[exhibit1001.jpg]





CARDERO RESOURCE CORP.

(An Exploration Stage Company)



Audited Consolidated Financial Statements



October 31, 2006 and 2005

---



[exhibit1002.jpg]







MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS



The consolidated financial statements and all information in the annual report are the responsibility of the Board of Directors and management.  The consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles.  Management maintains the necessary systems of internal controls, policies and procedures to provide assurance that assets are safeguarded and that the financial records are reliable and form a proper basis for the preparation of financial statements.



The Board of Directors ensures that management fulfills its responsibilities for financial reporting and internal control through an Audit Committee.  This committee, which reports to the Board of Directors, meets with the independent auditors and reviews the consolidated financial statements.



The consolidated financial statements have been audited by Smythe Ratcliffe LLP, Chartered Accountants, who were appointed by the shareholders.  The auditors report outlines the scope of their examination and their opinion on the consolidated financial statements.





MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



The management of Cardero Resource Corp. (Cardero) is responsible for establishing and maintaining adequate internal control over financial reporting, and has designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles (GAAP), including a reconciliation to U.S. GAAP.



Management has used the Internal Control  Integrated Framework to evaluate the effectiveness of internal control over financial reporting, which is a recognized and suitable framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management has evaluated the design and operation of Carderos internal control over financial reporting as of October 31, 2006, and has concluded that such internal control over financial reporting is effective. There are no material weaknesses that have been identified by management in this regard.



As this report is required for US reporting purposes, and the Company is not a large accelerated filer therefore, managements evaluation of internal controls over financial reporting has not been audited by the Companys auditors for the year ended October 31, 2006.





Henk van Alphen

Michael Kinley

Hendrik van Alphen,

Michael Kinley,

President & Chief Executive Officer

Chief Financial Officer



January 23, 2007

Vancouver, Canada



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CARDERO RESOURCE CORP.

(AN EXPLORATION STAGE COMPANY)

Consolidated Financial Statements

October 31, 2006 and 2005













INDEX





Report of Independent Registered Public Accounting Firm







Consolidated Financial Statements





Consolidated Balance Sheets







Consolidated Statements of Operations and Deficit







Consolidated Statements of Cash Flows







Notes to Consolidated Financial Statements







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Smythe Ratcliffe LLP
  7 th Floor, Marine Building 
  355 Burrard Street 
  Vancouver , BC V6C 2G8



fax: 604.688.4675

telephone: 604.687.1231



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





TO THE SHAREHOLDERS



CARDERO RESOURCE CORP.

(An Exploration Stage Company)



We have audited the consolidated balance sheets of Cardero Resource Corp. (An Exploration Stage Company) as at October 31, 2006 and 2005 and the consolidated statements ofoperations and deficit and cash flows for each of the years ended October 31, 2006, 2005 and 2004.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in Canada and in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).  Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.



In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at October 31, 2006 and 2005 and the results of its operations and its cash flows for each of the years ended October 31, 2006, 2005 and 2004 in conformity with Canadian generally accepted accounting principles.





Smythe Ratcliffe LLP

Chartered Accountants

Vancouver, Canada



January 23, 2007





COMMENTS BY AUDITORS FOR US READERS



In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by conditions and events that cast substantial doubt on the Companys ability to continue as a going-concern, such as described in note 1 to the consolidated financial statements. Our report to the shareholders dated January 23, 2007, is expressed in accordance with Canadian reporting standards, which do not permit a reference to such events and conditions in the auditors report when these are adequately disclosed in the financial statements.





*“Smythe Ratcliffe LLP” (signed)*

Chartered Accountants

Vancouver , Canada







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CARDERO RESOURCE CORP.

