Exhibit 2

Consolidated Financial Statements
(In Canadian dollars)

HUDBAY MINERALS INC.

Years ended December 31, 2005 and 2004

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|LOGO |  | Deloitte & Touche LLP
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Suite 2300
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|---- |  | ------------------------------------------------------------------------------------------------------------------------------------

Report of Independent Registered Chartered Accountants

To
the Shareholders
HudBay Minerals Inc.

We
have audited the consolidated balance sheet of HudBay Minerals Inc. as at December 31, 2005 and the consolidated statements of earnings, retained earnings and cash flows
for the year ended December 31, 2005. These consolidated 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 audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In
our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the company as at December 31, 2005, the results of its
operations and cash flows for the year ended December 31, 2005 in accordance with Canadian generally accepted accounting principles.

The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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.

The
consolidated financial statements as at December 31, 2004 and for the year then ended were audited by other auditors who expressed an opinion without reservation on those
statements in their report dated March 30, 2005.

|
|

/s/ Deloitte & Touche LLP
Independent Registered Chartered Accountants

Winnipeg,
Manitoba, Canada
March 17, 2006

| |  | Member of
Deloitte Touche Tohmatsu
| |  | ----------------------------------

|
|

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|HUDBAY MINERALS INC.Consolidated Statements of Earnings (Loss)
(In thousands of Canadian dollars, except share and per share amounts)
Years ended December 31, 2005 and 2004
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|
|

|                                                     |                                          | 2005 |         | 2004        |  
|---------------------------------------------------- | ---------------------------------------- | ---- | ------- | ----------- | -
|Revenue                                              |                                          | $    | 652,028 |             | $
|Expenses:                                            |                                          |      |         |             |  
|                                                     | Operating                                |      |         | 480,518     |  
|                                                     | Depreciation and amortization            |      |         | 53,100      |  
|                                                     | General and administrative               |      |         | 19,620      |  
|                                                     | Exploration                              |      |         | 11,281      |  
|                                                     | Accretion of asset retirement obligation |      |         | 2,612       |  
|                                                     | Foreign exchange loss                    |      |         | 2,338       |  
|                                                     |                                          |      |         |             |  
|                                                     |                                          |      | 569,469 |             |  
|                                                     |                                          |      |         |             |  
|Operating earnings (loss)                            |                                          |      | 82,559  |             |  
|Interest expense                                     |                                          |      | (21,939 | )           |  
|Foreign exchange gain on long term debt              |                                          |      | 6,825   |             |  
|Gain on derivative instruments (note 16c)            |                                          |      | 5,319   |             |  
|Interest and other income                            |                                          |      | 3,996   |             |  
|Amortization of deferred financing fees              |                                          |      | (2,342  | )           |  
|                                                     |                                          |      |         |             |  
|Earnings (loss) before income taxes                  |                                          |      | 74,418  |             |  
|Tax recovery (note 13)                               |                                          |      | 10,800  |             |  
|                                                     |                                          |      |         |             |  
|Earnings (loss) for the year                         |                                          | $    | 85,218  |             | $
|                                                     |                                          |      |         |             |  
|Earnings (loss) per share:                           |                                          |      |         |             |  
|                                                     | Basic                                    |      | $       | 1.04        |  
|                                                     | Diluted (note 14d)                       |      |         | 0.70        |  
|Weighted average number of common shares outstanding |                                          |      |         |             |  
|                                                     | Basic                                    |      |         | 82,008,190  |  
|                                                     | Diluted (note 14d)                       |      |         | 121,116,832 |  
|                                                     |                                          |      |         |             |  

See
accompanying notes to consolidated financial statements.

1

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|HUDBAY MINERALS INC.Consolidated Statements of Retained Earnings (Deficit)
(In thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
|----------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|
|

|                                                       |                                                   | 2005                         |        | 2004   |  
|------------------------------------------------------ | ------------------------------------------------- | ---------------------------- | ------ | ------ | -
|Deficit, beginning of year:                            |                                                   |                              |        |        |  
|                                                       | As previously stated                              |                              | $      | (6,486 | )
|                                                       | Changes in accounting policies (note 2 (o), (p)): |                              |        |        |  
|                                                       |                                                   | Asset retirement obligations |        |        | 
|                                                       |                                                   | Exploration costs            |        |        | 
|                                                       |                                                   |                              |        |        |  
|                                                       | As restated                                       |                              |        | (6,486 | )
|Earnings (loss) for the year                           |                                                   |                              | 85,218 |        |  
|Realization of equity component of debenture (note 8c) |                                                   |                              |       |        |  
|Reduction of stated capital (note 14e)                 |                                                   |                              |       |        |  
|                                                       |                                                   |                              |        |        |  
|Retained earnings (deficit), end of year               |                                                   | $                            | 78,732 |        | $
|                                                       |                                                   |                              |        |        |  

See
accompanying notes to consolidated financial statements.

