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UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB /A

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
_______________ to  _______________

0-21777(Commission File Number)

GOLDEN QUEEN MINING CO.
LTD.(Name of small business issuer in its charter)

|British Columbia, Canada          | Not Applicable     
|--------------------------------- | -------------------
|(State or other jurisdiction      | (IRS Employer      
|of incorporation or organization) | Identification No.)

|6411 Imperial Avenue, West Vancouver, British Columbia,
      Canada | V7W 2J5   
|-------------------------------------------------------------------- | ----------
|(Address of principal executive offices)                             | (Zip Code)

Issuers telephone number: (604) 921-7570

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under section 12(g) of the Exchange Act:
Common shares without par value

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 [ ]

Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

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

State issuers revenues for its most recent fiscal year:
$0.00

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.): $53,025,000 as at March 31,
2007.

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date: 78,220,880
common shares as at March 31, 2007.

Transitional Small Business Disclosure Format. Yes [ ] No [X]

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Form 10-KSB

Table of Contents

|Part       | Item No. |                                                                                                                                                       |   
|---------- | -------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | --
|           |          |                                                                                                                                                       |   
|I          | 1        | Description of Business                                                                                                                               | 3 
|           |          |                                                                                                                                                       |   
|           | 2        | Description of Property                                                                                                                               | 18
|           |          |                                                                                                                                                       |   
|           | 3        | Legal Proceedings                                                                                                                                     | 20
|           |          |                                                                                                                                                       |   
|           | 4        | Submission of Matters to a Vote of Security
        Holders                                                                                           | 20
|           |          |                                                                                                                                                       |   
|II         | 5        | Market for Common Equity, Related Stockholder
        Matters and Small Business Issuer Purchases of Equity Securities                                | 20
|           |          |                                                                                                                                                       |   
|           | 6        | Managements Discussion and Analysis
        or Plan of Operation                                                                                     | 22
|           |          |                                                                                                                                                       |   
|           | 7        | Financial Statements                                                                                                                                  | 29
|           |          |                                                                                                                                                       |   
|           | 8        | Changes in and Disagreements With Accountants
        on Accounting and Financial Disclosure                                                          | 29
|           |          |                                                                                                                                                       |   
|           | 8A       | Controls and Procedures                                                                                                                               | 29
|           |          |                                                                                                                                                       |   
|           | 8B       | Other Information                                                                                                                                     | 30
|           |          |                                                                                                                                                       |   
|III        | 9        | Directors, Executive Officers, Promoters,
        Control Persons; and Corporate Governance Compliance with Section 16(a)
        of the Exchange Act | 30
|           |          |                                                                                                                                                       |   
|           | 10       | Executive Compensation                                                                                                                                | 30
|           |          |                                                                                                                                                       |   
|           | 11       | Security Ownership of Certain Beneficial
        Owners and Management and Related Stockholder Matters                                                | 30
|           |          |                                                                                                                                                       |   
|           | 12       | Certain Relationships and Related Transactions
        and Director Independence                                                                      | 30
|           |          |                                                                                                                                                       |   
|           | 13       | Exhibits                                                                                                                                              | 30
|           |          |                                                                                                                                                       |   
|           | 14       | Principal Accountant Fees and Services                                                                                                                | 30
|           |          |                                                                                                                                                      
|Signatures |          | 33                                                                                                                                                   

2

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PART I

|Item 1. Description of Business.
|--------------------------------

Glossary

Certain terms used in this Form 10-KSB are described below.
Note that the Company uses Canadian Institute of Mining (CIM) definitions for
the terms reserves, measured resources, indicated resources and inferred
resources, and American investors are cautioned that while these terms are
recognized and required by Canadian regulations, the U.S. Securities and
Exchange Commission does not recognize them.

Advance minimum royalty - Payment made before the start
of commercial production under a property agreement. Advance minimum royalties
are usually, but not always, credited against production royalties.

Ag The chemical symbol for silver.

Au The chemical symbol for gold.

Development stage -Includes all mining companies
engaged in the preparation of a deposit with reserves for production and which
are not in the production stage.

Exploration stage -Includes all mining companies
engaged in the search for or explorations of mineral deposits, which are not in
either the development or production stage.

Production stage -Includes all mining companies engaged
in the exploitation of a mineral deposit with reserves.

Fault or faulting - A fracture in the earths
crust caused by tectonic forces, accompanied by displacement along the fracture.

Grade -A term used to assign value to resources and
reserves, such as troy ounces per ton (oz/ton) or gram per tonne (g/t). Grades
are reported both in Imperial and SI units in this Form 10-KSB.

Heap leaching A process for extracting gold and/or
silver, which typically allows dilute cyanide solutions to percolate through
crushed ore heaped on an impervious pad to dissolve the gold and/or silver.

Kriging -A geostatistical method used to assign grades
to mineral resource and mineral reserve model blocks.

Mineral deposit -A mineral deposit is a mineralized
body, which has been intersected by a sufficient number of drill holes or by
underground workings to give an estimate of grade(s) of metal(s) to warrant
further exploration or development. A mineral deposit does not qualify as a
commercially viable deposit with reserves under standards set by the Securities
and Exchange Commission until a final, comprehensive, economic, technical and
legal feasibility study has been completed.

Ore -A natural aggregate of one or more minerals which,
at a specified time and place, may be mined and sold at a profit or from which
some part may be profitably separated.

Mineral Reserve -A Mineral Reserve is the economically
mineable part of an Indicated or Measured Mineral Resource demonstrated by at
least a preliminary feasibility study. This study must include adequate
information on mining, processing, metallurgical, economic and other relevant
factors that demonstrate, at the time of reporting, that economic extraction can
be justified. A Mineral Reserve includes diluting materials and allowances for
losses that my may occur when the material is mined. Mineral Reserves are
sub-divided in order of increasing confidence into Probable Mineral Reserves and
Proven Mineral Reserves.

Mineral Resource -A Mineral Resource is a concentration
or occurrence of natural, solid, inorganic or fossilized organic material in or
on the earths crust in such form and quantity and of such a grade or quality
that it has reasonable prospects for economic extraction. The location,
quantity, grade, geological characteristics and continuity of a Mineral Resource
are known, estimated or interpreted from specific geological evidence and

3

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knowledge. Mineral Resources are sub-divided, in order of
increasing geological confidence, into Inferred, Indicated and Measured
categories.

Stripping ratio -The quantity of waste rock in tons
removed to allow the mining of one ton of ore in an open pit.

Volcanics -Rock composed of clasts or pieces that are
of volcanic composition.

General Development of Business

Golden Queen Mining Co. Ltd., (the Company) was incorporated
under the laws of the Province of British Columbia, Canada in November 1985 and
has been exploring its mineral properties (the Property) located just south of
Mojave in Kern County, in southern California.

The Company acquired its initial interest in the Property in
1985 and has since added to its holdings in the area. Work on the Property and
the Soledad Mountain project (the Project) is done by Golden Queen Mining
Company, Inc., a California corporation and the wholly owned subsidiary (the
Subsidiary) of the Company.

The Company explored for gold and silver on the Property and
did extensive engineering work on the Project between 1988 and 1999. M3
Engineering and Technology Corp. (M3), Tucson, Arizona completed a feasibility
study for the Project in 1998 with gold and silver prices of $350/oz and
$5.50/oz respectively. The Company did additional drilling and underground
sampling in 1998 and 1999.

The Company had previously reported that it expected to begin
producing gold and silver from the Project during the second half of 1998, based
on the M3 feasibility study and once permitting was completed. Because of
relatively low gold prices in the late 1990s and in the early 2000s, however,
the Company was not able to obtain financing for the Project and the Project was
therefore put on hold in late 2000. Employees were laid off and costs were
reduced to the minimum required to maintain rights to the Property. The major
landowners agreed to a 3-year moratorium on property payments or until the price
of gold improved. The Company recorded an asset impairment loss of $28,547,592
for the year ended December 31, 2000 and this asset impairment loss reduced the
carrying value of fixed assets, mineral properties, and other assets to their
estimated net realizable value.

The Project remained on hold from 2001 to 2006.

In order to update the prospects for the development of the
Project, the Company initiated a detailed review of the Project in mid-2002 to
identify new approaches that would reduce both the capital cost to the start of
production and future operating costs. The review was supported and complimented
by a substantial amount of work done by independent engineers and contractors.
The review was documented and compiled into an in-house report to assist
management in determining the prospects for development of the Project at
current gold and silver prices and this phase of the technical work was
completed towards the end of 2006. The Company engaged SRK Consulting (U.S.),
Inc. (SRK), of Lakewood, Colorado in 2005 to prepare a technical report (the
Technical Report) to validate and confirm the mineral resource estimates in
compliance with National Instrument 43-101 (NI 43-101), being the Canadian
regulation that governs the disclosure of technical information by natural
resource companies, and this Technical Report was released on March 6, 2006. The
mineral resource estimates have now been confirmed as set out in more detail
below.

The Company engaged Norwest Corporation (Norwest), Vancouver
in January 2007 to prepare a further NI 43-101 compliant Technical Report as
part of an independent feasibility study to assess the presence of mineral
reserves based upon the technical work that had been completed to the end of
2006. Past reserve estimates, which were based on the report prepared by M3 in
1998, have been retracted by the Company on the basis that they are out of date
and not supported by a current, independent technical report. Past disclosure of
mineral reserve estimates should accordingly not be relied upon.

There are a number of risks associated with the Project and
readers are urged to consider the risks set out below in this Form 10-KSB, and
possible other risks, in order to obtain an understanding of the Project.

4

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The registered office of the Company is located at 1200 - 750
West Pender Street, Vancouver, British Columbia V6C 2T8 and its executive
offices are located at 6411 Imperial Ave., West Vancouver, BC, V7W 2J5.

Project Background

The Project is located approximately 8 km (5 miles) south of
Mojave in Kern County in southern California.

Gold mining on Soledad Mountain dates back to the late
19thcentury. The largest producer in the area was a syndicate
managed by Gold Fields America Development Co. (Gold Fields), a subsidiary of
Consolidated Gold Fields of South Africa. This syndicate operated an underground
mine and mill on the property from 1935 to 1942, when the mine was forced to
close by War Production Board Order L-208. Production after the war was minimal,
as costs had increased while the price of gold remained fixed at $35/oz until
1973.

Exploration & Mineral Resource Estimate

The Soledad Mountain mineral deposit is hosted in a volcanic
sequence of rhyolite porphyries, quartz latites and bedded pyroclastics that
occur on a large dome-shaped feature, called Soledad Mountain, along the margins
of a collapsed caldera. Higher grade precious metal mineralization is associated
with steeply dipping, epithermal veins, which occupy faults and fracture zones
that cross cut the rock units and generally trend northwest. The veins are
contained within siliceous envelopes of lower grade mineralization that forms
the bulk of the mineral resource.

The primary rock types that occur are rhyolite porphyry and
flow-banded rhyolite, quartz latite porphyry, pyroclastics and siliceous vein
material. The rock types will be found in different areas and phases of the open
pit. Little or no clay occurs in any of the rocks and the rocks contain upwards
of 80 % Si as SiO2.Rhyolite porphyry and flow-banded
rhyolite were grouped as a single rock type for the metallurgical test work and
management expects that if the Project is placed into production, three primary
rock types will be mined and processed at various times through the mine life.

Extensive programs of mapping, diamond drilling,
reverse-circulation drilling and underground diamond drilling and channel
sampling were carried out on the property between 1985 and 1999. Company
geologists and engineers managed these programs. The geological database today
includes the results of exploration done on the property by Rosario Exploration
and Shell/Billiton and the crosscut assay data recorded on linens by a mining
syndicate managed by Gold Fields between 1933 and 1942. The database contains
71,325 samples, generated from over 113,593 m (372,649 ft) of drilling and
sampling of underground crosscuts.

Ore zones were shaped manually by Company geologists to define
continuity with a low-grade cutoff grade of 0.274 g/t AuEq (0.008 oz/ton AuEq).
Prices for gold and silver of $325.00/oz and $6.00/oz and recoveries for gold
and silver of 78.0 % and 60.0 % respectively were used to calculate the
gold-equivalent cutoff grade for this purpose.

Mineral Resources Development, Inc. (MRDI), of San Mateo,
California, completed a detailed due diligence review of the procedures used by
the company between 1998 and 2000. This work involved statistical analyses, the
evaluation of grade capping, the design of appropriate kriging techniques and
setting criteria for the classification of resources. MRDI submitted a final
report with recommendations in May of 2000.

SRK and AMEC E&C Services, Inc. (AMEC acquired MRDI in
2000) did an exhaustive review of the database information and this included the
MRDI recommendations from 2000 and audited the geological model over a period of
five months in late 2005 and early 2006. Linear kriging was used to estimate
gold and silver grades for all blocks in the model. SRK completed work on the NI
43-101 compliant Technical Report in early March 2006.

Mineral resources were classified as follows:

Measured  first drill hole or crosscut within 21 m (70 ft) and
a second drill hole or crosscut within 30 m (100 ft).

Indicated - first drill hole or crosscut within 43 m (140 ft)
and a second drill hole or crosscut within 61 m (200 ft).

5

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Inferred  everything beyond Measured and Indicated, but with
two drill holes or cross-cuts within 91 m (300 ft) and this is more restrictive
than the MRDI recommendation from 2000.

Note that mineral resources are not mineral reserves and do not
have demonstrated economic viability.

Cautionary note to US Investors concerning estimates of
measured or indicated resources:This section uses the terms Measured
Resources and Indicated Resources. We advise US investors that while those
terms are recognized and required by Canadian regulations, the US Securities and
Exchange Commission does not recognize them. Investors are cautioned not to
assume that any part or all of the material in the resource categories will ever
be converted into mineral reserves.

Soledad Mountain Project - Measured & Indicated Mineral
Resources

GradeAuEq
    Gold
    SilverCategory
    t
    ton
    g/t
    oz/ton
    g/t
    oz/ton
    g/t
    oz/tonMeasured
    39,720,000
    43,692,000
    1.118
    0.033
    0.926
    0.027
    14.86
    0.43Indicated
    50,774,000
    55,851,000
    0.789
    0.023
    0.603
    0.018
    11.47
    0.33Total & Average
    90,494,000
    99,543,000
    0.912
    0.027
    0.744
    0.022
    12.96
    0.38


Cautionary note to US Investors concerning estimates of
inferred resources:This section uses the term Inferred Resources. We
advise US investors that while this term is recognized and required by Canadian
regulations, the US Securities and Exchange Commission does not recognize it.
Inferred Resources have great uncertainty as to their existence, and great
uncertainty as to the economic and legal feasibility of exploiting these in a
mining operation. It cannot be assumed that any part or all of an Inferred
Mineral Resource will ever be upgraded to a higher category. Under Canadian
rules, estimates of an Inferred Mineral Resource may not form the basis of
pre-feasibility or feasibility studies except in rare cases. Investors are
cautioned not to assume that any part or all of an Inferred Mineral Resource
exists or is economically or legally mineable.

Soledad Mountain Project - Inferred Mineral Resources

GradeAuEq
    Gold
    SilverCategory
    t
    ton
    g/t
    oz/ton
    g/t
    oz/ton
    g/t
    oz/tonInferred
    32,073,000
    35,280,000
    0.634
    0.019
    0.497
    0.015
    10.84
    0.32


Note:

|1. | AuEq is the gold-equivalent grade, which is calculated
        as follows: 
        AuEq g/t = Au g/t + {(Ag/R1)xR2} g/t where 
        R1= Au price in $/oz/Ag price in $/oz; R2= Ag
        recovery in %/Au recovery in % and prices and recoveries used in the calculations
        are $450.00/oz and $7.50/oz for gold and silver and 78.0% and 60.0% for
        gold and silver respectively.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Ore zones were shaped manually with a cutoff grade of
      0.274 g/t (0.008 oz/ton) AuEq.                                                                                                                                                                                                                                                                                                           
|3. | The mineral resources were calculated with a cutoff grade
      of 0.274 g/t (0.008 oz/ton) AuEq.                                                                                                                                                                                                                                                                                                    

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Infill Drilling Program

The company has prepared a drilling program with 40 drill holes
and 7,200 m (23,500 ft) of drilling, designed to test a portion of the material
classified as Inferred within pit shells constructed in 2000. SRK concurs in the
Technical Report that strategically targeted drilling could upgrade a
significant portion of the Inferred to the Measured or Indicated categories.

Historic Mineral Reserve Estimates

Past mineral reserve estimates, which were based on the report
prepared by M3 in 1998, have been retracted on the basis that they are out of
date and not supported by a current, independent, technical report. Past
disclosure of mineral reserve estimates should accordingly not be relied upon.
The Company engaged Norwest in January 2007 to prepare a further NI 43-101
compliant Technical Report to assess the presence of mineral reserves. Investors
are cautioned not to assume that mineral reserves exist that will be
economically or legally mineable.

Exploration Potential

Additional geological targets have been identified on the
Property. These targets are generally peripheral (east, south and west) to the
currently defined mineral resource. In the east, two additional zones of quartz
stringer veins have been mapped in the hanging wall of the Karma/Ajax vein
system. Toward the south, an extension of the Silver Queen vein system is open
and additional vein splits have been mapped on surface. Also, an extension of
the Golden Queen vein system appears to be offset by an east-west trending
fault. Initial drill results indicate widths of 8 m with good gold and silver
grades.

The exploration work to date has focused on known fault/vein
structures central to the deposit. The host volcanics associated with the
mineralization on the Property extend further to the south and have not been
fully evaluated. Further, anomalous gold values have also been found in the low
volcanic hills that protrude from the valley floor to the northwest of the
Property.

The continuity of mineralization at depth remains untested.

A number of the geological targets have been selected for
further exploration and this will depend upon the availability of funds.

Open Pit Operation

Mintec, Inc. (Mintec), Tucson, Arizona did the most recent
open pit design with the assistance of the Companys management in 2000. The
Mintec design report is dated July 2000. Gold and silver prices of $300/oz and
$5.50/oz respectively were used to develop an ultimate open pit shell with
standard modeling techniques. A total of seven mining phases were defined within
this shell. Detailed waste rock removal and ore production schedules and a waste
rock disposal plan were prepared. Mintec believes that the approach used to
develop the deposit model is adequate to take dilution into account for mine
planning purposes. The Companys management used the open pit design done in
2000 in its recent study on the prospects for the development of the Project,
which was completed in September 2005.

Slope stability analyses were done in 1995 and these included
analyses with the ultimate slopes subjected to a maximum, credible earthquake
acceleration of 0.297g. An ultimate slope angle of 55o was
recommended with indications that the ultimate slope angle could be safely
increased to 63.4 o. Five diamond drill holes were drilled in 1997
specifically to obtain rock strength parameters for further slope stability
analyses. An independent consulting engineer did these analyses and confirmed
the ultimate slope angle of 55o. An ultimate slope angle of
50o was used in the open pit design done by Mintec in 2000.

The operation will be an open pit operation and it is expected
that the Company will do the mining. An independent consulting engineer
determined detailed equipment requirements and two major equipment vendors
provided lease financing proposals. The mine operating costs were determined
in-house.

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Ore-from-waste separation will require special attention to
ensure that overall grade projections are met.

Underground mine openings will be encountered from time-to-time
during open pit mining and this will be allowed for in the detailed mine
planning.

The open pit design done in 2000, accepted a loaded downhill
ore haul to the crushing-screening plant for the life of the mine. The intent is
now to replace the trucks with a pipe conveyor for conveying the ore to the
crushing-screening plant with a possible significant reduction in both mine
capital and operating costs.

Pipe conveyor technology is well proven in practice with
upwards of 200 installations in Europe. Regenerative braking is typically used
in all loaded downhill applications and the power generated would provide a
small portion of the power required elsewhere in the Project.

Koch Transporttechnik Ges.m.b.H. of Vienna, Austria has
submitted a proposal for a pipe conveyor for the Project based upon a site
layout prepared by the Companys management in 2003. Detailed engineering for
the fabrication and installation of the pipe conveyor remains to be
completed.

Detailed planning and engineering design to confirm the
feasibility of using a pipe conveyor to convey the ore will be done as part of
an independent feasibility study for the Project.

The development of a mine on the Property requires confirmation
of the existence of mineral reserves and the ability of the Company to finance
the Project. There is no guarantee that the Project will be economically viable,
or if viable, that the Company can successfully develop the Project.

Mineralogy, Process Development & Flow
Sheet

Studies done show that gold is present as native gold and
electrum ranging in size from <10 micron to >150 micron. A
semi-quantitative SEM-EDX analysis of the electrum indicates a silver content of
up to 25 %. Silver is also present as acanthite (Ag2S) with some
native silver, pyrargyrite (3Ag2S.Sb2S3) and polybasite
(9Ag2S.Sb2S3). Multi-element x-ray fluorescence analyses show
only trace quantities of mercury.

Test work done on Soledad Mountain ores from 1989 to 2006 shows
that these ores are readily amenable to heap leaching provided the ore is
crushed and/or ground to relatively small sizes. Gold and silver recoveries of
78.0 % and 60.0 % respectively and a range of parameters required to design a
heap leach operation, such as agglomerate strength, percolation rates under load
and the consumption of cyanide and other reagents, were determined.

