with
Farallon. If Farallon were to lose the services of Mr. Whittington or other
members of its management team, Farallon’s plan of operations for the Campo
Morado Project may be affected and its operating expenses may be increased. 

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

          In
the opinion of Lang Michener LLP, counsel to the Company, and Heenan Blaikie
LLP, counsel to the Agents, the following is as of the date hereof a summary of
the principal Canadian federal income tax considerations under the Income Tax
Act (Canada) (the "Tax Act") generally applicable to holders of Subscription
Receipts acquired under the Offering and Common Shares and Warrants issuable in
exchange for Subscription Receipts (collectively, the "Securities") who, for the
purposes of the Tax Act and at all relevant times, (i) are resident or deemed to
be resident solely in Canada, (ii) deal at arm's length and are not affiliated
with the Company, and (iii) hold the Securities as capital property. Holders
meeting all of the foregoing requirements are referred to as a "Holder" or
"Holders" in this summary, and this summary only addresses such Holders. In
addition, this summary does not address any Holder that is a financial
institution to which the "mark-to-market" provisions of the Tax Act apply, a
"specified financial institution" or a Holder an interest in which is a ""tax
shelter investment" (all as defined for purposes of the Tax Act), and does not
address other special situations or circumstances, and all affected Holders
should consult with their own tax advisors in this regard. 

          This
summary is based upon the facts set out in this short form prospectus, the
current provisions of the Tax Act and the regulations thereunder (the
“Regulations”) in force as of the date hereof, all specific proposals (the
“Proposed Amendments”) to amend the Tax Act or the Regulations that have been
publicly announced by the Minister of Finance (Canada) prior to the date
thereof, and counsel’s understanding of the current published administrative and
assessing practice of the Canada Revenue Agency (the “CRA”). No assurance can be
given that the Proposed Amendments will be enacted in their proposed form, if at
all. This summary does not take into account or anticipate any other changes to
the law, whether by legislative, governmental or judicial decision or action,
nor does it take into account provincial, territorial or foreign income tax
legislation or considerations, which may differ significantly from the Canadian
federal income tax considerations. 

          This
summary is of a general nature only, is not exhaustive of all possible Canadian
federal income tax considerations and is not intended to be, nor should it be
construed to be, legal or tax advice to any particular holder of Securities.
Consequently, prospective holders should consult their own tax advisors with
respect to their particular circumstances. The discussion below is qualified
accordingly. 

Acquisition of Common Shares and Warrants on Exchange of
Subscription Receipts 

          No
gain or loss will be realized by a Holder on the exchange of a Subscription
Receipt for one Common Share and one-half of one Warrant evidenced thereby. This
opinion is based upon the interpretation of counsel that a Subscription Receipt
is an agreement to acquire a Common Share and one-half of one Warrant upon
either the Closing Date or the satisfaction of the Escrow Release Conditions. No
advance income tax ruling has been requested from the CRA in this regard, and
counsel is not aware of any judicial consideration of this interpretation. 

          Holders
will be required to allocate the aggregate cost of a Subscription Receipt
between the Common Share and one-half of one Warrant on a reasonable basis in
order to determine their respective costs for purposes of the Tax Act. For its
purposes, the Company intends to allocate $0.49 of the issue price of each
Subscription Receipt as consideration for the issue of each Common Share and
$0.01 of the issue price of each Subscription Receipt as consideration for the
issue of each one-half of one Warrant. Although the Company believes that its
allocation is 

- 16 - 




reasonable, it is not binding on the CRA. The adjusted cost
base of a Holder’s Common Shares will be subject to the averaging rules under
the Tax Act. 

Repayment of Issue Price and Interest 

          As
described above under “Details of the Offering – Release of Offering Proceeds”,
if the Escrow Release Conditions are not satisfied prior to the Deadline, a
Holder will receive, in respect of such Subscription Receipts as are to be
refunded, that portion of the Escrowed Funds attributable to such Holder’s
subscription for Subscription Receipts which have not previously been exchanged
for Common Shares and Warrants and the Holder’s share of interest earned on the
Escrowed Funds. 