2

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|HUDBAY MINERALS INC.Consolidated Balance Sheets
(In thousands of Canadian dollars)
December 31, 2005 and 2004
|-------------------------------------------------------------------------------------------------------------

|
|

|
|

|                                           |                                                         | 2005 |         | 2004    |  
|------------------------------------------ | ------------------------------------------------------- | ---- | ------- | ------- | -
|Assets:                                    |                                                         |      |         |         |  
|Current assets:                            |                                                         |      |         |         |  
|                                           | Cash and cash equivalents                               |      | $       | 141,660 |  
|                                           | Accounts receivable                                     |      |         | 44,698  |  
|                                           | Inventories (note 4)                                    |      |         | 116,596 |  
|                                           | Prepaid expenses                                        |      |         | 3,625   |  
|                                           | Current portion of fair value of derivatives (note 16c) |      |         | 4,483   |  
|                                           | Future income taxes (note 13)                           |      |         | 26,200  |  
|                                           |                                                         |      |         |         |  
|                                           |                                                         |      | 337,262 |         |  
|Property, plant and equipment (note 5)     |                                                         |      | 378,207 |         |  
|Other assets (note 6)                      |                                                         |      | 13,284  |         |  
|                                           |                                                         |      |         |         |  
|                                           |                                                         | $    | 728,753 |         | $
|Liabilities and Shareholders' Equity:      |                                                         |      |         |         |  
|Current liabilities:                       |                                                         |      |         |         |  
|                                           | Accounts payable and accrued liabilities                |      | $       | 91,930  |  
|                                           | Interest payable on long-term debt                      |      |         | 8,004   |  
|                                           | Current portion of other liabilities (note 7)           |      |         | 28,211  |  
|                                           |                                                         |      |         |         |  
|                                           |                                                         |      | 128,145 |         |  
|Long-term debt (note 8)                    |                                                         |      | 191,493 |         |  
|Pension obligation (note 9)                |                                                         |      | 46,743  |         |  
|Other employee future benefits (note 10)   |                                                         |      | 61,250  |         |  
|Asset retirement obligations (note 11)     |                                                         |      | 29,219  |         |  
|Obligations under capital leases (note 12) |                                                         |      | 9,011   |         |  
|Future income tax liabilities (note 13)    |                                                         |      | 1,666   |         |  
|                                           |                                                         |      |         |         |  
|                                           |                                                         | $    | 467,527 |         | $
|                                           |                                                         |      |         |         |  
|Shareholders' equity:                      |                                                         |      |         |         |  
|                                           | Share capital:                                          |      |         |         |  
|                                           | Common shares (note 14a)                                |      |         | 143,611 |  
|                                           | Warrants (note 14b)                                     |      |         | 28,931  |  
|                                           | Contributed surplus                                     |      |         | 10,015  |  
|                                           | Cumulative translation adjustment                       |      |         | (63     | )
|                                           | Retained earnings (deficit)                             |      |         | 78,732  |  
|                                           |                                                         |      |         |         |  
|                                           |                                                         |      | 261,226 |         |  
|                                           |                                                         |      |         |         |  
|                                           |                                                         | $    | 728,753 |         | $
|                                           |                                                         |      |         |         |  

Contingencies
(note 15), Commitments (note 20), Subsequent events (note 24).

See
accompanying notes to consolidated financial statements.