It was proposed to crush and screen ore to 100 % - 8mesh or 100
% - 2.37 mm and a four-stage crushing and screening plant using vertical shaft
impact crushers in the third and fourth crushing stages was designed by M3 for
the Project in 1998. A review done by the Companys management in 2002 provided
new insights into the historic test results. An alternative flow sheet was
developed for the Project in late 2002, based upon the use of a high-pressure
grinding roll (HPGR). The Company, in consultation with an independent
engineering firm experienced in HPGR design, prepared a detailed flow sheet for
the Project based on an HPGR.

Confirmation HPGR tests were required to provide the following:

- The design parameters to both size the equipment and determine the motor
  sizes for the HPGR;
- The target particle size distributions for the full-scale operation and
- Information to finalize the flow sheet, e.g. the need to recycle edge
  material.

Samples of rhyolite ore and quartz latite ore were collected
for the HPGR tests in July 2003 and in March 2004 respectively. The samples were
crushed to 100 % passing 32 mm and 35 mm respectively by McClelland
Laboratories, Inc. (MLI), an independent metallurgical laboratory in Sparks,
Nevada. The samples were shipped by airfreight to two HPGR manufacturers in
Germany where the actual HPGR tests were done. The crushed samples were returned
to the laboratory in Nevada for confirmation leach test work. The following
conclusions were drawn based upon the results of bottle roll and column leach
tests:

8

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- Recoveries are higher with longer leach times and this confirms the
  historic findings;
- Recoveries increase with an increase in fineness of the crushed product
  and this effect is especially pronounced for silver and
- Recoveries for the HPGR products are consistently higher and extraction
  rates are faster than those obtained from conventional crusher products  the
  evidence is that this is due to penetration of leach solution into
  micro-cracks that are created by the high specific press force applied to the
  ore particles in the HPGR.

The detailed tails analysis indicated that tests should be done
on a high-grade and a low-grade sample to obtain data for the complete range of
expected head grades. Two rhyolite samples were taken for this test work from
April 10 to 13, 2006. The total weight of the two samples was approximately
2,100 kg (4,600 lb). The samples were shipped by truck to MLI for first-stage
crushing and then by airfreight to the Polysius laboratory in Germany where the
HPGR tests were done. The samples were returned to MLI and bottle roll tests and
column leach tests were started in July and completed in December 2006. Final
test results were received and analyzed in detail.

Companys management now estimates the following recoveries
based upon the tails analysis:

Primary Rock Types
      Proportion
      Gold
      Silver%
      %
      %Pyroclastics Quartz Latite Rhyolite Undefined
      10.5 
        21.3 68.1 0.1
      85.4 
        89.9 83.4 Average
      52.5 
        52.5 52.5 AverageTotal & Average
      100.0
      85.0
      52.5


Tests were done on the residues from two of the column leach
tests to determine the percolation rates under load and the results of these
tests were used to design the heap and confirm the height of the heap in the
heap leach operation.

The test work shows that the HPGR is expected to have distinct
advantages over conventional crushing and screening to size and prepare
particles for heap leaching in this particular application. The indicated
benefits of using the HPGR will be:

- Higher recoveries in the heap leach operation due to micro-cracks in the
  ore particles;
- Faster gold and silver extraction rates;
- Stronger agglomerates due to a more favorable overall particle size
  distribution and this will also impact the flow rates of solution through the
  heap;
- Substantially lower capital costs than a conventional crushing - screening
  plant;
- Manageable dust control with fewer transfer points;
- Lower energy consumption and thus lower operating costs and
- Exceptional circuit flexibility that will readily permit future upgrades
  such as a finer HPGR feed size or the recycle of edge product.

A technical paper entitled Flow Sheet Development And Benefits
Of The HPGR was presented at the RANDOL conference held in Perth, Australia in
late-August 2005.

An independent consulting engineering firm did the design of
the crushing-screening plant and this includes the HPGR and prepared the capital
cost estimate for the construction of the plant. The detailed design of the
commercial HPGR has also been completed.

The HPGR consists basically of two counter-rotating rolls  one
a fixed roll and the other a floating roll. The floating roll is mounted on
and can move freely on two slides and the grinding forces are applied to the
floating roll by four hydraulic rams. Ore is choke-fed to the gap between the
rolls and comminution takes place by inter-

9

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particle crushing in the bed of particles. The gap between the
rolls is determined by the nip-in characteristics of the feed and the total
grinding force applied, which in turn depends upon the pressures in the
hydraulic system. Each roll is driven by an electric motor via a planetary gear
reducer. The total grinding force can range from 750 kN to 20,000 kN and
pressures in the gap can range from 50 MPa to 250 MPa. The unconfined
compressive strength of Soledad Mountain ores ranges from 2.2 MPa to 118.9 MPa
by comparison.

Comminution in the HPGR is achieved without impact and
essentially without attrition of the wear protection on the surface of the
rolls.

Gold and silver are typically recovered in a heap leach
operation by dissolution in a dilute cyanide solution and then by precipitation
with zinc or adsorption on activated carbon. The zinc precipitation process,
referred to as the Merrill-Crowe process after its developers, is used to
recover gold and silver when the silver to gold ratio in solution is greater
than 10 to 1. The silver to gold ratio is expected to average 15:1 for the
Project and a Merrill-Crowe precipitation plant will therefore be required. In
the Merrill-Crowe process, zinc dust is metered into the deaerated, pregnant
solution and gold and silver are precipitated as micron-sized, metallic
particles. The precipitate is dried, mixed with selected fluxes and melted in an
induction furnace. The molten mix of gold and silver, i.e. the dorè, is poured
into molds. The dorè is cooled, cleaned and shipped to a commercial refinery
where gold and silver bullion are produced for final sale.

The Merrill-Crowe process is highly efficient and recoveries in
a commercial plant typically range upwards of 98 %.

Cyanide will be used in the process to extract gold and silver.
Extensive procedures will be put in place to protect workers and the
environment. The cyanide will be received in a dissolved form by truck directly
from the manufacturer. The liquid will be pumped to a storage tank on site and
from there to the process.

Independent consulting engineeing firms did detailed designs
and prepared the capital and operating cost estimates for a Merrill-Crowe plant
and this includes the refinery and for an analytical laboratory for the Project.

The Heap Leach Pad And The Heap

The Projects heap leach facility has been designed for zero
discharge. The design contemplates that the first heap leach pad to be
constructed, the Phase 1 pad, will be located on the northern side of Soledad
Mountain. A second leach pad, the Phase 2 pad, will be located on the western
side of Soledad Mountain if required. The Phase 1 pad will be a dedicated pad,
i.e. ore will be stacked, leached, rinsed and left in place on the pad for final
reclamation. The following are the design criteria for the Phase 1 pad:

- The pad has been designed as a permanent, single-use pad;
- Dry specific weight of agglomerated ore is 1.36 t/m3(85.0
  lb/ft3) and 1.42 t/m3(88.5 lb/ft3) after
  leaching and consolidation in the heap;
- Maximum heap height is 60 m (Nominally 200 ft);
- Lift height is 10 m (Nominally 33 ft);
- The nominal angle of repose of the agglomerated ore is 2.0H:1.0V;
- Slopes are 2.5H:1.0V on the north and west sides and 2.0H:1.0V on the
  south and east sides;
- Nominal capacity of the pad is 46.5million t (51.2million ton) and
- The heap is to be constructed in 2 stages, viz. Stage 1 and Stage 2 and
  each stage to be divided into 2 hydraulically isolated zones, viz. Zone 1 and
  Zone 2 for a total of 4 zones

The Phase 1 pad will be lined with a composite liner consisting
of a compacted soil liner and a geomembrane. The geomembrane will in turn be
covered and protected by 45 cm (18 inch) of a crushed liner protection fill that
will act as a drainage layer. A network of perforated pipes will be installed in
the liner protection fill. Solution will drain by gravity to a pump box and will
be pumped to the Merrill-Crowe plant where gold and silver will be extracted
from the pregnant solution. The barren solution will be pumped to the heap with
vertical turbine pumps and drip emitters will be used on the heap to limit
evaporation losses.

10

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An independent consulting engineering firm did a detailed site
investigation in the area where the heap leach pad will be constructed in 2004
and again in 2006. A detailed estimate of construction quantities has been
completed.

The design of the heap leach pad meets all applicable
regulatory requirements.

An independent consulting engineering firm did the heap leach
stacking study and prepared capital and operating cost estimates for the
conveying and stacking system.

Services

The Project is located approximately 8 km (5 miles) south of
Mojave. The metropolitan areas of Lancaster/Palmdale and Los Angeles lie
approximately 48 km (30 miles) and 110 km (70 miles) further to the south.
Access to site is from State Route 14 and Silver Queen Road, an existing paved
County road. The Union Pacific/Southern Pacific railroad line runs parallel to
and just east of State Route 14. Services such as a hospital, ambulance,
fire-protection, garbage and hazardous waste disposal, schools, motels and
housing, shopping, airport and recreation are available in Mojave and its
surroundings. Telephone service is currently available on site.

Water Supply

A water supply will be required for the heap leach operation
and it is expected that groundwater will be used.

A detailed evaluation of the available groundwater was done in
1996. As many as 35 wells have been drilled in the greater Project area in the
past. Records for some of these wells plus step rate test data from production
well #1 drilled by the Company indicate that, initially, two production wells
can provide the maximum estimated water requirement of 147.6 m3/h
(650 gal/min). Production well #1 is located approximately 1km north of the
Project. A second production well has been drilled approximately 300 m (1,000
ft) north of well #1 and cased and tested and a third production well can be
drilled if required in the future.

A water sample taken from production well #1 and from three
monitoring wells on site indicated that groundwater can be used in the heap
leach process without pre-treatment.

An independent consulting engineering firm did the design and
prepared capital and operating cost estimates for the water supply and the
process water and firewater distribution systems

Power Supply

It is expected that power for the Project will be supplied by a
local utility via a 12.5 kV power line that has been constructed to the Property
boundary.

An independent consulting engineering firm did a detailed motor
list and estimated the power consumption for a commercial heap leach operation
and did a capital cost estimate for power supply and distribution.

Offices & Workshop/Warehouse

The detailed designs and capital costs estimates for all
services required for a mining operation such as an office, workshop and
warehouse and diesel fuel and gasoline storage have been completed.

Project Management & Operating Manpower

A management team will be assembled in Mojave to manage the
Project. The projected manpower is 28 salaried and 124 hourly-paid workers.
Indications are that skilled workers will be available locally as there are a
number of mines and quarries in production in the greater Mojave area.

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Aggregate

The Company is evaluating the production and sale of aggregates
as part of the Project. The source of raw materials would be the finely crushed
and rinsed residue or sand from the heap leach operation and rock from the waste
rock dumps. The waste rock can be classified into a range of products such as
riprap, crushed stone and gravel. Test work to confirm the suitability of these
materials for use as aggregate was done in 1998 and 1999.

Environmental Issues & Permits

The area surrounding Mojave is typical of the western Mojave
Desert. The immediate vicinity of the Project is sparsely populated with
considerable historical and more recent mining activity. The Standard Hill,
Tropico and Cactus mines are located within a radius of 12 km (7.5 miles) of the
Property.

The Project and the immediate area surrounding the Project or a
total of approximately 9,600 acres are included in the Specific Plan (the
Plan) for Soledad Mountain - Elephant Butte & Vicinity - South of Mojave.
This Plan was prepared in March 1973 and adopted by the Kern County Board of
Supervisors as Resolution 73-485 on June 18, 1973. Gold and silver mining
operations are recognized in the Plan as important past land uses and the
protection of mineral deposits, potentially of commercial value, is included in
the Plan through restriction of incompatible land uses. The Project as presently
defined is consistent with the Plan.

An independent consulting engineering firm reviewed the major
permits that were previously issued for the Project and the current regulatory
environment in California in 2005. Additional work is now required due to the
time that has passed since the permits were first issued and changes that have
been made in the Project. There have also been changes in regulations imposed by
the three levels of government. No significant environmental issues were however
identified in the review and furthermore, the footprint of the Project as
presently defined has been significantly reduced.

Environmental issues and the status of permits are summarized
in the following sections.

CEQA/NEPA

The Project is subject to the California Environmental Quality
Act (CEQA) and the National Environmental Policy Act (NEPA), each of which
requires written analysis of proposed mining activities and their effect on the
physical, biological, social and economic resources of the area. This analysis
is known under CEQA as an environmental impact report (EIR), and under NEPA as
an environmental impact statement (EIS).

The Company submitted its combined EIR/EIS to the Kern County
Planning Department (Kern County) in February 1996, in accordance with a
memorandum of understanding between Kern County and the Bureau of Land
Management (BLM), which gave Kern County, as the lead agency, primary
responsibility for the environmental reviews. The EIR/EIS took the form of a
combined Conditional Use Permit application, Environmental Information
Statement, Plan of Operations and Surface Mining Reclamation Plan as required by
the California Surface Mining and Reclamation Act.

Comments were received in response to the submission on ground
water quality and quantity, air quality, the effect of development on native
species of plants and animals, the visual impact of the project and the
potential hazards associated with transporting supplies and chemicals to site.
These comments were incorporated into a revised EIR/EIS released for public
comment in June 1997. In September 1997, the Company received a favorable notice
of determination regarding the EIR/EIS, as well as approval of its Conditional
Use Permit application and Surface Mining Reclamation Plan This was followed by
a Record Of Decision from the BLM approving the Companys Plan of Operations
under NEPA in November 1997.

Kern County, as the lead agency, approved and issued two
Conditional Use Permits (CUPs) for the Project in September 1997. Kern County
confirmed in writing in 1998 that the CUPs had been activated and would not
expire at some future date.

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There are 87 conditions of approval and mitigation measures
listed in Exhibit E to the CUPs and this includes a requirement to reclaim
historical disturbances on the Property. Site inspections are conducted annually
to verify that the Company is in compliance with these conditions of approval.
The Company was in compliance for the year ended December 31, 2006.

Air Quality

Background Information

The Project lies within the Southeast Desert Air Basin, which
falls under the jurisdiction of the Kern County Air Pollution Control District.
The district is charged to regulate sources of air pollution within the basin,
pursuant to authority granted under the federal Clean Air Act.

The area is designated as unclassified for PM10emissions (that portion of the total suspended particulates less than 10
microns in size) and as a non-attainment area for ozone. The typically windy
conditions and very dry nature of the general area are responsible for high
background PM10levels recorded at several nearby monitoring
stations.

Fugitive dust from a mining operation on the Property, combined
with background dust, may result in unacceptable levels of PM10emissions in the surrounding areas, especially downwind, and this may
present the greatest potential environmental issue for the Project. A PM10level of 44 micrograms per cubic meter is projected by computer modeling
for a mining rate of 27 million t (30 million ton) per year of ore and waste.
This level is below the California attainment standard of 50 micrograms per
cubic meter and the Federal standard of 150 micrograms per cubic meter. However,
the Company believes that it will achieve compliance with applicable standards
by a greater margin, as the modeling methodology assumes worst-case conditions,
which are considered unlikely to be encountered in the actual operation based on
the planned use of commonly accepted dust control techniques in all phases of
the operation.

Kern County Air Pollution Control District transferred an
Emission Reduction Credit Certificate from Cactus Gold Mines Company to the
Project on February 3, 1999 and this remains valid.

Authority To Construct & Permit To Operate

The Company had obtained seven Authority To Construct permits
dated March 16, 2002. These permits expired on March 16, 2004 and were not
renewed due to changes anticipated in the Project.

WZI, Inc., Bakersfield was asked to assess air quality for the
Project in a letter dated February 27, 2006 and was commissioned to obtain the
Authority To Construct permits in a meeting held in Bakersfield on April 11,
2006. Modeling and calculations were done by WZI and these were submitted to the
Kern County Air Pollution Control District in September 2006.

The Authority To Construct permits remain outstanding.

The Authority To Construct permits are converted to a Permit To
Operate after construction has been completed and subject to inspection by the
Kern County Air Pollution Control District.

PM10Monitoring Station

The Company is required to install both upwind and downwind
PM10monitoring stations before the start of construction and decided
to proceed with the upwind PM10monitoring station in May 2006 to add
to the air quality database. The station was designed by Air Sciences Inc.,
Golden and commissioned during the week of September 4, 2006. Data is being
recorded on a continuous basis.

The Kern County Air Pollution Control District formally
approved the monitoring station in a letter dated October 17, 2006.

The equipment for the downwind PM10monitoring
station has been purchased and is in storage in Mojave.

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The first report with data for the last four months of 2006 was
released in March 2007.

Water Quality

The Project is located in the northern portion of the Antelope
Valley Groundwater Basin. The mean recorded annual rainfall in the surrounding
area is approximately 156 mm (6.14 in). Typical patterns of precipitation are
winter rains and summer thunderstorms and these tend to be short-lived and of
high intensity. The site is dominated by Soledad Mountain and surface drainage
patterns in the area are largely influenced by local topography. This varies
from steep, rugged hillsides at the upper elevations to a gently sloping desert
floor around the toe of Soledad Mountain. Runoff on the northern side of Soledad
Mountain is via a series of gullies or channels, which direct surface flows to
the north, northeast and northwest and eventually to the east to the Gloster and
Chaffee Hydrologic Areas of the Antelope Hydrologic Unit.

There are no springs or intermittent streams in the immediate
area. The closest intermittent stream is approximately 5 km (3 miles) to the
west. Evaporation rates are high. Groundwater is typically found at depths of 55
to 61m (180 to 200 ft) in the area north of the Project.

The Lahontan Water Quality Control Board (Regional Board) is
responsible for ensuring compliance with the federal Clean Water Act and
Californias Porter-Cologne Water Quality Act. The Company submitted a Report of
Waste Discharge (ROWD) to the Regional Board in June 1997. The application was
approved and the Board issued Board Order No. 6-98-9 on March 5, 1998, which set
out the waste discharge requirements for the Project.

Revised Report Of Waste Discharge

The ROWD prepared in 1997 included a design for the heap leach
facility done before and in 1997. The Company and its consulting engineers
prepared an engineering review that set out significant differences between the
layout designs prepared for the heap leach facility in 1997 and 2005 and a
presentation was made to the Regional Board in Victorville in May 2006. The
Regional Board requested that the Company submit a revised ROWD to reflect these
changes. There were a number of requirements in the Board Order adopted in 1998
for further studies to be done before the start of production. The Companys
consulting engineers did the studies in 2006 and prepared a revised ROWD, which
was submitted to the Regional Board on March 8, 2007.

It is expected that the Regional Board will issue a Board Order
with only minor changes to the waste discharge requirements for the Project.

Closure, Reclamation and Financial Assurance

Closure and reclamation will be done in accordance with the
requirements set out in the CUPs and an approved Surface Mining Reclamation Plan
and as set out in the Board Order to be re-issued by the Regional Board.

The following general principles apply:

- Considerable experience gained in reclamation of other heap leach
  operations in the California deserts since the mid-1990s shows that
  reclamation can be completed successfully;
- The Surface Mining Reclamation Plan will be an active plan with concurrent
  reclamation on one hand and alternative reclamation concepts to be sought and
  evaluated during the mine life on the other hand;
- Closure and reclamation can proceed once the decision has been made to
  close the mine and this can be done while gold and silver are still being
  produced from the heap leach facilities although ore is no longer being mined,
  crushed and piled on the heap;
- The site drainage plan will be re-assessed to control future runoff and
  erosion;
- Public safety will be a key concern to be addressed as part of closure and
- Post-closure monitoring will continue until revegetation targets are met
  with the ultimate goal of establishing a productive and self-staining
  eco-system.

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The following points will have an impact on closure and
reclamation costs:

- The footprint required for Project facilities has been significantly
  reduced from earlier requirements.
- A road to the top of Soledad Mountain will remain for access to public
  facilities and will not be reclaimed.
- Waste will be disposed of in mined-out phases of the open pits and
  significantly less waste will be disposed of in waste rock dumps. A planned
  major waste rock dump to the south of Soledad Mountain will not be required
  and this will significantly reduce the total disturbed area that must be
  reclaimed.
- Leached residues on a single heap leach pad will have to be neutralized
  and reclaimed.
- The size and complexity of the crushing & screening plant has been
  significantly reduced with no buildings that have to be dismantled and fewer
  concrete footings that have to be broken up or buried.
- The workshop and warehouse building and wash slab, security building, bulk
  fuel storage tanks, septic tank and leach field and the parking lot will find
  an approved, alternative industrial use and will not be dismantled nor will
  the site where these facilities are constructed be reclaimed.
- Two (or three) water wells will remain for future industrial use. The
  water supply infrastructure will be offered to Antelope Valley  East Kern
  Water Agency as part of the permanent facilities in the area.

Revegetation

Sites have been revegetated successfully elsewhere in the
California deserts, for example at the Castle Mountain Mine in San Bernardino
County, and it is expected that revegetation can be completed successfully for
the Project as per the detailed revegetation plan that has been prepared by the
Companys consulting engineers.

