**UNITED
      STATES**





**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**




**FORM
      10-QSB**




x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the
      quarterly period ended September 30, 2007




OR




o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




For
      the
      transition period from      to




Commission
                file number 000-51076




**WESTERN
      GOLDFIELDS INC.**


(Exact
      Name of Small Business Issuer as Specified in Its Charter)




Ontario
            98 – 0544546(State of other jurisdiction of
            (I.R.S. Employerincorporation or organization)
            Identification No.)




2
      Bloor Street West, Suite 2102 , P.O. Box 110




Toronto,
      Ontario, Canada M4W 3E2


(Address
      of Principal Executive Offices)




416
      324 6000


(Issuer’s
      Telephone Number, Including Area Code)


(Former
      Name, Former Address and Former Fiscal Year,


if
      Changed Since Last Report)





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.  Yes x  No o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).Yes o No x




State
      the
      number of shares outstanding of each of the issuer's classes of common equity
      as
      of the latest practicable date: Common Shares of no par value – 133,940,335
      shares outstanding as of
      November 1, 2007 .




Transitional
      Small Business Disclosure Format:  Yes o  No x







INDEX




**PART
                I.**
            **FINANCIAL
                INFORMATION (unaudited)**Item
                1.
            Cautionary
                Note Regarding Forward Looking Statements
            3Consolidated
                Financial Statements: (unaudited)
            4Consolidated
                Balance Sheets
            4Consolidated
                Statements of Operations and Comprehensive Income(Loss)
            5Consolidated
                Statements of Stockholders’ Equity
            6Consolidated
                Statements of Cash Flows
            7Notes
                to the Consolidated Financial Statements
            8Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation
            24Item
                3.
            Controls
                and Procedures
            37**PART
                II.**
            **OTHER
                INFORMATION**Item
                1.
            Legal
                Proceedings
            38Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            38Item
                3.
            Defaults
                Upon Senior Securities
            38Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            38Item
                5.
            Other
                Information
            38Item
                6.
            Exhibits
            38




2


**PART
      1 – FINANCIAL INFORMATION**





**CAUTIONARY
      NOTE REGARDING FORWARD LOOKING STATEMENTS**





We
      have
      included and from time to time may make in our public filings, press releases
      or
      other public statements, certain statements, including, without limitation,
      those under “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” in Part I, Item 2. In some cases these statements
      are identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,”
“may,” “should,” “will,” “would” and similar expressions. You are cautioned not
      to place undue reliance on these forward-looking statements. In addition, our
      management may make forward-looking statements to analysts, investors,
      representatives of the media and others. These forward-looking statements are
      not historical facts and represent only our beliefs regarding future events
      and,
      by their nature, are inherently uncertain and beyond our control.





The
      nature of our business makes predicting the future trends of our revenues,
      expenses and net income difficult. The risks and uncertainties involved in
      our
      business could affect the matters referred to in such statements and it is
      possible that our actual results may differ materially from the anticipated
      results indicated in these forward looking statements. Important factors that
      could cause actual results to differ from those in the forward-looking
      statements include, without limitation:





·
            the
                effect of political, economic and market conditions and geopolitical
                events;·
            the
                actions and initiatives of current and potential
                competitors;·
            our
                reputation;·
            investor
                sentiment; and·
            other
                risks and uncertainties detailed elsewhere throughout this
                report.




Accordingly,
      you are cautioned not to place undue reliance on forward-looking statements,
      which speak only as of the date on which they are made. We undertake no
      obligation to update publicly or revise any forward-looking statements to
      reflect the impact of circumstances or events that arise after the dates they
      are made, whether as a result of new information, future events or otherwise
      except as required by applicable law. You should, however, consult further
      disclosures we may make in future filings of our Annual Reports on Form 10-KSB,
      Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K, any amendments
      thereto, and in the corresponding documents filed in
      Canada.


3




**PART
      I – FINANCIAL INFORMATION**


**Item
      1.**  **Financial
      Statements**


**WESTERN
      GOLDFIELDS INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**





September 30,
              2007
            
            December 31,
              2006**ASSETS**CURRENT
                ASSETSCash
            
            $
            18,038,341
            
            $
            5,502,535Restricted
                Cash (Note 5)
            
            
            7,500,000
            
            
            -Receivables
            
            
            128,873
            
            
            223,507Inventories (Note
                2, 6)
            
            
            2,378,899
            
            
            511,663Prepaid
                expenses
            
            
            1,826,246
            
            
            841,636TOTAL
                CURRENT ASSETS
            
            
            29,872,359
            
            
            7,079,341Property,
                plant, and equipment, net of accumulated amortization (Note
                7)
            
            
            69,325,464
            
            
            4,328,512Construction
                in progress (Note 8)
            
            
            13,222,505
            
            
            2,880,775Investments
                - reclamation and remediation (Note 9)
            
            
            8,555,114
            
            
            6,337,006Long-term
                deposits
            
            
            342,926
            
            
            329,146Long-term
                prepaid expenses (Note 10)
            
            
            1,590,847
            
            
            1,009,555Deferred
                debt issuance and stock offering costs (Note 11)
            
            
            3,342,675
            
            
            250,000TOTAL
                OTHER ASSETS
            
            
            96,379,531
            
            
            15,134,994**TOTAL
                ASSETS**
            
            $
            126,251,890
            
            $
            22,214,335**LIABILITIES
                & STOCKHOLDERS' EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            4,735,977
            
            $
            1,663,080Accounts
                payable to related party (Note 18)
            
            
            15,156
            
            
            31,165Accrued
                expenses
            
            
            1,181,107
            
            
            835,740Accrued
                interest
            
            
            291,905
            
            
            -TOTAL
                CURRENT LIABILITIES
            
            
            6,224,145
            
            
            2,529,985LONG-TERM
                LIABILITIESMark-to-market
                loss on gold hedging contracts (Note 3, 12)
            
            
            27,572,494
            
            
            -Loan
                payable (Note 13)
            
            
            51,107,815
            
            
            -Reclamation
                and remediation liabilities (Note 14)
            
            
            4,909,939
            
            
            4,805,473TOTAL
                LIABILITIES
            
            
            89,814,393
            
            
            7,335,458COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -STOCKHOLDERS'
                EQUITYCommon
                stock, of no par value, unlimited shares authorized; 118,774,335
                and
                78,452,876 shares issued and outstanding, respectively (Note 15, 16)
            
            
            97,173,005
            
            
            32,884,798Stock
                options and warrants (Note 17)
            
            
            7,957,442
            
            
            7,674,270Accumulated
                deficit
            
            
            (68,692,950
            )
            
            (25,678,233
            )Accumulated
                other comprehensive income
            
            
            -
            
            
            (1,958
            )TOTAL
                STOCKHOLDERS' EQUITY
            
            
            36,437,497
            
            
            14,878,877**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            $
            126,251,890
            
            $
            22,214,335





The
      accompanying notes are an integral part of these consolidated financial
      statements.


4





**WESTERN
      GOLDFIELDS INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**AND
      COMPREHENSIVE INCOME (LOSS)**


**(Unaudited)**





Three Months Ended September 30,
            
            Nine Months Ended September 30,2007
            
            2006
            
            2007
            
            2006REVENUESRevenues
                from gold sales
            
            $
            1,281,229
            
            $
            1,897,155
            
            $
            4,060,106
            
            $
            6,776,098COST
                OF GOODS SOLDMine
                operating costs
            
            
            6,066,818
            
            
            2,239,154
            
            
            11,741,304
            
            
            7,116,338Amortization
                and accretion
            
            
            1,609,092
            
            
            342,248
            
            
            2,361,410
            
            
            989,492Royalties
            
            
            49,726
            
            
            72,475
            
            
            154,086
            
            
            255,718Reclamation
                cost recovery
            
            
            -
            
            
            (1,459,859
            )
            
            -
            
            
            (1,459,859
            )7,725,636
            
            
            1,194,018
            
            
            14,256,800
            
            
            6,901,689GROSS
                PROFIT (LOSS)
            
            
            (6,444,407
            )
            
            703,137
            
            
            (10,196,694
            )
            
            (125,591
            )EXPENSESGeneral
                and administrative
            
            
            958,085
            
            
            1,102,603
            
            
            3,180,575
            
            
            3,278,207Stock
                based compensation
            
            
            661,892
            
            
            868,208
            
            
            1,950,446
            
            
            2,638,364Severance
                costs payable in common shares
            
            
            -
            
            
            547,200
            
            
            -
            
            
            547,200Exploration
            
            
            (272,774
            )
            
            251,104
            
            
            759,152
            
            
            962,3211,347,203
            
            
            2,769,115
            
            
            5,890,173
            
            
            7,426,092OPERATING
                LOSS
            
            
            (7,791,610
            )
            
            (2,065,978
            )
            
            (16,086,867
            )
            
            (7,551,683
            )OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            341,213
            
            
            88,839
            
            
            1,383,466
            
            
            267,453Interest
                expense
            
            
            (456,522
            )
            
            -
            
            
            (457,361
            )
            
            (20,434
            )Agency
                and commitment fees
            
            
            (149,579
            )
            
            -
            
            
            (390,829
            )
            
            -Amortization
                of deferred debt issuance costs
            
            
            (117,601
            )
            
            -
            
            
            (227,145
            )
            
            -Unrealized
                loss on mark-to-market gold hedging contracts (Note 12)
            
            
            (28,331,371
            )
            
            -
            
            
            (27,572,494
            )
            
            -Gain
                on extinguishment of debt
            
            
            -
            
            
            -
            
            
            -
            
            
            142,949Gain
                (Loss) on foreign currency exchange
            
            
            89,022
            
            
            (7,645
            )
            
            294,072
            
            
            (7,645
            )Gain
                (Loss) on sale of assets
            
            
            42,441
            
            
            -
            
            
            42,441
            
            
            (18,837
            )Expenses
                of Romarco merger termination
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,225,000
            )(28,582,397
            )
            
            81,194
            
            
            (26,927,850
            )
            
            (861,514
            )LOSS
                BEFORE INCOME TAXES
            
            
            (36,374,007
            )
            
            (1,984,784
            )
            
            (43,014,717
            )
            
            (8,413,197
            )INCOME
                TAXES
            
            
            -
            
            
            -
            
            
            -
            
            
            -NET
                LOSS
            
            
            (36,374,007
            )
            
            (1,984,784
            )
            
            (43,014,717
            )
            
            (8,413,197
            )PREFERRED
                STOCK DIVIDENDS
            
            
            -
            
            
            -
            
            
            -
            
            
            (16,979
            )NET
                LOSS TO COMMON STOCKHOLDERS
            
            
            (36,374,007
            )
            
            (1,984,784
            )
            
            (43,014,717
            )
            
            (8,430,176
            )OTHER
                COMPREHENSIVE INCOMEForeign
                currency translation adjustment
            
            
            8,131
            
            
            6,610
            
            
            -
            
            
            2,797NET
                COMPREHENSIVE LOSS
            
            $
            (36,365,876
            )
            $
            (1,978,174
            )
            
            (43,014,717
            )
            $
            (8,410,400
            )BASIC
                AND DILUTED NET LOSS PER SHARE
            
            $
            (0.31
            )
            $
            (0.02
            )
            
            (0.39
            )
            $
            (0.14
            )WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
            
            
            118,281,240
            
            
            68,009,489
            
            
            111,628,367
            
            
            60,063,849




The
      accompanying notes are an integral part of these consolidated financial
      statements.


5





**WESTERN
      GOLDFIELDS INC.**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY**





(Nine
      months ended September 30, 2007 - unaudited. Year ended December 31, 2006 -
      audited)


Preferred Stock
                
                Common Stock
                
                Stock Options
                
                
                
                OtherNumber
                  of Shares
                
                Amount
                
                Number
                  of Shares
                
                Amount
                
                and
                  Warrants
                
                Accumulated
                  Deficit
                
                Comprehensive
                  Income (Loss)
                
                TotalBalance,
                    December 31, 2005
                
                
                1,000,000
                
                $
                10,000
                
                
                39,468,051
                
                $
                13,014,333
                
                $
                4,942,188
                
                $
                (14,077,989
                )
                $
                -
                
                $
                3,888,532Common
                    stock and warrants issued by way of private placement
                    (unaudited)
                
                
                -
                
                
                -
                
                
                20,000,000
                
                
                4,012,000
                
                
                1,988,000
                
                
                -
                
                
                -
                
                
                6,000,000Common
                    shares issued on conversion of series A preferred stock (Note
                    14)
                
                
                (1,000,000
                )
                
                (10,000
                )
                
                3,125,000
                
                
                25,000
                
                
                (15,000
                )
                
                -
                
                
                -
                
                
                -Common
                    shares issued on conversion of series A preferred stock
                    warrants
                
                
                -
                
                
                -
                
                
                1,562,500
                
                
                300,000
                
                
                -
                
                
                -
                
                
                -
                
                
                300,000Common
                    shares issued on conversion of common stock warrants
                
                
                -
                
                
                -
                
                
                12,647,325
                
                
                11,533,811
                
                
                -
                
                
                -
                
                
                -
                
                
                11,533,811Common
                    shares issued on exersice of common stock options
                
                
                -
                
                
                -
                
                
                1,135,000
                
                
                632,750
                
                
                -
                
                
                -
                
                
                -
                
                
                632,750Common
                    shares issued for exploration assets and services and severance
                    agreements
                
                
                -
                
                
                -
                
                
                515,000
                
                
                683,700
                
                
                -
                
                
                -
                
                
                -
                
                
                683,700Options
                    issued for directors' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,032,488
                
                
                -
                
                
                -
                
                
                1,032,488Options
                    issued for officers' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,764,945
                
                
                -
                
                
                -
                
                
                1,764,945Options
                    issued for employees' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                411,853
                
                
                -
                
                
                -
                
                
                411,853Warrants
                    issued for consultants' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                233,000
                
                
                -
                
                
                -
                
                
                233,000Exercise
                    and expiration of warrants & options
                
                
                -
                
                
                -
                
                
                -
                
                
                2,683,204
                
                
                (2,683,204
                )
                
                -
                
                
                -
                
                
                -Net
                      loss for the twelve months ended December 31, 2006
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (11,583,265
                )
                
                -
                
                
                (11,583,265
                )Dividend
                    on preferred stock (Note 14)
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (16,979
                )
                
                -
                
                
                (16,979
                )Other
                    comprehensive income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (1,958
                )
                
                (1,958
                )Balance,
                    December 31, 2006
                
                
                -
                
                
                -
                
                
                78,452,876
                
                
                32,884,798
                
                
                7,674,270
                
                
                (25,678,233
                )
                
                (1,958
                )
                
                14,878,877Common
                    stock and warrants issued under prospectus supplement
                
                
                -
                
                
                -
                
                
                33,330,000
                
                
                59,191,197
                
                
                -
                
                
                -
                
                
                -
                
                
                59,191,197Common
                    shares issued on conversion of common stock warrants
                
                
                -
                
                
                -
                
                
                5,498,052
                
                
                2,520,552
                
                
                -
                
                
                -
                
                
                -
                
                
                2,520,552Common
                    shares issued on exersice of common stock options
                
                
                -
                
                
                -
                
                
                1,493,407
                
                
                909,183
                
                
                -
                
                
                -
                
                
                -
                
                
                909,183Options
                    issued for directors' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                391,312
                
                
                -
                
                
                -
                
                
                391,312Options
                    issued for officers' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                625,819
                
                
                -
                
                
                -
                
                
                625,819Options
                    issued for employees' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                879,283
                
                
                -
                
                
                -
                
                
                879,283Options
                    issued for consultants' services
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                54,032
                
                
                
                
                
                -
                
                
                54,032Exercise
                    and expiration of warrants & options
                
                
                -
                
                
                -
                
                
                -
                
                
                1,667,275
                
                
                (1,667,275
                )
                
                -
                
                
                -
                
                
                -Net
                    loss for the nine months ended September 30, 2007
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (43,014,717
                )
                
                -
                
                
                (43,014,717
                )Other
                    comprehensive income
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,958
                
                
                1,958Balance,
                    September 30, 2007
                
                
                -
                
                $
                -
                
                
                118,774,335
                
                $
                97,173,005
                
                $
                7,957,442
                
                $
                (68,692,950
                )
                $
                -
                
                $
                36,437,497
 The
        accompanying notes are an integral part of these consolidated financial
        statements.