(AN EXPLORATION STAGE COMPANY)

Consolidated Balance Sheets

October 31





|                                           | 2006                 | 2005                
|------------------------------------------ | -------------------- | --------------------
|                                           |                      |                     
|Assets                                     |                      |                     
|                                           |                      |                     
|Current                                    |                      |                     
|Cash and cash equivalents                  | $
        4,506,165  | $
        15,206,219
|Accounts receivable                        | 1,315,703            | 575,436             
|Prepaid expenses                           | 325,299              | 464,250             
|                                           |                      |                     
|Total Current Assets                       | 6,147,167            | 16,245,905          
|                                           |                      |                     
|Equipment (note 4)                         | 104,788              | 45,815              
|                                           |                      |                     
|Investment  (note 5)                       | 2,240,000            | -                   
|                                           |                      |                     
|Resource Properties (note 6)               | 18,680,316           | 12,188,346          
|                                           |                      |                     
|Total Assets                               | $
        27,172,271 | $
        28,480,066
|                                           |                      |                     
|Liabilities                                |                      |                     
|                                           |                      |                     
|Current                                    |                      |                     
|Accounts payable and accrued liabilities   | $
        478,621    | $
        809,232   
|                                           |                      |                     
|Stockholders' Equity                       |                      |                     
|                                           |                      |                     
|Capital Stock (note 7)                     | 49,460,316           | 43,917,324          
|Contributed Surplus (note 7)               | 6,645,896            | 4,975,930           
|Deficit                                    | (29,412,562)         | (21,222,420)        
|                                           |                      |                     
|Total Stockholders Equity                 | 26,693,650           | 27,670,834          
|                                           |                      |                     
|Total Liabilities and Stockholders Equity | $
        27,172,271 | $
        28,480,066

Contingent Liability (note 10)

Subsequent Events (note 11)



Approved on behalf of the Board:



Henk Van Alphen

.....................................................................  Director

Henk Van Alphen



Lawrence W. Talbot

.....................................................................  Director

Lawrence W. Talbot





See notes to consolidated financial statements.



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CARDERO RESOURCE CORP.

(AN EXPLORATION STAGE COMPANY)

Consolidated Statements of Operations and Deficit

Years Ended October 31





|                                                     | 2006                   | 2005                   | 2004                  
|---------------------------------------------------- | ---------------------- | ---------------------- | ----------------------
|                                                     |                        |                        |                       
|Administrative Expenses                              |                        |                        |                       
|Investor relations                                   | $
        884,406      | $
        1,758,140    | $
        640,197     
|Professional fees (note 8)                           | 537,395                | 625,937                | 388,900               
|Salaries                                             | 1,999,033              | 1,188,204              | 413,272               
|Property evaluations                                 | 299,113                | 472,957                | 101,903               
|Insurance                                            | 193,228                | 44,887                 | -                     
|Office costs                                         | 414,122                | 138,465                | 221,929               
|Regulatory and transfer agent fees                   | 202,365                | 103,463                | 55,344                
|Consulting fees (note 8)                             | 1,931,013              | 1,291,156              | 3,231,900             
|Amortization                                         | 20,347                 | 19,635                 | 20,477                
|                                                     |                        |                        |                       
|Loss Before Other Items                              | (6,481,022)            | (5,642,844)            | (5,073,922)           
|                                                     |                        |                        |                       
|Other Items                                          |                        |                        |                       
|Interest income                                      | 351,378                | 376,289                | 284,858               
|Write-off of resource properties (note 6)            | (2,052,145)            | (1,190,641)            | (4,521,367)           
|Foreign exchange loss                                | (8,353)                | (5,694)                | (12,571)              
|                                                     |                        |                        |                       
|                                                     | (1,709,120)            | (820,046)              | (4,249,080)           
|                                                     |                        |                        |                       
|Net Loss for Year                                    | (8,190,142)            | (6,462,890)            | (9,323,002)           
|Deficit, Beginning of Year                           | (21,222,420)           | (14,759,530)           | (5,436,528)           
|                                                     |                        |                        |                       
|Deficit, End of Year                                 | $
        (29,412,562) | $
        (21,222,420) | $
        (14,759,530)
|                                                     |                        |                        |                       
|Loss Per Share                                       | $
        (0.19)       | $
        (0.16)       | $
        (0.26)      
|                                                     |                        |                        |                       
|Weighted Average Number of Common Shares Outstanding | 42,741,186             | 40,938,200             | 35,198,762            







See notes to consolidated financial statements.