A summary of the proposed revegetation procedures is given
below:

- A first revegetation test plot was prepared and seeded on a suitable site
  in November 2006;
- Ongoing revegetation tests will be done and monitored to demonstrate that
  seed collected and prepared locally can be an effective source of seed;
- Seeds are being collected locally and a seed library has been established;
- Seeds collected locally will be supplemented by seeds contained in growth
  media;
- Surfaces will be prepared to provide textures suitable for desert plants
  and micro-basins will be created to trap moisture and seeds;
- Hand seeding has been found to be effective in most areas and aerial (crop
  duster or helicopter) seeding can be used in areas that are inaccessible by
  vehicle or foot;
- Seeded areas will not require fertilizer and watering;
- Reclamation of disturbed areas will occur as soon as possible throughout
  the mine life;
- Control and channeling of runoff will be a key to ensure successful
  revegetation;
- Quantifiable goals for density and diversity of perennial species will be
  established and
- Revegetation is expected to reduce visual contrasts and provide wildlife
  habitat.

Financial Assurances

The Company is required to provide three different financial
assurances for the Project:

- Financial assurance to be held by Kern County to cover the general
  reclamation on site;
- Financial assurance to be held by the Regional Board to cover
  neutralization and closure of the leached residues on the heap and
- Unforeseen events financial assurance to be held by the Regional Board
  designed for an unforeseen event that could contaminate surface or
  groundwater.

The Company provided reclamation financial assurance in the
form of an Irrevocable Standby Letter Of Credit backed by a Certificate Of
Deposit with Union Bank of California in the amount of U.S.$245,337 on November
21, 2006 and this is the current estimate for reclamation of historical
disturbances on the property. This is the first time in its history that the
Company has provided any form of financial assurance. The adequacy of the
financial assurance is reassessed annually.

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Recent Developments

The State of California introduced backfilling requirements for
certain types of open pit, metal mines in December 2002. The Company contended
that these regulations did not apply to the Project under a grandfathering
provision included in the regulation. The Company therefore pursued both a
favorable interpretation under the regulation and subsequently an amendment of
the regulation with the State Mining and Geology Board (the Board) in 2006.
These efforts were supported by Kern County officials. Both approaches were
rejected by the Board and the decision was duly recorded by the Board in January
2007.

The Company and its consulting engineers prepared a
life-of-mine waste rock management plan in 2006 and this plan incorporates
backfilling of mined-out phases of the open pit. The waste rock management plan
plus other changes that have been made to the Project will require a formal
modification of the Conditional Use Permits for the Project and this process
will be initiated once the company submits a formal request to Kern County in
the first week of April 2007.

Environmental, Safety and Health Policy

The Company has prepared an Environmental, Safety and Health
Policy and a management system to implement this Policy.

The Company expects to sign the International Cyanide
Management Code. The Code was developed under the auspices of the United Nations
Environment Program and the International Council on Metals and the Environment.
The International Cyanide Management Institute, a non-profit organization,
administers the Code. Signatories to the Code commit to follow the Principles
set out in Code and to follow the Standards of Practice. Companies are expected
to design, construct, operate and decommission their facilities consistent with
the requirements of the Code and must have their operations audited by an
independent third party. Audit results are made public.

Offices and Employees

The Companys principal executive offices are located in
Vancouver at 6411 Imperial Ave., West Vancouver, BC, V7W 2J5, Canada. The
Company employs a part-time accountant in Mojave, California.

Miscellaneous

The Company has five directors. Four of the Companys
directors, Edward G. Thompson, Chester Shynkaryk, Gordon C. Gutrath, H. Lutz
Klingmann are residents of Canada. The fifth director, Landon Clay, is a
resident of the United States. It may be difficult for United States investors
to effect service of process within the United States upon the four directors
that are resident in Canada, or to realize in the United States upon judgments
of United States courts predicated upon civil liabilities under the United
States securities laws. A judgment of a U.S. court predicated solely upon such
civil liabilities would probably be enforceable in Canada by a Canadian court if
the U.S. court in which the judgment was obtained had jurisdiction, as
determined by the Canadian court, in the matter. There is substantial doubt
whether or not an original action could be brought successfully in Canada
against any such directors predicated solely upon such civil liabilities.

Risk Factors

The following are some of the risk factors that apply to an
investment in the Company.

The Likelihood Of Continued Losses From Operations

The Company has no revenue from operations and has incurred
losses from inception through December 31, 2006 of $42,726,224 Losses are
expected to continue until such time as the Company can economically produce and
sell gold and silver from the Project. The Company held $5,513,580 in cash and
cash equivalents on December 31, 2006. Continued losses will require that the
Company raise additional funds by equity or debt financing, failing which it
will not be able to continue operations.

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Ability To Continue As A Going Concern

The Company has had no revenues from operations since inception
and has a deficit of $43,414,325 accumulated during the exploration stage.

The ability of the Company to obtain financing for its ongoing
activities and thus maintain solvency beyond 2007, will depend upon gold and
silver prices and equity market conditions for junior resource companies, the
willingness of other parties to lend the Company money or the ability to find a
joint venture partner. While the Company has successfully obtained financing in
the past, there can be no assurance that future efforts will be successful. This
raises substantial doubt about the Companys ability to continue as a going
concern beyond 2007.

The Need for Significant Additional Financing

If an independent feasibility study is completed for the
Project and a production decision is made, the Company will need significant
additional financing to develop the Project into an operating mine and estimates
that this could range as high as $60 million in addition to the working capital
required. The Company expects to finance the construction and to secure the
necessary working capital from additional sales of common stock, from bank or
other borrowings or, alternatively, through a joint venture. However, the
Company has no commitment for bank financing or for the underwriting of
additional stock, and it is not a party to any agreement or arrangement
providing for a joint venture. Whether and to what extent project financing can
be secured will depend on a number of factors, including gold and silver prices.
Gold and silver prices fluctuate widely and are affected by numerous factors
beyond the Company's control, such as the strength of the U.S. dollar and
foreign currencies, global and regional demand, and the political and economic
conditions of major gold producing countries. If financing is not obtained, the
Company will not be able to develop the Project and would be forced to seek
alternatives to its current business plan, including disposing of its interests
in the Property.

There is no Current Independent Feasibility Study Confirming
the Existence of Reserves

Past mineral reserve estimates, which were based on the report
prepared by M3 in 1998, have been retracted on the basis that they are out of
date and not supported by a NI 43-101 compliant Technical Report. Accordingly
there is presently no current, independent, technical report on the Project
confirming the existence of reserves based on current information, including
current prices for gold and silver, mining regulations, and mining technology.
There is no guarantee that an independent feasibility study prepared for the
Project will indicate that the Project is viable. Without a current independent
feasibility study, the Company will not be able to make a production decision.

The Company engaged Norwest Corporation (Norwest), Vancouver
in January 2007 to prepare a further NI 43-101 compliant Technical Report as
part of an independent feasibility study to assess the presence of mineral
reserves based upon the technical work that had been completed to the end of
2006. There is, however, no guarantee that reserves will be reported.

Risks and Contingencies Associated with the Mining Industry
Generally

In addition to the risks noted above, the Company is subject to
all of the risks inherent in the mining industry, including environmental risks,
fluctuating metals prices, industrial accidents, labor disputes, unusual or
unexpected geologic formations, cave-ins, flooding, earth quakes and periodic
interruptions due to inclement weather. These risks could result in damage to,
or destruction of, production facilities, personal injury, environmental damage,
delays, monetary losses and legal liability. Although the Company maintains or
can be expected to maintain insurance within ranges of coverage consistent with
industry practice, no assurance can be given that such insurance will be
available at economically feasible premiums. Insurance against environmental
risks (including pollution or other hazards resulting from production) is not
generally available to the Company. Were the Company subjected to unexpected
costs, such costs would reduce the funds available to the Company for its normal
activities. Were the Company unable to fund fully the cost of remedying an
environmental problem, it might be required to suspend operations or enter into
interim compliance measures pending completion of remedial activities.

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Passive Foreign Investment Company

The Company may be classified as a passive foreign investment
company. U.S. investors should seek independent advice from tax advisors to
discuss any tax consequences.

|Item 2. Description of Property
|-------------------------------

Land Ownership and Mining Rights

The Company acquired its initial property interests in 1985 and
  has since acquired additional properties in the area. The Project is located
  approximately five miles south of Mojave and approximately two miles west of
  California State Route 14 and south of Silver Queen Road.
  See Figures 1 and 2 below.

The Company controls approximately 1,000 hectares (2,500 acres)
of land in the area. The Project will result in a disturbed area of
approximately 366 hectares (905) acres of which approximately 334 hectares (826
acres) will be reclaimed at the end of the mine life.

The land controlled by the Company includes all of Section 6
and portions of Sections 5, 7, 8 and 18, T10N, R2W, portions of Section 1 and
12, T10N, R13W, portions of Section 18, T9N, R12W and portions of Section 32,
T11N, R12W, all from the San Bernardino Baseline and Meridian. The Project
facilities will be located in Section 6, T10N, R12W. Water wells have been
drilled in Section 32, T11N, R12W on land controlled by GQM.

The Company holds or controls via agreement 33 patented
lode-mining claims, 122 unpatented lode-mining claims, 1 patented millsite
claim, 7 unpatented millsite claims and 363 hectares (897 acres) of fee land.
The Company also owns four residential properties with buildings north of Silver
Queen Road.

The Company owns or controls the properties under a variety of
agreements with 53 individual landowners, two groups of landowners and two
incorporated entities. These agreements include mining leases, exploration
agreements and a number of purchase agreements in various stages of completion.
The Company believes that all the land required for the Project has either been
secured under one of these agreements or is controlled by the Company through
ownership of the land in fee or where the Company holds unpatented mining
claims. The purchases were made or agreements entered into from 1986 onwards, at
a total cost of approximately $3,800,000.

The Company is continuing with its efforts to purchase additional
  mining claims and fee land that will secure its land position in the area.

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Significant Agreements

The following are the two significant agreements that will
require major cash payments in 2006.

The Company previously held an option to purchase all of the
issued and outstanding shares of a privately held California corporation, the
Karma Wegmann Corporation, on April 1, 1995. The Company exercised its rights
and made full payment of $875,000 under the option agreement and its amendments
on June 26, 2006. Karma Wegmann Corporation holds 6 patented mining claims, 6
unpatented mining claims and 1 patented millsite. The Company is required to pay
a royalty of 1% of gross smelter returns for a period of up to 60 years, not to
exceed $60,000,000, upon commencement of commercial production.

The Company concluded an agreement to purchase 29.18 acres of
land required for the Phase 1 heap leach pad on August 1, 1996. The agreement is
with Southwestern Refining Corporation. The purchase price was $950,000 of which
$100,000 was paid in cash and $850,000 was secured by a promissory note with a
term of 180 months. The note is payable in monthly instalments of $9,275.
Interest on the outstanding balance is charged at prime rate plus 2%. A balloon
payment of the principal amount owing, if any, and accrued but unpaid interest,
if any, is due on September 1, 2011. The principal amount owing, recorded as a
long-term debt plus current maturities in the financial statements, was $549,040
as at December 31, 2006. Subsequent to the year end, the Company elected to make
a balloon payment of $700,725 to retire the promissory note.

18

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Title Review

The Company commissioned a formal title review of the Property
by a firm familiar with title matters in California in 1996. This title review
was updated in February 1998 and again in March 1999. A further title review was
completed by an independent landman in 2004 and no particular title problems
were identified.

Quiet Title Judgment

The ownership history is typically complex in historic mining
districts and title problems will exist. The Company obtained a Quiet Title
Judgment on May 15, 1999 and this resolved a majority of the title questions.
The effect of the Judgment was to clear the title to the interests in the
patented claims listed in the action and to cure the title defects of record,
providing security of title and thus greatly enhancing the value of the
properties.

The Company has determined that any remaining title questions
would not present a threat to the Project.

Land Survey

A formal land survey of the Property has not been completed.

Public lands within the entire area of interest were segregated
from appropriation from 1991 onwards and the most recent segregation ended on
May 3, 2005. Records were noted on September 26, 2005.

The Company has confirmed that there are no gaps in its land
holdings in the project area.

Royalties

The Company is required to make advance, minimum royalty
payments under a number of property agreements. With one exception, the Company
will receive a credit for the advance minimum royalty payments on commencement
of commercial production. Most of the royalties are of the net smelter return
(NSR) type and are based on a sliding scale, with the percentage amount of the
royalty depending upon the grade found on the particular property to which the
royalty relates. Typically, the royalties are NSR-type royalties, with an
expected weighted average of 3.1% . The agreements also typically provide for an
additional royalty if non-mineral commodities, such as aggregates, are sold.

Property Interests Are Not In Good Standing

The Company ceased making property payments and advance,
minimum royalty payments in October 2005 after successfully concluding
moratorium agreements with a number of the landowners. The moratorium agreements
typically had a term of three years and these have now expired. After the
expiration of the moratorium agreements the Company reached an agreement with a
landowner and is making lease payments of $10,000 per year to this landowner.
The Company made advance, minimum royalty payments of $100,000 to a landowner,
Southwestern Refining Corporation, for 2004. The Company did not however make
the advance, minimum royalty payment of $100,000 to the landowner in 2005.
Subsequent to the year end, the Company reached an agreement with Southwestern
Refining Corporation on an amendment of the lease agreement for a further twenty
years and paid $100,000 for advance minimum royalties owed from 2005. No advance
minimum royalty payments are due for 2006 and 2007 under the amendment and the
minimum royalty payments will be assumed in April 2008.

The Company is technically in default of certain mineral
property agreements but is not currently in litigation with any landowner. The
Company will continue to work with its landowners in 2007. While the Company has
successfully reached agreement with its landowners in the past, there can be no
assurance that such agreements will continue into the future.

The future of the Project is dependant upon maintaining control
of the Property. Without land and mineral rights, the Company has no basis for
continuing with its activities. While each and every property has its own value
and unique purpose in the overall mine plan, the feasibility of the Project will
depend on the ability of the Company to maintain control of the Property as a
whole. A failure to keep property agreements in good standing may result in a
loss of control, which, if material to the Project, would prevent the Company
from development of the Project.

19

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|Item 3. Legal Proceedings
|-------------------------

To the best of our knowledge, there are no legal actions
pending, threatened or contemplated against us.

|Item 4. Submission of Matters to a Vote of Security
      Holders
|-----------------------------------------------------------------

No matters were submitted to a vote of the Companys
shareholders during the fourth quarter of 2006.

PART II

|Item 5. Market for Common Equity, Related
      Stockholder Matters and Small Business Issuer Purchases of
      **Equity Securities.**
|---------------------------------------------------------------------------------------------------------------------------------------

Market and Trading Price

The common shares of the Company are listed and traded on The
Toronto Stock Exchange under the trading symbol GQM. The high and low sales
prices of the common stock as traded on The Toronto Stock Exchange for the
calendar periods indicated are set out in the table below. All prices are
reported in Canadian dollars.

|Year ended December 31 | High           | Low  
|---------------------- | -------------- | -----
|2006                   | Fourth Quarter | $1.09
|                       | Third Quarter  | 0.89 
|                       | Second Quarter | 0.97 
|                       | First Quarter  | 0.95 
|2005                   | Fourth Quarter | $0.45
|                       | Third Quarter  | 0.42 
|                       | Second Quarter | 0.43 
|                       | First Quarter  | 0.44 

Exchange Rates

The following table sets forth, for the periods indicated,
certain exchange rates based on the noon buying rate in New York City for cable
transfers in Canadian dollars. Such rates are the number of Canadian dollars per
one (1) U.S. dollar and are the inverse of rates quoted by the Federal Reserve
Bank of New York for U.S. dollars per CDN$1.00. On March 27, 2007, the exchange
rate was US$1.00 per CDN$1.1584. The high and low exchange rates for each month
during the previous six months were as follows:

|               | High   | Low   
|-------------- | ------ | ------
|February 2007  | 1.1852 | 1.1586
|January 2007   | 1.1815 | 1.1699
|December 2006  | 1.1652 | 1.1415
|November 2006  | 1.1474 | 1.1275
|October 2006   | 1.1384 | 1.1154
|September 2006 | 1.1272 | 1.1052

The following table sets out the exchange rate information as
at each of the years ended December 31, 2006 and 2005.

|                           | Year Ended December 31
|-------------------------- | ----------------------
|                           |                       
|                           | 2006                  
|Rate at end of Period      | 1.1652                
|Average Rate during Period | 1.1340                
|Low                        | 1.1001                
|High                       | 1.1726                

20

---

As of March 31, 2007 there were 200 registered holders of
record of the Companys common shares and an undetermined number of beneficial
holders.

The common shares of the Company are also traded on the Pink
Sheets under the trading symbol GQMNF. The high and low sales prices of the
common stock as traded on the Pink Sheets for the calendar periods indicated are
set out in the table below. All prices are reported in U.S. dollars. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not necessarily represent actual
transactions. The Pink Sheets has a limited and sporadic trading market and does
not constitute an established trading market.

|Year ended December 31 | High           | Low   
|---------------------- | -------------- | ------
|2006                   | Fourth Quarter | $0.94 
|                       | Third Quarter  | 0.88  
|                       | Second Quarter | 0.92  
|                       | First Quarter  | 0.81  
|2005                   | Fourth Quarter | $0.385
|                       | Third Quarter  | 0.353 
|                       | Second Quarter | 0.355 
|                       | First Quarter  | 0.370 

Dividends

The Company has not declared dividends on its common shares
since inception.

Securities Authorized for Issuance Under Compensation Plans

The following table sets forth information as at December 31,
2006 respecting the compensation plans under which shares of the Companys
common stock are authorized to be issued.

Plan Category
    Number of securities to be issued
      upon exercise of outstanding options, warrants and rights (a)
    Weighted-average exercise price
      of outstanding options, warrants and rights (b)
    Number of securities remaining available
      for future issuance under equity compensation plans (excluding
      securities reflected in column (a)) (c)Equity compensation plans approved by security
      holders
    2,590,000
    C$0.59
    200,000Equity compensation plans not approved by security
      holders
    N/A
    N/A
    N/ATotal
    2,590,000
    --
    200,000


Sales of Unregistered Securities

During the fiscal year ended December 31, 2006, there were no
sales of unregistered securities by the Company.

Purchases of Equity Securities by the Company and Affiliated
Purchasers

Neither the Company nor an affiliate of the Company purchased
common shares of the Company in the year ending December 31, 2006, other than
through the exercise of options pursuant to the Companys 1996 Stock Option
Plan.

21

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|Item 6. Managements Discussion and Analysis And Plan of
      Operations
|-------------------------------------------------------------------------

The following discussion of the operating results and financial
position of Golden Queen Mining Co. Ltd. (the Company) is dated March 31, 2007
and should be read in conjunction with the audited consolidated financial
statements of the Company for the year ended December 31, 2006 and the notes
thereto.

The Companys financial statements have been prepared and
presented in accordance with U.S. GAAP since January 1, 2004. Previously the
Company had reported in Canada in accordance with Canadian GAAP and in the
United States in accordance with U.S. GAAP. The change to U.S. GAAP has not
resulted in any material differences in the presentation of the financial
statements of the Company for the year ended December 31, 2006. All amounts
herein are in U.S.$ unless otherwise noted.

The Soledad Mountain Project

The Company is proposing to develop a gold-silver, open pit,
heap leach operation on its Soledad Mountain property, located just outside the
town of Mojave in Kern County in southern California. Every element of the
Soledad Mountain Project (the Project) has been rethought and reengineered in
the past three years in an effort to find sound technical and cost-effective
solutions that would see the Project to proceed with a robust internal rate of
return or IRR. This phase of the technical work was completed toward the end of
2006.

Results of Operations

The Company had no revenue from operations and the Project
remained on hold in 2006 pending completion of an independent feasibility study
and the receipt of outstanding approvals and permits for the Project.

The Company initiated a detailed review of the Project in
mid-2002 to identify new approaches that would reduce both the capital cost to
the start of production and future operating costs to ensure a viable mining
operation at foreseeable gold and silver prices. The review has been supported
and complimented by a substantial amount of work done by independent engineers
and contractors. This phase of the technical work was completed toward the end
of 2006.

The Company incurred general and administrative expenses of
$4,119,828 for the year ended December 31, 2006, as compared to $1,018,343 for
the year ended December 31, 2005. These costs were higher in 2006 due to
non-cash charges of $814,810 (2005 - $48,592) for stock-based compensation and
$889,117 (2005 - $nil) of financing charges relating to the modification of
warrant terms. The write-off of mineral property acquisition cost in the amount
of $875,000 (2005 - $nil) was also charged to general and administrative costs.
In addition the Company accelerated spending required to complete the Report of
Waste Discharge, which was submitted to the Regional Water Quality Control Board
on March 8, 2007 and detailed studies done to support this submission.