On
behalf of the Board:

|"Allen J. Palmiere" |  | Director
|------------------- |  | --------
|                    |  |         
|"Peter R. Jones"    |  | Director
|                    |  |         

3

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|HUDBAY MINERALS INC.Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
Years ended December 31, 2005 and 2004
|-----------------------------------------------------------------------------------------------------------------------------------

|
|

|
|

|                                                       |                                                        | 2005                                               |                                                          | 2004    |        
|------------------------------------------------------ | ------------------------------------------------------ | -------------------------------------------------- | -------------------------------------------------------- | ------- | -------
|Cash provided by (used in):                            |                                                        |                                                    |                                                          |         |        
|Operating activities:                                  |                                                        |                                                    |                                                          |         |        
|                                                       |                                                        | Earnings (loss) for the year                       |                                                          | $       | 85,218 
|                                                       |                                                        | Items not affecting cash:                          |                                                          |         |        
|                                                       |                                                        |                                                    | Depreciation and amortization                            |         |        
|                                                       |                                                        |                                                    | Realization of previously unrecorded tax losses          |         |        
|                                                       |                                                        |                                                    | Unrealized foreign exchange gain                         |         |        
|                                                       |                                                        |                                                    | Amortization of deferred financing costs                 |         |        
|                                                       |                                                        |                                                    | Accretion expense on asset retirement obligation         |         |        
|                                                       |                                                        |                                                    | Stock-based compensation                                 |         |        
|                                                       |                                                        |                                                    | Unrealized portion of change in fair value of derivative |         |        
|                                                       |                                                        | Other                                              |                                                          |         | (6,343 
|                                                       |                                                        | Change in non-cash working capital (note 21)       |                                                          |         | 21,691 
|                                                       |                                                        |                                                    |                                                          |         |        
|                                                       |                                                        |                                                    | 144,862                                                  |         |        
|Financing activities:                                  |                                                        |                                                    |                                                          |         |        
|                                                       | Issuance (repayment) of senior secured notes (note 8a) |                                                    |                                                          | (21,953 | )      
|                                                       | Issuance of common shares, net of costs                |                                                    |                                                          | 20,607  |        
|                                                       | Repayments of obligations under capital leases         |                                                    |                                                          | (3,672  | )      
|                                                       | Repayment of loans payable                             |                                                    |                                                          | (2,000  | )      
|                                                       | Deferred financing cost                                |                                                    |                                                          | (350    | )      
|                                                       | Proceeds of exercise of stock options                  |                                                    |                                                          |        |        
|                                                       | Proceeds on exercise of warrants                       |                                                    |                                                          |        |        
|                                                       | Decrease in debenture subscription receivable          |                                                    |                                                          |        |        
|                                                       | Issuance of convertible debenture                      |                                                    |                                                          |        |        
|                                                       | Repayment of convertible debenture                     |                                                    |                                                          |        |        
|                                                       | Advance from HBMS prior to acquisition                 |                                                    |                                                          |        |        
|                                                       |                                                        |                                                    |                                                          |         |        
|                                                       |                                                        |                                                    | (7,368                                                   | )       |        
|Investing activities:                                  |                                                        |                                                    |                                                          |         |        
|                                                       |                                                        | Additions to property, plant and equipment         |                                                          |         | (70,924
|                                                       |                                                        | Decrease (increase) in restricted cash             |                                                          |         | 13,000 
|                                                       |                                                        | Additions (reductions) to environmental deposits   |                                                          |         | 31     
|                                                       |                                                        | Sale of investments                                |                                                          |         | 463    
|                                                       |                                                        | Acquisition of HBMS, net of cash acquired (note 3) |                                                          |         |       
|                                                       |                                                        |                                                    |                                                          |         |        
|                                                       |                                                        |                                                    | (57,430                                                  | )       |        
|Foreign exchange loss on cash held in foreign currency |                                                        |                                                    | (2,957                                                   | )       |        
|                                                       |                                                        |                                                    |                                                          |         |        
|Change in cash and cash equivalents                    |                                                        |                                                    | 77,107                                                   |         |        
|Cash and cash equivalents, beginning of year           |                                                        |                                                    | 64,553                                                   |         |        
|                                                       |                                                        |                                                    |                                                          |         |        
|Cash and cash equivalents, end of year                 |                                                        | $                                                  | 141,660                                                  |         | $      
|                                                       |                                                        |                                                    |                                                          |         |        

4

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|                                                                        |                                                                       | 2005 |   | 2004  
|----------------------------------------------------------------------- | --------------------------------------------------------------------- | ---- | - | ------
|Supplementary cash flow information:                                    |                                                                       |      |   |       
|                                                                        | Interest paid                                                         |      | $ | 13,613
|                                                                        | Additions to obligations under capital leases                         |      |   | 1,451 
|Supplemental disclosure of non-cash financing and investing activities: |                                                                       |      |   |       
|                                                                        | Shares issued in settlement of other indebtedness                     |      |   |      
|                                                                        | Shares and warrants issued in connection with the acquisition of HBMS |      |   |      
|                                                                        |                                                                       |      |   |       

See
accompanying notes to consolidated financial statements.