6








**WESTERN
      GOLDFIELDS INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





Three
                Months Ended September 30,
            
            Nine Months Ended September 30,2007
            
            2006
            
            2007
            
            2006updated**CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (36,374,007
            )
            $
            (1,984,784
            )
            $
            (43,014,717
            )
            $
            (8,413,197
            )Adjustments
                to reconcile net loss to net cash provided (used) by operating
                activities:Amortization
            
            
            1,530,576
            
            
            277,590
            
            
            2,122,983
            
            
            807,099Amortization
                of deferred debt issuance costs
            
            
            117,601
            
            
            -
            
            
            227,145
            
            
            -Accretion
                expense (Note 14)
            
            
            84,294
            
            
            67,538
            
            
            252,882
            
            
            185,273Reclamation
                cost recovery
            
            
            -
            
            
            (1,459,859
            )
            
            -
            
            
            (1,459,859
            )Reclamation
                costs incurred
            
            
            -
            
            
            (69,695
            )
            
            -
            
            
            (69,695
            )Gain
                on sale of assets and investments
            
            
            (42,441
            )
            
            -
            
            
            (42,441
            )
            
            18,837Interest
                on investments - reclamation and remediation
            
            
            (106,270
            )
            
            1,003
            
            
            (276,539
            )
            
            (150,693
            )Common
                stock issued for exploration assets and services
            
            
            -
            
            
            -
            
            
            -
            
            
            136,500Common
                stock issued in respect of severance agreements
            
            
            -
            
            
            547,200
            
            
            -
            
            
            547,200Stock
                based compensation
            
            
            661,892
            
            
            635,207
            
            
            1,950,446
            
            
            2,638,364Mark-to-market
                loss on gold hedging contracts
            
            
            28,331,371
            
            
            -
            
            
            27,572,494
            
            
            -Warrants
                issued for services of consultant
            
            
            -
            
            
            233,000
            
            
            -
            
            
            233,000Changes
                in assets and liabilities:Decrease
                (increase) in:Restricted
                cash
            
            
            -
            
            
            -
            
            
            (7,500,000
            )
            
            -Accounts
                receivable
            
            
            18,479
            
            
            (130,571
            )
            
            94,634
            
            
            (141,581
            )Inventories
            
            
            (1,827,345
            )
            
            190,722
            
            
            (1,867,236
            )
            
            419,935Prepaid
                expenses
            
            
            (1,018,973
            )
            
            45,049
            
            
            (1,565,902
            )
            
            148,768Long
                term deposits
            
            
            (4,556
            )
            
            (2,430
            )
            
            (13,780
            )
            
            (7,302
            )Increase
                (decrease) in:Accounts
                payable
            
            
            1,285,607
            
            
            (264,581
            )
            
            336,824
            
            
            (436,445
            )Accounts
                payable - related parties
            
            
            (10,231
            )
            
            (84,507
            )
            
            (16,009
            )
            
            33,694Accrued
                expenses
            
            
            144,806
            
            
            (171,293
            )
            
            345,366
            
            
            150,962Accrued
                expenses - related parties
            
            
            -
            
            
            -
            
            
            -
            
            
            (45,835
            )Accrued
                interest expense
            
            
            291,905
            
            
            -
            
            
            291,905
            
            
            (48,695
            )Accrued
                agency and commitment fees
            
            
            (241,250
            )
            
            -
            
            
            -
            
            
            -Net
                cash provided (used) by operating activities
            
            
            (7,158,542
            )
            
            (2,170,411
            )
            
            (21,101,945
            )
            
            (5,453,671
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property & equipment, including constructionin
                  progress
            
            
            (43,304,571
            )
            
            (85,290
            )
            
            (74,681,081
            )
            
            (473,069
            )Increase
                in reclamation and remediation investment
            
            
            -
            
            
            -
            
            
            (2,090,094
            )
            
            -Net
                cash provided (used) by investing activities
            
            
            (43,304,571
            )
            
            (85,290
            )
            
            (76,771,175
            )
            
            (473,069
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES**Term
                loan advances (repayments)
            
            
            51,107,815
            
            
            -
            
            
            51,107,815
            
            
            (2,205,186
            )Deferred
                debt issuance costs
            
            
            (2,469,747
            )
            
            -
            
            
            (3,319,820
            )
            
            -Common
                stock issued for cash
            
            
            -
            
            
            -
            
            
            59,191,196
            
            
            4,012,000Warrants
                issued for cash
            
            
            -
            
            
            -
            
            
            -
            
            
            1,988,000Exercise
                of options to purchase common stock
            
            
            408,200
            
            
            (3,650,250
            )
            
            909,183
            
            
            -Exercise
                of warrants to purchase common stock
            
            
            705,000
            
            
            5,286,238
            
            
            2,520,552
            
            
            5,286,238Preferred
                stock dividends
            
            
            -
            
            
            -
            
            
            -
            
            
            (51,354
            )Net
                cash provided (used) by financing activities
            
            
            49,751,268
            
            
            1,635,988
            
            
            110,408,926
            
            
            9,029,698Change
                in cash
            
            
            (711,845
            )
            
            (619,713
            )
            
            12,535,806
            
            
            3,102,958Cash,
                beginning of period
            
            
            18,750,186
            
            
            3,775,058
            
            
            5,502,535
            
            
            52,387Cash,
                end of period
            
            $
            18,038,341
            
            $
            3,155,345
            
            $
            18,038,341
            
            $
            3,155,345**SUPPLEMENTAL
                CASH FLOW DISCLOSURES:**Interest
                paid (received)
            
            $
            164,617
            
            $
            (300
            )
            $
            165,456
            
            $
            69,130**NON-CASH
                FINANCING AND****INVESTING
                ACTIVITIES:**Stock,
                options and warrants issued for services
            
            $
            661,892
            
            $
            635,207
            
            $
            1,950,446
            
            $
            2,638,364Exploration
                fees and assets paid by issuance of stock
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            136,500Equipment
                purchases included in accounts payable
            
            $
            (9,093,639
            )
            $
            -
            
            $
            2,738,144
            
            $
            -Deferred
                debt issuance costs included in accrued expenses
            
            $
            (2,328,277
            )
            $
            -
            
            $
            -
            
            $
            -




The
      accompanying notes are an integral part of these consolidated financial
      statements.




7




**WESTERN
      GOLDFIELDS, INC.**


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





**1.**  **ORGANIZATION
      AND DESCRIPTION OF**  **BUSINESS**





Western
      Goldfields Inc. (hereinafter “the Company” or “WGI Ontario”) and its wholly
      owned subsidiaries are engaged in the exploration for, development and
      extraction of precious metals, principally in North America. The Company’s four
      wholly owned subsidiaries are: Western Goldfields USA Inc. (a holding company),
      Western Goldfields (Canada) Inc. (a management company), Western Mesquite Mines,
      Inc. (an operating company), and Calumet Mining Company (an exploration
      company).





On
      June
      19, 2007 the shareholders of the Company’s predecessor, Western Goldfields,
      Inc., an Idaho corporation (“WGI Idaho”), approved an agreement and plan of
      merger effective June 29, 2007 whereby the Company’s place of incorporation was
      changed from Idaho, USA to Ontario, Canada, and its name was changed from
      Western Goldfields, Inc. to Western Goldfields Inc. (the “Reorganization”). For
      accounting purposes, the Reorganization has been treated as a reorganization
      of
      entities under common control which has not resulted in any changes in the
      consolidated carrying amounts of assets, liabilities and stockholders’ equity.
      As used herein, the term “the Company” refers to WGI Ontario and its predecessor
      WGI Idaho.





The
      Company was in the exploration stage until late 2003. With the acquisition
      of
      the Mesquite Mine in November 2003, the Company exited the exploration stage
      and
      became an operating mining company. Until June 2007, the Company’s operations
      were restricted to the production of gold from material that was placed on
      heap
      leach pads by previous owners of the mine. In June 2007, the Company commenced
      pre-stripping operations with a view to resumption of full production in January
      2008. Revenue from gold sales since January 2004 has helped to sustain
      operations pending reactivation of the mine.





The
      Company, through its wholly-owned subsidiary, Western Mesquite Mines, Inc.
      (“WMMI”), entered into a term loan facility with a syndicate of banks, dated
      March 30, 2007 and amended and restated on May 31, 2007, under which facility
      WMMI can borrow up to $105 million in connection with the development of the
      Mesquite Mine. Interest on advances will be at U.S. LIBOR plus 2.2% until
      completion of the project (as defined) and 1.75% after completion. On June
      14,
      2007 the Company announced that it had satisfied or had received a waiver on
      all
      conditions precedent to the availability of the term loan facility. The Company
      anticipates drawing $87,300,000 to complete the Mesquite development plan.
      The
      agreement, in conjunction with the equity financing in January and February
      of
      2007, completes the financing requirements for Mesquite.





In
      January and February, 2007 the Company completed a common share equity
      financing, including an underwriters’ over-allotment option, which provided the
      Company with net proceeds of approximately $59,200,000.





The
      Company’s year-end for reporting purposes is December 31.





**2.**  **BASIS
      OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES**





The
      consolidated financial statements include the accounts of Western Goldfields
      Inc. and its 100% owned subsidiaries: Western Goldfields USA Inc., Western
      Goldfields (Canada) Inc., Western Mesquite Mines, Inc., and Calumet Mining
      Company (collectively “Western Goldfields”.) The consolidated financial
      statements include the assets and liabilities of Western Goldfields as at
      September 30, 2007 and its results of operations and its cash flows for the
      period ended September 30, 2007. All significant inter-company accounts and
      transactions have been eliminated on consolidation.





The
      classification of certain items in these financial statements differs from
      that
      adopted in prior periods as a result of revised groupings or allocations.
      Comparative figures have been reclassified in the financial statements of the
      prior period to conform to the new basis.




8





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Significant areas requiring the use of
      management estimates relate to the determination of mineral reserves,
      reclamation and remediation obligations, impairment of assets, useful lives
      for
      depreciation and amortization, measurement of metal-in-process and finished
      goods inventories, value of options and warrants, and valuation allowances
      for
      future tax assets. Actual results could differ from these
      estimates.





**Ore
      on Leach Pads and Metal-in-Process Inventories**





Prior
      to
      July 2007, the Company placed no value on the mineralized material that had
      been
      placed on the leach pads at the Mesquite Mine by Newmont Mining Corporation
      prior to the acquisition of the property by the Company on November 7, 2003.
      In
      August, 2006 the Company announced the completion of the Mesquite feasibility
      study, which indicated proven and probable reserves of 2.36 million ounces
      of
      gold, and in March 2007 the Company announced that proven and probable reserves
      had increased to 2.77 million ounces. The reserve estimates support the
      recoverability of capitalized and inventoried production costs. Accordingly,
      on
      resumption of mining operations and the placement of new ore on the leach pads
      commencing July 2007, the Company has begun to value new ore placed on the
      leach
      pads at the lower of average cost or net realizable value. Costs are added
      to
      ore on leach pads based on current mining costs, including applicable
      depreciation, amortization and depletion relating to mining operations. Costs
      are removed from ore on leach pads as ounces are recovered based on the average
      cost per estimated recoverable ounce of gold on the leach pad.





Under
      the
      heap leaching process, ore on leach pads is treated with a chemical solution
      which dissolves the gold contained in the ore. The solution is further processed
      in a plant where the gold is recovered. Metal-in-process inventories represent
      metal in solution or in subsequent stages of the refining process. In-process
      inventories are measured based on assays of the solution and projected
      recoveries from the refining circuit and are valued at average production cost
      or net realizable value. Average production cost is based on the average cost
      of
      material fed into the process from the leach pads plus the in-process conversion
      costs, including applicable depreciation relating to the process facilities.





Subject
      to the foregoing comments in respect of ore on leach pads and metal-in-process
      inventories, the accounting policies followed in preparing these financial
      statements are those used by Western Goldfields as set out in the audited
      financial statements for the period ended December 31, 2006. These interim
      statements should be read together with Western Goldfields’ audited financial
      statements for the period ended December 31, 2006. In the opinion of management,
      all adjustments considered necessary for fair and consistent presentation of
      interim statements have been made. The financial statements and notes are
      representations of the Company’s management which is responsible for their
      integrity and objectivity. These accounting policies conform to accounting
      principles generally accepted in the United States of America and have been
      consistently applied in the preparation of the financial
      statements.





**3.
      DERIVATIVE INSTRUMENTS**





The
      Company accounts for its forward sales of gold in conformity with the following
      statements issued by the Financial Accounting Standards Board (“FASB”):
      Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for
      Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137,
“Accounting for Derivative Instruments and Hedging Activities - Deferral of
      the
      Effective Date of FASB No. 133,” SFAS No. 138, “Accounting for Certain
      Derivative Instruments and Certain Hedging Activities,” and SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.
      These standards establish accounting and reporting standards for derivative
      instruments, including certain derivative instruments embedded in other
      contracts, and for hedging activities. They require that an entity recognize
      all
      derivatives as either assets or liabilities in the balance sheet and measure
      those instruments at fair value.





A
      derivative may be specifically designated as a hedge of financial risk exposures
      of anticipated transactions if, both at the inception of the hedge and
      throughout the hedge period, the changes in fair value of the contract
      substantially offset the effect of commodity price changes on the anticipated
      transactions and if it is probable that the transactions will occur. Pursuant
      to
      such a designation, the income effect of the change in derivative values would
      be accounted for in other comprehensive income based upon the Company's
      valuation of the associated financial gain or loss. Any change arising from
      the
      determination of the derivative's effectiveness would be accounted for as a
      charge to current operations.