The following list includes the more significant cash costs
that were incurred in 2006:

| | a. | The annual maintenance fee paid in lieu of assessment
      work for the unpatented mining claims and mill sites held by the Company
      was $19,950 for 2006/2007.                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Insurance premiums were $29,776 for 2006/2007 and this
      was only a marginal increase from the insurance premiums for
    2005/2006.                                                                                                                                                                
| | c. | Legal fees of $323,550 were incurred in 2006 and this was
      an increase of $251,677 from 2005. The Company attended five hearings with
      the California State Mining and Geology Board in 2006 in an effort to
      resolve a permitting issue and this involved substantial legal
    support.
| | d. | Approximately $1,064,048 (2005  $458,609) was charged by
      consulting engineers for further detailed technical work related to
      approvals and permits for the Project during the year.                                                                                                        
| | e. | A payment of $66,150 was made to the California State
      Water Resources Control Board for annual fees due but not paid for three
      periods 2003-2004, 2004-2005 and 2005-2006.                                                                                                                  
| | f. | The Company concluded the purchase of shares in a private
      California corporation, the Karma-Wegmann Corporation, to acquire six key
      patented and six unpatented mining claims, for $875,000 in June
    2006.                                                                               
| | g. | A meteorological station was constructed on site at a
      total cost of $105,899 in August 2006.                                                                                                                                                                                                      

22

---

| | h. | The interest expense of $62,255 (2005 - $50,069) was
      higher by $12,186. Interest costs were incurred on the balance owing on a
      promissory note. The monthly payment on the note is $9,275 and this
      includes interest charged at prime rate plus 2%.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest income of $188,581 (2005  $20,025) was higher by
$168,556 as there was more cash on deposit during the year. The Company raised a
total of approximately $7,627,000 net of a finders fee in 2006 as per the
detail provided under the heading Liquidity and Capital Resourcesbelow.

The following is a summary of operating results since work on
the Project was accelerated in 2002:

Year Ended Dec. 31, 2006
      Year Ended Dec. 31, 2005
      Year Ended Dec. 31, 2004
      Year Ended Dec. 31, 2003
      Year Ended Dec. 31, 2002
      Cumulative 
        From Inception$
      $
      $
      $
      $
      $General and administrative expenses Asset impairment
      loss Adjustment to asset retirement obligation Miscellaneous
      items Sub-total Interest expense Interest income
      Net loss
      -4,119,828 
        -875,000 -30,590
      -10,944 -5,036,362 -62,255 188,581
      -4,910,036
      -1,018,343 
        -682,687 262,265
      -7,515 -1,446,280 -50,069 20,025
      -1,476,324
      -1,163,069 
        -345,766 0 0
      -1,508,835 -294,677 31,262 -1,772,250
      -493,657 
        0 0 0
      -493,657 -250,904 45 -744,516
      -287,665 
        0 0 0
      -287,665 -60,192 254 -347,603
      -12,756,259 
        -30,451,635 231,675
      -159,083 -43,134,712 -913,098
      1,321,586 -42,726,224


The following list includes non-cash items that contributed to
the net loss in 2006:

| | a. | A finance charge of $889,117 relates to the accounting
      treatment of the warrant term modification;                                                                 
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | The Company recognized an $814,810 expense related to
      director stock-based compensation and                                                                        
| | c. | The Company recorded an asset impairment loss of $875,000
      on mineral properties as the independent feasibility for the Project had
      not as yet been completed.

The Company incurred a net loss of $4,910,036 (or $0.07 per
share) for the year ended December 31, 2006, as compared to a net loss of
$1,476,324 (or $0.02 per share) for the year ended December 31, 2005.

The results of operations can vary from year to year depending
upon the nature, timing and cost of activities undertaken during the year and
whether or not the Company incurs gains or losses on foreign exchange, grants
stock options or writes down the value of its property.

Summary Of Quarterly Results

Results for the eight most recent quarters are set out in the
table below.

Results for the quarter ending on:
      Dec. 31, 2006
      Sept. 30, 2006
      June 30, 2006
      March 31, 2006Item
      $
      $
      $
      $Revenue Net loss for the quarter Net loss per share
      Nil 
        3,081,401 0.04
      Nil 
        428,719 0.01
      Nil 
        1,292,137 0.02
      Nil 
        107,779 0.00Dec. 31, 2005
      Sept. 30, 2005
      June 30, 2005
      March 31, 2005Item
      $
      $
      $
      $Revenue Net loss for the quarter Net loss per share
      Nil 
        669,852 0.01
      Nil 
        207,580 0.01
      Nil 
        365,127 0.01
      Nil 
        233,765 0.00


23

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The results of operations can vary from quarter to quarter
depending upon the nature, timing and cost of activities undertaken during the
quarter.

Reclamation Financial Assurance And Asset Retirement
Obligations

The company provided reclamation financial assurance in the
form of an Irrevocable Standby Letter Of Credit backed by a Certificate Of
Deposit with Union Bank of California in the amount of $245,337 on November 21,
2006 and this is the current estimate for reclamation of historical disturbances
on the property. The reclamation financial assurance increased by $62,234 from
the amount of $183,103 provided in 2005.

The asset retirement obligation accrual is estimated at
$132,550 and this is shown as a liability on the consolidated balance sheet. The
actual obligation could differ materially from these estimates.

Long-term Debt

The Company purchased 29.18 acres real property from
Southwestern Refining Corporation in 1996. The purchase price was $950,000 of
which $100,000 was paid in cash and $850,000 was secured by a promissory note
with a term of 180 months. The note was payable in monthly instalments of
$9,275. Interest on the outstanding balance was charged at prime rate plus 2%. A
balloon payment of the principal amount owing, if any, and accrued but unpaid
interest, if any, was due on September 1, 2011. The principal amount owing has
been recorded as long-term on the balance sheet as per the detail provided in
the table below:

|                                                        |   | Dec. 31, 2006 |  |   | Dec. 31, 2005 | 
|------------------------------------------------------- | - | ------------- |  | - | ------------- | 
|Note payable to Southwestern Refining
      Corporation | $ | 700,725       |  | $ | 612,187       | 
|Current maturities                                      |   | 700,725       |  |   | 63,147        | 
|Long-term debt less current maturities                  |   | -             |  | $ | 549,040       | 

Subsequent to the year ended December 31, 2006, the Company
reached an agreement with Southwestern Refining Corporation to retire the
long-term debt with a final payment of $700,725 as per the detail provided under
the heading Subsequent Eventbelow. The long-term debt was
therefore reclassified as current maturity of long-term debt on the balance
sheet.

Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Transactions With Related Parties

Mr. H.L. Klingmann, the president of the Company, was paid
management fees of $111,116 and Mr. C. Shynkaryk, a director of the Company, was
paid $21,597 for consulting services during the year ended December 31,
2006.

In May 2006, Landon Clay, a significant shareholder of the
Company, converted a promissory note for $150,000 to shares at $0.23 per share
and received 652,174 shares. The promissory note, which was issued in July 2003,
was convertible into units at $0.23 per unit. Each unit consisted of one share
and one non-transferable share purchase warrant entitling the holder to purchase
one additional share at an exercise price of $0.32, exercisable for two years.
The promissory note bore interest of 6.5% per annum and this was waived on
conversion. The right to acquire 652,174 warrants had also expired and therefore
no warrants were issued. Mr. Clay was subsequently appointed a director of the
Company.

There were no other related party transactions during the year
ended December 31, 2006.

Fair Value of Financial Instruments

The carrying amount reported in the balance sheets for cash and
cash equivalents, receivables, accounts payable and accrued expenses
approximates fair value because of the immediate or short-term maturity of these
financial

24

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instruments. The fair value of the reclamation bond and the
long-term debt approximate carrying value because the stated interest rates
reflect recent market conditions or because the rates are variable in nature. It
is not practical to determine a fair value for the convertible notes.

Liquidity and Capital Resources

The Company held $5,513,580 (2005 - $749,825) in cash and cash
equivalents on December 31, 2006. The actual cash used to fund operating
activities was $2,149,652 in 2006 as compared to $904,980 in 2005.

The Company closed a private placement with one independent
investor for an aggregate of 7,200,000 units at C$0.50 per unit for gross
proceeds of approximately $3,100,000 (C$3,600,000) on January 31, 2006. The
Company paid a finders fee of 2.0 % or U.S.$62,888 (C$72,000).

Two shareholders exercised a total of 978,260 warrants at $0.32
per share for proceeds of $313,043 (C$352,174) in April 2006. The warrants were
issued when the two shareholders converted a promissory note to shares on June
30, 2004 with an expiry date of July 1, 2006.

Ten shareholders exercised a total of 8,000,000 warrants at
$0.60 per share for proceeds of approximately $4,346,130 (C$4,800,000) before
the warrant expiry date on June 1, 2006.

A director exercised a total of 100,000 options at C$0.35 per
share for proceeds of $30,853 in July 2006.

The following warrants are currently outstanding pursuant to
the most recent private placement:

|                                  | No. of Warrants | Exercise Price | Expiry Date  
|--------------------------------- | --------------- | -------------- | -------------
|Private placement of January 2006 | 7,200,000       | C$0.60/share   | Jan. 26, 2008

These outstanding warrants and directors stock options
represent an important, potential source of cash for the Company.

Management plans to control costs and it is not expected that
additional cash will be required (prior to securing production financing) beyond
cash currently on hand to complete the independent feasibility study for the
Project, for ongoing work on site and for general corporate purposes to the end
of 2007.

Continued losses from operations in the future, will require
that the Company raise additional funds by equity or debt financing, failing
which it will not be able to continue operations. Further, the Company will need
significant additional financing to develop the Project into an operating mine
once the feasibility study has been completed and a production decision has been
made and estimates that this could range as high as $60million in addition to
the working capital required.

The Company expects to finance construction and secure the
necessary working capital from additional sales of common stock, from bank or
other borrowings or, alternatively, through a joint venture. The Company does
not currently have commitments for the sale of common stock or for bank
financing and is not a party to any agreement or arrangement providing for a
joint venture. Whether and to what extent project financing can be secured, will
depend upon a number of factors, not the least of which are gold and silver
prices. Gold and silver prices fluctuate widely and are affected by numerous
factors beyond the control of the Company. This is discussed in more detail
under Plan of Operationsbelow.

The Company had Canadian and US deferred tax assets of
approximately $9,355,000 at December 31, 2006. The Company has provided a 100 %
valuation allowance for these deferred tax assets as management cannot determine
that it is more likely than not that the Company will receive the benefit of the
asset.

Some of the conditions noted above raise substantial doubt
about the ability of the Company to continue as a going concern and our auditors
provide further comments in their audit report on the Companys financial
statements. The ability of the Company to obtain financing for its ongoing
activities and thus maintain solvency beyond 2007, will depend upon gold and
silver prices and equity market conditions for junior resource companies, the
willingness of

25

---

other parties to lend the Company money or the ability to find
a joint venture partner. While the Company has successfully obtained financing
in the past, there can be no assurance that future efforts will be successful.

Outstanding Share Data

The number of shares issued and outstanding and the fully
diluted share position are set out in the table below.

Item
    No. of Shares
    Exercise Price
    Expiry DateShares issued and outstanding on Dec. 31, 2005 Shares
      issued on January 31, 2006 Shares issued on exercise of warrants
      Shares issued on conversion of note Shares issued on exercise of
      warrants Shares issued on conversion of stock options
    61,190,449 7,200,000 978,260
      652,174 8,000,000 100,000
    Not Applicable Not Applicable
      U.S.$0.32 U.S.$0.23 C$0.60 C$0.35 & C$0.50
    Not Applicable Not Applicable
      Not Applicable Not Applicable Not Applicable Not
      ApplicableShares issued and outstanding on Dec. 31, 2006
    78,120,883
    Not Applicable
    Not ApplicableShares issued on conversion of stock options Director
      and employee stock options Warrants issued pursuant to private
      placement Shares to be issued as a finders fee Bonus shares to be
      issued to H.L. Klingmann
    100,000 2,490,000 7,200,000
      100,000 300,000
    C$0.35 & C$0.50 C$0.35 to
      C$0.77 C$0.60 Not Applicable None
    Not Applicable 9/05/07 to 1/02/10
      26/01/08 Not Applicable NoneFully diluted on March 31, 2007
    88,310,880


The number of shares issued and outstanding was 78,120,883 on
December 31, 2006, 61,190,449 on December 31, 2005, 61,080,449 on December 31,
2004 and 51,902,189 on December 31, 2003. As at March 31, 2007 the company had
78,220,880 shares issued and outstanding.

The Companys authorized share capital is 100,000,000 common
shares with no par value.

Outlook

The Company
  engaged SRK Consulting (U.S.), Inc., Lakewood, Colorado in 2005 to prepare a
  National Instrument 43-101 Technical Report to validate and confirm the mineral
  resource estimates and this Technical Report was released on March 6, 2006.
  The mineral resources confirmed in the Technical Report are estimated at 43,692,000
  tons of mineral deposit with a grade of 0.027 oz/ton for gold and 0.43 oz/ton
  for silver in the Measured category. In the Indicated category, the mineral
  resources confirmed in the Technical Report are estimated at 55,851,000 tons
  of mineral deposit with a grade of 0.018 oz/ton for gold and 0.33 oz/ton for
  silver. The mineral resources confirmed in the Technical Report are also estimated
  at 35,280,000 tons of mineral deposit in the Inferred category with a grade
  of 0.015 oz/ton for gold and 0.32 oz/ton for silver.

The Company
  emphasizes both the uncertainty of whether the Measured and Indicated mineral
  resources will ever be converted into reserves and the uncertainty of whether
  the Inferred mineral resources will ever be upgraded into another category of
  resources.

The Company engaged Norwest Corporation, Vancouver in January
2007 to prepare a further National Instrument 43-101 Technical Report as part of
an independent feasibility study to assess the presence of mineral reserves
based upon the technical work that had been completed to the end of 2006. The
Technical Report is to be completed in April 2007.

The Company and its consulting engineers prepared and submitted
a revised Report of Waste Discharge to the Lahontan Regional Water Quality
Control Board on March 8, 2007. The revised Report of Waste Discharge was
prepared at the request of the Regional Board to document improvements in the
layout and design of the heap leach facility plus other changes proposed for the
Project. The Regional Board is currently assessing the Companys submission.

The Company and its consulting engineers prepared a
life-of-mine waste rock management plan in 2006 and this plan incorporates
backfilling of mined-out phases of the open pit. The waste rock management plan
plus other changes proposed for the Project will require a formal modification
of the Conditional Use Permits for the Project and this process will be
initiated once the Company submits a formal request to Kern County in the first
week of April 2007.

26

---

Note that all key submissions required for an amended set of
approvals and permits for the Project will have been made to the regulatory
authorities at that time.

The Company plans to put the Project into production as an open
pit heap leach operation and to construct facilities to process ore at a rate of
5.7million t (6.3million ton) per year for an initial life of mine of 7.1 years.

If a feasibility study is completed for the Project and a
production decision is made, the Company will need significant additional
financing to develop the Project into an operating mine and estimates that this
could range as high as $60million plus working capital. The Company believes
that financing for the Project can be secured if gold and silver prices remain
at or above $450.00/oz and $7.50/oz respectively. Gold and silver prices
averaged $604.43/oz and $11.57/oz in 2006 and prices have traded in a relatively
narrow range around $660.00/oz and $13.00/oz in March 2007 respectively.

It is not expected that the Company will hedge any of its gold
or silver production.

Aggregate

It is expected that an aggregate business can be developed on
the Property once the heap leach operation is in full production. The source of
raw materials would be the finely crushed and rinsed residue from the heap leach
operation and rock from the waste rock dumps. The waste rock can be classified
into a range of products such as riprap, crushed stone and gravel. Test work to
confirm the suitability of these materials for use as aggregate was done in 1998
and 1999. The Company has received an expression of interest from an aggregate
producer with experience in southern California markets and this is being
actively pursued.

Wind Power

A large number of wind turbines are located in an area between
Mojave and Bakersfield.

A company based in Mojave has investigated the feasibility of
using Soledad Mountain as a base for a commercial installation of wind turbines
and has had discussions with the Company. The company expects to place three
wind monitoring stations on and around Soledad Mountain in 2007 to obtain
information for a detailed feasibility study. Initial indications are that
Soledad Mountain would be a very good site and could accommodate 8 to 12 wind
turbines without interfering with the mining operation. The Company is now
actively pursuing this as a supplemental source of power for the Project
although it would still be necessary for the local utility to provide power
during periods when there is little or no wind.

Subsequent Event

Subsequent to the year ended December 31, 2006, the Company
reached an agreement with Southwestern Refining Corporation, a landowner, and
made a total payment of $700,725 to retire the long-term debt in full and final
settlement of the outstanding obligation.

Disclosure Controls And Procedures

The Companys management, with the participation of its Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Companys disclosure controls and procedures. Based upon the results of
that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of the period covered by this report,
the Companys disclosure controls and procedures were effective and provide
reasonable assurance that material information related to the Company and its
subsidiary is recorded, processed and reported in a timely manner.

Internal Controls Over Financial Reporting

The Companys management, with the participation of its Chief
Executive Officer and Chief Financial Officer, is responsible for the design of
internal controls over financial reporting. The fundamental issue is to ensure
all transactions are properly authorized and identified and entered into a
well-designed, robust and clearly understood system on a timely basis to
minimize risk of inaccuracy, failure to fairly reflect transactions, failure to
fairly record

27

---

transactions necessary to present financial statements in
accordance with generally accepted account principles, unauthorized receipts and
expenditures, or the inability to provide assurance that unauthorized
acquisitions or dispositions of assets can be detected. The small size of the
Company makes the identification and authorization process relatively simple and
efficient and a process for reviewing internal controls over financial reporting
has been developed. To the extent possible given the Companys small size, the
internal control procedures provide for separation of duties for handling,
approving and coding invoices, entering transactions into the accounts, writing
cheques and requests for wire transfers and also require two signatures on
significant payments. As of December 31, 2006 the Companys Chief Executive
Officer and Chief Financial Officer conclude that the Companys system of
internal controls is adequate and comparable to those of issuers of a similar
size and nature.

There were no significant changes in the Companys internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any significant
deficiencies or material weaknesses of internal controls that would require
corrective action.

Summary of Accounting Policies

The more significant accounting policies that are important to
the portrayal of our current financial conditions and results of operations
relate to mineral properties and exploration and development expenditures. Other
accounting policies are disclosed in the Consolidated Financial Statements.

Mineral Properties

Mineral properties includes the cost of advance minimum royalty
payments, the cost of capitalized property leases, payments in shares, and the
cost of property acquired either by cash payment or the issuance of term debt.
Expenditures for exploration on specific properties with no proven reserves are
written off as incurred. Mineral property costs will be amortized against future
revenues or charged to operations at the time the related property is determined
to have an impaired value.

Carrying Value Of Mineral Interests

The cost of acquiring mineral property interests is
capitalized. Capitalized acquisition costs are expensed in the period in which
it is determined that the mineral property has no future economic value.
Capitalized amounts may also be written down if future cash flows, including
potential sales proceeds related to the property are estimated to be less than
the carrying value of the property. The Company reviews the carrying value of
mineral property interests periodically, and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable,
reductions in the carrying value of each property would be recorded to the
extent the carrying value of the investment exceeds the propertys estimated
fair value.

Exploration And Development Expenditures

Exploration and development expenditures are expensed as
incurred. Once a mineral reserve has been established, all development costs
will be capitalized and charged to operations on a unit-of-production method
based on estimated recoverable reserves.

Valuation Of Long-lived Assets

Statement of Financial Accounting Standards ("SFAS") No. 144
requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the estimated undiscounted future cash flows
attributable to such assets. It requires that those long-lived assets to be
disposed of by sale are to be measured at the lower of carrying amount or fair
value less cost of sale whether reported in continuing operations or in
discontinued operations. In accordance with the provisions of SFAS No. 144,
management of the Company reviews the carrying value of its mineral properties
on a regular basis. Estimated undiscounted future cash flow from the mineral
properties is compared with the current carrying value in order to determine if
impairment exists. Reductions to the carrying value, if necessary, are recorded
to the extent the net book value of the property exceeds the estimate of future
discounted cash flow or liquidation value.

28

---

Asset Retirement Obligations

Effective January 1, 2003, the Company retroactively adopted
SFAS No. 143, Accounting for Asset Retirement Obligations. The Company records
the fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development,
and/or normal use of the assets. The obligation is measured initially at fair
value using present value methodology, and the resulting costs capitalized into
the carrying amount of the related asset. In subsequent periods, the liability
will be adjusted for any changes in the amount or timing of the underlying
future cash flows. Capitalized asset retirement costs are depreciated on the
same basis as the related asset and the discount accretion of the liability is
included in determining the results of operations.

Estimates

The preparation of financial statements in conformity with
generally accepted accounting principles 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 estimates have been made by management in several
areas including the recoverability of mineral properties. Actual results could
differ from those estimates.

Change In Accounting Policies

Stock Option Compensation

Beginning on January 1, 2006, the Company adopted the
recommendations of the Statements of Financial Accounting Standards No. 123R,
Accounting for Stock-based Compensation (SFAS 123R), and has applied the
recommendations of the standard using the modified prospective method. Under
this application, the Company is required to record compensation expense, based
on the fair value of the awards, for all awards granted after the date of the
adoption and for the unvested portion of previously granted awards that remain
outstanding as at the date of adoption.