5

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|HUDBAY MINERALS INC.Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except share and per share data)
Years ended December 31, 2005 and 2004
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|
|

1.     Nature of business:

HudBay
Minerals Inc. (the "Company") changed its name from ONTZINC Corporation by way of Articles of Amendment dated December 21, 2004. The Company was formed by amalgamation in
1996 under the Ontario Business Corporations Act and was continued under the Canada Business Act on October 25, 2005. Prior to December 21, 2004, the Company was
engaged in the business of evaluation, acquisition and exploration of mineral properties. Substantially all of the efforts of the Company were devoted to these business activities. Prior to that date,
the Company had not earned significant revenue and was considered to be in the development stage.

On
December 21, 2004, the Company completed a public offering of common shares and warrants raising gross proceeds of $143,813 and also completed an offering of U.S.$175,000 Senior Secured
Notes. The Company then utilized the proceeds from these financings to complete the acquisition from Anglo American International, S.A. ("Anglo American") of all of the outstanding shares of
152640 Canada Inc., which held all of the outstanding shares of Hudson Bay Mining and Smelting Co., Ltd. ("HBMS").

The
Company is now an integrated mining and metals processing company that operates mines and concentrators in northern Manitoba and Saskatchewan, Canada, is re-opening a mine in New York
State, and operates a copper and zinc metal production complex in Flin Flon, Manitoba, exercised an option to purchase a copper refinery in Michigan state, and a zinc oxide production facility
in Brampton, Ontario.

Also
on December 21, 2004, the Company completed a 30 for 1 common share consolidation which has been retroactively reflected as if the common share consolidation had occurred on
January 1, 2002. All references to common shares within these consolidated financial statements reflect the consolidation.

2.     Significant accounting policies:



6

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7

---







8

---









9

---









10

---







11

---









12

---











13

---







3.     Acquisition of Hudson Bay Mining and Smelting Co., Limited:



14

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Current assets (including cash of $51,504)

$
229,601Investments


463Property, plant and equipment (note 5)


349,629Intangible assets (note 6)


1,452Current liabilities


(73,886
)Debt obligations (note 8)


(15,179
)Pensions and post-retirement benefit obligations (notes 9 and 10)


(130,353
)Asset retirement obligations (note 11)


(26,163
)Obligations under capital leases (note 12)


(15,074
)Other non-current liabilities


(376
)$
320,114




Fair market value

Negative goodwill allocation

Carrying valueProperty, plant and equipment

$
647,976

$
298,347

$
349,629Intangible assets


2,691


1,239


1,452$
650,667

$
299,586

$
351,081


15

---



4.     Inventories:

2005

2004Work-in-process

$
84,456

$
72,061Finished goods


16,635


14,639Material and supplies


15,505


13,582$
116,596

$
100,282


5.     Property, plant and equipment:

2005

Cost

Accumulated depreciation and amortization

Net book valueProperty, plant and equipment


279,711


19,924


259,787Mine development


135,826


34,398


101,428Mineral exploration properties


16,992





16,992$
432,529

$
54,322

$
378,207


|
|

2004

Cost

Accumulated depreciation and amortization

Net book valueProperty, plant and equipment

$
203,705

$
418

$
203,287Mine development


156,189


814


155,375$
359,894

$
1,232

$
358,662




16

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2005

2004Property, plant and equipment under construction or development

$
8,006

$
6,753Equipment under capital leases:Cost

$
17,090

$
15,521Less accumulated depreciation


1,738


39$
15,352

$
15,482Amortization expense related to equipment under capital leases

$
1,699

$
39


6.     Other assets:

2005

2004Deferred financing costs

$
7,610

$
9,600Deferred option premiums


3,647


Intangible assets





552Restricted cash





13,000Environmental deposits


1,758


1,789Fair value of derivatives (note 16c)


269


772Investments





463$
13,284

$
26,176




17

---



7.     Current portion of other liabilities:

2005

2004Current portion of long-term debt (note 8)

$
4,000

$
2,000Current portion of pension obligation (note 9)