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CARDERO RESOURCE CORP.

(AN EXPLORATION STAGE COMPANY)

Consolidated Statements of Cash Flows

Years Ended October 31





|                                                  | 2006                  | 2005                          | 2004                 
|------------------------------------------------- | --------------------- | ----------------------------- | ---------------------
|                                                  |                       |                               |                      
|Operating Activities                              |                       |                               |                      
|Net loss for year                                 | $
        (8,190,142) | $
        (6,462,890)         | $
        (9,323,002)
|Items not involving cash                          |                       |                               |                      
|Amortization                                      | 20,347                | 19,635                        | 20,477               
|Stock-based compensation                          | 2,969,183             | 2,398,396                     | 3,433,900            
|Write-off of resource properties                  | 2,052,145             | 1,190,641                     | 4,521,367            
|Changes in Non-Cash Working Capital Items         |                       |                               |                      
|Accounts receivable                               | (740,267)             | (75,075)                      | (253,927)            
|Prepaid expenses                                  | 138,951               | (292,117)                     | (64,598)             
|Accounts payable and accrued liabilities          | (32,987)              | (87,280)                      | 51,819               
|Cash Used in Operating Activities                 | (3,782,770)           | (3,308,690)                   | (1,613,964)          
|                                                  |                       |                               |                      
|Investing Activities                              |                       |                               |                      
|Purchase of investment                            | (2,240,000)           | -                             | -                    
|Resource property investments and expenditures    | (7,330,739)           | (5,440,745)                   | (4,273,452)          
|Purchase of equipment                             | (79,320)              | (17,665)                      | (49,227)             
|Cash Used in Investing Activities                 | (9,650,059)           | (5,458,410)                   | (4,322,679)          
|                                                  |                       |                               |                      
|Financing Activities                              |                       |                               |                      
|Proceeds from shares issued                       | 2,732,775             | 7,052,410                     | 19,473,309           
|Share issue costs                                 | -                     | -                             | (368,062)            
|Cash Provided by Financing Activities             | 2,732,775             | 7,052,410                     | 19,105,247           
|                                                  |                       |                               |                      
|Increase (Decrease) in Cash and Cash Equivalents  | (10,700,054)          | (1,714,690)                   | 13,168,604           
|Cash and Cash Equivalents, Beginning of Year      | 15,206,219            | 16,920,909                    | 3,752,305            
|                                                  |                       |                               |                      
|Cash and Cash Equivalents, End of Year            | $
        4,506,165   | $
        15,206,219          | $
        16,920,909 
|                                                  |                       |                               |                      
|Supplemental Cash Flow Information                |                       |                               |                      
|Shares issued for property option payments        | $
        1,211,000   | $
        1,255,450           | $
        1,555,500  
|Shares issued for data acquisition                | $
        300,000     | $
        -                   | $
        198,000    
|Shares issued for brokers commission             | $
        -           | $
        -                   | $
        545,430    
|Accounts payable related to property expenditures | $
        270,332     | $
        567,955             | $
        475,555    
|                                                  |                       |                               |                      
|Cash and cash equivalents                         |                       |                               |                      
|Consists of:                                      |                       |                               |                      
|Cash                                              | $
        1,006,165   | $
        1,206,219
        4 | $
        1,126,639  
|Term deposits                                     | $
        3,500,000   | $
        14,000,000          | $
        15,794,270 



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CARDERO RESOURCE CORP.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years Ended October 31, 2006, 2005 and 2004













1.

NATURE OF OPERATIONS



Cardero Resource Corp. and its subsidiaries are engaged in the exploration of mineral properties, primarily in Mexico, Peru and Argentina.  The Company considers itself to be an exploration stage company.



The business of mining and exploring for minerals involves a high degree of risk and there can be no assurance that any of the Companys current or future exploration programs will result in profitable mining operations.  The recoverability of amounts shown for mineral properties is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain financing to complete their development and exploitation, and future profitable operations or sale of the properties. The investment in and expenditures on resource properties comprise a significant portion of the Companys assets.