SEC Staff Accounting Bulletin No. 108

On September 13, 2006, the Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 108 which provides interpretive
guidance on how the effects of the carryover or reversal of prior year
misstatements should be considered in quantifying a current year misstatement.
SAB 108 is effective for the fiscal year ending after November 15, 2006. The
implementation of SAB 108 did not have a significant impact upon the Companys
consolidated financial statements.

|Item 7. Financial Statements.
|-----------------------------

The Consolidated Financial Statements of the Company and the
notes thereto are attached to this report following the signature page and
Certifications.

|Item 8. Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure.
|---------------------------------------------------------------------------------------------------

None.

|Item 8A. Controls and Procedures
|--------------------------------

The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in its reports
filed pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
promulgated under such Act, and that such information is accumulated and
communicated to management, including its President and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.

29

---

In connection with this annual report, management carried out
an evaluation, under the supervision and with the participation of the President
and principal accounting officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon the foregoing, the President and principal
accounting officer concluded that the Companys disclosure controls and
procedures are effective in connection with the filing of this Annual Report on
Form 10-KSB as at December 31, 2006.

There were
  no changes in the Company’s internal control over financial reporting
  that occurred during the Company’s last fiscal quarter that has materially
  affected, or is reasonably likely to materially affect, the Company’s
  internal control over financial reporting.

|Item 8B. Other Information
|--------------------------

None.

PART III

Information
  with respect to Items 9 through 12 and Item 14 is set forth in the definitive
  Proxy Statement filed with the Securities and Exchange Commission on April 30,
  2007 and is incorporated herein by reference. Information regarding directors
  and executive officers is also set forth below.

**Item
  9. Directors, Executive Officers, Promoters and Control Persons; Compliance
  with Section 16(a) of the Exchange Act**

The names,
  ages, and business experience for at least the past five years and positions
  of the directors and executive officers of the Company as of July 11, 2007,
  are as follows. The Company’s board of directors consists of five directors.
  All directors serve until the next annual meeting of the Company’s stockholders
  or until their successors are elected and qualified. Executive officers of the
  Company are appointed by the board of directors.

|**Name**           | **Age** | **Position**             | **Position Held Since**              
|------------------ | ------- | ------------------------ | -------------------------------------
|Edward G. Thompson | 70      | Director                 | November 25, 1994                    
|H. Lutz Klingmann  | 67      | Director
      President | March 1, 2001
      November 29, 2002
|Chester Shynkaryk  | 62      | Director                 | November 21, 1985                    
|Gordon C. Gutrath  | 69      | Director                 | August 14, 1987                      
|Landon Clay        | 81      | Director                 | May 31, 2006                         

***Biographical
  Information Concerning Directors and Executive Officers***

**H. LUTZ KLINGMANN,
  Director, President**

Mr. Klingmann
  was appointed president of the Company on November 29, 2002. He also serves
  as a director of Minto Explorations, Ltd. and has served as such since its inception
  in 1993. Mr. Klingmann is a registered professional engineer in British Columbia.
  Mr. Klingmann has experience in the development and operation of mines in Africa,
  Canada and the United States. Some of his special interests have been feasibility
  studies for mining projects, financing of mining projects, drilling and blasting
  in open pit mines, maintenance of heavy equipment and training programs.

Mr. Klingmann
  focuses approximately 95% of his time on the activities of the Company.

**CHESTER SHYNKARYK,
  Director**

Mr. Shynkaryk
  served as the president of the Company from 1985 to 1995, and as Secretary from
  1996 to 2004. In addition, he serves as a director of Consolidated Global Minerals
  Ltd. and Global Uranium Corp.

Mr. Shynkaryk
  focuses approximately 10% of his time on the activities of the Company.

**GORDON C. GUTRATH,
  Director**

Mr. Gutrath’s
  principal occupation is president of Atled Exploration Management Ltd. Mr. Gutrath
  served as president of Queenstake Resources Ltd. from 1977 until 1985. Mr. Gutrath
  is a professional geologist and a registered professional engineer in British
  Columbia.

Mr. Gutrath
  focuses approximately 5% of his time on the activities of the Company.

30

---

**EDWARD G. THOMPSON,
  Director**

Mr. Thompson
  was elected Chairman of the Company effective January 29, 1997 and was appointed
  president and chief executive officer of the Company on February 28, 2000, and
  served as such until November 29, 2002.

Mr. Thompson’s
  principal occupation is president of E.G. Thompson Mining Consultants, Inc.
  He is chairman of Sparton Resources, Inc. and advisor to Consolidated Thompson-Lundmark
  Gold Mines Ltd. He also serves as a director of Chariot Resources Ltd., Aurogin
  Resources Ltd., Freewest Resources Canada Inc. and Western Troy Capital Resource,
  Inc.

Mr. Thompson
  has been a member of the Professional Engineers of Ontario since 1961.

Mr. Thompson
  focuses approximately 5% of his time on the activities of the Company.

**Landon Clay, Director**

Mr. Clay’s
  principal occupation is serving as the Chairman of the Clay Mathematics Institute
  (the world's first privately-funded mathematics institute). He also serves as
  Chairman of the Caribbean Conservation Corporation, and on various other boards
  including the Museum of Fine Arts, Boston and Cold Spring Harbor Laboratory.
  In 2006, Mr. Clay was elected a director of the Whitehead Institute in Cambridge,
  MA and has also served as a director of ADE Corp. since 1970.

Mr. Clay
  graduated with a Bachelor of Arts degree at Harvard College in 1949.

Mr. Clay
  focuses approximately 5% of his time on the activities of the Company.

|Item 13. Exhibits
|-----------------

(a) Exhibits

|Exhibit | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                     |  | Manner of Filing                                                                                                                                                             
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|No.     |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                              
|3.1     | Certificate of Incorporation,
        Articles of Incorporation, Memorandum, and all current amendments thereto
        of the registrant under the Company Act of British Columbia, as amended.                                                                                                                                                                                                                           |  | Incorporated
        by reference to Exhibit 3.1 to the Form 10- SB of the Company, filed with
        the SEC on November 21, 1996 and amendments thereto (the Form 10-SB)
|        |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                              
|10.1    | Lease dated October 20, 1994 between the
        Subsidiary and William J. Warner with respect to certain property within
        the project area.                                                                                                                                                                                                                                                                        |  | Incorporated by reference to
        Exhibit 10.5 to the Form 10- SB                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                              
|10.2    | Lease dated September 19,
        1994 between the Subsidiary and Western Centennials, Inc., with respect
        to certain property within the project area.                                                                                                                                                                                                                                                             |  | Incorporated
        by reference to Exhibit 10.6 to the Form 10- SB                                                                                                         
|        |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                              
|10.3    | Purchase agreement dated March 29, 1996
        between the Subsidiary and the Meehl Family Trust and others with respect
        to the acquisition by the Subsidiary of certain property within the project
        area.                                                                                                                                                                                                |  | Incorporated by reference to
        Exhibit 10.10 to the Form 10- SB                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                              
|10.4    | 1996 Stock option plan of
        the registrant, as amended.                                                                                                                                                                                                                                                                                                                                                              |  | Incorporated
        by reference to Exhibit 10.13 to the Form 10- SB                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                                                              
|10.5    | Amendment dated August 10, 2001 to Stock
        option purchase agreement dated April 1, 1995 between the Subsidiary and
        Grace W. Meehl, Madge W. Wolff, Stephen G. Wegmann, Michael L. Wegmann,
        John G. Hodgson, Virginia L. Sigl, Patrick L. Wolff and George P. Wolff
        with respect to the acquisition by the Subsidiary of an option to purchase
        all of the outstanding shares of KWC. |  | Incorporated by reference to
        Exhibit 10.7 to the Form 10- KSB of the Company, filed with the SEC on
        April 3, 2006 and amendments thereto (the Form 10-kSB) 

31

---

|10.6 | Guarantee Agreement dated
        August 10, 2001 between the Company and Grace W. Meehl, Madge W. Wolff,
        Stephen G. Wegmann, Michael L. Wegmann, John G. Hodgson, Virginia L. Sigl,
        Patrick L. Wolff and George P. Wolff with respect to the acquisition by
        the Subsidiary of an option to purchase all of the outstanding shares
        of KWC. |  | Incorporated
        by reference to Exhibit 10.8 to the Form 10- KSB                                                             
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                   
|21.1 | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                            |  | Incorporated by reference to
        Exhibit 24.0 to the Form 10- SB                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                   
|23.1 | Consent of BDO Dunwoody, LLP                                                                                                                                                                                                                                                                                                                                               |  | Incorporated
        by reference to Exhibit 23.1 to the Form 10-KSB of the Company, filed
        with the SEC on April 16, 2007.
|     |                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                   
|31.1 | Rule 13a-14(a)/15(d)-14(a)
        Certification                                                                                                                                                                                                                                                                                                                           |  | Filed
        herewith                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                            |  |                                                                                                                                   
|32.1 | Section
        1350 Certification                                                                                                                                                                                                                                                                                                                                         |  | Filed
        herewith                                                                                                            

32

---

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

GOLDEN QUEEN MINING CO. LTD.

|By: | /s/ H. Lutz Klingmann                       | 
|--- | ------------------------------------------- | 
|    | H. Lutz Klingmann                           | 
|    | President and Chief Executive
      Officer | 
|    |                                             | 
|    | Date: July
      11, 2007                   | 

In accordance with the Exchange Act, this report has been
signed by the following persons on behalf of the registrant and in the
capacities indicated on the dates indicated.

|Signature                   |  | Title                                           | Date               
|--------------------------- |  | ----------------------------------------------- | -------------------
|                            |  |                                                 |                    
|                            |  |                                                 |                    
|/s/ H. Lutz
      Klingmann |  | President, Chief Executive Officer and Director | July
      11, 2007
|H. Lutz Klingmann           |  |                                                 |                    
|                            |  |                                                 |                    
|                            |  |                                                 |                    
|/s/ Edward
      Thompson   |  | Chairman of the Board and Director              | July
      11, 2007
|Edward Thompson             |  |                                                 |                    
|                            |  |                                                 |                    
|                            |  |                                                 |                    
|/s/ Chester
      Shynkaryk |  | Secretary and Director                          | July
      11, 2007
|Chester Shynkaryk           |  |                                                 |                    
|                            |  |                                                 |                    
|                            |  |                                                 |                    
|/s/ Gordon Gutrath          |  | Director                                        | July
      11, 2007
|Gordon Gutrath              |  |                                                 |                    
|                            |  |                                                 |                    
|                            |  |                                                 |                    
|/s/ Landon Clay             |  | Director                                        | July
      11, 2007
|Landon Clay                 |  |                                                 |                    

33

---



Report of Independent Registered Public Accounting Firm

To the Shareholders ofGolden Queen Mining Co. Ltd. (an
exploration stage company) Vancouver, B.C.

We have audited the accompanying consolidated balance sheets of
Golden Queen Mining Co. Ltd. (an exploration stage company), as of December 31,
2006 and 2005, and the consolidated statements of loss, changes in shareholders
equity, (capital deficit) and cash flows for the years then ended. We have also
audited the statements of loss, changes in shareholders equity (capital
deficit), and cash flows for the period from inception (November 21, 1985)
through December 31, 2006, except that we did not audit these financial
statements for the period from inception (November 21, 1985) through May 31,
1996; those statements were audited by other auditors whose report dated July
12, 1996, expressed an unqualified opinion on those statements. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. Our opinion, insofar as it relates to the
amounts for the period from inception (November 21, 1985) through May 31, 1996,
is based solely on the report of the other auditors.

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

In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of Golden Queen Mining
Co. Ltd., as of December 31, 2006 and 2005, and the results of its operations
and its cash flows for the years then ended and for the period from inception
(November 21, 1985) through December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America.

The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company has had no revenues
since inception and has been unable to obtain the necessary financing to
complete current exploration activities or exit the exploration stage. Also, the
Company has a $43,414,325 deficit accumulated during the exploration stage as of
December 31, 2006. These conditions raise substantial doubt about the Companys
ability to continue as a going concern. Managements plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

Chartered Accountants Vancouver, CanadaMarch 12, 2007,
except as to Note 14 which is dated March 29, 2007

---

|GOLDEN QUEEN MINING CO. LTD.  
|------------------------------
|(an exploration stage company)
|Consolidated Balance Sheets   
|(U.S. dollars)                

|                                                              |   | December 31, |   |   | December 31, |  
|------------------------------------------------------------- | - | ------------ | - | - | ------------ | -
|                                                              |   | 2006         |   |   | 2005         |  
|Assets (Note 1)                                               |   |              |   |   |              |  
|                                                              |   |              |   |   |              |  
|Current assets:                                               |   |              |   |   |              |  
|Cash and cash equivalents                                     | $ | 5,513,580    |   | $ | 749,825      |  
|Receivables                                                   |   | 32,238       |   |   | 25,543       |  
|Prepaid expenses and other current
      assets               |   | 20,168       |   |   | 20,846       |  
|                                                              |   |              |   |   |              |  
|Total current assets                                          |   | 5,565,986    |   |   | 796,214      |  
|                                                              |   |              |   |   |              |  
|Property and equipment, net (Note 2)                          |   | 224,204      |   |   | 230,355      |  
|Reclamation bond (Note
      3)                               |   | 245,337      |   |   | 182,453      |  
|                                                              |   |              |   |   |              |  
|                                                              | $ | 6,035,527    |   | $ | 1,209,022    |  
|                                                              |   |              |   |   |              |  
|Liabilities and Shareholders Equity                          |   |              |   |   |              |  
|                                                              |   |              |   |   |              |  
|Current liabilities:                                          |   |              |   |   |              |  
|Accounts payable                                              | $ | 208,251      |   | $ | 68,717       |  
|Royalty and mining
      rights payable                       |   | 179,983      |   |   | 197,484      |  
|Accrued liabilities                                           |   | 50,000       |   |   | 72,161       |  
|Current maturities of
      long-term debt (Note 6 and 14)    |   | 700,725      |   |   | 63,147       |  
|Convertible notes (Note 7)                                    |   | -            |   |   | 150,000      |  
|                                                              |   |              |   |   |              |  
|Total current liabilities                                     |   | 1,138,959    |   |   | 551,509      |  
|                                                              |   |              |   |   |              |  
|Long-term debt, less current maturities (Note 6 and
      14) |   | -            |   |   | 549,040      |  
|Asset retirement obligations (Note 9)                         |   | 132,550      |   |   | 91,016       |  
|                                                              |   |              |   |   |              |  
|Total liabilities                                             |   | 1,271,509    |   |   | 1,191,565    |  
|                                                              |   |              |   |   |              |  
|Commitments and contingencies (Notes
      4 and 10)          |   |              |   |   |              |  
|                                                              |   |              |   |   |              |  
|Shareholders equity:                                         |   |              |   |   |              |  
|Preferred shares, no par, 3,000,000
      shares              |   |              |   |   |              |  
|authorized; no shares
      outstanding                       |   | -            |   |   | -            |  
|Common shares, no par, 100,000,000
      shares               |   |              |   |   |              |  
|authorized; 78,120,883
      (2005  61,190,449) shares       |   |              |   |   |              |  
|issued and outstanding (Note 8)                               |   | 44,341,226   |   |   | 37,886,484   |  
|Additional paid-in capital                                    |   | 3,837,117    |   |   | 572,374      |  
|Deficit accumulated during the exploration stage              |   | (43,414,325  | ) |   | (38,441,401  | )
|                                                              |   |              |   |   |              |  
|Total shareholders equity                                    |   | 4,764,018    |   |   | 17,457       |  
|                                                              |   |              |   |   |              |  
|                                                              | $ | 6,035,527    |   | $ | 1,209,022    |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

---

|GOLDEN QUEEN MINING CO. LTD.   
|-------------------------------
|(an exploration stage company) 
|Consolidated Statements of Loss
|(U.S. dollars)                 

|                                           |   |              |   |   |              |   |   | Cumulative        |  
|------------------------------------------ | - | ------------ | - | - | ------------ | - | - | ----------------- | -
|                                           |   |              |   |   |              |   |   | Amounts From      |  
|                                           |   |              |   |   |              |   |   | Date of Inception |  
|                                           |   |              |   |   |              |   |   | (November 21,     |  
|                                           |   | Year Ended   |   |   | Year Ended   |   |   | 1985) through     |  
|                                           |   | December 31, |   |   | December 31, |   |   | December 31,      |  
|                                           |   | 2006         |   |   | 2005         |   |   | 2006              |  
|                                           |   |              |   |   |              |   |   |                   |  
|General and administrative expense         | $ | (4,119,828   | ) | $ | (1,018,343   | ) | $ | (12,756,259       | )
|Asset impairment loss (Notes 3 and 4)      |   | (875,000     | ) |   | (682,687     | ) |   | (30,451,045       | )
|Adjustment to asset retirement obligation  |   |              |   |   |              |   |   |                   |  
|on changes in cash flow estimates (Note 9) |   | (30,590      | ) |   | 262,265      |   |   | 231,675           |  
|Accretion expense (Note 9)                 |   | (10,944      | ) |   | (7,515       | ) |   | (18,459           | )
|Gain on settlement of debt                 |   | -            |   |   | -            |   |   | 136,627           |  
|Abandoned mineral interests                |   | -            |   |   | -            |   |   | (277,251          | )
|                                           |   | (5,036,362   | ) |   | (1,446,280   | ) |   | (43,134,712       | )
|                                           |   |              |   |   |              |   |   |                   |  
|Interest expense                           |   | (62,255      | ) |   | (50,069      | ) |   | (913,098          | )
|Interest income                            |   | 188,581      |   |   | 20,025       |   |   | 1,321,586         |  
|Net loss                                   | $ | (4,910,036   | ) | $ | (1,476,324   | ) | $ | (42,726,224       | )
|                                           |   |              |   |   |              |   |   |                   |  
|Net loss per share  basic and diluted     | $ | (0.07        | ) | $ | (0.02        | ) |   |                   |  
|Weighted average common shares             |   |              |   |   |              |   |   |                   |  
|outstanding                                |   | 73,658,571   |   |   | 60,846,130   |   |   |                   |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(an exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(U.S. dollars)                                                                    

|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | ---------- |  | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   | Additional |  |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Paid-in    |  |   | During the        |   |   | Equity (Capital |  
|21,
      1985) through December 31, 2006 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Capital    |  |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|November 21, 1985                         |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,425,001  |  | $ | 141,313    |  | $ | -            |  | $ | -          |  | $ | -                 |   | $ | 141,313         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (15,032           | ) |   | (15,032         | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1986                     |  | 1,425,001  |  |   | 141,313    |  |   | -            |  |   | -          |  |   | (15,032           | ) |   | 126,281         |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 550,000    |  |   | 256,971    |  |   | -            |  |   | -          |  |   | -                 |   |   | 256,971         |  
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 25,000     |  |   | 13,742     |  |   | -            |  |   | -          |  |   | -                 |   |   | 13,742          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (58,907           | ) |   | (58,907         | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1987                     |  | 2,000,001  |  |   | 412,026    |  |   | -            |  |   | -          |  |   | (73,939           | ) |   | 338,087         |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,858,748  |  |   | 1,753,413  |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,753,413       |  
|Net income for the year                   |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | 38,739            |   |   | 38,739          |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1988                     |  | 3,858,749  |  |   | 2,165,439  |  |   | -            |  |   |            |  |   | (35,200           | ) |   | 2,130,239       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,328,750  |  |   | 1,814,133  |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,814,133       |  
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 100,000    |  |   | 227,819    |  |   | -            |  |   | -          |  |   | -                 |   |   | 227,819         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (202,160          | ) |   | (202,160        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1989                     |  | 5,287,499  |  |   | 4,207,391  |  |   | -            |  |   | -          |  |   | (237,360          | ) |   | 3,970,031       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 1,769,767  |  |   | 2,771,815  |  |   | -            |  |   | -          |  |   | -                 |   |   | 2,771,815       |  
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 8,875      |  |   | 14,855     |  |   | -            |  |   | -          |  |   | -                 |   |   | 14,855          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (115,966          | ) |   | (115,966        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1990                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (353,326          | ) |   | 6,640,735       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net income for the year                   |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | 28,706            |   |   | 28,706          |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1991                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (324,620          | ) |   | 6,669,441       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (157,931          | ) |   | (157,931        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1992                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (482,551          | ) |   | 6,511,510       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (285,391          | ) |   | (285,391        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1993                     |  | 7,066,141  |  |   | 6,994,061  |  |   | -            |  |   | -          |  |   | (767,942          | ) |   | 6,226,119       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 5,834,491  |  |   | 1,536,260  |  |   | -            |  |   | -          |  |   | -                 |   |   | 1,536,260       |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (18,160           | ) |   | (18,160         | )
|Issuance of common shares for mineral     |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|property                                  |  | 128,493    |  |   | 23,795     |  |   | -            |  |   | -          |  |   | -                 |   |   | 23,795          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (158,193          | ) |   | (158,193        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1994                     |  | 13,029,125 |  |   | 8,554,116  |  |   | -            |  |   | -          |  |   | (944,295          | ) |   | 7,609,821       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 648,900    |  |   | 182,866    |  |   | -            |  |   | -          |  |   | -                 |   |   | 182,866         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (219,576          | ) |   | (219,576        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1995                     |  | 13,678,025 |  |   | 8,736,982  |  |   | -            |  |   | -          |  |   | (1,163,871        | ) |   | 7,573,111       |  
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 2,349,160  |  |   | 2,023,268  |  |   | -            |  |   | -          |  |   | -                 |   |   | 2,023,268       |  
|Issuance of common shares for debt        |  | 506,215    |  |   | 662,282    |  |   | -            |  |   | -          |  |   | -                 |   |   | 662,282         |  
|Issuance of 5,500,000 special warrants    |  | -          |  |   | 9,453,437  |  |   | -            |  |   | -          |  |   | -                 |   |   | 9,453,437       |  
|Special warrants issuance costs           |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (100,726          | ) |   | (100,726        | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -          |  |   | (426,380          | ) |   | (426,380        | )
|                                          |  |            |  |   |            |  |   |              |  |   |            |  |   |                   |   |   |                 |  
|Balance, May 31, 1996                     |  | 16,533,400 |  | $ | 20,875,969 |  | $ | -            |  | $ | -          |  | $ | (1,690,977        | ) | $ | 19,184,992      |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(an exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(U.S. dollars)                                                                    