9




The
      Company has not designated its gold forward sales contracts entered into in
      2007
      as cash flow hedges. Accordingly the hedge accounting rules of SFAS No.133
      are
      not being applied and the period-end mark-to-market of these contracts is
      immediately reflected on the income statement of the Company and the cumulative
      effect is reflected as an asset or liability on the balance sheet.




**4.**  **RECENT
      ACCOUNTING PRONOUNCEMENTS**





The
      Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
      Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN No.48”)
      effective January 1, 2007. The purpose of FIN No.48 is to clarify and set forth
      consistent rules for accounting for uncertain tax positions in accordance with
      Statement of Financial Accounting Standards No. 109, “Accounting for Income
      Taxes”. The cumulative effect of applying the provisions of this interpretation
      are required to be reported separately as an adjustment to the opening balance
      of retained earnings of the year of adoption. The adoption of this standard
      did
      not have an impact on the financial condition or the results of the Company’s
      operations.





In
      March
      2006, the FASB issued Emerging Issues Task Force Issue No. 04-06 (“EITF 04-06”),
“Accounting for Stripping Costs Incurred during Production in the Mining
      Industry”. EITF 04-06 addresses the accounting for stripping costs incurred
      during the production phase of a mine and refers to these costs as variable
      production costs that should be included as a component of inventory to be
      recognized in costs applicable to sales in the same period as the revenue from
      the sale of inventory. As a result, capitalization of post-production stripping
      costs is appropriate only to the extent product inventory exists at the end
      of a
      reporting period. During the development stage of a mine, pre-production
      stripping costs are capitalized and typically are amortized over the productive
      life of the mine. The Company is following this guidance in its accounting
      for
      stripping costs associated with the expansion of the existing mine workings
      at
      Mesquite.





In
      September 2006, the FASB issued SFAS No.157, “Fair Value Measurements”. The
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, and expands disclosures about
      fair
      value measurements. The Statement does not require any new fair value
      measurements. However, for some entities, application of the Statement will
      change current practice. The provisions of the Statement are effective for
      the
      Company’s fiscal year ending December 31, 2008. The Company is currently
      evaluating the impact of the adoption of SFAS No. 157 on the Company’s overall
      results of operations or financial position.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No.115”. The Statement permits entities to choose to measure many
      financial instruments and certain other items at fair value. The objective
      is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reporting earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. The Statement is expected to expand the use of fair value
      measurement and is effective as of the start of the Company’s first fiscal year
      that commences after November 15, 2007. The Company is currently evaluating
      the
      impact of adoption of SFAS No.159 on its overall results of operations or
      financial position.




**5.**  **RESTRICTED
      CASH**





The
      Company, through its wholly-owned subsidiary, Western Mesquite Mines, Inc.
      (“WMMI”), entered into a term loan facility with a syndicate of banks, dated
      March 30, 2007 and amended and restated on May 31, 2007 (note 13). Under the
      terms of this facility the Company has set aside $7,500,000 in a Cost Overrun
      Account until Completion of the Mesquite Mine development project, which occurs
      on satisfaction of physical and economic completion tests as set out in the
      credit agreement. At Completion, unused funds will be applied to fund a Debt
      Service Reserve Account, established to hold an amount equal to the debt service
      amounts payable on the next Repayment Date as set out in the credit agreement,
      and thereafter any surplus funds may be returned to the Company. Interest earned
      on restricted cash is for the account of the Company.




10




**6.**  **INVENTORIES**





Inventories
      consist of the following:





**September 30,**
              **2007**
            
            **December 31,**
              **2006**Ore
                on leach pads
            
            $
            1,785,087
            
            $
            -Metal-in-process
            
            
            236,726
            
            
            270,645Supplies
            
            
            357,086
            
            
            241,018Total
                inventories
            
            $
            2,378,899
            
            $
            511,663





The
      Company resumed mining operations and started placing new ore on the leach
      pads
      in July 2007. The estimated contained ounces of gold are valued at the lower
      of
      average production cost or net realizable value. Reflecting the start-up phase
      of the operation, production levels in the period to September 30, 2007 were
      low
      relative to mining costs incurred. Accordingly the estimated 2,469 gold ounces
      contained in ore on leach pads as of September 30, 2007 has been valued at
      estimated net realizable value.





Metal-in-process
      inventory represents metal in solution or in subsequent stages of the refining
      process and is valued at the lower of average production cost or net realizable
      value. The estimated 327 ounces of metal-in-process inventory as of September
      30, 2007 has been valued at net realizable value. Metal-in-process contained
      approximately 327 and 441 ounces of gold as of September 30, 2007 and December
      31, 2006, respectively.




**7.**  **PROPERTY
      AND EQUIPMENT**





The
      following is a summary of property, equipment, and accumulated depreciation
      at
      September 30, 2007 and December 31, 2006:





**September 30,**
              **2007**
            
            **December 31,**
              **2006**Buildings
            
            $
            3,964,705
            
            $
            3,550,000Equipment
            
            
            67,294,458
            
            
            4,020,491Other
                assets
            
            
            3,361,320
            
            
            -74,620,483
            
            
            7,570,491Less
                accumulated amortization and depreciation
            
            
            (5,295,019
            )
            
            (3,241,979
            )Net
                Property and Equipment
            
            $
            69,325,464
            
            $
            4,328,512





Buildings
      and equipment as at September 30, 2007 and 2006, includes capitalized interest
      expense in the amounts of $73,044 and $ nil, respectively. The amount
      capitalized is based on the interest attributable to borrowings incurred to
      finance the construction of assets intended for the Company’s own use.
      Capitalization of interest ceases when an asset is ready for its intended
      use.





Amortization
      and depreciation expense for the nine months ended September 30, 2007 and 2006
      was $2,122,983 and $807,099 respectively. Property and equipment is depreciated
      on a straight line basis over the estimated useful life of the assets, which
      in
      most instances equates to the estimated life of the Mesquite Mine. The great
      majority of assets acquired under the expansion program are depreciated over
      12
      years.





The
      Company evaluates the recoverability of property and equipment when events
      and
      circumstances indicate that such assets might be impaired. The Company
      determines impairment by comparing the present value of future cash flows
      estimated to be generated by these assets to their respective carrying amounts.
      Maintenance and repairs are expensed as incurred. Replacements and betterments
      are capitalized. The cost and related reserves of assets sold or retired are
      removed from the accounts, and any resulting gain or loss is reflected in
      results of operations.




11





**8.**  **CONSTRUCTION
      IN PROCESS**





The
      following is a summary of the major components of construction in process at
      September 30, 2007 and December 31, 2006:





**September 30,**
              **2007**
            
            **December 31,**
              **2006**Mining
                fleet and ancillary equipment
            
            $
            -
            
            $
            327,359Leach
                pad expansion
            
            
            7,737,085
            
            
            -Building
                construction and site infrastructure
            
            
            5,485,420
            
            
            2,237,614Development
                drilling
            
            
            -
            
            
            315,802$
            13,222,505
            
            $
            2,880,775





Construction
      in process is accumulated and carried forward at cost until completion of
      construction or until the equipment is placed into service and thereafter is
      amortized over its expected useful life.





Development
      drilling represents drilling costs at Mesquite Mine that have been determined
      will add to previously established proven and probable reserves. These costs
      are
      accumulated until commencement of production and thereafter are amortized on
      a
      units-of-production basis.





**9.**  **RECLAMATION
      AND REMEDIATION INVESTMENTS AND BONDS**





The
      Company has a bonding and insurance program, primarily with American
      International Specialty Lines Insurance Company (“AIG”), in respect of the
      operations and closure liabilities of the Mesquite Mine. Under the program,
      the
      Company initially paid $5,998,994 into a reimbursement account with AIG,
      representing the net present value of expected reclamation costs. The
      feasibility study completed in August 2006 estimated proven and probable mineral
      reserves at 2.36 million gold ounces. In March 2007 the Company announced that
      it had increased proven and probable reserves at Mesquite from 2.36 million
      ounces to 2.77 million ounces and had increased the reserve life of the mine
      by
      approximately two years. On the basis of these increases, the Company has agreed
      with AIG and the regulatory agencies to revisions in its reclamation cost
      estimates. As a consequence, in May 2007 the bonding program was increased
      from
      approximately $8,700,000 to approximately $11,300,000 and the Company was
      required to place an additional $2,090,094 in the reimbursement account with
      AIG. In addition, changes were made to the insurance program as described below.





During
      the second half of 2006 and first quarter of 2007, the Company carried out
      closure procedures in respect of the Vista heap leach pad. Related costs of
      $349,330 were reimbursed by AIG.





The
      following is a summary of cumulative activity in the reimbursement account
      as at
      September 30, 2007 and December 31, 2006:




**September 30,**
                **2007**
              
              **December 31,**
                **2006**Original
                  deposit to reimbursement account
              
              $
              5,998,994
              
              $
              5,998,994Additional
                  deposit to reimbursement account
              
              
              2,090,094
              
              
              -Interest
                  earned from inception
              
              
              814,356
              
              
              538,8178,904,444
              
              
              6,537,811Reclamation
                  costs reimbursed
              
              
              (349,330
              )
              
              (200,805
              )Closing
                  balance
              
              $
              8,555,114
              
              $
              6,337,006




12




The
      following bonds have been issued by AIG and approved by regulatory agencies
      under the bonding component of the insurance program:





**Bond
                Number**
            
            **Inception
                Date**
            
            **Value**
            
            **Obligee(s)**ESD
                7315360
            
            
            11/7/2003
            
            $
            1,218,200
            
            
            Imperial
                County, California
              California
                Department of Conservation
              U.S.
                Bureau of Land ManagementESD
                7315361
            
            
            11/7/2003
            
            $
            1,468,000
            
            
            Imperial
                County, California
              California
                Department of Conservation
              U.S.
                Bureau of Land ManagementESD
                7315362
            
            
            11/7/2003
            
            $
            61,783
            
            
            Imperial
                County, California
              California
                Department of Conservation
              U.S.
                Bureau of Land ManagementESD
                7315363
            
            
            11/7/2003
            
            $
            550,000
            
            
            California
                Water Quality Control BoardESD
                7315358
            
            
            11/7/2003
            
            $
            6,978,400
            
            
            U.S.
                Bureau of Land ManagementESD
                7315359
            
            
            11/7/2003
            
            $
            50,000
            
            
            California
                State Lands CommissionESD
                7315533
            
            
            5/30/2007
            
            
            976,800
            
            
            Imperial
                County, California
              California
                Department of Conservation
              U.S.
                Bureau of Land Management
              California
                State lands Commission




**10.**  **LONG-TERM
      PREPAID EXPENSES**




The
      Company has paid advance premiums in respect of insurance policies to cover
      environmental risks at the Mesquite Mine. The insurance program has recently
      been re-evaluated in light of the increase in reserves and forecast mine life
      at
      Mesquite.





The
      insurance program covers closure and reclamation risk in excess of the amount
      covered by the Investment - Remediation and Reclamation account ($8,555,114
      as
      at September 30, 2007), to an aggregate limit of $17,500,000 and expires
      November 7, 2020. The program limit and term were increased from $14,000,000
      and
      November 7, 2014 respectively, effective May 30, 2007.





The
      program also covers pollution and remediation risk up to $10,000,000. Coverage
      pertaining to existing conditions and new conditions expires on November 7,
      2013
      and November 7, 2008 respectively. The program limit was increased from
      $5,000,000 effective May 31, 2007.





The
      premium cost is being amortized over the terms of the policies and is summarized
      below.





**September
                  30,****2007**
            
            **December
                  31,****2006**Original
                Policy Premiums
            
            $
            1,642,621
            
            $
            1,642,621Additional
                Policy Premium
            
            
            724,163
            
            
            -Amortization
                to date
            
            
            (599,351
            )
            
            (481,417
            )Unamortized
                Premium Cost
            
            
            1,767,433
            
            
            1,161,204Current
                Portion
            
            
            (176,586
            )
            
            (151,649
            )Long-Term
                Prepaid Expenses
            
            $
            1,590,847
            
            $
            1,009,555




13




**11.**
            **DEFERRED
                DEBT ISSUANCE COSTS**





Debt
      issuance costs, primarily bank fees and professional fees and expenses
      associated with the term loan facility (note 13) incurred to September 30,
      2007
      were $3,569,820. These costs are being amortized on a straight line basis over
      the term of the facility to December 31, 2014. Amortization in the nine and
      three month periods ended September 30, 2007 was $227,145 and $117,601,
      respectively.




**12.**  **MARK-TO-MARKET
      LOSS ON GOLD HEDGING CONTRACTS**





Under
      the
      terms of the term loan facility dated March 30, 2007 and amended and restated
      on
      May 31, 2007 (note 13), Western Mesquite Mines Inc. was required, as a condition
      precedent to drawdown, to enter into a gold hedging program acceptable to the
      banking syndicate. On June 14, 2007 the Company announced that all requirements
      needed to make the facility available for drawdown had been met and that it
      had
      executed flat forward sales contracts for 429,000 ounces of gold at a price
      of
      $801 per ounce. The hedging contracts represent a commitment of 5,500 ounces
      per
      month for 78 months commencing July 2008 with the last commitment deliverable
      in
      December 2014.





The
      Company has not designated these contracts as cash flow hedges. Accordingly
      the
      hedge accounting rules of SFAS No.133 are not being applied and the period-end
      mark-to-market of these contracts is immediately reflected on the income
      statement of the Company and the cumulative effect is reflected as an asset
      or
      liability on the balance sheet.





The
      contracts were marked-to-market as at September 30, 2007. The cumulative loss
      of
      $27,572,494 has been disclosed as a long term liability as at that date and
      has
      been included as a reduction in other income (expense) for the nine month period
      ended September 30, 2007.




**13.**  **LOANS
      PAYABLE**





**Term
      Loan Facility**





The
      Company, through its wholly-owned subsidiary, Western Mesquite Mines, Inc.
      (“WMMI”), entered into a term loan facility with a syndicate of banks, dated
      March 30, 2007 and amended and restated on May 31, 2007, under which WMMI can
      borrow up to $105 million in connection with the development of the Mesquite
      Mine. The facility is for a term of 7.75 years until December 31, 2014 and
      comprises a multiple-draw term loan of which $87,300,000 will be available
      as
      required for the development of the Mesquite Mine; the remainder will be
      available for up to 12 months after completion for corporate purposes.  The
      facility is secured by all of the assets of WMMI and a pledge of the shares
      of
      WMMI owned by the Company. In addition, until Completion, the facility will
      be
      guaranteed by the Company.





Interest
      on the term loan is charged at U.S. LIBOR plus 2.2% prior to completion and
      U.S.
      LIBOR plus 1.75% after completion.  Completion occurs upon the satisfaction
      of certain technical and financial criteria as defined in the credit agreement.
       As at September 30, 2007, WMMI had drawn $51,107,815 under the facility
      and incurred interest at a rate of 7.6%. Repayment of the project facility
      will
      be on a semi-annual basis, commencing December 31, 2008.  In addition to
      the scheduled repayments, mandatory prepayments are required semi-annually
      based
      on excess cash flow from the Mesquite Mine.  Minimum semi-annual repayments
      are $5,950,000 on December 31, 2008, $5,950,000 on June 30, 2009, $5,525,000
      on
      December 31, 2009 and the balance of $67,575,000 thereafter. A commitment fee
      of
      0.75% is payable on the undrawn balance of the facility.