          The
Holder will not generally realize any income, gain or loss on the repayment to
the Holder of the issue price. Where a Holder is entitled to receive the
Holder’s share of interest earned on the Escrowed Funds, a Holder that is a
corporation, partnership, unit trust or any trust of which a corporation or a
partnership is a beneficiary will be required to include in computing income for
a taxation year any interest accrued to the Holder on the Escrowed Funds to the
end of the Holder’s taxation year, or that is receivable or received by the
Holder before the end of that taxation year, except to the extent that such
interest was included in computing the Holder’s income for a preceding taxation
year. Any other Holder that is entitled to receive the Holder’s share of
interest earned on the Escrowed Funds will be required to include in income for
a taxation year such interest as is received or receivable by the holder in that
taxation year, depending on the method regularly followed by the Holder in
computing income. 

Exercise or Expiry of Warrants 

          No
gain or loss will be realized by a Holder upon the exercise of a Warrant. The
cost to a Holder of a Common Share acquired upon the exercise of a Warrant will
be the aggregate of (i) the Holder’s adjusted cost base of the Warrant so
exercised, and (ii) the price paid for the Common Share (i.e., the exercise
price of the Warrant). The cost to a Holder of a Common Share acquired upon the
exercise of a Warrant must be averaged with the adjusted cost base (determined
immediately before the exercise of the Warrant) of all other Common Shares held
by the Holder as capital property at the time of the exercise of the Warrant.


          The
expiry of an unexercised Warrant will generally give rise to a capital loss
equal to the adjusted cost base to the Holder of the expired Warrant. 

Disposition of Subscription Receipts, Common Shares and
Warrants 

          A
disposition or deemed disposition by a Holder of a Subscription Receipt (for
great certainty, other than on the exchange thereof for a Common Share and
one-half of one Warrant), a Common Share or a Warrant (other than a disposition
of a Warrant on the exercise or expiry thereof) will generally result in the
Holder’s realizing a capital gain (or capital loss) equal to the amount by which
the proceeds of disposition of the Subscription Receipt, Common Share or
Warrant, as the case may be, are greater (or less) than the aggregate of the
holder’s adjusted cost base of the Subscription Receipt, Common Share or
Warrant, as the case may be, and any reasonable costs of disposition. One-half
of any capital gain (a “taxable capital gain”) must be included in the Holder’s
income for the taxation year of the disposition, and one-half of any capital
loss (an “allowable capital loss”) realized in a taxation year may generally be
deducted from taxable capital gains realized in the year of disposition.
Allowable capital losses in excess of taxable capital gains for a particular
year may be deducted from taxable capital gains realized in the three preceding
taxation years or any subsequent taxation year, subject to detailed rules and
the restrictions contained in the Tax Act in this regard. The amount of any
capital loss realized by a Holder that is a corporation on the disposition of
Common Shares may be reduced by the amount of any dividends received or deemed
to be received by such Holder subject to and in accordance with the provisions
of the Tax Act. Similar rules may apply to a partnership or trust of which a
corporation, trust or partnership is a member or beneficiary. A capital gain
realized or a taxable dividend received by a Holder who is an individual may
give rise to a liability for alternative minimum tax. If a Holder is a
“Canadian-controlled private corporation” as defined in the Tax Act, the Holder
may be liable to pay an additional refundable tax of 6 2/3% on some types of
income, including interest and taxable capital gains. 

- 17 - 




Dividends on Common Shares 

          Dividends
received or deemed to be received on the Common Shares by an individual
(including some trusts) will be included in computing the individual’s income
for tax purposes and will be subject to the gross-up and dividend tax credit
rules applicable to dividends received from taxable Canadian corporations (as
defined in the Tax Act). Taxable dividends received by an individual will be
relevant in computing possible liability for alternative minimum tax. 

          On
October 18, 2006, the Minister of Finance (Canada) tabled Bill C-28 in the House
of Commons. Bill C-28 contains provisions that are intended to enhance the
dividend gross-up and tax credit mechanism applicable to “eligible dividends”
paid by corporations resident in Canada after 2005. Under the Bill C-28, a
dividend will be eligible for the enhanced gross-up and dividend tax credit
treatment if the dividend recipient receives written notice from the paying
corporation designating the dividend as an “eligible dividend”. There may be
limitations on the ability of a corporation to designate dividends as “eligible
dividends”, and there can be no assurance that Bill C-28 will be enacted into
law in the form proposed, or at all. 