18,355


12,650Current portion of other employee future benefits (note 10)


2,031


2,012Current portion of obligations under capital leases (note 12)


3,825


3,338Current portion of fair value of derivatives





178Current portion of non-current liabilities





417$
28,211

$
20,595


8.     Long-term debt:

2005

2004Senior Secured Notes (a)

$
181,428

$
210,350Province of Manitoba (b)


14,065


15,179Convertible debentures (c)





195,493


225,529Less current portion of long-term debt


4,000


2,000$
191,493

$
223,529






18

---





2005

2004Interest expense

$
20,237

$
608Weighted average interest rate


9.625%


9.625%






19

---







9.     Pension obligation:



20

---





2005

2004Obligations and funded status:Change in pension obligation:Obligation, as at January 1

$
217,812

$
Obligation, at December 21, 2004





217,432Service cost


7,426


607Interest cost


12,754


345Employee contributions


156


Actuarial loss


15,823


Flex account balance at end of year


1,544


Benefits paid


(10,743
)

(572
)Obligation, at December 31


244,772


217,812Change in pension plan assets:Fair value of plan assets, at January 1


147,725


Fair value of plan assets, at December 21, 2004





146,942Actual return on plan assets


20,712


283Employer contributions


14,634


1,072Employee contributions


156


Flex account balance at end of year


1,544


Benefits paid


(10,743
)

(572
)Fair value of plan assets, at December 31


174,028


147,725Unfunded status of plans at end of year


(70,744
)

(70,087
)Unamortized net actuarial loss


5,646


Net amount recognized at December 31

$
(65,098
)
$
(70,087
)




2005

2004Service cost

$
7,426

$
607Interest cost


12,754


345Actual asset return (gain)


(20,712
)

(283
)Actuarial loss


15,823


Costs arising in the period


15,291


669Difference in costs arising and recognized in period:Return on plan assets


10,176


Actuarial loss


(15,823
)

Other employee future benefit expense


9,644


669Defined contribution pension


227


5$
9,871

$
674






21

---





2005

2004To determine the net benefit expense for the year:Discount rate

5.8%

5.8%Expected return on plan assets

7.0%

7.0%Rate of compensation increase

4.7%

4.7%To determine the accrued benefit obligations at the end of the year:Discount rate

5.0%

5.8%Rate of compensation increase

3.4%

4.7%






2005

2004Weighted average

Target

Weighted average

TargetEquity securities

58%

57%

59%

57%Debt securities

42%

43%

41%

43%100%

100%

100%

100%


22

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Benefits Paid2006

$
9,0002007


9,2002008


9,6002009


10,3002010


11,2002011 - 2015


65,000


10.   Other employee future benefits:



23

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2005

2004Obligations and funded status:Change in other employee future benefits:Obligation, at January 1

$
59,941

$
Obligation, at December 21, 2004





59,870Service cost


1,593


22Interest cost


3,506


104Actuarial losses


11,500


Benefits paid


(1,759
)

(55
)Obligation, at December 31

$
74,781

$
59,941Change in plan assets:Fair value of plan, at January 1

$


$
Fair value of plan, at December 21, 2004





Employer contributions


1,759


55Benefits paid


(1,759
)

(55
)Fair value of plan assets at December 31

$


$
Unfunded status of plans at end of year

$
(74,781
)
$
(59,941
)Unrecognized net actuarial loss


11,500


Net amount recognized at December 31

$
(63,281
)
$
(59,941
)




2005

2004Service cost

$
1,593

$
22Interest cost


3,506


104Actuarial loss


11,500


Costs arising in the period


16,599


126Unrecognized actuarial loss


(11,500
)

Other employee future benefits expense

$
5,099

$
126






24

---





2005

2004To determine net benefit expense for the year:Discount rate

6.0%

6.0%Weighted average health care trend rate

9.2%

9.2%


|
|

2005

2004To determine benefit obligation at end of year:Discount rate

5.1%

6.0%Weighted average health care trend rate

8.7%

9.2%




2005

2004Accumulated post-retirement benefit obligation

$
15,761

$
12,558Aggregate of service and interest cost


1,267


38




Accumulated post-retirement benefit obligation

$
12,129

$
9,749Aggregate of service and interest cost


961


28






25

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Benefits Paid2006

$
2,0002007


2,2002008


2,3002009


2,5002010


2,8002011-2015


18,300


11.   Asset retirement obligations:



2005

2004Balance, beginning of year

$
27,120

$
769Obligations settled during the year


(463
)