|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ | - | - | --------------- | - | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |   |   | Additional      |   |   | During the        |   |   | Equity (Capital |  
|21,
      1985) through December 31, 2006 |  | Shares     |  |   | Amount     |  |   | Subscription |   |   | Paid-in Capital |   |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, carried forward from previous    |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|page                                      |  | 16,533,400 |  | $ | 20,875,969 |  | $ | -            |   | $ | -               |   | $ | (1,690,977        | ) | $ | 19,184,992      |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 18,000     |  |   | 10,060     |  |   | -            |   |   | -               |   |   | -                 |   |   | 10,060          |  
|Issuance of common shares for special     |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|warrants                                  |  | 5,500,000  |  |   | -          |  |   | -            |   |   | -               |   |   | -                 |   |   | -               |  
|Special warrants issuance costs           |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (123,806          | ) |   | (123,806        | )
|Net loss for the period                   |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (348,948          | ) |   | (348,948        | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 1996                |  | 22,051,400 |  |   | 20,886,029 |  |   | -            |   |   | -               |   |   | (2,163,731        | ) |   | 18,722,298      |  
|Issuance of common shares for cash        |  | 157,000    |  |   | 157,050    |  |   | -            |   |   | -               |   |   | -                 |   |   | 157,050         |  
|Issuance of 3,500,000 special warrants    |  | -          |  |   | 5,287,315  |  |   | -            |   |   | -               |   |   | -                 |   |   | 5,287,315       |  
|Issuance of common shares for special     |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|warrants                                  |  | 3,500,000  |  |   | -          |  |   | -            |   |   | -               |   |   | -                 |   |   | -               |  
|Options to non-employee directors         |  | -          |  |   | -          |  |   | -            |   |   | 70,200          |   |   | -                 |   |   | 70,200          |  
|Special warrants issuance costs           |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (163,313          | ) |   | (163,313        | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (1,047,869        | ) |   | (1,047,869      | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 1997                |  | 25,708,400 |  |   | 26,330,394 |  |   | -            |   |   | 70,200          |   |   | (3,374,913        | ) |   | 23,025,681      |  
|Issuance of common shares upon            |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|exercise of warrants                      |  | 1,834,300  |  |   | 857,283    |  |   | -            |   |   | -               |   |   | -                 |   |   | 857,283         |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|conversion of debt                        |  | 2,017,941  |  |   | 1,000,000  |  |   | -            |   |   | -               |   |   | -                 |   |   | 1,000,000       |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (6,060            | ) |   | (6,060          | )
|Issuance of common shares for cash        |  | 5,236,000  |  |   | 2,439,753  |  |   | -            |   |   | -               |   |   | -                 |   |   | 2,439,753       |  
|Options and re-priced options to non-     |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|employee directors                        |  | -          |  |   | -          |  |   | -            |   |   | 107,444         |   |   | -                 |   |   | 107,444         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (971,595          | ) |   | (971,595        | )
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Balance, December 31, 1998                |  | 34,796,641 |  |   | 30,627,430 |  |   | -            |   |   | 177,644         |   |   | (4,352,568        | ) |   | 26,452,506      |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Issuance of 13,250,000 special warrants   |  | -          |  |   | 3,350,915  |  |   | -            |   |   | -               |   |   | -                 |   |   | 3,350,915       |  
|Special warrants issuance costs           |  | -          |  |   |            |  |   | -            |   |   | -               |   |   | (166,620          | ) |   | (166,620        | )
|Issuance of common shares for             |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|special warrants                          |  | 13,250,000 |  |   | -          |  |   | -            |   |   | -               |   |   | -                 |   |   | -               |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (564,657          | ) |   | (564,657        | )
|Balance, December 31, 1999                |  | 48,046,641 |  |   | 33,978,345 |  |   | -            |   |   | 177,644         |   |   | (5,083,845        | ) |   | 29,072,144      |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Cumulative effect of change in            |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|accounting for stock options              |  | -          |  |   | -          |  |   | -            |   |   | (177,644        | ) |   | -                 |   |   | (177,644        | )
|Stock subscription                        |  | -          |  |   | -          |  |   | 200,000      |   |   | -               |   |   | -                 |   |   | 200,000         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (28,708,276       | ) |   | (28,708,276     | )
|Balance, December 31, 2000                |  | 48,046,641 |  |   | 33,978,345 |  |   | 200,000      |   |   | -               |   |   | (33,792,121       | ) |   | 386,224         |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|                                          |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|conversion of debt                        |  | 406,250    |  |   | 65,000     |  |   | -            |   |   | -               |   |   | -                 |   |   | 65,000          |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |   |   |                 |   |   |                   |   |   |                 |  
|conversion of stock subscription          |  | 1,538,462  |  |   | 200,000    |  |   | (200,000     | ) |   | -               |   |   | -                 |   |   | -               |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (3,337            | ) |   | (3,337          | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |   |   | -               |   |   | (262,059          | ) |   | (262,059        | )
|Balance, December 31, 2001                |  | 49,991,353 |  | $ | 34,243,345 |  | $ | -            |   | $ | -               |   | $ | (34,057,517       | ) | $ | 185,828         |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements.

---

|GOLDEN QUEEN MINING CO. LTD.                                                      
|----------------------------------------------------------------------------------
|(an exploration stage company)                                                    
|Consolidated Statements of Changes in Shareholders
      Equity (Capital Deficit)
|(U.S. dollars)                                                                    

|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   | Deficit           |   |   | Total           |  
|----------------------------------------- |  | ---------- |  | - | ---------- |  | - | ------------ |  | - | --------------- |  | - | ----------------- | - | - | --------------- | -
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   | Accumulated       |   |   | Shareholders   |  
|From the Date of Inception (November      |  | Common     |  |   |            |  |   | Stock        |  |   | Additional      |  |   | During the        |   |   | Equity (Capital |  
|21,
      1985) through December 31, 2006 |  | Shares     |  |   | Amount     |  |   | Subscription |  |   | Paid-in Capital |  |   | Exploration Stage |   |   | Deficit)        |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Balance, carried forward from previous    |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|page                                      |  | 49,991,353 |  | $ | 34,243,345 |  | $ | -            |  | $ | -               |  | $ | (34,057,517       | ) | $ | 185,828         |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 290,000    |  |   | 37,234     |  |   | -            |  |   | -               |  |   | -                 |   |   | 37,234          |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of warrants                      |  | 1,520,836  |  |   | 243,334    |  |   | -            |  |   | -               |  |   | -                 |   |   | 243,334         |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 21,456          |  |   | -                 |   |   | 21,456          |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (4,216            | ) |   | (4,216          | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (347,603          | ) |   | (347,603        | )
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Balance, December 31, 2002                |  | 51,802,189 |  |   | 34,523,913 |  |   | -            |  |   | 21,456          |  |   | (34,409,336       | ) |   | 136,033         |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 100,000    |  |   | 24,379     |  |   | -            |  |   | -               |  |   | -                 |   |   | 24,379          |  
|Equity component of convertible notes     |  | -          |  |   | -          |  |   | -            |  |   | 375,000         |  |   | -                 |   |   | 375,000         |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 127,326         |  |   | -                 |   |   | 127,326         |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (744,516          | ) |   | (744,516        | )
|Balance, December 31, 2003                |  | 51,902,189 |  |   | 34,548,292 |  |   | -            |  |   | 523,782         |  |   | (35,153,852       | ) |   | (81,778         | )
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares for cash        |  | 8,000,000  |  |   | 3,036,282  |  |   | -            |  |   | -               |  |   | -                 |   |   | 3,036,282       |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|convertible notes                         |  | 978,260    |  |   | 225,000    |  |   | -            |  |   | -               |  |   | -                 |   |   | 225,000         |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 200,000    |  |   | 55,861     |  |   | -            |  |   | -               |  |   | -                 |   |   | 55,861          |  
|Share issuance costs                      |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (38,975           | ) |   | (38,975         | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (1,772,250        | ) |   | (1,772,250      | )
|Balance, December 31, 2004                |  | 61,080,449 |  |   | 37,865,435 |  |   | -            |  |   | 523,782         |  |   | (36,965,077       | ) |   | 1,424,140       |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options (Note 8)              |  | 110,000    |  |   | 21,049     |  |   | -            |  |   | -               |  |   | -                 |   |   | 21,049          |  
|Stock option compensation                 |  | -          |  |   | -          |  |   | -            |  |   | 48,592          |  |   | -                 |   |   | 48,592          |  
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (1,476,324        | ) |   | (1,476,324      | )
|Balance, December 31, 2005                |  | 61,190,449 |  |   | 37,886,484 |  |   | -            |  |   | 572,374         |  |   | (38,441,401       | ) |   | 17,457          |  
|                                          |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|private placement (Note 8)                |  | 7,200,000  |  |   | 1,614,716  |  |   | -            |  |   | 1,520,899       |  |   | -                 |   |   | 3,135,615       |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of options                       |  | 100,000    |  |   | 30,853     |  |   | -            |  |   | -               |  |   | -                 |   |   | 30,853          |  
|Issuance of common shares through         |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|exercise of warrants                      |  | 8,978,260  |  |   | 4,659,173  |  |   | -            |  |   | -               |  |   | -                 |   |   | 4,659,173       |  
|Issuance of common shares for             |  |            |  |   |            |  |   |              |  |   |                 |  |   |                   |   |   |                 |  
|convertible notes (Note 7 and
      8)    |  | 652,174    |  |   | 150,000    |  |   | -            |  |   | 39,917          |  |   | -                 |   |   | 189,917         |  
|Stock option compensation (Note 8)        |  | -          |  |   | -          |  |   | -            |  |   | 814,810         |  |   | -                 |   |   | 814,810         |  
|Modification of warrants (Note 8)         |  | -          |  |   | -          |  |   | -            |  |   | 889,117         |  |   | -                 |   |   | 889,117         |  
|Share issuance costs (Note 8)             |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (62,888           | ) |   | (62,888         | )
|Net loss for the year                     |  | -          |  |   | -          |  |   | -            |  |   | -               |  |   | (4,910,036        | ) |   | (4,910,036      | )
|Balance, December 31, 2006                |  | 78,120,883 |  | $ | 44,341,226 |  | $ | -            |  | $ | 3,837,117       |  | $ | (43,414,325       | ) | $ | 4,764,018       |  

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

---

|GOLDEN QUEEN MINING CO. LTD.         
|-------------------------------------
|(an exploration stage company)       
|Consolidated Statements of Cash Flows
|(U.S. dollars)                       

|                                   |   |              |   |   |              |   |   | Cumulative Amounts     |  
|---------------------------------- | - | ------------ | - | - | ------------ | - | - | ---------------------- | -
|                                   |   |              |   |   |              |   |   | From Date of Inception |  
|                                   |   | Year Ended   |   |   | Year Ended   |   |   | (November 21, 1985)    |  
|                                   |   | December 31, |   |   | December 31, |   |   | through December 31,   |  
|                                   |   | 2006         |   |   | 2005         |   |   | 2006                   |  
|Operating activities               |   |              |   |   |              |   |   |                        |  
|Net loss                           | $ | (4,910,036   | ) | $ | (1,476,324   | ) | $ | (42,726,224            | )
|Adjustments to reconcile net       |   |              |   |   |              |   |   |                        |  
|loss to cash used in operating     |   |              |   |   |              |   |   |                        |  
|activities:                        |   |              |   |   |              |   |   |                        |  
|Asset impairment loss              |   | 875,000      |   |   | 682,687      |   |   | 30,451,045             |  
|Abandoned mineral interests        |   | -            |   |   | -            |   |   | 277,251                |  
|Amortization and depreciation      |   | 6,151        |   |   | 19,927       |   |   | 443,513                |  
|Amortization of debt discount      |   | -            |   |   | -            |   |   | 375,000                |  
|Adjustment to asset retirement     |   |              |   |   |              |   |   |                        |  
|obligation based on changes in     |   |              |   |   |              |   |   |                        |  
|cash flow estimates                |   | 30,590       |   |   | (262,265     | ) |   | (231,675               | )
|Accretion expense                  |   | 10,944       |   |   | 7,515        |   |   | 18,459                 |  
|Gain on disposition of             |   |              |   |   |              |   |   |                        |  
|property and equipment             |   | -            |   |   | -            |   |   | (10,032                | )
|Stock option compensation          |   |              |   |   |              |   |   |                        |  
|(Note 9)                           |   | 814,810      |   |   | 48,592       |   |   | 1,012,184              |  
|Financing charges related to       |   |              |   |   |              |   |   |                        |  
|modification of warrants term      |   | 889,117      |   |   | -            |   |   | 889,117                |  
|Mineral property                   |   |              |   |   |              |   |   |                        |  
|expenditures                       |   | -            |   |   | -            |   |   | (22,395,449            | )
|Changes in assets and liabilities: |   |              |   |   |              |   |   |                        |  
|Receivables                        |   | (6,695       | ) |   | (5,211       | ) |   | (32,238                | )
|Prepaid expenses and other         |   |              |   |   |              |   |   |                        |  
|current assets                     |   | 678          |   |   | 2,969        |   |   | (107,078               | )
|Accounts payable and accrued       |   |              |   |   |              |   |   |                        |  
|liabilities                        |   | 157,290      |   |   | 52,130       |   |   | 298,168                |  
|Royalty and mining rights          |   |              |   |   |              |   |   |                        |  
|payable                            |   | (17,501      | ) |   | 25,000       |   |   | 179,983                |  
|                                   |   |              |   |   |              |   |   |                        |  
|Cash used in operating activities  |   | (2,149,652   | ) |   | (904,980     | ) |   | (31,557,976            | )
|                                   |   |              |   |   |              |   |   |                        |  
|Investing activities:              |   |              |   |   |              |   |   |                        |  
|Purchase of mineral properties     |   | (875,000     | ) |   | -            |   |   | (6,143,409             | )
|Deposits on mineral properties     |   | -            |   |   | -            |   |   | (1,017,551             | )
|Release (purchase) of              |   |              |   |   |              |   |   |                        |  
|reclamation bond                   |   | (62,884      | ) |   | 389,807      |   |   | (245,337               | )
|Purchase of property and           |   |              |   |   |              |   |   |                        |  
|equipment                          |   | -            |   |   | -            |   |   | (1,313,838             | )
|Proceeds from sale of property     |   |              |   |   |              |   |   |                        |  
|and equipment                      |   | -            |   |   | -            |   |   | 47,153                 |  
|                                   |   |              |   |   |              |   |   |                        |  
|Cash (used in) provided by         |   |              |   |   |              |   |   |                        |  
|investing activities               |   | (937,884     | ) |   | 389,807      |   |   | (8,672,982             | )

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

---

|GOLDEN QUEEN MINING CO. LTD.                     
|-------------------------------------------------
|(an exploration stage company)                   
|Consolidated Statements of Cash Flows (Continued)
|(U.S. dollars)                                   

|                                         |   |              |   |   |                   |   |   | Cumulative Amounts     |  
|---------------------------------------- | - | ------------ | - | - | ----------------- | - | - | ---------------------- | -
|                                         |   |              |   |   |                   |   |   | From Date of Inception |  
|                                         |   | Year Ended   |   |   |                   |   |   | (November 21, 1985)    |  
|                                         |   | December 31, |   |   | Year Ended        |   |   | through December 31,   |  
|                                         |   | 2006         |   |   | December 31, 2005 |   |   | 2006                   |  
|                                         |   |              |   |   |                   |   |   |                        |  
|Financing activities:                    |   |              |   |   |                   |   |   |                        |  
|Borrowing under long-term debt           |   | 151,685      |   |   | -                 |   |   | 3,918,187              |  
|Payment of long-term debt                |   | (63,147      | ) |   | (106,407          | ) |   | (1,405,180             | )
|Proceeds from convertible debt           |   | -            |   |   | -                 |   |   | 440,000                |  
|Issuance of common shares for
      cash |   | 3,135,615    |   |   | 21,049            |   |   | 19,840,656             |  
|Share issuance costs                     |   | (62,888      | ) |   | -                 |   |   | (688,101               | )
|Issuance of special warrants             |   | -            |   |   | -                 |   |   | 18,091,667             |  
|Issuance of common shares upon           |   |              |   |   |                   |   |   |                        |  
|exercise of stock options                |   | 30,853       |   |   | -                 |   |   | 30,853                 |  
|Issuance of common shares upon           |   |              |   |   |                   |   |   |                        |  
|exercise of warrants                     |   | 4,659,173    |   |   | -                 |   |   | 5,516,456              |  
|                                         |   |              |   |   |                   |   |   |                        |  
|Cash provided by (used in) financing     |   |              |   |   |                   |   |   |                        |  
|activities                               |   | 7,851,291    |   |   | (85,358           | ) |   | 45,744,538             |  
|                                         |   |              |   |   |                   |   |   |                        |  
|Net change in cash and cash              |   |              |   |   |                   |   |   |                        |  
|equivalents                              |   | 4,763,755    |   |   | (600,531          | ) |   | 5,513,580              |  
|                                         |   |              |   |   |                   |   |   |                        |  
|Cash and cash equivalents,               |   |              |   |   |                   |   |   |                        |  
|beginning balance                        |   | 749,825      |   |   | 1,350,356         |   |   | -                      |  
|                                         |   |              |   |   |                   |   |   |                        |  
|Cash and cash equivalents,               |   |              |   |   |                   |   |   |                        |  
|ending balance                           | $ | 5,513,580    |   | $ | 749,825           |   | $ | 5,513,580              |  

Supplemental Cash Flows Information (See Note 12)

See Accompanying Summary of Accounting Policies and Notes to
Consolidated Financial Statements

---

|GOLDEN QUEEN MINING CO. LTD.  
|------------------------------
|(an exploration stage company)
|Summary of Accounting Policies
|(U.S. dollars)                

Nature of Business. Golden Queen Mining Co. Ltd.
(Golden Queen or the Company) is engaged in acquiring and maintaining gold
mining properties for exploration, future development and production. The
Company was formed on November 21, 1985. Since its inception, the Company has
been in the exploration stage. Planned activities involve bringing to production
a precious metals mine located in the Mojave Mining District, Kern County,
California.

Principles of Consolidation.These
consolidated financial statements include the accounts of Golden Queen, a
British Columbia corporation, and its wholly-owned subsidiary, Golden Queen
Mining Company, Inc. (the Subsidiary), a United States (State of California)
corporation and Karma Wegmann Corporation (See Note 4). The underlying value of
the Companys mineral properties is dependent on the existence and economic
recovery of mineral reserves, confirmation of the Companys interest in the
underlying mineral claims, the ability to obtain necessary financing to complete
the development, and future profitable production or proceeds from the
disposition thereof.

Generally Accepted Accounting Principles. The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
Differences from Canadian generally accepted accounting principles are disclosed
in Note 13.

Cash and Cash Equivalents. For purposes of
balance sheet classification and the statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.

Property and Equipment. Property and
equipment are stated at the lower of cost or net realizable value less
accumulated depreciation. Depreciation is provided by the straight-line method
over the estimated service lives of the respective assets, which range from 5 to
30 years, as follows:

| | Buildings              | 20 years    
| | ---------------------- | ------------
| | Furniture and Fixtures | 5 years     
| | Equipment              | 5 years     
| | Automobiles            | 3 to 5 years
| | Rental Properties      | 30 years    

Mineral Properties. Mineral properties
includes the cost of advance minimum royalty payments, the cost of capitalized
property leases, and the cost of property acquired either by cash payment, the
issuance of term debt or common shares. Expenditures for exploration on specific
properties with no proven reserves are written off as incurred. Mineral property
costs will be amortized against future revenues or charged to operations at the
time the related property is determined to have an impairment in value.