Pursuant
      to the Reorganization, in July 2007, the Company entered into a Deed of
      Accession with the Agent, the Security Trustee, the Banks and Hedging Banks
      that
      are parties to the Term Loan Facility, under which the Company acceded to the
      Credit Agreement and Intercreditor Deed relating to the Term Loan Facility.
      The
      Company thereby assumed as Guarantor the obligations previously undertaken
      by
      Western Goldfields (USA) Inc. (formerly Western Goldfields, Inc.) in relation
      to
      amounts owing under the Term Loan Facility by Western Mesquite Mines,
      Inc.




14




**Romarco
      Minerals Inc.**





On
      September 30, 2005, the Company entered into an Agreement and Plan of Merger
      and
      Reorganization (“the Merger Agreement”) with Romarco Minerals Inc. (“Romarco”),
      pursuant to which, if completed, the Company would be merged with Romarco.
      Pending completion of the Merger Agreement the Company obtained financing from
      Romarco by way of promissory notes, convertible into common stock at a price
      of
      $0.17. The notes were payable on demand and bore interest at a rate of 12%.
      As
      at December 31, 2005 the liability to Romarco in respect of principal and
      interest was $705,186. On February 13, 2006, the Company announced that it
      and
      Romarco had terminated the Merger Agreement and had entered into a Termination
      Agreement under which, amongst other things, the Company repaid all outstanding
      promissory notes payable to Romarco, totaling $728,257 including principal
      and
      interest.





**Project
      Financing**





As
      part
      of the acquisition of the Mesquite Mine, the Company entered into a credit
      facility agreement on November 5, 2003, with R.M.B. International, (Dublin)
      Limited (“RMB”), a Republic of Ireland corporation. This two-year credit
      facility agreement resulted in the Company receiving $6,000,000 for a mortgage,
      security, assignment, and financing agreement. Substantially all of the assets
      acquired in the Mesquite Mine were pledged and mortgaged under these agreements,
      as well as most of the Company’s other property. Interest was accrued on this
      credit facility at LIBOR plus 6% per annum, on a monthly basis. In January,
      April, July and October 2004, the Company made the first four quarterly payments
      of $750,000 plus interest leaving a balance of $3,000,000 to be paid in 2005.
      In
      January and April of 2005 the Company made two more quarterly payments leaving
      a
      balance of $1,500,000 to be paid in 2005. On August 2, 2005 the Company entered
      into a Supplemental Agreement with RMB under which. RMB agreed that it would
      not
      demand the loan payment due July 31, 2005 until October 31, 2005. On November
      3,
      2005 the Company issued RMB 576,241 shares of common stock to extend the two
      remaining loan payments until April 26, 2006. The loan was paid in full with
      interest on February 12, 2006.





**14.**  **RECLAMATION
      AND REMEDIATION LIABILITIES**





Federal,
      state and local laws and regulations concerning environmental protection affect
      the Company’s operations. Under current regulations, the Company is required to
      meet performance standards to minimize environmental impact from operations
      and
      to perform site reclamation and remediation activities. The Company’s provisions
      for reclamation and remediation liabilities are based on known requirements.
      It
      is not possible to estimate the impact on operating results, if any, of future
      legislative or regulatory developments. The Company’s estimate of the net
      present value of these obligations for the Mesquite mine is based upon existing
      reclamation standards at December 31, 2006 and is in conformity with SFAS No.
      143. The increase in the net present value of the liability is recognized for
      accounting purposes as accretion expense during the period under
      review.





The
      feasibility study completed in August 2006 estimated a mineral reserve for
      the
      Mesquite Mine of 1.23 million gold ounces of proven reserves and 1.13 million
      gold ounces of probable reserves and a project life of 13 years. In light of
      this information, the Company completed a review of the reclamation plan and
      the
      SFAS No. 143 reclamation and remediation liability as at September 1, 2006.
      The
      net present value of these obligations was revised to $4,893,690. The difference
      between this revised estimate and the accreted value up to August 31, 2006,
      was
      accounted for as a recovery of $1,459,859.





15





The
      following table sets out the activity for the Company’s reclamation and
      remediation liabilities for the three month and nine month periods ended
      September 30, 2007:





**Three months**
              **ended**
              **September 30,**
              **2007**
            
            **Nine months**
              **ended**
              **September 30,**
              **2007**Opening
                Balance
            
            $
            4,825,645
            
            $
            4,805,473Accretion
            
            
            84,294
            
            
            252,882Reclamation
                costs incurred
            
            
            -
            
            
            (148,416
            )Reduction
                in the present value of obligations
            
            
            -
            
            
            -Ending
                Balance
            
            $
            4,909,939
            
            $
            4,909,939





**15.**  **PREFERRED
      SHARES**


Following
      the Reorganization, the Company has no authorized class of preferred shares.
      Prior to the Reorganization, Western Goldfields, Inc. had 25,000,000 shares,
      $0.01 par value per share, of preferred stock authorized of which nil were
      issued. As of December 31, 2006, there were nil preferred shares issued and
      outstanding.





On
      December 31, 2004, the Company entered into a subscription agreement with RAB
      Special Situations, LLP (“RAB”), pursuant to which the Company issued and sold
      to RAB 1,000,000 shares of its Series “A-1” convertible preferred stock (“Series
      A Preferred”) and warrants to purchase up to 500,000 shares of its Series A
      Preferred stock, for an aggregate purchase price of $500,000.





The
      holders of Series A Preferred were entitled to receive dividends at a rate
      of
      7.5% of the conversion price (as defined) per annum. The Company paid accrued
      dividends in the amount of $51,354 on conversion of the Series A Preferred
      on
      May 31, 2006.





The
      number of shares of Series A Preferred and the purchase price per share of
      Series A Preferred were subject to adjustment under certain circumstances,
      including upon the deemed issuance of additional shares of the Company’s common
      stock. On August 25, 2005, the Company issued an option to Romarco to purchase
      common shares at a price of $0.16 each, which constituted a deemed issuance.
      Accordingly the conversion price of the Series A Preferred was reduced to
      $0.16.





The
      warrants issued under the subscription agreement entitled the holder to purchase
      up to 500,000 shares of Series A Preferred, initially at an exercise price
      per
      share of $0.60. The warrants were exercisable for a period of two years at
      any
      time on or after December 31, 2004. Pursuant to the deemed issuance referred
      to
      above, the exercise price of the warrants was reduced to $0.19





On
      May
      31, 2006, RAB converted its holding of 1,000,000 Series A Preferreds at a
      conversion price of $0.16 per share to acquire 3,125,000 shares of common stock
      and exercised its warrants at a conversion price of $0.19 each to acquire
      1,562,500 shares of common stock. 275,736 of these shares were issued to RAB
      on
      August 11, 2006.





**16.**  **COMMON
      SHARES**





**Reclassification
      of Additional Paid In Capital**





Following
      the Reorganization, the Company’s authorized share capital, as an Ontario
      corporation, comprises solely an unlimited number of common shares of no par
      value. Prior to the Reorganization, the Company’s authorized common stock, as an
      Idaho corporation, was 500 million common shares of $0.01 par value. The impact
      of the conversion from shares of $0.01 stated value to shares of no par value
      has been reflected in the financial statements on a retroactive basis.
      Accordingly, amounts recorded as credits in the Additional Paid In Capital
      component of Stockholders’ Equity as at June 29, 2007 and December 31, 2006 have
      been reclassified as Common Stock.




16


**Public
      Offering of Common Shares**





During
      the first quarter of 2007, the Company issued 33,330,000 common shares at a
      price of $1.91 (Cdn. $2.25) under a prospectus supplement to the Company’s shelf
      prospectus dated October 27, 2006. Net proceeds to the Company, after expenses
      of $4,469,104, were $59,191,197.





**Other
      Issuances of Common Shares**





During
      the nine months ended September 30, 2007, the Company issued 5,498,052 shares
      of
      common stock for cash consideration of $2,520,552 upon the exercise of 5,498,052
      warrants to purchase common shares.





During
      the nine months ended September 30, 2007, the Company issued 1,493,407 shares
      of
      common stock for cash consideration of $909,183 upon the exercise of 1,540,282
      options to purchase common shares. Of the shares issued, 103,125 were issued
      under the cashless method under which option holders receive that number of
      shares calculated by dividing the amount by which their options are “in the
      money” by the share price at date of exercise.





On
      January 18, 2007, the Company announced that it was offering 1,950,000 common
      shares to certain of its shareholders at the same price as the above offering.
      This offering was made because certain shareholders of the Company’s
      predecessor, WGI Idaho, who owned shares of common stock issued prior to July
      1,
      1997 may have had pre-emptive rights to purchase shares to maintain their
      proportional stock ownership in WG Idaho; however, the Company believes there
      is
      uncertainty with respect to whether such rights existed. In light of this
      uncertainty and without admitting that such rights exist, in connection with
      the
      market offering, WGI Idaho provided holders of its common stock whose holdings
      could be traced back to common stock issued prior to July 1, 1997, the
      opportunity to purchase shares on the same terms as this offering. No
      shareholders responded to the offering which expired, unexercised, on February
      14, 2007. No pre-emptive rights attach to the shares of WGI Ontario.





Under
      the
      terms of severance agreements dated October 21, 2005 with two former executives,
      the Company was obligated to issue an aggregate of 240,000 shares of common
      stock in the event of the completion of a feasibility study in respect of the
      Mesquite Mine. Completion of such a study was announced on August 9, 2006 at
      which date the closing price of the Company’s common shares was $2.28. The
      shares issuable in respect of this obligation were issued on October 25, 2006
      and the cost of $547,200 was recorded as compensation expense.





On
      May
      31, 2006 the Company issued 2,941,176 shares of common stock upon the conversion
      by RAB of its holding of 1,000,000 shares of Series A Preferred stock at an
      exercise price of $0.16. At the same date the Company issued 1,470,588 shares
      of
      common stock at a price of $0.19 per share for cash consideration of $300,000,
      upon the exercise by RAB of the warrants, originally to purchase 500,000 shares
      of common stock at $0.60. A further 275,736 common shares were issued to RAB
      in
      respect of these transactions on August 11, 2006.





On
      February 22, 2006, the Company issued 200,000 shares of common stock to the
      shareholders of Nevada Colca Gold Inc. (“Nevada Colca”) under the terms of an
      Asset Purchase Agreement dated January 24, 2006. The shares were valued at
      $120,000.





On
      February 13, 2006 the Company announced the closing of the initial $3,700,000
      of
      a non-brokered private placement financing of $6,000,000. On February 20, 2006,
      the Company announced the closing of the remaining $2,300,000 of the private
      placement. The private placement was in respect of 20,000,000 units at a
      purchase price of $0.30 per unit. Each unit comprises one share of common stock
      and one half common stock purchase warrant. Each full common stock purchase
      warrant has an exercise price of $0.45 and a term of two years. The
      consideration for the units has been allocated as follows: $200,000 to common
      stock, $3,812,000 to additional paid in capital, and $1,988,000 to
      warrants.




17





On
      January 2, 2006, the Company issued 37,500 shares of common stock to Mountain
      Gold Exploration Inc. and 37,500 shares of common stock to IW Exploration Co.
      for work commitments required under the terms of a mineral lease. The shares
      were valued at $16,500.





During
      the year ended December 31, 2006, the Company issued 12,647,325 shares of common
      stock for cash consideration of $11,533,810 upon the exercise of 11,421,310
      warrants to purchase common shares at $1.00 each, 250,000 warrants to purchase
      common shares at $0.45 each, and upon the cashless exercise of a further
      2,501,138 warrants.





During
      the year ended December 31, 2006, the Company issued 1,135,000 shares of common
      stock for cash consideration of $632,750 upon the exercise of 1,135,000 options
      to purchase common shares.





In
      addition, from time to time the Company has issued shares of common stock in
      satisfaction of obligations. Such issuances were made by reference to the
      closing price of the share on the date of issuance.





**17.**  **STOCK
      OPTIONS AND WARRANTS**





The
      Company estimates the fair value of options and warrants using the Black-Scholes
      Option Price Calculation. Some options and warrants may be exercised by means
      of
      a “cash-less exercise” to receive a number of shares of common stock equal in
      market value to the difference between the market value of the shares of common
      stock issuable under the option or warrant and the total cash exercise price
      of
      the option or warrant being exercised.





**Options**





During
      the nine months ended September 30, 2007, 1,540,282 options were exercised
      for
      cash proceeds of $909,183. 10,000 options expired during the period. Of the
      options exercised, 150,000 were exercised under the cashless method under which
      option holders receive that number of shares calculated by dividing the amount
      by which their options are “in the money” by the share price at date of
      exercise.





On
      August
      2, 2007, the Company issued 395,000 options to employees and a director with
      an
      exercise price of Cdn $2.80 per share. The options vest in three equal annual
      installments beginning on August 2, 2007, and were fair valued at
      $860,554.





On
      June
      29, 2007, the Company issued 50,000 options to an employee with an exercise
      price of $2.46 per share. The options vest in three equal annual installments
      beginning on June 29, 2007, and were fair valued at $101,529.





On
      April
      4, 2007, the Company issued 655,000 options to employees with an exercise price
      of $1.96 per share. The options vest in three equal annual installments
      beginning on April 4, 2007 and were fair valued at $1,072,890.





During
      the year ended December 31, 2006, 1,135,000 options were exercised at an average
      price of $0.56 for proceeds of $632,750. 771,650 options expired during the
      period.





On
      August
      9, 2006, the Company issued 475,000 options to employees, with an exercise
      price
      of $2.28 per share. The options vest in three equal annual installments
      beginning on August 9, 2006 and were fair valued at $931,950.





On
      June
      14, 2006, the Company issued 500,000 options to an officer, with an exercise
      price of $2.03 per share. The options vest in three equal annual installments
      beginning on June 14, 2006 and were fair valued at $884,000.





On
      April
      13, 2006, the Company issued 320,000 options to consultants, with an exercise
      price of $0.93 per share. The options vest in three equal installments beginning
      on June 14, 2006 and thereafter on April 13, 2007 and 2008. The options were
      valued at $252,800.




18




On
      February 13, 2006, the Company issued 7,600,000 options to certain directors,
      officers and employees, with an exercise price of $0.34. The options vest in
      three equal installments beginning on June 14, 2006 and thereafter on February
      13, 2007 and 2008. The options were valued at $2,500,400.