          A
Holder that is a corporation will include dividends received or deemed to be
received on the Common Shares in computing its income for tax purposes and
generally will be entitled to deduct the amount of such dividends in computing
its taxable income, subject to the normal rules and restrictions under the Tax
Act, with the result that no tax will be payable by it in respect of such
dividends. Certain corporations, including private corporations or subject
corporations (as such terms are defined in the Tax Act), may be liable to pay a
refundable tax under Part IV of the Tax Act at the rate of 331/3% of the
dividends received or deemed to be received on the Common Shares to the extent
that such dividends are deductible in computing taxable income. 

AUDITORS, TRANSFER AGENT AND REGISTRAR 

          The
auditors of the Company are KPMG LLP, Chartered Accountants, Vancouver, British
Columbia. The transfer agent and registrar for the Common Shares is
Computershare Investor Services Inc. at its principal office in Vancouver,
British Columbia. 

PURCHASERS’ STATUTORY RIGHTS 

          Securities
legislation in certain of the provinces of Canada provides purchasers with the
right to withdraw from an agreement to purchase securities. This right may be
exercised within two business days after receipt or deemed receipt of a
prospectus and any amendment thereto. In several of the provinces, the
securities legislation further provides a purchaser with remedies for rescission
or, in some provinces, damages where the Prospectus and any amendment contains a
misrepresentation or is not delivered to the purchaser, provided that the
remedies for rescission or damages are exercised by the purchaser within the
time limit prescribed by the securities legislation of the purchaser’s province.
The purchaser should refer to any applicable provisions of the securities
legislation of the purchaser’s province for the particulars of these rights or
consult with a legal adviser. 

- 18 - 




AUDITORS’ CONSENT 

	To: 	The Board of Directors of 
	  	Farallon Resources Ltd.
  


          We
have read the short form prospectus of Farallon Resources Ltd. (the “Company”)
dated December 14, 2006 relating to qualification for distribution of
subscription receipts of the Company. We have complied with Canadian generally
accepted standards for an auditors’ involvement with offering documents. 

          We
consent to the incorporation by reference in the above-mentioned short form
prospectus of our report to the shareholders of the Company on the consolidated
balance sheets of the Company as at June 30, 2006 and 2005 and the consolidated
statements of operations and deficit and cash flows for each of the years in the
three-year period ended June 30, 2006. Our report is dated September 1, 2006.


 

(Signed) KPMG LLP 

Chartered Accountants 

 

Vancouver, Canada 
December 14, 2006 

- 19 - 




CERTIFICATE OF THE COMPANY 

Dated: December 14, 2006 

          This
short form prospectus, together with the documents incorporated herein by
reference, constitutes full, true and plain disclosure of all material facts
relating to the securities offered by this Prospectus as required by the
securities legislation of British Columbia, Alberta, Manitoba, New Brunswick
and Ontario. 

 

	(Signed) J.R.H. (Dick) Whittington 	(Signed) Jeffrey R. Mason 
	Chief Executive Officer 	Chief Financial Officer 


 

On Behalf of the Board of Directors 

 

	(Signed) Scott D. Cousens 	(Signed) Ronald W. Thiessen 
	Director 	Director 


 

C-1 




CERTIFICATE OF THE AGENTS 

Dated: December 14, 2006 

          To
the best of our knowledge, information and belief, this short form prospectus,
together with the documents incorporated herein by reference, constitutes full,
true and plain disclosure of all material facts relating to the securities
offered by this short form prospectus as required by the securities legislation
of British Columbia, Alberta, Manitoba, Ontario and New Brunswick.

 

PARADIGM CAPITAL
INC. 
By: (Signed) ANDREW PARTINGTON 

 

CANACCORD CAPITAL
CORPORATION 
By: (Signed) DAVID HORTON 

 

MGI SECURITIES INC.

By: (Signed) JOSHUA H.H. KINGSMILL 

 

C-2