These consolidated financial statements were prepared on a going-concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at October 31, 2006, the Company had working capital of $5,668,546 (2005 - $15,436,673).  The Company does not currently hold any revenue-generating properties and thereby continues to incur losses.  The Company has an accumulated deficit of $29,412,562 as at October 31, 2006 (2005 - $21,222,420).



The Companys ability to discharge its liabilities and fulfill its commitments as they come due are dependent upon its success in obtaining equity financing and, ultimately, on locating economically recoverable ore resources and attaining profitable operations.  Failure to continue as a going-concern would require the restatement of assets and liabilities on a liquidation basis, which could differ materially from the going-concern basis.



These financial statements do not reflect adjustments that would be necessary if the going-concern assumptions were not appropriate because management believes that actions taken or planned will mitigate the adverse conditions that raise doubts about the Companys viability.



2.

SIGNIFICANT ACCOUNTING POLICIES



(a)

Basis of presentation



These consolidated financial statements include the accounts of Cardero Resource Corp. and its wholly-owned integrated subsidiaries, Cardero Argentina, S.A. (Cardero Argentina),  Minerales Y Metales California, S.A. de C.V. (MMC) and Cardero Peru S.A.C. (Cardero Peru) (collectively, the "Company").  All inter-company transactions and balances have been eliminated.



These financial statements are prepared in accordance with Canadian generally accepted accounting principles and are stated in Canadian dollars.



(b)

Cash and cash equivalents



Securities with original maturities of three months or less are considered to be cash equivalents, at cost. The securities are highly liquid and can be converted to cash at any time, and are held by a Canadian Chartered bank.



(c)

Use of estimates



The preparation of financial statements in conformity with Canadian 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.  Areas requiring the use of estimates include the rates of amortization for equipment, the recovery of resource property interests, the assumptions used in the determination of the fair value of stock-based compensation and the determination of the valuation allowance for future income tax assets. Management believes the estimates are reasonable however actual results could differ from those estimates and would impact future results of operations and cash flows.





(d)

Amortization



Amortization of equipment is recorded on a declining-balance basis at the following annual rates:

Computer equipment

-

30%

Office equipment

-

20%

Leasehold improvements

straight-line over the lease term, expiring August 31, 2007



Additions during the year are amortized at one-half the annual rates.



(e)

Investment



The investment is carried at the lower of aggregate cost or quoted market value.  When market value is below cost, the unrealized loss is charged to income.



(f)

Resource properties



The Company capitalizes all costs related to investments in mineral property interests on a property-by-property basis.  Such costs include mineral property acquisition costs and exploration and development expenditures, net of any recoveries.  Costs are deferred until such time as the extent of mineralization has been determined and mineral property interests are either developed, the property is sold or the Company's mineral rights are allowed to lapse.



All capitalized costs are reviewed, on a property-by-property basis, to consider whether there are any conditions that may indicate impairment.  When the carrying value of a property exceeds its net recoverable amount (as estimated by quantifiable evidence of an economic geological resource or reserve or by reference to option or joint venture expenditure commitments) or when, in the Companys assessment, it will be unable to sell the property for an amount greater than the deferred costs, the property is written down for the impairment in value.



From time to time the Company may acquire or dispose of a mineral property interest pursuant to the terms of an option agreement.  As such options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded at the time of the agreement.  Option payments are recorded as property costs or recoveries when the payments are made or received.



Capitalized costs are depleted over the useful lives of the properties upon commencement of commercial production or written off if the properties are abandoned or the applicable mineral rights are allowed to lapse.



(g)

Foreign currency translation



The functional currency of the Company and all its subsidiaries is the Canadian dollar.  Amounts recorded in foreign currency are translated into Canadian dollars as follows:



i.

Monetary assets and liabilities, at the rate of exchange in effect as at the balance sheet date;



ii.

Non-monetary assets and liabilities, at the exchange rates prevailing at the time of the acquisition of the assets or assumption of the liabilities; and



iii.