The
      following is a summary of stock option activity for the nine month period ended
      September 30, 2007 and the year ended December 31, 2006:


**Shares**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              **Weighted**
                **Average****Fair**
                **Value**Balance
                  January 1, 2006
              
              
              6,672,900
              
              $
              0.69Granted
              
              
              8,895,000
              
              $
              0.56Exercised
                  / Expired
              
              
              (1,906,650
              )
              
              0.66Outstanding
                  at December 31, 2006
              
              
              13,661,250
              
              $
              0.61Exercisable
                  at December 31, 2006
              
              
              7,697,922
              
              $
              0.64Weighted
                  average fair value of options as of December 31, 2006
              
              
              
              
              
              
              
              $
              0.43Balance
                  January 1, 2007
              
              
              13,661,250
              
              $
              0.61Granted
              
              
              1,100,000
              
              $
              2.23Exercised
                  / Expired
              
              
              (1,550,282
              )
              $
              0.65Outstanding
                  at September 30, 2007
              
              
              13,210,968
              
              $
              0.74Exercisable
                  at September 30, 2007
              
              
              9,512,641
              
              $
              0.68Weighted
                  average fair value of options as of September 30, 2007
              
              
              
              
              
              
              
              $
              0.56
  19




The
      following table summarizes information about the stock options outstanding
      at
      September 30, 2007:





**Awards Outstanding by Range****Exercise Price**
              **$**
            
            **Awards Outstanding**
            
            **Awards
                Exercisable****Low**
            **High**
            
            **Quantity**
            **Weighted**
              **Average**
              **Outstanding**
              **Contractual Life**
            **Weighted**
              **Average**
              **Exercise Price**
              **$**
            
            **Quantity**
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            **Weighted**
              **Average**
              **Exercise Price**0.01
            0.50
            
            8,285,968
            5.06
            0.35
            
            5,752,637
            4.93
            0.350.51
            1.00
            
            2,970,000
            4.57
            0.86
            
            2,863,334
            4.53
            0.851.01
            1.50
            
            -
            -
            -
            
            -
            -
            -1.51
            2.00
            
            635,000
            6.51
            1.96
            
            198,335
            6.51
            1.962.01
            2.50
            
            925,000
            5.84
            2.18
            
            566,668
            5.82
            2.182.51
            3.00
            
            395,000
            6.84
            2.82
            
            131,667
            6.84
            2.8213,210,968
            5.13
            0.74
            
            9,512,641
            4.92
            0.68





**Warrants**





On
      February 14, 2006, the Company issued 10,000,000 warrants as part of a private
      placement of 20,000,000 units. Each unit consisted of one share of common stock
      and one half of one warrant to purchase one share of common stock, exercisable
      at $0.45 per share. In addition, on February 18, 2006, the Company issued
      1,000,000 warrants to a consulting firm at an exercise price of $0.30 per
      share.





The
      following is a summary of warrant activity for the nine month period ended
      September 30, 2007 and the year ended December 31, 2006:


**9 Months Ended**
                **September 30,**
                **2007**
              
              **Year ended**
                **December 31,**
                **2006**Balance,
                  start of period
              
              
              17,054,232
              
              
              22,302,849Issued
              
              
              -
              
              
              11,000,000Cancelled
                  / Expired
              
              
              -
              
              
              (2,076,169
              )Exercised
              
              
              (5,498,052
              )
              
              (14,172,448
              )Balance,
                  end of period
              
              
              11,556,180
              
              
              17,054,232





Warrants
      outstanding to acquire common shares of the Company at September 30, 2007 are
      as
      follows:





**Warrants**
              **Outstanding**
            
            **Exercise** **Price**
            
            **Expiry Date**4,500,000
            
            0.45
            
            February
                13, 20081,000,000
            
            0.30
            
            February
                17, 2008(1)6,056,180
            
            0.76
            
            (2)11,556,180




20




(1)
            Issued
                to Metalmark Management LLC in respect of services rendered in connection
                with private placement dated February 14, 2006(2)
            Newmont
                Mining Corporation (“Newmont”) received warrants as part of the purchase
                price for Mesquite in November 2003. Under the anti-dilution provisions
                of
                the warrant, the exercise price was reduced from $1.00 to $0.76 upon
                the
                issuance of common shares and warrants by way of private placement
                on
                February 13, 2006. The warrants expire between June 9, 2011 and June
                9,
                2012





**18.**  **RELATED
      PARTY TRANSACTIONS**





During
      June 2007, prior to the reorganization and change of domicile of the Company
      effective June 29, 2007, Canadian resident officers and directors exercised
      warrants to purchase common shares of the Company’s stock at a price of $0.45
      per share as follows:





·
            Rockcliff
                Group Limited, a corporation of which our Chairman of the Board,
                Randall
                Oliphant, is the sole shareholder, Chairman and Chief Executive
                Officer – 1,250,000 warrants





·
            TerraNova
                Partners L.P., a limited partnership of which our Director, Vahan
                Kololian, is the founder and managing partner – 416,667
                warrants




·
            Brian
                Penny, our Chief Financial Officer – 166,667
                warrants





·
            Sandra
                Meddick-Ruth, the wife of our Director, Gerald Ruth – 250,000
                warrants





·
            Muriel
                A. Ruth, the mother of our Director, Gerald Ruth – 66,667
                warrants





In
      March
      2006, the Company concluded a cost sharing agreement with Silver Bear Resources
      Inc. (an Ontario corporation) (“Silver Bear”) under which a portion of Silver
      Bear’s office overhead is charged to the Company on the basis of the expected
      time commitment of the staff involved. The Company is related to Silver Bear
      because certain senior executives and directors of Silver Bear also serve as
      senior executives and directors of the Company. During the three and nine month
      periods ended September 30, 2007 overhead costs of $59,611 and $178,152,
      respectively (2006 - $76,454 and $192,515), were charged to the Company under
      this agreement. At September 30, 2007 and December 31, 2006, $15,152 and
      $20,249, respectively, was payable to Silver Bear.




On
      February 22, 2006, the Company issued 200,000 shares of common stock to the
      shareholders of Nevada Colca pursuant to an Asset Purchase Agreement dated
      January 24, 2006. The Company thereby acquired certain assets comprising office
      equipment, property files, an environmental bond and cash for consideration
      of
      $120,000. Lawrence O’Connor, who at the time was the Company’s Vice President -
      Operations, also served as President of Nevada Colca.





In
      February 2006, the Company sold 20,000,000 units at the purchase price of $0.30
      per unit to 28 accredited investors for an aggregate sales price of $6,000,000.
      Each unit consisted of one share of our common stock and one half of one warrant
      to purchase one share of our common stock, exercisable at $0.45 per share (the
      “February Private Placement”). The warrants became exercisable upon approval by
      our shareholders of an amendment to our articles of incorporation increasing
      the
      number of our authorized shares of common stock to a number in excess of
      115,000,000. Each of the following officers and directors invested in the
      February Private Placement:




21





·
            Rockcliff
                Group Limited, a corporation of which our Chairman of the Board,
                Randall
                Oliphant, is the sole shareholder, Chairman and Chief Executive Officer,
                purchased 2,500,000 units for an aggregate purchase price of
                $750,000;





·
            Martyn
                Konig, our Director, purchased 333,333 units for an aggregate purchase
                price of $100,000;





·
            TerraNova
                Partners L.P., a limited partnership of which our Director, Vahan
                Kololian, is the founder and managing partner, purchased 833,334
                units for
                an aggregate purchase price of
                $250,000;




·
            Raymond
                Threlkeld, our Chief Executive Officer, purchased 333,334 units for
                an
                aggregate purchase price of
                $100,000;





·
            Brian
                Penny, our Chief Financial Officer, purchased 333,333 units for an
                aggregate purchase price of
                $100,000;





·
            Sandra-Meddick-Ruth,
                the wife of our Director, Gerald Ruth, purchased 500,000 units for
                an
                aggregate purchase price of $150,000;
                and





·
            Muriel
                A. Ruth, the mother of our Director, Gerald Ruth, purchased 133,334
                units
                for an aggregate purchase price of
                $40,000.





On
      January 3, 2006, the Company issued 37,500 shares to Mountain Gold Exploration,
      Inc. (“Mountain Gold”) in settlement of an amount due under an exploration and
      mining lease agreement (the “Lease Agreement”). Thomas Callicrate, who prior to
      January 3, 2006 was the Company’s Vice President of Exploration and a Director,
      was the President, Secretary and Treasurer of Mountain Gold.





**19.**  **COMMITMENTS
      AND CONTINGENCIES**





**Mining
      Industry**




The
      Company is engaged in the exploration and development of mineral properties
      and
      in August 2006 completed a feasibility study establishing proven and probable
      reserves at the Mesquite Mine.





Although
      the minerals exploration and mining industries are inherently speculative and
      subject to complex environmental regulations, the Company is unaware of any
      pending litigation or of any specific past or prospective matters which could
      impair the value of its mining claims.





**Contract
      with the County Sanitation District of Los Angeles**





During
      its ownership of the Mesquite Mine, Hanson Natural Resources, a prior operator
      of the mine, entered into an agreement with the County Sanitation District
      of
      Los Angeles County, which then developed and permitted a plan to create a 100
      year landfill at the Mesquite Mine that when completed is expected to be the
      largest residential waste disposal in the United States.





Waste
      is
      expected to be dumped on lined pads on the pediment commencing in an area to
      the
      southwest of the Mesquite pits, ultimately including the southern sections
      of
      the leach pads. The waste dumps can utilize much of the material mined at
      Mesquite as liner and seal. Each cell of the landfill is expected to be sealed
      as it is completed.





22




Under
      the
      agreement with the County Sanitation District of Los Angeles County, the Company
      has the right to explore, mine, extract, process, market and sell ore, and
      otherwise conduct mining and processing activities, anywhere on the property
      for
      an initial period through 2024 with automatic extensions until 2078. Much of
      the
      infrastructure at the property is likely to be retained by the landfill after
      mining operations are completed and the Company has met certain reclamation
      standards. Construction operations are now underway and landfill operations
      are
      expected to begin in 2008.





**Mesquite
      Expansion**





The
      Company has planned spending of $73,100,000 and has made purchase commitments
      of
      approximately $72,100,000 in respect of the mining fleet and ancillary mining
      equipment required for resumption and expansion of mining operations at the
      Mesquite Mine. Of this total, equipment to a value of approximately $63,400,000
      had been delivered as at September 30, 2007.





In
      addition, the Company has planned capital spending of approximately $38,200,000
      on other aspects of the mine expansion program. Of this amount, approximately
      $17,358,000 had been spent as at September 30, 2007.




**20.**  **SUBSEQUENT
      EVENTS**





**Public
      Offering of Common Shares**





On
      October 12, 2007, the Company announced that it had completed a public share
      offering of 9,840,000 common shares at a price of Cdn.$3.05 under a Short Form
      Prospectus dated October 2, 2007. Gross proceeds to the Company were
      Cdn.$30,012,000. In addition, the underwriters exercised their over-allotment
      option in respect of 1,476,000 common shares for gross proceeds of $4,501,800.
      Total proceeds, net of underwriter’s commission at 5% and other expenses of the
      issue, were Cdn.$32,695,243, or approximately US$33,500,000.





**Drawdown
      Under Term Loan Facility**





On
      October 23, 2007, the Company received an additional advance of $13,021,155
      under the term loan facility, bringing total advances to $64,128,970. The
      Company can borrow an additional $40,871,030 under the facility of which
      $17,700,000 is available for general corporate purposes and $23,171,030 is
      available for the Mesquite Mine expansion project.





23




**ITEM 2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS
                OF
                OPERATIONS (in dollars, except per share
                amounts)**





The
      following discussion provides information that management believes is relevant
      to an assessment and understanding of the consolidated financial condition
      and
      results of operations of Western Goldfields Inc. and its subsidiaries and
      including its predecessor, Western Goldfields, Inc. (collectively “Western
      Goldfields” or the “Company”). **This
      item should be read in conjunction with our unaudited consolidated financial
      statements and the notes thereto. The information is presented as
      o** **f
      November 2, 2007. All amou** **nts
      in this discussion are expressed in U.S. dollars, unless otherwise specified.**





**Overview**





We
      are an
      independent precious metals production and exploration company with operations
      focused in North America. Our principal asset is the Mesquite Mine (“Mesquite”
or “the Mine”) which we acquired from Newmont Mining Corporation (“Newmont”) in
      November 2003. Mesquite has provided us with residual gold production from
      ore
      that was placed on the heap leach pads by Newmont and previous owners of the
      property. We completed a positive feasibility study in August 2006 and
      subsequent equity and debt financings which have enabled us to resume mining
      operations at Mesquite. We are fully permitted and fully funded and we expect
      gold production of 160,000 – 170,000 ounces of gold annually, commencing in
      January 2008. Western Goldfields Inc. is listed on the Toronto Stock Exchange
      and trades under the symbol WGI, and is quoted on the OTCBB under the symbol
      WGDFF.OB.





**Overall
      Performance**





During
      the nine months ended September 30, 2007 (“2007 YTD”) we made significant
      progress towards our goal of resuming mining operations and achieving commercial
      production at the Mesquite Mine. We completed an equity financing and arranged
      a
      term loan facility to finance the project; we are now well advanced in the
      execution of a major capital expenditure and construction program; we have
      built
      a strong management team and have hired many of the skilled personnel for
      resumed mining operations, and we have increased the proven and probable
      reserves at Mesquite. In June 2007 we commenced pre-stripping operations and
      we
      announced that commercial production at the Mine was being brought forward
      by
      three months to January 2008. These activities have been carried out on time
      and
      within budget against a background of sustained strength in the mining sector,
      with resultant cost pressures and demands for skilled personnel.





***New
      Term Loan Facility and Hedging Program***





On
      March
      30, 2007 our wholly-owned subsidiary, Western Mesquite Mines, Inc., entered
      into
      a new term loan facility with a syndicate of banks for $105.0 million. The
      agreement was amended and restated effective May 31, 2007. The facility
      comprises multiple-draw loans maturing December 31, 2014, of which $87.3 million
      will be available to be drawn down as required for the development of the
      Mesquite Mine, and the remainder will be available for up to 12 months after
      completion for other corporate purposes. Achieving completion will require
      the
      satisfaction of financial and technical criteria and is expected to occur in
      the
      second half of 2008. Repayment of the facility will be on a semi-annual basis,
      commencing approximately six months after completion with mandatory prepayments
      being made from excess cash flow. Interest on each advance will be charged
      at
      U.S. LIBOR plus 2.2% up to completion and at U.S. LIBOR plus 1.75% after
      completion. This agreement, in conjunction with the equity financing in January
      and February 2007, completes the financing requirements for
      Mesquite.





On
      July
      18, 2007 we received approximately $20.4 million as the first advance under
      the
      $87.3 million portion of the term loan facility. As at September 30, 2007,
      cumulative advances were approximately $51.1 million.