Carrying Value of Mineral Interests.The
cost of acquiring mineral property interests is capitalized. Capitalized
acquisition costs are expensed in the period in which it is determined that the
mineral property has no future economic value. Capitalized amounts may also be
written down if future cash flows, including potential sales proceeds related to
the property are estimated to be less than the carrying value of the property.
The Company reviews the carrying value of mineral property interests
periodically, and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable, reductions in the carrying value of each
property would be recorded to the extent the carrying value of the investment
exceeds the propertys estimated fair value (Note 3).

Exploration and Development Expenditures.
Exploration and development expenditures are expensed as incurred. Once a
mineral reserve has been established, all future development costs will be
capitalized and charged to operations on a unit-of-production method based on
estimated recoverable reserves.

---

|GOLDEN QUEEN MINING CO. LTD   
|------------------------------
|(an exploration stage company)
|Summary of Accounting Policies
|(U.S. dollars)                

Valuation of Long-lived Assets. Statement of
Financial Accounting Standards ("SFAS") No. 144 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the estimated undiscounted future cash flows attributable to such
assets. It requires that those long-lived assets to be disposed of by sale are
to be measured at the lower of carrying amount or fair value less cost of sale
whether reported in continuing operations or in discontinued operations. In
accordance with the provisions of SFAS No. 144, management of the Company
reviews the carrying value of its mineral properties on a regular basis.
Estimated undiscounted future cash flow from the mineral properties is compared
with the current carrying value in order to determine if an impairment exists.
Reductions to the carrying value, if necessary, are recorded to the extent the
net book value of the property exceeds the estimate of future discounted cash
flow or liquidation value.

Foreign Currency Translation.Golden Queen
has adopted the United States dollar as its reporting currency for its financial
statements prepared after May 21, 1996 as the United States dollar is the
currency of the primary economic environment in which Golden Queen and the
Subsidiary conduct business and is considered the appropriate functional
currency for the Companys operations. Balances held in Canadian dollars are
re-measured into the functional currency in accordance with SFAS No. 52,
Foreign Currency Translation, (SFAS 52). Assets and liabilities in foreign
currencies are generally translated into U.S. dollars at the rates ruling at the
balance sheet date. Revenues and expenses are translated at average rates for
the year. Where amounts denominated in a foreign currency are converted into
dollars by remittance or repayment, the realized exchange differences are
included in other income. The exchange rates prevailing at December 31, 2006 and
December 31, 2005 were $1.166 stated in Canadian dollars per one U.S. dollar.
The average rates of exchange during the years ended December 31, 2006 and
December 31, 2005 were $1.13 and $1.21 respectively.

Net Loss Per Share.The Company computes
and discloses earnings and loss per share in accordance with SFAS No. 128,
Earnings per Share (SFAS 128), which requires dual presentation of basic
earnings per share and diluted earnings per share on the face of all income
statements presented for all entities with complex capital structures. Basic
earnings per share is computed as net income (loss) divided by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and convertible debt. Since the
Companys convertible debt, stock options and warrants are antidilutive for all
periods presented, there is no difference between basic and diluted earnings per
share is presented. A total of 9,790,000 and 9,692,175 common shares were
issuable pursuant to such stock options, warrants, and convertible debt at
December 31, 2006 and 2005, respectively.

Asset Retirement Obligations. The Company
follows the requirements of SFAS No. 143, Accounting for Asset Retirement
Obligations The Company records the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets that result from
the acquisition, construction, development, and/or normal use of the assets. The
obligation is measured initially at fair value using present value methodology,
and the resulting costs capitalized into the carrying amount of the related
asset. In subsequent periods, the liability will be adjusted for any changes in
the amount or timing of the underlying future cash flows. Capitalized asset
retirement costs are depreciated on the same basis as the related asset and the
discount accretion of the liability is included in determining the results of
operations.

Estimates.The preparation of financial
statements in conformity with generally accepted accounting principles 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 estimates have been made by
management in several areas including the recoverability of mineral properties,
reclamation reserves and valuation of stock options. Actual results could differ
from those estimates.

Fair Value of Financial Instruments. The
carrying amount reported in the balance sheets for cash and cash equivalents,
receivables, accounts payable and accrued expenses approximates fair value
because of the immediate or short-term maturity of these financial instruments.
The fair value of the reclamation bond and the long-term debt approximate
carrying value because the stated interest rates reflect recent market
conditions or because the rates are variable in nature. The fair value of the
convertible notes was not practical to determine.

---

|GOLDEN QUEEN MINING CO. LTD   
|------------------------------
|(an exploration stage company)
|Summary of Accounting Policies
|(U.S. dollars)                

Change in Accounting Policies - Stock Option
Compensation

Beginning January 1, 2006, the Company adopted the
recommendations of the Statements of Financial Accounting Standards No. 123R,
Accounting for Stock-based Compensation (SFAS 123R), and has applied the
recommendations of this standard using the modified prospective method. Under
this application, the Company is required to record compensation expense, based
on the fair value of the awards, for all awards granted after the date of the
adoption and for the unvested portion of previously granted awards that remain
outstanding as at the date of adoption.

The adoption of SFAS No.123R had a significant impact on the
Consolidated Statement of Loss, although it had no material impact on the
Companys overall financial position. During the fiscal year ended December 31,
2006, the Company recognized $814,810 expense related to stock-based
compensation.

Prior to the adoption of SFAS No.123R, the Company accounted
for stock-based compensation plans under the intrinsic value method of
accounting as defined by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and applied the disclosure provisions
of Statement No. 123 Accounting for Stock-based Compensation

Under APB No.25, compensation expense is only recorded to the
extent that the exercise price is less than the market value of the underlying
stock on the measurement date, which is usually the date of grant. Any
stock-based compensation for employees was recognized on a straight-line basis
over the vesting period of the individual options.

For the year ended December 31, 2005, the Company recorded
$48,592 as stock-based compensation expense on the excess options granted to
directors. The Company did not record other compensation expense on the granting
of stock options to employees or directors prior to January 1, 2006 as none of
the options granted to employees during that time had an exercise price less
than the market value of the underlying common stock on the grant date. In
accordance with SFAS No. 148,  Accounting for Stock-Based Compensation 
Transition and disclosurethe following table illustrates the effect on net
loss and net loss per share as if the Company had applied fair value provisions
of SFAS 123 on all options prior to January 1, 2006:

| |                                                         |   | For the year ended |  
| | ------------------------------------------------------- | - | ------------------ | -
| |                                                         |   | December 31, 2005  |  
| |                                                         |   |                    |  
| | Net loss, as reported                                   | $ | (1,476,324         | )
| | Deduct: Total stock-based employee compensation expense |   |                    |  
| | determined under fair-value
      based method          |   | (242,958           | )
| |                                                         |   |                    |  
| | Pro-forma net loss                                      | $ | (1,719,282         | )
| | Loss per share:                                         |   |                    |  
| | Basic and diluted  as reported                         | $ | (0.02              | )
| | Basic and diluted  pro-forma                           | $ | (0.03              | )

The fair value of the share purchase options of 1,200,000
granted during 2005 was determined using the Black-Scholes option pricing with
the following weighted average assumptions:

| | Risk-free interest rate | 3.95%  
| | ----------------------- | -------
| | Expected volatility     | 130%   
| | Expected life of option | 5 years
| | Dividend yield          | 0%     

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

Stock Option PlanUnder the amended 1996 stock
option plan, the Company may grant options to purchase up to 3,300,000 shares of
common stock to officers, directors and employees. The exercise price for all
stock options is the closing price of the Companys common shares in Canadian
dollars as traded on the Toronto Stock Exchange on the date of grant. Options
issued to directors vest immediately. For all other options, the right to
exercise vests over a two year period in equal increments on the date of grant
and on each of the first two anniversaries of such date. All stock options
granted and outstanding as at December 31, 2006 expire at a date determined by
the Companys Board of Directors, not exceeding five years from the date of
grant, or after 39 months from the date of grant if not specified.

New Accounting Pronouncements SFAS 159  On
February 15, 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 (SFAS 159). SFAS 159 creates a fair value option allowing an
entity to irrevocably elect fair value as the initial and subsequent measurement
attribute for certain financial assets and financial liabilities, with changes
in fair value recognized in earnings as they occur. SFAS 159 also requires an
entity to report those financial assets and financial liabilities measured at
fair value in a manner that separates those reported fair values from the
carrying amounts of assets and liabilities measured using another measurement
attribute on the face of the statement of financial position. Lastly, SFAS 159
requires an entity to provide information that would allow users to understand
the effect on earnings of changes in the fair value on those instruments
selected for the fair value election. SFAS159 is effective for fiscal years
beginning after November 15, 2007, with early adoption permitted. The Company is
currently evaluating the impact SFAS 159 will have on the Companys consolidated
balance sheets and statements of loss.

In February 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments  an Amendment of FASB Statements No. 133 and 140. Among other
things, the SFAS No. 155 permits the election of fair value measurement for
certain hybrid financial instruments that would otherwise require bifurcation
under Statement 133, Accounting for Derivative Instruments and Hedging
Activities These hybrid financial instruments would include both assets and
liabilities. SFAS No. 155 is effective for fiscal years beginning after
September 15, 2006. The Company is currently evaluating the impact of the
provisions of SFAS No. 155.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. The provisions of SFAS 157
are effective for fiscal years beginning after November 15, 2007. The Company is
currently evaluating the impact of the provisions of SFAS 157.

In June 2006, FASB issued interpretation No. 48, 
Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement No. 109 (FAS No. 109) (Fin 48). This interpretation prescribes
a recognition threshold and measurement attribute for tax positions taken or
expected to be taken in a tax return. This interpretation also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The evaluation of a tax position in
accordance with this interpretation is a two-step process. In the first step,
recognition, the Company determines whether it is more-likely-than-not that a
tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. The second step addresses measurement of a tax position that meets the
more-likely-than-not criteria. The tax position is measured at the largest
amount of benefit that is greater than 50 percent likely of being realized upon
ultimate settlement. Differences between tax positions taken in a tax return and
amounts recognized in the financial statements will generally result in a) an
increase in a liability for income taxes payable or a reduction of an income tax
refund receivable b) a reduction in a deferred tax asset or an increase in a
deferred tax liability or c) both a and b. Tax positions that previously failed
to meet the more-likely-than-not recognition threshold should be recognized in
the first subsequent financial reporting period in which that threshold is no
longer met. Use of a valuation allowance as described in FAS No. 109 is not an
appropriate substitute for the de-recognition of a tax position. The requirement
to assess the need for a valuation allowance for deferred tax assets based on
sufficiency of future taxable income is unchanged by this interpretation. This
Interpretation is effective for fiscal years beginning after December 15,
2006.

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

The Company is currently evaluating the impact FIN 48 will have
on the Companys consolidated balance sheet and statement of operations.

On September 13, 2006, the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin (SAB) No. 108 which provides
interpretive guidance on how the effects of the carryover or reversal of prior
year misstatements should be considered in quantifying a current year
misstatement. SAB 108 is effective for fiscal year ending after November 15,
2006. The implementation of SAB 108 did not have a significant impact upon the
Companys consolidated financial statements.

1. Financial Condition and Ability to Continue as a
Going-Concern

The Company has had no revenues from operations since
inception, and has a deficit of $43,414,325 accumulated during the exploration
stage.

The Company is continuing with negotiations to secure the
necessary financing to complete current development activities to exit the
exploration stage. Management plans to control current costs and does not
anticipate requiring additional financing to fund Company activities over the
next 12 months. In addition, management plans to secure equity and/or debt or
joint venture financing to fund construction of the operating facility on its
Soledad Mountain Property (the Property) in the Mojave Mining District, Kern
County, California once the feasibility study has been completed and a
production decision has been made.

The ability of the Company to obtain financing for its ongoing
activities beyond the end of 2007 and thus maintain solvency or to fund
construction of the operating facility on the Property, is dependent on equity
market conditions, the market for precious metals, the willingness of other
parties to lend the Company money or the ability to find a joint venture
partner. While the Company has been successful at certain of these efforts in
the past, there can be no assurance that current efforts will be successful.
This raises substantial doubt about the Companys ability to continue as a
going-concern.

These financial statements do not reflect the outcome of these
uncertainties.

2. Property and Equipment

Property and equipment consists of:

|                              |   | December 31, 2006 |   |   | December 31, 2005 |  
|----------------------------- | - | ----------------- | - | - | ----------------- | -
|Buildings                     | $ | 26,360            |   | $ | 26,360            |  
|Furniture and fixtures        |   | 56,090            |   |   | 56,090            |  
|Automobiles                   |   | 21,401            |   |   | 21,401            |  
|Rental properties             |   | 313,635           |   |   | 313,635           |  
|Property and equipment, cost  |   | 417,486           |   |   | 417,486           |  
|Less accumulated depreciation |   | (193,282          | ) |   | (187,131          | )
|Property and equipment, net   | $ | 224,204           |   | $ | 230,355           |  

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

3. Mineral Properties

The Company formerly capitalized amounts which were paid to
acquire property rights and for professional services rendered in the
exploration, drilling, sampling, engineering and other related technical,
managerial and professional services toward the evaluation and development of
its mineral properties (Property). The Companys investment in mineral
properties consisted of the following:

|                                         |   | December 31, 2006 |   |   | December 31, 2005 |  
|---------------------------------------- | - | ----------------- | - | - | ----------------- | -
|Exploration and development expenditures | $ | 21,015,506        |   | $ | 21,015,506        |  
|Properties                               |   | 4,988,738         |   |   | 4,113,738         |  
|Advance minimum royalty                  |   | 2,387,574         |   |   | 2,387,574         |  
|Asset retirement obligations             |   | 345,766           |   |   | 345,766           |  
|Asset impairment loss                    |   | (28,737,584       | ) |   | (27,862,584       | )
|Total                                    | $ | -                 |   | $ | -                 |  

In 2006 the Company recorded $875,000 (2005  $682,687) as
asset impairment loss on mineral properties as the Company has not completed the
feasibility study and thus is uncertain about the economic prospect of the
property.

As at December 31, 2006, the Company had provided reclamation
financial assurance to Kern County totaling $245,337 (2005 - $182,453). This
deposit earns interest at 0.4% per annum and is not available for working
capital purposes.

4. Other Assets

On April 1, 1995, the Company acquired, through the Subsidiary,
an option to purchase all of the issued and outstanding shares of a privately
held California corporation holding an interest in a previously uncontracted
tract of land, which expanded the size of the Property. The option called for an
initial non-refundable payment of $100,000 in exchange for access to the
property to evaluate the presence of mineral reserves for a period of nine
months. At the end of the nine-month period, the Company chose to exercise its
option to purchase the shares of the corporation by making the initial purchase
payment of $250,000. This was followed by a second payment of $500,000 on July
1, 1997. An additional $750,000 was due upon reaching sustained production or
July 1, 1999, whichever came first. In June 1999, the Subsidiary and the private
corporation amended the original agreement to allow for a one-year extension in
exchange for $75,000, which was paid by the Subsidiary on June 30, 1999. The
Company extended the amended agreement to July 2001 with another extension
payment on July 7, 2000 of $75,000. These extension payments do not apply to the
overall purchase price.

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

4. Other Assets - Continued

The Company anticipated its inability to make the extension
payment scheduled for July 1, 2001, and on August 10, 2001, signed a second
amendment to the original stock purchase agreement. This amendment suspends all
terms and obligations of the Company as set forth in the original agreement and
the first amendment. Further, the amendment requires the Company to recognize a
liability of $35,000, on or before July 1, 2001, and on each successive
anniversary date for up to five years. To extend the termination date of the
agreement, $10,000 of the liability is to be paid in cash, and the balance of
$25,000 is to be accrued, without interest, payment of which is deferred until
the final stock purchase payment is made. Each July, beginning in 2001, the
Company has made the required cash payments of $10,000, accrued the liability
balances of $25,000, and extended the termination date of the agreement by one
year, each year, with the termination date of the agreement on July 1, 2006.

The Company concluded the purchase of shares for an amount of
$875,000 before the due date of July 1, 2006. The properties owned by Karma
Wegmann Corporation were transferred to Golden Queen Mining Co., Inc. and
management determined to write down the amount of $875,000 as the Company is in
the process of winding up Karma Wegmann Corporation.

The Company is required to pay a royalty of 1% of gross smelter
returns for a period of up to 60 years, not to exceed $60,000,000, upon
commencement of commercial production from the Property. As of December 31,
2006, the Company has not incurred any royalty as the property has not been in
production.

5.Income Taxes

The tax effects of the temporary differences that give rise to
the Company's deferred tax assets and liabilities are as follows:

| |                                                         |   | 2006       |   |   | 2005       |  
| | ------------------------------------------------------- | - | ---------- | - | - | ---------- | -
| |                                                         |   |            |   |   |            |  
| | Net operating and capital losses                        | $ | 8,512,500  |   | $ | 7,722,900  |  
| | Property, plant and equipment                           |   | 250,900    |   |   | 261,800    |  
| | Mineral properties and deferred exploration
      costs |   | 523,100    |   |   | 705,100    |  
| | Asset retirement obligations                            |   | 45,000     |   |   | 30,900     |  
| | Undeducted financing costs                              |   | 23,500     |   |   | 8,600      |  
| | Valuation allowance                                     |   | (9,355,000 | ) |   | (8,729,300 | )
| |                                                         |   |            |   |   |            |  
| | Deferred tax assets (liabilities)                       | $ | -          |   | $ | -          |  

The tax benefit of net operating losses carried forward and the
associated valuation allowance were reduced by $189,500 (2005 - $110,500),
representing the tax effect of losses which expired in the year.

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

5. Income Taxes - Continued

The provision for income taxes differs from the amount
established using the statutory income tax rate as follows:

| |                                                       |   | 2006       |   |   | 2005     |  
| | ----------------------------------------------------- | - | ---------- | - | - | -------- | -
| |                                                       |   |            |   |   |          |  
| | Income benefit at CDN statutory rate                  | $ | (1,675,300 | ) | $ | (503,700 | )
| | Foreign income taxes at other than CDN statutory rate |   | 1,500      |   |   | 800      |  
| | Non-deductible stock option compensation              |   | 581,800    |   |   | 17,800   |  
| | Effect of reduction in statutory rate                 |   | -          |   |   | 35,600   |  
| | Other difference                                      |   | 298,500    |   |   | -        |  
| | Increase in valuation allowance                       |   | 793,500    |   |   | 449,500  |  
| |                                                       |   |            |   |   |          |  
| | Future income tax recovery                            | $ | -          |   | $ | -        |  

The Companys future tax assets include approximately $65,900
(2005 - $23,400) related to deductions for share issue costs in excess of
amounts deducted for financial reporting purposes. If and when the valuation
allowance related to these amounts is reversed, the Company will recognize this
benefit as an adjustment to share capital as opposed to income tax expense in
the Statement of Loss. The valuation allowance as at December 31, 2006 was
increased by $21,700 (2005 - $Nil), representing the tax effect at the
unamortized share issuance costs incurred in the period.

The Company evaluates its valuation allowance requirements
based on projected future operations. When circumstances change and this causes
a change in managements judgment about the recoverability of future tax assets,
the impact of the change on the valuation allowance is reflected in current
income. As management of the Company does not currently believe that it is more
likely than not that the Company will receive the benefit of this asset, a
valuation allowance equal to the future tax asset has been established at both
December 31, 2006 and December 31, 2005.

As at December 31, 2006, the Company had net operating loss
carry-forwards available to reduce taxable income in future years as
follows:

| | Country                 |   | Amount     |  |  | Expiration Dates | 
| | ----------------------- | - | ---------- |  |  | ---------------- | 
| | United States - Federal | $ | 20,285,000 |  |  | 2007 - 2025      | 
| | Canada ($C)             | $ | 5,282,000  |  |  | 2007- 2016       | 

These financial statements do not reflect the potential effect
on future income taxes of the application of these losses.

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

6. Long-Term Debt

Long-term debt consists of the following:

| |                                                    |   | December 31, 2006 |  |   | December 31, 2005 | 
| | -------------------------------------------------- | - | ----------------- |  | - | ----------------- | 
| | Note due to a corporation, payable in monthly      |   |                   |  |   |                   | 
| | instalments of $9,275, including interest at prime |   |                   |  |   |                   | 
| | plus 2% estimated to mature in July 2011 and       |   |                   |  |   |                   | 
| | collateralized by real property. *                 | $ | 700,725           |  | $ | 612,187           | 
| |                                                    |   |                   |  |   |                   | 
| | Current maturities                                 |   | 700,725           |  |   | 63,147            | 
| |                                                    |   |                   |  |   |                   | 
| | Long-term debt, less current maturities            | $ | -                 |  | $ | 549,040           | 

In June of 2000, an agreement effective
September 30, 2000 was signed by the note holder which allowed for the deferment
of principal and interest payments on the note in exchange for monthly payments
of $4,000 over a period of three years or until the Company obtains production
financing, whichever is sooner. These payments were reflected as interest
expense in the financial statements. The Company continued making $4,000 per
month payments through February 2004. In April 2004, the Company made a lump sum
payment equal to four monthly payments on the original note plus late payment
interest charges per the agreement, after which the Company was no longer in
default in connection with its payments. In May 2004, the Company began making
principal and interest payments of $9,275 per month according to the terms of
the original agreement.