Liability assumed through acquisition of HBMS


(50
)

26,213Accretion expense


2,612


138Balance, end of year

$
29,219

$
27,120




26

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12.   Obligations under capital leases:



2005

2004Lease obligations

$
12,836

$
15,057Less current portion of obligations


3,825


3,338$
9,011

$
11,719




20052006

$
4,4362007


4,4282008


3,5542009


1,5232010


10214,043Less imputed interest


1,207$
12,836




13.   Income Taxes:



27

---





2005

2004Statutory tax rate


42%


38%Tax expense (benefit) at statutory rate

$
31,557

$
(3,921
)Effect of:Resource and depletion allowance,net of resource tax recovery


(20,569
)

(18
)Temporary differences not recognized


28,946


405Tax losses (benefit realized) not recognized


(40,674
)

3,205Other permanent differences


1,798


329Recognition of prior years' temporary differences


(11,858
)

(473
)Income tax recovery

$
(10,800
)
$
(473
)Income tax provision applicable to:Current taxes


678


(473
)Future taxes


(11,478
)

Income tax recovery

$
(10,800
)
$
(473
)






2005

2004Future income tax assets:Property, plant and equipment

$
218,394

$
265,675Pension obligation


23,839


26,016Other employee future benefits


23,238


22,405Asset retirement obligations


10,689


9,184Non-capital losses (see (c) below)


73,560


58,252Share issue costs


3,140


3,744Other


440


353,300


385,276Less valuation allowance


327,100


372,376Net future tax asset

$
26,200

$
12,900Future income tax liability:Derivatives and other timing differences

$
(1,666
)
$
(1,290
)


28

---







2006

$
5062007


3552008


3502009


8,6912010


50,1942013


61,2522014


48,2672015


12,0032016


8,0602024


1,0422025


3,4922026


7,464


14.   Share capital:





29

---





2005

2004Common shares

Amount

Common shares

AmountBalance, beginning of year

77,450,628

$
120,138

5,661,592

$
21,379Issued for debt






5,334


40Issued on private placements, net






2,382,466


7,817Issued pursuant to public offering






69,694,778


156,813Cancellation of repurchase shares






(340,000
)

(336
)Exercise of warrants

4,047,032


12,941

28,030


160Exercise of options

310,340


1,130

19,334


64Issued flow through shares

2,999,452


10,000




Value attributed to warrants issued









(29,465
)Tax effect of flow-through shares









(397
)Share issue costs




(598
)



(13,958
)Elimination of fractional shares






(906
)

Stated capital reduction









(21,979
)Balance, end of year

84,807,452

$
143,611

77,450,628

$
120,138




30

---







31

---





32

---





Number

AmountWarrants outstanding, December 31, 2003

74,894,424

$
4,433Issued on private placements

40,140,997


2,380Issued pursuant to public offering

1,045,421,667


27,181Issued to agents for public offering

115,050,600


2,078Warrants repurchased

(5,100,000
)

(173
)Exercised

(840,909
)

(43
)Cancelled

(88,456
)

(6
)Warrants outstanding, December 31, 2004

1,269,478,323

$
35,850Issued on private placements

1,727,258


44Exercised

(121,411,064
)

(2,590
)Cancelled

(73,712,059
)

(4,373
)Warrants outstanding, December 31, 2005

1,076,082,458

$
28,931




Warrants outstanding

Exercise price

Expiry date768,400

$
0.12

January 13, 200615,553,797


0.20

March 31, 20062,566,785


0.06

September 28, 2006263,330


0.05

September 28, 20062,721,923


0.12

November 30, 2006251,955


0.09

November 30, 200626,022,057


0.086

December 21, 20061,027,934,211


0.105

December 21, 20091,076,082,458




33

---







2005

2004Number of shares

Weighted average exercise price

Number of shares

Weighted average exercise priceBalance, beginning of year

663,167

$
3.60

550,000

$
5.08Cancelled

(718,999
)

3.71

(334,167
)

4.80Granted

3,865,000


2.63

466,667


3.60Exercised

(310,340
)

2.61

(19,333
)

3.30Outstanding, end of year

3,498,828

$
2.66

663,167

$
3.60


34

---





Number of options outstanding

Exercise price

Weighted average remaining contractual life
(years)