24


In
      connection with the term loan facility, on June 7, 2007 we executed flat forward
      sales contracts for 429,000 ounces of gold (the “Hedging Contracts”) at a price
      of $801 per ounce. The Hedging Contracts represent a commitment of 5,500 ounces
      for 78 months commencing July 2008, with the last commitment deliverable
      December 2014. We expect to produce between 160,000 and 170,000 ounces annually
      during the term of the Hedging Contracts, of which 66,000 will be covered by
      the
      Hedging Contracts, leaving approximately 100,000 ounces annually leveraged
      to
      the price of gold. Since we have not designated these forward sales contracts
      as
      cash flow hedges, they are being marked-to-market at the end of each quarterly
      period for financial reporting purposes. The cumulative mark-to-market loss
      at
      September 30, 2007 of $27.6 million is reflected as a long-term liability as
      at
      that date and is included in other income (expense) for the nine month period
      ended September 30, 2007.





***Capital
      Program - Mining Equipment Fleet and Construction
      Activity***





Our
      latest forecast for spending on the capital program is approximately $111.3
      million. Of this amount, $108.6 million relates to the mine expansion and a
      further $2.7 million relates to capital projects not directly related to the
      expansion program, primarily development drilling.





Total
      planned spending on the mining fleet is now $73.1 million, of which
      approximately $63.4 million had been spent to September 30, 2007. The major
      components of the mining fleet and their approximate cost, including all
      relevant taxes, are as follows: 14 haul trucks - $37.7 million; 2 shovels -
      $16.5 million; 1 front-end loader - $4.5 million; other mobile and ancillary
      equipment, including drills, bull-dozers, graders and water trucks - $14.4
      million. Payment terms vary; generally, payment is 10 days after commissioning,
      but in the case of the haul trucks, 80% is due on shipment and 20 % on
      completion of commissioning. We are in on-going contact with our suppliers
      to
      ensure that production is progressing as planned and that the balance of the
      fleet will be delivered according to schedule with a view to achieving
      commercial production by January 2008.





Orders
      for the majority of the mining equipment fleet were placed in November 2006.
      The
      two 45 cubic yard hydraulic shovels were operating throughout the second quarter
      and eleven of the fourteen 205 ton haul trucks were operational by September
      30,
      2007. We expect delivery of all major items to be complete by the end of
      December 2007.





In
      addition to the mining fleet, we are planning on spending approximately $35.5
      million on other plant and infrastructure upgrades and expansion projects at
      Mesquite, of which approximately $17.4 million has been spent to September
      30,
      2007. The major aspects of this program are the leach pad expansion, retrofit
      of
      the process plant, and construction of a truck repair shop, warehouse and mine
      operations administrative office. We have worked closely with several
      environmental agencies and local authorities to ensure that all required
      building and expansion permits were received on a timely basis. During the
      second quarter we put in place an enhanced bonding and insurance program in
      respect of reclamation, remediation and pollution exposures arising out of
      our
      expanded operations.





On
      the
      basis of progress in the construction program, we announced the acceleration
      of
      the start of gold production at Mesquite to January 2008, three months ahead
      of
      the original schedule.





***Increase
      in Reserves***





On
      March
      26, 2007 we announced that we had increased proven and probable reserves at
      Mesquite from 2.36 million ounces of gold to 2.77 million ounces and that
      measured and indicated resources had increased from 3.61 million ounces of
      gold
      to 3.87 million ounces. Approximately 50% of the increase is attributable to
      assay results from a drilling program of 27 holes at the Brownie Hill area
      of
      the mine which converted inferred oxide resources to Proven and Probable
      reserves, and the remaining 50% is attributable to an increase in the reserve
      gold price assumption from $450 to $500 per ounce. Since that estimate, assay
      results have been received which confirm the estimated grades and thickness
      of
      the Brownie Hill resource estimate and suggest the potential for further
      resource increases.





25





Over
      the
      past year and a half, we have built a strong team to manage resumed mining
      operations at Mesquite. We have made significant progress in recruiting, hiring
      and training the skilled workforce required for our expanded operations; these
      efforts will continue over the next several months as we move towards full
      production.





***Corporate
      Reorganization***





On
      June
      19, 2007 the shareholders of the Company’s predecessor, Western Goldfields,
      Inc., an Idaho corporation (“WGI Idaho”), approved an agreement and plan of
      merger which became effective June 29, 2007 whereby the Company’s place of
      incorporation was changed from Idaho, USA to Ontario, Canada, and its name
      was
      changed from Western Goldfields, Inc. to Western Goldfields Inc. (or “WGI
      Ontario”) The reorganization allows us to take advantage of financial and other
      business opportunities that would not be available under our previous corporate
      structure, including: being able to complete transactions requiring shareholder
      approval more quickly, which would facilitate our corporate strategy of growth
      through acquisition; as a Canadian mining company, having a higher profile
      in
      the Canadian markets, as we will now be considered a “mid-cap” company and, as a
      Canadian mining company, we may be a more attractive investment to a wider
      range
      of Canadian investors, while still being able to access U.S. capital markets.
      In
      this Management Discussion and Analysis the term “the Company” refers to WGI
      Ontario and its predecessor WGI Idaho.





On
      completion of the reorganization, the common shares in Western Goldfields,
      Inc.
      (the predecessor Idaho corporation) automatically became an equal number of
      common shares of no par value in Western Goldfields Inc. (the successor Ontario
      corporation) and the economic ownership of shareholders in the new company
      remained unchanged. The accounting for the reorganization has been treated
      as a
      reorganization of entities under common control which has not resulted in any
      changes in the consolidated carrying amounts of assets, liabilities and
      shareholders’ equity.





The
      Company’s four wholly owned subsidiaries are now: Western Goldfields USA Inc. (a
      holding company), Western Goldfields (Canada) Inc. (a management company),
      Western Mesquite Mines, Inc. (an operating company), and Calumet Mining Company
      (an exploration company).





26




**Selected
      Financial Information** *(all
      tabular information in $000s unless otherwise stated)*





Three
                months ended
              September
                30,
            
            Nine
                months ended
              September
                30,**2007**
            
            **2006**
            
            **2007**
            
            **2006**Cash
                flows from financing activities
            
            
            49,751
            
            
            1,636
            
            
            110,409
            
            
            9,030Cash
                flows for investing activities
            
            
            (43,305
            )
            
            (85
            )
            
            (76,771
            )
            
            (473
            )


**September 30,**
                **2007**
              
              **December
                  31,**
                **2006**Cash
              
              
              18,038
              
              
              5,503Restricted
                  cash
              
              
              7,500
              
              
              -Working
                  capital
              
              
              23,648
              
              
              4,549Property,
                  plant and equipment, net of depreciation
              
              
              69,325
              
              
              4,328Construction
                  in progress
              
              
              13,222
              
              
              2,881Stockholders’
                  equity
              
              
              36,437
              
              
              14,879




Three
                  months ended
                September
                  30,
              
              Nine
                  months ended
                September
                  30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**Revenues
                  from gold sales
              
              
              1,281
              
              
              1,897
              
              
              4,060
              
              
              6,776Gross
                  profit (loss)
              
              
              (6,444
              )
              
              703
              
              
              (10,197
              )
              
              (126
              )Mark-to-market
                  of forward sales
              
              
              (28,331
              )
              
              -
              
              
              (27,572
              )
              
              -Net
                  loss
              
              
              (36,374
              )
              
              (1,985
              )
              
              (43,015
              )
              
              (8,430
              )Net
                  loss per common share, basic and diluted
              
              $
              0.31
              
              $
              0.02
              
              $
              0.39
              
              $
              0.14Gold
                  ounces produced
              
              
              1,843
              
              
              3,029
              
              
              6,083
              
              
              10,893Gold
                  ounces sold
              
              
              1,876
              
              
              3,070
              
              
              6,101
              
              
              11,445Average
                  price received per ounce
              
              $
              683
              
              $
              618
              
              $
              665
              
              $
              592Cost
                  of sales per ounce(i)
              
              $
              3,260
              
              $
              753
              
              $
              1,949
              
              $
              644





(i)
            Cost
                of sales per ounce include mine cost of sales less non-cash depreciation,
                amortization and accretion, divided by ounces sold in the
                period.





**Consolidated
      Financial Results / Overall Performance (in $000s)**





The
      Company’s net loss to common shareholders for the nine months ended September
      30, 2007 (“2007 YTD”) was $43.0 million, or $0.39 per share, compared with $8.4
      million, or $0.14 per share, for the nine months ended September 30, 2006 (“2006
      YTD”).





The
      net
      loss for 2007 YTD includes a cumulative loss of $27.6 million arising from
      the
      non-cash mark-to-market of our contracts related to the forward sale of gold
      which were taken out as a requirement of our term loan facility. These contracts
      are in respect of 429,000 ounces of gold at an average forward price of $801
      per
      ounce spread evenly over the period of 78 months commencing July 2008. The
      spot
      price of gold at September 30, 2007 was $743 per ounce as compared with $669
      when the forward contracts were entered into.





27




Results
      for 2007 YTD, as compared with 2006 YTD, were negatively impacted by the 47%
      reduction in gold ounces sold from 11,445 ounces to 6,101 ounces. With no new
      material being placed on the leach pads for most of 2007 YTD, it has become
      increasingly difficult to extract the residual gold and maintain the solution
      grades coming from the leach pads. This lower production was partially offset
      by
      the 12% increase in the average selling price per ounce from $592 to $665,
      reflecting the continuation of relatively strong pricing in world markets.
      Cost
      of sales per ounce for 2007 YTD, based on mine cost of sales less non-cash
      depreciation, amortization and depletion, was $1,949, as compared with $644
      per
      ounce in 2006 YTD. This reflects the high fixed cost component in cost of goods
      sold, the increase in mine staffing as we prepare to go back into production,
      and the expensing of stripping costs in advance of production.





Other
      operating expenses for 2007 YTD were $5.9 million compared with $7.4 million
      in
      2006 YTD. General and administrative expenses of $3.2 million were consistent
      with the previous year but non-cash stock based compensation for 2007 YTD of
      $2.0 million was significantly lower than the $2.6 million expense the previous
      year. The higher expense in 2006 YTD primarily reflects grants of options to
      our
      new management team in early 2006. Other operating expenses in 2006 YTD also
      included $0.5 million in respect of severance costs payable in common shares.





Other
      income (expense) for 2007 YTD was $(26.9) million compared with $(0.9) million
      in 2006 YTD. The major negative factor was the $27.6 million non-cash expense
      relating to the mark-to-market of our gold forward sales contracts. As a
      requirement of our term loan facility, in June 2007, we executed flat forward
      sales contracts for 429,000 ounces of gold (the “Hedging Contracts”) at a price
      of $801 per ounce. The Hedging Contracts represent a commitment of 5,500 ounces
      for 78 months commencing July 2008, with the last commitment deliverable
      December 2014. We expect to produce between 160,000 and 170,000 ounces annually
      during the term of the Hedging Contracts, of which 66,000 will be covered by
      the
      Hedging Contracts, leaving approximately 100,000 ounces annually leveraged
      to
      the price of gold. Since we have not designated these contracts as cash flow
      hedges, the hedge accounting rules of SFAS No.133 are not being applied and
      the
      period-end mark-to-market is being immediately reflected on our income
      statement. The loss stems from the fact that the spot price of gold at the
      time
      the Hedging Contracts were entered into was $669 per ounce as compared with
      a
      price of $743 at the end of the third quarter.





Other
      income (expense) for 2007 YTD was favourably impacted by an increase in interest
      income from $0.3 million to $1.4 million. The equity financing in January –
February 2007 generated net proceeds of approximately $59.2 million; much of
      this cash was still available into June 2007 before large payments were required
      under our capital expenditure program. Interest
      expense for 2007 YTD was $0.5 million reflecting the increase in advances under
      the term loan facility during the third quarter .
      An
      additional $0.1 million of interest was capitalized to property, plant and
      equipment during the third quarter. Agency and commitment fees relating to
      the
      term loan facility for 2007 YTD were $0.4 million.





Results
      for 2006 YTD were impacted by non-recurring costs of $1.2 million relating
      to
      termination of a proposed merger agreement with Romarco Minerals
      Inc.





For
      the
      past several quarters we have been implementing various strategies to extend
      the
      productive life of the leach pads. However, with no new material having been
      placed on the leach pads for the past several years, we are seeing a steady
      reduction in the gold ounces produced. In 2007 YTD production was 6,101 ounces
      compared with 11,444 in 2006 YTD. During the third quarter of 2006 we concluded
      that it was no longer economic to continue leaching the Vista pad. Closure
      operations for this location were completed in February 2007; formal approval
      of
      closure of the site and reclassification of the waste material was received
      in
      May 2007 from the California Regional Water Quality Board. Under the terms
      of
      our bonding arrangement with AIG, we have recovered costs of $0.3 million in
      respect of closure expenditures.





28


Three months September 30,
              
              Nine months ended September 30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**Gold
                  sales revenue
              
              
              1,281
              
              
              1,897
              
              
              4,060
              
              
              6,776Average
                  price realized per ounce
              
              $
              683
              
              $
              618
              
              $
              665
              
              $
              592Decrease
                  in revenues
              
              
              (616
              )
              
              (256
              )
              
              (2,716
              )
              
              (1,076
              )Change
                  in revenues attributable to ounces sold
              
              
              (738
              )
              
              (893
              )
              
              (3,164
              )
              
              (3,211
              )Change
                  attributable to average selling price
              
              
              122
              
              
              637
              
              
              448
              
              
              2,135
 
 Revenues
        from gold sales for 2007 YTD decreased by $2.7 million or 40% compared to
        2006
        YTD as the effect of lower ounces sold significantly outweighed the positive
        impact of higher selling prices.
 
 Three months ended
                September
                  30,
              
              Nine months ended
                September 30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**Cost
                  of sales
              
              
              7,726
              
              
              1,194
              
              
              14,257
              
              
              6,902Increase
                  (Decrease)
              
              
              6,532
              
              
              (1,207
              )
              
              7,356
              
              
              (1,415
              )Gross
                  profit (loss) %
              
              
              (503
              )%
              
              37
              %
              
              (251
              )%
              
              (2
              )%




Cost
      of
      sales for 2007 YTD increased by $7.4 million or 107% compared to 2006 YTD.
      The
      increase reflects the resumption of mining operations in June 2007 and the
      rapid
      increase in stripping activities as the mining fleet came into service during
      the third quarter. The higher costs also reflect increases in fuel, chemicals,
      power and payroll costs. Mine site administration cost have also increased
      as we
      assembled the management team to handle the construction program and resumed
      production. Costs for 2007 YTD were also impacted by substantially higher
      amortization costs for the new plant and equipment that became available for
      use
      during the period. Cost of sales in 2006 YTD included a credit of $1.5 million
      relating to a reduction in the provision required for reclamation costs; there
      was no comparable item in 2007 YTD. ****





A
      comparison of the major components of cost of sales is as follows:


Three months ended
                September 30,
              
              Nine months ended
                September 30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**Mine
                  operating costs
              
              
              6,066
              
              
              2,239
              
              
              11,741
              
              
              7,116Amortization
                  and accretion
              
              
              1,609
              
              
              342
              
              
              2,361
              
              
              989Royalties
              
              
              50
              
              
              72
              
              
              154
              
              
              256Reclamation
                  cost recovery
              
              
              -
              
              
              (1,460
              )
              
              -
              
              
              (1,460
              )





Other
      operating expenses for 2007 YTD were $5.9 million compared with $7.4 million
      in
      2006 YTD. General and administrative expenses are consistent with the previous
      year. Stock based compensation in 2007 YTD is approximately $0.7 million lower
      than the prior year primarily because of high initial amortization expense,
      reflecting the vesting schedule of awards to the new management team in 2006.
      2006 YTD also includes $0.5 million in respect of severance costs for former
      management, settled by way of issuance of common shares.