* Subsequent to year ended December 31,
2006, management of the Company has negotiated a settlement with this debt
holder to repay the entire balance and thus the Company has classified the
balance as current. See note 14.

7. Convertible Notes

In July 2003, the Company issued convertible promissory notes
for aggregate proceeds of $375,000 to three independent parties. The notes were
due on demand, bore interest at the rate of 6.5% per annum and were convertible
into 1,630,435 units at a rate of $0.23. Each unit consisted of one common share
and one non-transferable detachable share purchase warrant entitling the holder
to purchase one additional common share of the Company at an exercise price of
$0.32, exercisable for two years. Interest has been and will be waived on
conversion. In June 2004, 978,260 units with a $225,000 face value were
converted into common shares, leaving 652,174 units with a $150,000 face value
outstanding to be converted at December 31, 2004 and 2005.

The Company calculated the value of the conversion feature of
the convertible promissory notes based upon the fair value of the underlying
securities. The fair value of the underlying securities was estimated on the
date of commitment of the contractual obligation, using the Black-Scholes
option-pricing model, with the following assumptions:

| | Risk-free interest rate         | 1.37%  
| | ------------------------------- | -------
| | Expected stock price volatility | 181%   
| | Expected life of warrants       | 2 years
| | Expected dividend yield         | 0.00%  

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. dollars)                            

7. Convertible Notes - Continued

The debt discount was amortized using the effective interest
method. Included in operations for the year ended December 31, 2006 was $Nil
(2005 - $Nil) in interest expense related to the amortization of the equity
component on the convertible promissory notes.

During 2006, the holder of the debt, a shareholder of the
Company, converted the remaining $150,000 into 652,174 common shares of the
Company, (Note 8). In accordance with the terms of the agreement, the debt
holder agreed to waive the interest accrual upon conversion and as a result the
Company had reversed the total interest payable of $39,917 and recorded the
amount as additional paid-in capital in Shareholders Equity.

8. Share capital

Common shares

In July 2006, stock options were exercised and the Company
issued 100,000 common shares at C$0.35 per share for proceeds of $30,853
(C$35,000).

In June 2006, warrants were exercised and the Company issued
8,000,000 common shares at C$0.60 per share for proceeds of $4,346,130
(C$4,800,000).

In May 2006, the Company issued 652,174 common shares to settle
the Companys convertible notes in the amount of $150,000 (Note 7).

In April 2006, warrants were exercised and the Company issued
978,260 common shares at C$0.36 per share for proceeds of $313,043
(C$352,174).

In February 2006, the Company entered into a private placement
agreement with one independent investor to issue an aggregate of 7,200,000 units
at C$0.50 per unit for gross proceeds of approximately $3,135,615 (C$3,600,000).
Each unit comprised of one share and one share purchase warrant. Each warrant
entitles the holder to purchase during a two year period one common share at a
price of C$0.60. The Company paid a cash finders fee of 2% being $62,888
(C$72,000).

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

8. Share capital - Continued

Management calculated and allocated a total fair value of
$1,520,899 (C$1,748,160) to the 7,200,000 warrants attached to the units using
the Black-Scholes option pricing model with the following weighted average
assumptions of:

| | Risk-free interest rate                 | 3.86%  
| | --------------------------------------- | -------
| | Expected volatility                     | 98%    
| | Expected life of warrant                | 2 years
| | Dividend yield                          | 0%     
| | Weighted Average Fair Value per Warrant | $0.21  

The fair value of the warrants was recorded as additional
paid-in capital on the Consolidated Statements of Changes in Shareholders
Equity.

In February 2005, stock options were exercised and the Company
issued 110,000 common shares at C$0.23 per share for proceeds of $21,049 (C$
25,300).

Stock options

As disclosed in the Summary of Accounting Policies, the Company
adopted SFAS No.123R commencing on January 1, 2006. Effective with the adoption
SFAS No.123R, the Company has elected to use the Black-Scholes option pricing
model to determine the fair value of stock options granted. In accordance with
SFAS No. 123R for employees, the compensation expense is amortized on a
straight-line basis over the requisite service period which approximates the
vesting period. Compensation expense for stock options granted to non-employees
is amortized over the contract services period or, if none exists, from the date
of grant until the options vest. Compensation associated with unvested options
granted to non-employees is re-measured on each balance sheet date using the
Black-Scholes option pricing model.

The expected volatility of options granted has been determined
using the method described under SFAS No. 123R using the historical stock price.
The Company uses historical data to estimate option exercise, forfeiture and
employee termination within the valuation model. For non-employees, the expected
term of the options approximates the full term of the options. The risk-free
interest rate is based on a treasury instrument whose term is consistent with
the expected term of the stock options. The Company has not paid and does not
anticipate paying dividends on its common stock; therefore, the expected
dividend yield is assumed to be zero. In addition, SFAS No. 123R requires
companies to utilize an estimated forfeiture rate when calculating the expense
for the reporting period. Based on the best estimate, management applied the
estimated forfeiture rate of Nil in determining the expense recorded in the
accompanying Consolidated Statement of Loss.

The following is a summary of stock option activity during the
year ended December 31, 2005 and 2006:

| |                                        |           | Weighted-Average        
| | -------------------------------------- | --------- | ------------------------
| |                                        | Shares    | Exercise Price per Share
| | Options outstanding, January 1, 2005   | 1,040,000 | C$0.48                  
| | Granted                                | 1,200,000 | C$0.35                  
| | Exercised                              | (110,000) | C$0.23                  
| | Expired                                | (90,000)  | C$0.13                  
| | Options outstanding, December 31, 2005 | 2,040,000 | C$0.43                  
| | Granted                                | 1,200,000 | C$0.77                  
| | Exercised                              | (100,000) | C$0.35                  
| | Expired                                | (550,000) | C$0.55                  
| | Options outstanding, December 31, 2006 | 2,590,000 | C$0.56                  
| | Options exercisable                    | 2,590,000 | C$0.56                  

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

8. Share capital - Continued

Stock options - continued

For the year ended December 31, 2006, the Board of Directors
granted a total of 1,200,000 options to four directors. These options vested at
the grant date with weighted average exercise price of C$0.77 per share. The
weighted average fair value of these options on the date of grant was $0.68
(C$0.77) per share or an aggregate fair value of US$814,810 (C$925,920).

Management estimated the fair value of the above 1,200,000
stock options at the grant date by using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 2006:

| | Risk-free interest rate | 4.27%  
| | ----------------------- | -------
| | Expected volatility     | 134%   
| | Expected life of option | 5 years
| | Dividend yield          | 0%     

As of December 31, 2006 the aggregate intrinsic value of the
outstanding exercisable options was approximately $818,800 (C$954,700). The
total intrinsic value of 100,000 options exercised during 2006 was approximately
$48,500 (C$55,000).

There is no unamortized compensation expense as at December 31,
2006 and 2005 as all the outstanding options vested at the grant date.

The following table summarizes information about stock options
outstanding and exercisable at December 31 2006:

| |                 | Weighted-        | Weighted-     
| | --------------- | ---------------- | --------------
| | Number          | Average          | Average       
| | Outstanding and | Contractual Life | Exercise Price
| | Exercisable     | (Years)          |               
| | 1,100,000       | 3.09             | C$0.35        
| | 290,000         | 0.35             | C$0.50        
| | 1,200,000       | 4.30             | C$0.77        
| | 2,590,000       | 3.34             | C$0.56        

Subsequent to the year ended December 31, 2006, 100,000 options
with weighted average exercise price of C$0.50 were exercised.

The stock-based compensation amounts included in the
accompanying Consolidated Statements of Loss for December 31, 2006 and 2005 were
$814,810 and $48,592, respectively.

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

8. Share capital - Continued

Warrants

During the year, the Board of Directors approved the extension
of 978,260 warrants that expired in 2005. The warrants were reissued with and
expiry date on July 1, 2006 with an exercise price of $0.32 (C$0.43) per share.
Management calculated the fair value of these extended warrants using the Black
Scholes option pricing model with the following weighted average
assumptions:

| | Risk-free interest rate  | 3.96%  
| | ------------------------ | -------
| | Expected volatility      | 88%    
| | Expected life of warrant | 73 days
| | Dividend yield           | 0%     

The fair value of each extended warrant was $0.36 (C$0.41) . As
the warrants were expired in 2005, the total fair value of $349,600 (C$397,271)
has been recorded as an expense on the Consolidated Statements of Loss and as an
additional paid-in capital in Shareholders Equity. On July 1, 2006, all
warrants were exercised into 978,260 common shares of the Company.

In January 2006, the Board of Directors also extended the life
to June 1, 2006 and reduced the exercise price from C$0.75 to C$0.60 per share
on 8,000,000 warrants. In accordance with SFAS No. 123R, management is required
to value the instrument and record the incremental value of the warrants over
the expected life of the instruments. Management calculated the fair value of
the modified warrants using the Black-Scholes option pricing model with the
following weighted average assumptions:

| | Risk-free interest rate  | 3.54%   
| | ------------------------ | --------
| | Expected volatility      | 96%     
| | Expected life of warrant | 140 days
| | Dividend yield           | 0%      

The fair value of each modified warrant was $0.07 (C$0.08) . A
total incremental fair value of $539,517 (C$627,200) has been recorded as an
expense on the Consolidated Statements of Loss and as additional paid-in capital
in Shareholders Equity.

The following is a summary of warrant activity during the year
ended December 31, 2005 and 2006:

| |                                         |             | Weighted Average         | Average Contractual Life
| | --------------------------------------- | ----------- | ------------------------ | ------------------------
| |                                         | Shares      | Exercise Price per Share | (Years)                 
| | Warrants, January 1, 2005               | 8,978,260   | C$0.58                   | 0.95                    
| | Granted                                 | -           |                          | -                       
| | Expired                                 | (978,260)   | C$0.38                   | 0.50                    
| | Warrants outstanding, December 31, 2005 | 8,000,000   | C$0.60                   | 0.50                    
| | Grantedyear                             | 8,178,260   | C$0.58                   | 0.94                    
| | Exercised                               | (8,978,260) | C$0.58                   | 0.50                    
| | Warrants outstanding, December 31, 2006 | 7,200,000   | C$0.60                   | 1.07                    

The following table summarizes information about stock options
outstanding and exercisable at December 31 2006:

| |                 | Weighted-        | Weighted-     
| | --------------- | ---------------- | --------------
| | Number          | Average          | Average       
| | Outstanding and | Contractual Life | Exercise Price
| | Exercisable     | (Years)          |               
| | 7,200,000       | 1.07             | C$0.60        

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

9. Asset Retirement Obligations

The Company is required to provide Kern County and the State
Office of Mine Reclamation with a revised reclamation cost estimate once per
year. The following were the estimates for 2005 - $183,103, for 2006 - $245,337
and for 2007 -$258,894. The financial assurance is adjusted once the cost
estimate is approved.

The Company estimated its asset retirement obligation based on
its understanding of the requirements to reclaim, and clean up its Property. The
Company estimated that annual payments of approximately $81,779 for a period of
3 years for a total of approximately $245,337 commencing in 2017 would be
required to complete the retirement obligations. In determining the estimated
initial present value of the obligation, a discount factor of 9.0% (the
credit-adjusted risk-free rate), and an inflation rate of 3.0% were used. The
asset portion of the retirement obligation was written off in 2004. The asset
retirement obligation accrual required management to make significant estimates
and assumptions. Actual results could materially differ from these estimates.
The liability for accrued asset retirement obligations is comprised as
follows:

| |                               |   | December 31, 2006 |  |   | December 31, 2005 |  
| | ----------------------------- | - | ----------------- |  | - | ----------------- | -
| | Beginning of the year         | $ | 91,016            |  | $ | 345,766           |  
| | Change in cash flow estimates |   | 30,590            |  |   | (262,265          | )
| | Accretion expense             |   | 10,944            |  |   | 7,515             |  
| | End of the year               | $ | 132,550           |  | $ | 91,016            |  

10. Commitments and Contingencies

The Company has acquired a number of properties outright and
has acquired exclusive rights to explore, develop and mine the Property under
various agreements with landowners.

Agreements are typically subject to sliding scale royalties on
net smelter returns and this ranged from 1 % to 7.5 %.

The Company has agreed to issue 100,000 common shares as a
finders fee upon commencement of commercial production on the Property in
connection with certain property acquisitions.

In October 2000, the Company ceased making property payments
and advance, minimum royalty payments after successfully concluding moratorium
agreements with a number of the landowners. The moratorium agreements typically
had a term of three years and these have now expired. After the expiration of
the moratorium agreements the Company reached an agreement with a landowner and
is making lease payments of $10,000 per year to this landowner. The Company also
has an arrangement with another landowner to make advance minimum royalty
payments of $100,000 per year and these advance royalty payments will be applied
against any future production royalties. As of December 31, 2006, the Company
has accrued the amounts owing to these two landowners.

Subsequent to the year ended December 31, 2006, the Company
reached an agreement with one of the landowners to amend the terms of the lease
agreement. Under the terms of the amendment, the Company has been granted an
extension of twenty years lease and has paid $100,000 owed from 2005. In
addition, the Company is not required to pay advance royalty during the two
years period until April 23, 2008 and it will receive a cumulative credit
against the production royalties for 50% of all advance minimum royalties
paid.

In 2004, the Company entered into an agreement with the
President of the Company to issue 300,000 bonus shares upon the completion of
certain milestones. Upon receipt by the Company of a bankable feasibility study
and the decision to place the Property into commercial production, a bonus of
150,000 common shares is to be issued. Upon commencement of commercial
production on the Property, a bonus of 150,000 common shares is to be issued. As
at December 31, 2006, the milestones had not been reached and no accrual was
made in connection with these arrangements.

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|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

11. Related Party Transactions

Except as noted elsewhere in these financial statements,
related party transactions are disclosed as follows:

For the year ended December 31, 2006, $111,116 (2005 -
$110,000) was paid to Mr. H. L. Klingmann for services as President of the
Company, and $21,597 (2005 - $6,200) was paid to Mr. Chester Shynkaryk for
consulting services to the Company. No other compensation was paid or given
during the year for services rendered by the directors in such capacity, and no
additional amounts were payable at year-end under any standard arrangements for
committee participation or special assignments.

For the year ended December 31, 2006, $8,752 (2005 - $7,200)
was owed and included in accounts payable to Mr. H.L. Klingmann for services as
President of the Company.

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

12. Supplementary disclosures of cash flow
information

|                                         |   |                   |  |   |                   |   |   | Cumulative Amounts     | 
|---------------------------------------- | - | ----------------- |  | - | ----------------- | - | - | ---------------------- | 
|                                         |   |                   |  |   |                   |   |   | From Date of Inception | 
|                                         |   | Year ended        |  |   | Year ended        |   |   | (November 21, 1985)    | 
|                                         |   | December 31, 2006 |  |   | December 31, 2005 |   |   | through December 31,   | 
|                                         |   |                   |  |   |                   |   |   | 2006                   | 
|                                         |   |                   |  |   |                   |   |   |                        | 
|Cash paid during period for:             |   |                   |  |   |                   |   |   |                        | 
|Interest                                 | $ | 57,022            |  | $ | 71,636            |   | $ | 1,192,911              | 
|Income taxes                             | $ | -                 |  | $ | -                 |   | $ | -                      | 
|                                         |   |                   |  |   |                   |   |   |                        | 
|Non-cash financing and                   |   |                   |  |   |                   |   |   |                        | 
|investing activities:                    |   |                   |  |   |                   |   |   |                        | 
|Stock option compensation
      (Note 8) | $ | 814,810           |  | $ | 48,592            |   | $ | 197,374                | 
|Financing charges related to             |   |                   |  |   |                   |   |   |                        | 
|modification of warrants term            | $ | 889,117           |  | $ |                   |   | $ | 889,117                | 
|Exchange of notes for common             |   |                   |  |   |                   |   |   |                        | 
|shares                                   | $ | -                 |  | $ | -                 |   | $ | 1,727,282              | 
|Exchange of note for future              |   |                   |  |   |                   |   |   |                        | 
|royalty payments                         | $ | -                 |  | $ | -                 |   | $ | 150,000                | 
|Common shares issued for mineral         |   |                   |  |   |                   |   |   |                        | 
|property                                 | $ | -                 |  | $ | -                 |   | $ | 280,211                | 
|Mineral property acquired through        |   |                   |  |   |                   |   |   |                        | 
|the issuance of long-term debt           | $ | -                 |  | $ | -                 |   | $ | 1,084,833              | 
|Common shares issued upon                |   |                   |  |   |                   |   |   |                        | 
|conversion of convertible debt           |   |                   |  |   |                   |   |   |                        | 
|(Note 7)                                 | $ | 189,917           |  | $ | -                 |   | $ | 414,917                | 
|Asset retirement obligations             | $ | -                 |  | $ | (254,750          | ) | $ | 91,016                 | 

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

13. Canadian GAAP Reconciliation

The Company prepares its consolidated financial statements in
accordance with accounting principles generally accepted in the United States
(U.S. GAAP), which differ in certain respects from the principles that the
Company would have followed had its consolidated financial statements been
prepared in accordance with accounting principles generally accepted in Canada
(Canadian GAAP). The major measurement differences between the U.S. and
Canadian GAAP and their effects on the consolidated financial statements are
provided below.

The amounts in the consolidated statement of loss that differ
significantly from those reported under U.S. GAAP are as follows:

|                                              |   | 2006       |   |   | 2005       |  
|--------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                              |   |            |   |   |            |  
|Net loss per US GAAP                          | $ | (4,910,036 | ) | $ | (1,476,324 | )
|Adjustments related to:                       |   |            |   |   |            |  
|Asset retirement
      obligation (b)         |   | -          |   |   | -          |  
|Accretion expense (b)                         |   | -          |   |   | -          |  
|Stock option
      compensation (a)           |   | -          |   |   | (242,958   | )
|                                              |   |            |   |   |            |  
|Net loss per Canadian GAAP                    | $ | (4,910,036 | ) | $ | (1,719,282 | )
|                                              |   |            |   |   |            |  
|Loss per share per Canadian GAAP              |   |            |   |   |            |  
|Basic and diluted                             | $ | (0.07      | ) | $ | (0.03      | )
|                                              |   |            |   |   |            |  
|Shareholders equity per US and Canadian GAAP | $ | 4,764,018  |   | $ | 17,457     |  

(a) Stock option compensation

As disclosed in the Summary of Accounting Policies, the Company
adopted SFAS No.123R commencing on January 1, 2006, effective with the adoption
SFAS No.123R there is no difference between the financial position, results of
operations and cash flows under Canadian GAAP and US GAAP arising from the
accounting for stock-based compensation for the periods presented.

(b) Asset retirement obligation

The Company adopted SFAS No. 143, Accounting for Asset
Retirement Obligations as at January 1, 2003. At that time, the Company
estimated that the costs of the reclamation of the Soledad property would be
nominal. As a result, no asset retirement liability was accrued as at December
31, 2003. During 2004, the Company received additional information regarding the
required reclamation and clean-up activities and increased their estimated costs
by approximately $399,000 and recorded additional asset retirement obligations
in 2004 as a result of this change in estimate in accordance with SFAS No. 143.
As at December 31, 2005, the Company evaluated the future recoverability of its
resource property and wrote down the carrying amount of the resource property by
the full amount of the additional asset retirement obligations of $345,766.

Under Canadian GAAP, effective January 1, 2004, the Company
retroactively adopted CICA 3110, Asset Retirement Obligations The Company
retroactively recorded the fair value of an asset retirement obligation as a
liability in the period in which it incurred a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets.

---

|GOLDEN QUEEN MINING CO. LTD.              
|------------------------------------------
|(an exploration stage company)            
|Notes to Consolidated Financial Statements
|(U.S. Dollars)                            

13. Canadian GAAP Reconciliation - continued

The obligation was initially measured at fair value using
present value methodology, and the resulting costs capitalized into the carrying
amount of the related asset. In recording the estimated initial present value of
the obligations, the Company used a discount factor of 4.875% (the
credit-adjusted risk-free rate). The Companys retirement obligations related to
Soledad were incurred when the Company initially commenced exploration in 1988.
Accordingly, the asset retirement obligations and the related asset would have
been initially recorded at its fair value in 1998 and recorded an annual
accretion of interest on the liability. In 2000, at the same time that the
Company recorded an impairment reserve on the property, the asset portion of the
retirement obligations was also written-off.

During 2005 and 2006 the asset retirement obligation was
adjusted for a change in estimated cash flows (Note 9). The resulting difference
resulted in an adjustment to the asset retirement obligation. No GAAP difference
was created based on this change.

14. Subsequent Event

Subsequent to the year ended December 31, 2006, the Company
reached an agreement with Southwestern Refining Corporation, a landowner, and
made a total payment of $700,725 to retire the long-term debt in full and final
settlement of the outstanding obligation.

15. Comparative Figures

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

---