Number of options exercisable

Weighted average remaining contractual life
(years)3,229,661

$
2.59

9.4

916,205

9.427,500


3.00

2.9

27,500

2.9225,000


3.35

9.4

75,000

9.45,000


4.50

0.4

5,000

0.411,667


7.50

1.7

11,667

1.73,498,828

$
2.66



1,035,372








35

---





15.   Contingencies:



36

---







16.   Risk management using financial instruments:







37

---





17.   Fair value of financial instruments:



18.   Related party information:



38

---





19.   Investment in joint ventures:



2005

2004AssetsCurrent assets

$
33,783

$
52,535Unrealized fair value derivative


269


772Property, plant and equipment


93


112LiabilitiesCurrent liabilities

$
29,177

$
49,264Future income taxes payable


1,665


1,290Sales

$
352,528

$
6,898Costs and expenses:Operating, general and administrative


356,867


7,053Depreciation and amortization


31


2Gain on derivative instruments


(5,319
)

(78
)351,579


6,977Earnings (loss) before income taxes

$
949

$
(79
)


39

---



Cash flows:Operating activities

$
(1,207
)
$
106Investing activities


(12
)

(5
)


20.   Commitments:





2006

$
2,4132007


6092008


2412009


106




2006

$
2042007


2182008


2162009


2182010 and thereafter


285




40

---





41

---







42

---







43

---







21.   Change in non-cash working capital:

2005

2004Accounts receivable

$
28,512

$
(8,285
)Inventories


(16,314
)

(11,843
)Accounts payable and accrued liabilities


2,181


17,565Prepaid expenses


(129
)

4,328Interest payable


7,441


508$
21,691

$
2,273


22.   Segmented information:



2005

2004RevenuesCopper(1)

$
351,756

$
8,277Zinc


142,690


2,386Zinc oxide


75,032


1,243Gold


50,354


1,249Silver


11,208


309Other


20,988


(137
)$
652,028

$
13,327


23.   Reconciliation of Canadian and United States generally accepted accounting principles:



44

---





2005

2004Earnings (loss) for the year based on Canadian GAAP

$
85,218

$
(9,920
)Impact on loss of U.S. GAAP adjustments:Depreciation and amortization (a)


(4,111
)

(142
)Accretion of convertible debentures (b)





632Debt settlement expense (b)





508Earnings (loss) for the year under U.S. GAAP

$
81,107

$
(8,922
)Basic and diluted income (loss) per share under U.S. GAAP

$
0.99

$
(1.00
)Basic and diluted income (loss) per share under U.S. GAAP

$
0.67

$
(1.00
)Weighted average number of common shares outstandingBasic


82,008,190


8,894,235Diluted (note 14d)


121,116,832


8,894,235




2005

2004Assets:Financial derivative asset

$
4,085

$
Property, plant and equipment (a)


373,954


358,520Liabilities:Pension obligation (e)

$
75,683

$
70,087Future income tax liability (c)


3,217


1,290Shareholders' equity:Common shares (d)

$
164,039

$
142,117Retained earnings (deficit) (d)


52,500


(28,607
)Currency translation adjustment





Accumulated other comprehensive income (loss)


(6,563
)

(24
)


45

---













46

---







2005

2004Projected benefit obligation

$
242,773

$
216,167Accumulated benefits obligation


233,875


203,415Fair value of plan assets


171,992


146,014Accumulated benefits obligations (all defined benefit plans)

$
235,790

$
204,964






47

---





2005

2004Income (loss) under U.S. GAAP

$
81,107

$
(8,922
)Other comprehensive income (loss):Change in cumulative translation adjustments


(39
)

(24
)Additional minimum pension liability


(10,585
)

Effective portion of foreign currency hedge


4,085


Comprehensive income (loss) based on U.S. GAAP

$
74,568

$
(8,946
)








48

---







49

---







50

---







51

---





52

---







53

---





24.   Subsequent events:





54

---





Current assets (including cash of $873)

$
2,718Property, plant and equipment


16,258Current liabilities


(1,344
)$
17,632




25.   Hudson Bay Mining and Smelting Co., Limited:



2005

2004Total revenues

$
652,013

$
538,433Net earnings


104,860


50,132Long-term financial debt (excluding current portion)


200,504


238,586Total assets


700,579


803,803


26.   Comparative figures:



55

---





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