29


Three months ended
                September 30,
              
              Nine months
                endedSeptember 30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**General
                  and administrative
              
              
              958
              
              
              1,103
              
              
              3,181
              
              
              3,278Stock
                  based compensation
              
              
              662
              
              
              868
              
              
              1,950
              
              
              2,638Exploration
                  - Mesquite
              
              
              (273
              )
              
              251
              
              
              759
              
              
              962




Other
      income (expense) for 2007 YTD amounted to $(26.9) million compared with $(0.9)
      million the previous year. The major contributor to this cost increase was
      the
      $27.6 million charge in respect of the unrealized mark-to-market loss on our
      forward gold sales contracts. Interest income for 2007 YTD was $1.4 million
      compared with $0.3 million the previous year. The increase relates primarily
      to
      cash on deposit after the equity issue in January - February 2007. Interest
      expense of $0.5 million in 2007 YTD reflects advances under the term loan
      facility which commenced in July 2007. In addition, in 2007 YTD we recorded
      a
      foreign exchange gain of $0.3 million relating to our retaining part of the
      proceeds of the January 2007 equity issue in Canadian dollars during a period
      when that currency was strengthening in relation to the U.S. dollar. During
      2007
      YTD, we incurred agency and commitment fees of $0.4 million and amortized
      deferred debt issuance costs of $0.2 million in connection with the term credit
      facility that became effective March 30, 2007. The most significant item of
      cost
      in 2006 YTD was the $1.2 million required to terminate the Romarco merger
      proposal.





A
      comparison of the major items included in other income (expense) is as
      follows:


Three months ended
                September 30,
              
              Nine months ended
                September 30,**2007**
              
              **2006**
              
              **2007**
              
              **2006**Interest
                  income
              
              
              341
              
              
              89
              
              
              1,383
              
              
              267Interest
                  expense
              
              
              (457
              )
              
              -
              
              
              (457
              )
              
              (20
              )Agency
                  and commitment fees
              
              
              (150
              )
              
              -
              
              
              (391
              )
              
              -Amortization
                  of deferred debt issuance costs
              
              
              (118
              )
              
              -
              
              
              (227
              )
              
              -Loss
                  on mark-to-market of gold hedging contracts
              
              
              (28,331
              )
              
              -
              
              
              (27,572
              )
              
              -Gain
                  on foreign exchange
              
              
              89
              
              
              (8
              )
              
              294
              
              
              (8
              )Expenses
                  of Romarco merger termination
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,225
              )





30




**Results
      of Operations**





**Nine
      Months Ended September 30, 2007 (“2007 YTD”) Compared to Nine Months Ended
      September 30, 2006 (“2006 YTD”).**




Reflecting
      the anticipated decline in productive capacity of the leach pads, poured gold
      production for 2007 YTD was 6,083 ounces compared with 10,893 ounces in 2006
      YTD. Gold sales for the period were 6,101 ounces at an average selling price
      of
      $665 per ounce for revenues of $4.0 million compared with 11,445 ounces at
      an
      average selling price of $592 per ounce for revenues of $6.8 million in the
      previous year.





Mine
      operating costs for 2007 YTD were $11.7 million compared to $7.1 million for
      2006 YTD. The increase reflects the resumption of mining operations in June
      2007
      and the rapid increase in stripping activities as the mining fleet came into
      service in the third quarter. Although we have implemented various cost
      reduction strategies to offset the impact of the diminishing productive capacity
      of the leach pads, cost savings have been largely offset by higher power rates,
      increased costs of chemicals and increases in engineering department labour
      and
      use of consultants. Mine site administration costs for 2007 YTD also increased
      significantly over 2006 YTD, reflecting increases in staffing and relocation
      costs as we prepare for resumption of mining operations. Lower royalty expenses
      in 2007 YTD compared with 2006 YTD reflect lower gold ounces sold. Cost of
      sales
      in 2006 YTD was favourably impacted by a credit of $1.5 million relating to
      a
      reduction in our provision for reclamation costs. The foregoing factors resulted
      in a gross loss of $10.2 million for 2007 YTD compared with $0.1 million in
      2006
      YTD.





General
      and administrative expense of $3.2 million in 2007 YTD was consistent with
      expense in 2006 YTD. However, costs in early 2006 included significant one-time
      expenses such as costs associated with the proposed Romarco merger, severance
      costs and costs of transitioning to the new management team. Costs in 2007
      YTD
      reflect the increasing scope of corporate activities with emphasis on financing
      initiatives, investor relations, technical support for Mesquite operations
      and
      information technology initiatives.




Stock
      based compensation represents the non-cash costs of options, as calculated
      under
      the Black-Scholes option pricing model, granted to directors, officers and
      employees. The decrease in expense to $2.0 million in 2007 YTD from $2.6 million
      in 2006 YTD relates to the high initial amortization of options granted to
      the
      new management team in February of 2006 and their ongoing amortization
      thereafter.





Exploration
      activities at Mesquite during 2007 YTD were $0.8 million and relate primarily
      to
      a drilling program to delineate a deep sulphide ore deposit not previously
      included in the calculation of our reserves and resources at Mesquite. Costs
      of
      $1.0 million in 2006 YTD relate primarily to the completion of the Mesquite
      feasibility study. In addition to the drilling costs expensed in 2007 YTD,
      we
      have capitalized development drilling costs of $1.6 million at the Brownie
      Hill
      zone. The Brownie Hill program resulted in proven and probable reserves being
      increased from 2.36 million gold ounces to 2.77 million ounces, and measured
      and
      indicated resources (inclusive of mineral reserves) increased from 3.61 million
      ounces to 3.87 million ounces.





Other
      income (expense) for 2007 YTD was $(26.9) million compared to $(1.0) million
      in
      2006 YTD. We earned $1.4 million on our surplus cash in 2007 YTD which was
      increased significantly by the equity issue in January and February. Advances
      under the term credit facility commenced in July 2007 and gave rise to interest
      expense of $0.5 million. There was no comparable expense in 2006 YTD. The term
      credit facility that became effective March 30, 2007 gave rise to agency and
      commitment fees of $0.4 million that have been expensed in 2007 YTD, and
      deferred debt issuance costs of $3.6 million, of which $0.2 million has been
      amortized in 2007 YTD. In addition, at September 30, 2007, we recorded a
      cumulative loss of $27.6 million relating to the mark-to-market of our forward
      gold sales contracts, and recorded an exchange gain of $0.3 million through
      retaining a portion of the proceeds of our equity issue in Canadian dollars.
      The
      most significant item of cost in 2006 YTD was our payment of a termination
      fee
      of $1.0 million and expense reimbursement costs of $0.2 million on termination
      of the proposed merger agreement between us and Romarco.





The
      above
      were the major factors in our reporting a net loss to common shareholders for
      2007 YTD of $43.0 million or $0.39 per share, compared with a net loss of $8.4
      million or $0.14 per share in 2006 YTD.





31




**Three
      Months Ended September 30, 2007 (“Q3/07”) Compared to Three Months Ended
      September 30, 2006 (“Q3/06”).**




Poured
      gold production for Q3/07 was 1,843 ounces compared with 3,029ounces in Q3/06.
      Gold sales for Q3/07 were 1,876 ounces at an average selling price of $683
      per
      ounce for revenues of $1.3 million compared with 3,070 ounces at an average
      selling price of $618 per ounce for revenues of $1.9 million in Q3/06.





Mine
      operating costs for Q3/07 were $6.1 million compared to $2.2 million for Q3/06.
      Mining operation ramped up rapidly in Q3/07 as the new mining fleet was
      commissioned and placed in service. The same cost pressures as referred to
      in
      2007 YTD impacted this cost segment in Q3/07. Mine site administration costs
      for
      Q3/07 also increased significantly over costs for Q3/06, reflecting the fact
      that we are now staffed for resumed mining operations. Amortization and
      accretion expense for Q3/07 increased to $1.6 million from $0.3 million in
      Q3/06
      reflecting the fact that most of the mining fleet was in service by Sept.30,
      2007. The foregoing factors resulted in a gross loss of $6.4 million for Q3/07
      compared with a gross profit of $0.7 million in Q3/06.





In
      other
      operating expenses for Q3/07, general and administrative expense of $1.0 million
      in Q3/07 was down from $1.1 million in Q1/06. The components of this expense
      item have changed, as discussed above. Stock-based compensation for Q3/07 was
      $0.7 million compared with $0.9 million in Q3/06. This charge reflects high
      initial amortization expense, reflecting the vesting schedule of options granted
      to management hires during both periods. Exploration activities at Mesquite
      during Q3/07 reflect a credit of $0.3 million in respect of an over-accrual
      for
      costs in the second quarter relating to the non-oxide drilling program. Costs
      in
      Q3/06 relate primarily to the completion of the Mesquite feasibility study.





Other
      income (expense) for Q3/07 was $(28.6) million compared to $0.1 million in
      Q3/06. As noted previously, the major factor in this expense was the
      mark-to-market of our forward gold sales contracts which gave rise to a loss
      of
      $28.3 million in the quarter. Interest income in Q3/07 was $0.3 million compared
      with $0.2 in 2006 YTD. We maintained bank balances of approximately $25.0
      million (including $7.5 million of restricted cash) during Q3/07, after we
      had
      made our required contributions to the capital spending program under the terms
      of the term credit facility. Interest expense in Q3/07 was $0.5 million
      reflecting three advances under the credit facility totaling $51.1 million
      at
      September 30, 2007. In addition, we capitalized interest of $0.1 million in
      respect of financing costs for the construction of assets for our own use.





The
      above
      were the major factors in our reporting a net loss to common shareholders for
      Q3/07 of $36.4 million or $0.31 per share, compared with a net loss of $2.0
      million or $0.02 per share in Q3/06.




**Liquidity
      and Capital Resources**





Our
      August 2006 feasibility study and subsequent projections, indicated that we
      would need significant funding to sustain our operations and complete our
      capital program until we started to generate free cash flow in April, 2008.
      For
      the past several months we have been addressing these capital needs. In 2007
      YTD
      we were successful in raising fresh equity of approximately $59.2 million
      through a public offering of 33,330,000 common shares at a price of Cdn.$2.25
      per share; we also established a credit facility of $105.0 million.
      Additionally, on October 12, 2007 we raised approximately $33.5 million through
      a public offering of 11,316,000 common shares at a price of Cdn.$3.05 per share.





At
      September 30, 2007 our available cash balance was $18.0 million, our restricted
      cash was $7.5 million, and our working capital was $23.6 million. In addition,
      we had unutilized credit facilities of $53.9 million of which $36.2 million
      is
      available for the Mesquite Expansion project and $17.7 million is available
      for
      general corporate purposes. On October 23, 2007 an additional $13.0 million
      was
      drawn under the credit facility, leaving $23.2 available for the Mesquite
      Expansion and $17.7 for general corporate purposes. This represents a
      significant improvement in our financial position since December 31, 2006 when
      we reported cash of $5.5 million and working capital of $4.6 million.




32


On
      March
      30, 2007 WMMI entered into a new term loan facility with Investec Bank (UK)
      Limited for $105.0 million. The facility comprises multiple-draw loans maturing
      December 31, 2014, of which $87.3 million will be available to be drawn down
      as
      required for the development of the Mesquite Mine, and the remainder will be
      available for up to 12 months after completion for other corporate purposes.
      Achieving completion will require the satisfaction of financial and technical
      criteria and is expected to occur in the second half of 2008. Repayment of
      the
      facility will be on a semi-annual basis, commencing approximately six months
      after completion with mandatory prepayments being made from excess cash flow.
      Interest on each advance will be charged at U.S. LIBOR plus 2.2% up to
      completion and at U.S. LIBOR plus 1.75% after completion. Initial availability
      of funds was subject to certain conditions, including WMMI entering into an
      acceptable gold hedging program with certain lenders under the term loan
      facility, the resolution of certain ancillary agreements and the delivery of
      usual and customary closing documents, opinions and certificates. This
      agreement, in conjunction with the earlier equity financing, completes the
      financing requirements for Mesquite.





In
      connection with the term loan facility, on June 7, 2007 we executed flat forward
      sales contracts for 429,000 ounces of gold (the “Hedging Contracts”) at a price
      of $801 per ounce. The Hedging Contracts represent a commitment of 5,500 ounces
      for 78 months commencing July 2008, with the last commitment deliverable
      December 2014. We expect to produce between 160,000 and 170,000 ounces annually
      during the term of the Hedging Contracts, of which 66,000 will be covered by
      the
      Hedging Contracts, leaving approximately 100,000 ounces annually leveraged
      to
      the price of gold.





On
      June
      14, 2007 we announced that we had satisfied or had received a waiver on all
      conditions precedent to the availability of the term loan facility, and on
      July
      18, 2007 we received $20.4 million, representing the first advance under the
      $87.3 million portion of the Term Loan Facility available for development of
      Mesquite Mine. There were two additional advances during 2007 YTD that brought
      total advances to $51.1 at September 30, 2007. On October 23, 2003 we received
      a
      further advance of $13.0 million to bring the total to $64.4
      million





During
      2007 YTD our liquidity was also improved through the conversion of warrants
      and
      the exercise of stock options, for proceeds of $3.4 million.





Cash
      required for operating activities in 2007 YTD was $18.4 million compared with
      $5.4 million in 2006 YTD. The net loss for the period was $43.0 million but
      this
      included the non-cash impact of the $27.6 million mark-to-market loss on forward
      sales contract and other non-cash expense items such as: depreciation and
      accretion expense of $2.4 million, amortization of deferred debt issuance costs
      of $0.2 million and stock-based compensation of $2.0 million. A change in the
      composition of non-cash working capital items during 2007 YTD generated $0.3
      million. An increase in accounts payable and accrued expenses of $3.7 million
      was largely offset by an increase in inventories of $1.9 million and an increase
      in prepaid expenses of $1.6 million. The inventory increase reflects the $1.8
      million value of new ore placed on leach pads during Q3/07. The prepaid expense
      increase reflects additional advance premiums under the updated environmental
      risk insurance program. In addition, available cash was reduced by a $7.5
      million transfer to a Cost Overrun Account established under the term credit
      facility. This has been classified as restricted cash. In 2006 YTD, our net
      loss
      was $8.4 million. This cash requirement was reduced by non-cash depreciation
      and
      accretion of $1.0 million and stock-based compensation of $2.6 million. In
      addition, a reduction in cash for working capital items generated $0.1 million.





Cash
      required for investing activities in 2007 YTD was $79.5 million compared with
      $0.5 million in 2006 YTD. Major aspects of this spending are $63.0 million
      for
      shovels, haul trucks and other ancillary equipment under our mining fleet
      acquisition program, $7.7 million for leach pad expansion, $1.6 million for
      development drilling at the Brownie Hill zone at Mesquite and $2.1 million
      as
      additional deposit to our reclamation and remediation account with AIG.





The
      foregoing factors resulted in an increase in our cash position of $12.5 million
      in 2007 YTD compared with $3.1 million in 2006 YTD. For Q3/07 the decrease
      in
      cash was $0.7 million compared with $0.6 million in Q3/06.





For
      the
      balance of 2007, our cash requirements to fund operations and the capital
      program will be funded by additional advances under the term loan facility.
      We
      anticipate that by year-end 2007 we will have drawn down
      approximately the full $87.3 million available u nder
      the
      loan facility for development at Mesquite. We expect to generate positive free
      cash flow in the first quarter of 2008. We therefore believe that we have
      adequate financial resources in place to finance the Mesquite expansion.





33




**Critical
      Accounting Policies**




Listed
      below are the accounting policies that we believe are critical to our financial
      statements due to the degree of uncertainty regarding the estimates or
      assumptions involved and the magnitude of the asset, liability, revenue or
      expense being reported.





*Derivative
      Instruments*





The
      Company accounts for its forward sales of gold in conformity with the following
      statements issued by the Financial Accounting Standards Board (“FASB”):
      Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for
      Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137,
“Accounting for Derivative Instruments and Hedging Activities - Deferral of
      the
      Effective Date of FASB No. 133,” SFAS No. 138, “Accounting for Certain
      Derivative Instruments and Certain Hedging Activities,” and SFAS No. 149,
“Amendment of Statement 133 on Derivative Instruments and Hedging Activities”.
      These standards establish accounting and reporting standards for derivative
      instruments, including certain derivative instruments embedded in other
      contracts, and for hedging activities. They require that an entity recognize
      all
      derivatives as either assets or liabilities in the balance sheet and measure
      those instruments at fair value.





A
      derivative may be specifically designated as a hedge of financial risk exposures
      of anticipated transactions if, both at the inception of the hedge and
      throughout the hedge period, the changes in fair value of the contract
      substantially offset the effect of commodity price changes on the anticipated
      transactions and if it is probable that the transactions will occur. Pursuant
      to
      such a designation, the income effect of the change in derivative values may
      be
      accounted for in other comprehensive income based upon the Company's valuation
      of the associated financial gain or loss. Any change arising from the
      determination of the derivative's effectiveness is accounted for as a charge
      to
      current operations.





In
      applying SFAS No. 133, the Company has not designated its contracts for the
      forward sales of gold as cash flow hedges. Accordingly the hedge accounting
      rules of SFAS No.133 are not being applied and the period-end mark-to-market
      of
      these contracts is immediately reflected on the income statement of the Company.





*Depreciation
      and Amortization*




Expenditures
      for new facilities or equipment and expenditures that extend the useful lives
      of
      existing facilities or equipment are capitalized and depreciated using the
      straight line method at rates sufficient to depreciate such costs over the
      estimated useful lives of such facilities or equipment.




We
      have
      expensed all mine development costs prior to our establishing proven and
      probable reserves upon completion of the feasibility study in August 2006.
      In
      the event that we have deferred development costs in the future, these will
      be
      amortized on a units-of-production basis.




The
      expected useful lives used in depreciation and amortization calculations are
      based on applicable facts and circumstances, as described above. Significant
      judgment is involved in the determination of useful lives, and no assurance
      can
      be given that actual useful lives will not differ significantly from the useful
      lives assumed for purposes of depreciation and amortization.




*Carrying
      Value of Long-Lived Assets*




We
      review
      and evaluate the carrying value of our long-lived assets for impairment when
      events or changes in circumstances indicate the carrying values may not be
      recoverable. Our long-lived assets comprise the fair values allocated to the
      plant and equipment acquired upon completion of the Mesquite acquisition and
      subsequent additions. Annually, we review the present value of future cash
      flows
      to determine if the amounts carried under plant and equipment are
      recoverable.




Material
      changes to any of these factors or assumptions discussed above could result
      in
      future impairment charges.





34




*Ore
      on Leach Pads and Metal-in-Process Inventories*





Prior
      to
      July 2007, the Company placed no value on the mineralized material that had
      been
      placed on the leach pads at the Mesquite Mine by Newmont Mining Corporation
      prior to the acquisition of the property by the Company on November 7, 2003.
      In
      August, 2006 the Company announced the completion of the Mesquite feasibility
      study, which indicated proven and probable reserves of 2.36 million ounces
      of
      gold, and in March 2007 the Company announced that proven and probable reserves
      had increased to 2.77 million ounces. The reserve estimates support the
      recoverability of capitalized and inventoried production costs. Accordingly,
      on
      resumption of mining operations and the placement of new ore on the leach pads
      commencing July 2007, the Company has begun to value new ore placed on the
      leach
      pads at the lower of average cost or net realizable value. Costs are added
      to
      ore on leach pads based on current mining costs, including applicable
      depreciation, depreciation, amortization and depletion relating to mining
      operations. Costs are removed from ore on leach pads as ounces are recovered
      based on the average cost per estimated recoverable ounce of gold on the leach
      pad.





Under
      the
      heap leaching process, ore on leach pads is treated with a chemical solution
      which dissolves the gold contained in the ore. The solution is further processed
      in a plant where the gold is recovered. Metal-in-process inventories represent
      metal in solution or in subsequent stages of the refining process. In-process
      inventories are measured based on assays of the solution and projected
      recoveries from the refining circuit and are valued at average production cost
      or net realizable value. Average production cost is based on the average cost
      of
      material fed into the process from the leach pads plus the in-process conversion
      costs, including applicable depreciation relating to the process facilities.





*Reclamation
      and Remediation Liabilities*




Our
      mining and exploration activities are subject to various laws and regulations
      governing the protection of the environment. In August 2001, the Financial
      Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
      Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations” which
      established a uniform methodology for accounting for estimated reclamation
      and
      remediation costs. The statement was adopted in July 2003 upon the acquisition
      of Mesquite when we recorded the estimated present value of the reclamation
      and
      remediation liabilities. Our estimates of reclamation and remediation
      liabilities are reviewed and adjusted from time to time to reflect changes
      in
      the estimated present value resulting from the passage of time and revisions
      to
      the estimates of either timing or amount of reclamation and abandonment
      costs.




Accounting
      for reclamation and remediation liabilities requires management to make
      estimates at the end of each period of the undiscounted costs expected to be
      incurred. Such cost estimates include ongoing care, maintenance and monitoring
      costs. Changes in estimates are reflected in earnings in the period an estimate
      is revised.




Accounting
      for reclamation and remediation liabilities requires management to make
      estimates of the future costs we will incur to complete the reclamation and
      remediation work required to comply with existing laws and regulations. Actual
      costs incurred in future periods could differ from amounts estimated.
      Additionally, future changes to environmental laws and regulations could
      increase the amount of reclamation and remediation work required. Any such
      increases in future costs could materially impact the amounts charged to
      earnings for reclamation and remediation.





*Stock
      Options and Warrants Granted to Employees and Non-employees*





The
      Company accounts for grants of stock options and warrants in terms of SFAS
      No.
      123 (R), “Share Based Payment”, which revises SFAS No.123, “Accounting for
      Stock-Based Compensation”. Accordingly, the Company measures all employee
      stock-based compensation awards and awards to non-employees in exchange for
      goods and services, using a fair value method and records such expense in its
      financial statements over the service period. In its application of the
      Black-Scholes model for valuation of stock options and warrants, management
      is
      required to make estimates based on several assumptions, including: risk-free
      interest rate, volatility rate, and the expected life of the options and
      warrants. Actual results could differ from these estimates.





35




**Recent
      Accounting Pronouncements**





The
      Company adopted the provisions of the Financial Accounting Standards Board
      (“FASB”) Interpretation No.48, “Accounting for Uncertainty in Income Taxes”
(“FIN No.48”) effective January 1, 2007. The purpose of FIN No.48 is to clarify
      and set forth consistent rules for accounting for uncertain tax positions in
      accordance with Statement of Financial Accounting Standards No. 109, “Accounting
      for Income Taxes”. The cumulative effect of applying the provisions of this
      interpretation are required to be reported separately as an adjustment to the
      opening balance of retained earnings of the year of adoption. The adoption
      of
      this standard did not have an impact on the financial condition or the results
      of the Company’s operations.





In
      March
      2006, the FASB issued Emerging Issues Task Force Issue No. 04-06 (“EITF 04-06”),
“Accounting for Stripping Costs Incurred during Production in the Mining
      Industry”. EITF 04-06 addresses the accounting for stripping costs incurred
      during the production phase of a mine and refers to these costs as variable
      production costs that should be included as a component of inventory to be
      recognized in costs applicable to sales in the same period as the revenue from
      the sale of inventory. As a result, capitalization of post-production stripping
      costs is appropriate only to the extent product inventory exists at the end
      of a
      reporting period. During the development stage of a mine, pre-production
      stripping costs are capitalized and typically are amortized over the productive
      life of the mine. The Company is following this guidance in its accounting
      for
      stripping costs associated with the expansion of the existing mine workings
      at
      Mesquite.





In
      September 2006, the FASB issued SFAS No.157, “Fair Value Measurements”. The
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles, and expands disclosures about
      fair
      value measurements. The Statement does not require any new fair value
      measurements. However, for some entities, application of the Statement will
      change current practice. The provisions of the Statement are effective for
      the
      Company’s fiscal year ending December 31, 2008. The Company is currently
      evaluating the impact of the adoption of SFAS No. 157 on the Company’s overall
      results of operations or financial position.





In
      February 2007 the FASB issued SFAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities - Including an amendment of FASB Statement
      No.115”. The Statement permits entities to choose to measure many financial
      instruments and certain other items at fair value. The objective is to improve
      financial reporting by providing entities with the opportunity to mitigate
      volatility in reporting earnings caused by measuring related assets and
      liabilities differently without having to apply complex hedge accounting
      provisions. The Statement is expected to expand the use of fair value
      measurement, The Statement is effective as of the start of the Company’s first
      fiscal year that commences after November 15, 2007. The Company is currently
      evaluating the impact of adoption of SFAS No.159 on its overall results of
      operations or financial position.





**Contractual
      Obligations**





The
      following table presents the contractual obligations outstanding as at September
      30, 2007:


**In
                  $000s**
              
              **Total**
              
              **Less than**
                **1 Year**
              
              **2- 3 Years**
              
              **4- 5 Years**
              
              **More than**
                **5 Years**Mining
                  equipment fleet
              
              
              9,010
              
              
              9,010
              
              
              -
              
              
              -
              
              
              -Reclamation
                  and remediation obligations (1)
              
              
              8,005
              
              
              -
              
              
              802
              
              
              -
              
              
              7,203Other
                  purchase commitments
              
              
              15,859
              
              
              15,859
              
              
              -
              
              
              -
              
              
              -Total
              
              
              32,874
              
              
              24,869
              
              
              802
              
              $
              -
              
              
              7,203




(1)
      In
      current dollars (undiscounted).





**Off-Balance
      Sheet Arrangements**





We
      had no
      off-balance sheet arrangements at June 30, 2007 and December 31, 2006 or at
      the
      date of this report.





36




**Outlook –
      balance of 2007**





Since
      the
      old material on our leach pads has been virtually exhausted and we have not
      yet
      started leaching new material, we are not forecasting significant additional
      gold production for the balance of 2007 over and above the 6,083 ounces produced
      in 2007 YTD.





Management’s
      primary focus is now on optimizing the effectiveness of the mining fleet,
      completion of stripping activity, increasing ore production and completion
      of
      the remaining aspects of the capital program.





Total
      planned spending on the mining fleet is now $73.1 million. As at September
      30,
      2007 equipment valued at $63.4 million had been delivered and orders valued
      at
      $9.7 million were outstanding. In addition to the mining fleet, we are planning
      on spending an additional approximately $21.8 million during the balance of
      2007
      and in early 2008 on other plant and infrastructure upgrades and expansion
      projects at Mesquite. The major aspects of this program are the leach pad
      expansion, retrofit of the process plant, and construction of a truck repair
      shop, warehouse and mine operations administrative office. We are working
      closely with several environmental agencies and local authorities to ensure
      that
      all required building and expansion permits are in place and that we have the
      necessary surety bonds posted to cover our latest reclamation cost estimates.





During
      2006 we started to build the management team for the re-activated operations
      at
      Mesquite. This process continued through September 2007 and we have now have
      in
      place the management, supervisory and operating personnel for resumed mining
      operations at Mesquite Mine. We now have a full complement of approximately
      175
      employees, excluding outside contractors for our fleet maintenance function.





Pre-production
      stripping operations started in June 2007 and will continue through January
      2008. Initial movement of fresh material to the leach pads took place in July
      2007 and commercial production is planned for January 2008.




**Item
      3.**  **Controls
      and Procedures**




As
      of the
      end of the period covered by this report, our management, with the participation
      of our principal executive officer and of our principal financial officer,
      evaluated the effectiveness of our “disclosure controls and procedures,” as
      defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation,
      these officers concluded that, as of the date of their evaluation, our
      disclosure controls and procedures were effective to provide reasonable
      assurance that information required to be disclosed in our periodic filings
      under the Exchange Act is accumulated and communicated to our management,
      including those officers, to allow timely decisions regarding required
      disclosure. It should be noted that a control system, no matter how well
      designed and operated, can provide only reasonable, not absolute, assurance
      that
      it will detect or uncover failures within our company to disclose material
      information otherwise required to be set forth in our periodic
      reports.




During
      the period covered by this report, there were no changes in our internal control
      over financial reporting that have materially affected, or are reasonably likely
      to materially affect, our internal control over financial
      reporting.




37





**PART
        II. OTHER INFORMATION**




**Item
      1.**  **Legal Proceedings.**




None.




**Item
      2.** **Unregistered
      Sales of Securities and Use of Proceeds.**




None.




**Item
      3.**  **Defaults Upon Senior Securities**




None.




**Item
      4.**  **Submission of Matters to a Vote of Security Holders.**





None




**Item
      5.**  **Other Information.**





None.




**Item
      6. Exhibits**




31.1 R ule
      13a -
      14(a) Certification of Principal Executive Officer*




31.2 Rule
      13a
      - 14(a) Certification of Principal Financial*




32.1 Section
      1350 Certification of Principal Executive Officer *




32.2 Section
      1350 Certification of Principal Financial Officer *




*
      Filed
      herewith





38




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date:
                November 5, 2007WESTERN
                GOLDFIELDS, INC.By:
            /s/
                Raymond ThrelkeldName:Raymond
                ThrelkeldTitle:President
                and Chief Executive Officer




39