Interest income and expenses (excluding amortization, which is translated at the same rate as the related asset), at the average rate of exchange for the period.



Gains and losses arising from this translation of foreign currency are included in the determination of net loss for the period.



(h)

Stock-based compensation



The Company accounts for stock-based compensation expense using the fair value based method with respect to all stock-based payments to directors, employees and non-employees, including awards that are direct awards of stock and call for settlement in cash or other assets, or stock appreciation rights that call for settlement by the issuance of equity instruments.  Under this standard, stock-based payments are recorded as an expense over the vesting period or when the awards or rights are granted, with a corresponding increase to contributed surplus under shareholders equity.  When stock options are exercised, the corresponding fair value is transferred from contributed surplus to capital stock.



(i)

Loss per share



Loss per share amounts have been calculated and presented in accordance with the treasury stock method.  Diluted loss per share amounts have not been presented as the effect of outstanding options and warrants is anti-dilutive.



(j)

Revenue recognition



Interest income is recorded on an accrual basis at the stated rate of interest of the term deposit over the term to maturity.



(k)

Asset retirement obligations



Section 3110 of the Canadian Institute of Chartered Accountants (CICA) Handbook requires companies to recognize an estimate of the liability associated with an asset retirement obligation (ARO) in the financial statements at the time the liability is incurred.  The estimated fair value of the ARO is recorded as a long-term liability, with a corresponding increase in the carrying amount of the related asset.  The capitalized amount is depleted on a unit-of-production basis over the life of the proved reserves.  The liability amount is increased each reporting period due to the passage of time and the amount of accretion is charged to earnings in the period.  The ARO can also increase or decrease due to changes in the estimates of timing of cash flows or changes in the original estimated undiscounted cost.  Actual costs incurred upon settlement of the ARO are charged against the ARO to the extent of the liability recorded.



(l)

Income taxes



The Company follows the asset and liability method of accounting for income taxes.  Under this method of tax allocation, future income tax assets and liabilities are determined based on differences between the financial statement carrying values and their respective income tax basis (temporary differences).  Future income tax assets and liabilities are measured using the tax rates expected to be in effect when the temporary differences are likely to reverse.  The effect on future income tax assets and liabilities of a change in tax rates is included in operations in the period in which the change is enacted or substantially assured.  The amount of future income tax assets recognized is limited to the amount of the benefit that is more likely than not to be realized.



3.

FINANCIAL INSTRUMENTS



(a)

Fair value



The carrying values of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities approximate their fair values because of the short-term maturity of these financial instruments.  The  fair value of the investment is as disclosed in note 5.



(b)

Interest rate risk



The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities.



(c)

Credit risk



The Company is exposed to credit risk with respect to its accounts receivable, which consists largely of tax credits receivable from Mexican, Argentinean, Peruvian and Canadian agencies, interest receivable and rent receivable.  Cash and cash equivalents have been placed with a major Canadian financial institution.



(d)

Translation risk



The Company translates the results of its foreign operations into Canadian currency using rates approximating the average exchange rate for the year.  The exchange rates may vary from time to time.  At October 31, 2006, the Company held foreign currencies of CAD 23,348 (MXN 222,578) (October 31, 2005  CAD 38,090 (MXN 349,772)); CAD 58,143 (ARS 157,655) (October 31, 2005  CAD 118,873 (ARS 304,257)) and CAD 20,529 (PEN 58,892) (October 31, 2005  PEN Nil)) for the purposes of financing operations and capital expenditures in those currencies.



4.

EQUIPMENT



|                       | 2006              | 2005            
|---------------------- | ----------------- | ----------------
|                       |                   | Accumulated     
|                       | Cost              | Amortization    
|Computer equipment     | $
        96,064  | $
        51,677
|Office equipment       | 30,922            | 15,531          
|Leasehold improvements | 49,511            | 4,501           
|                       | $
        176,497 | $
        71,709



5.

INVESTMENT



During 2006, the Company acquired 4,000,000 common shares of International Tower Hill Mines Ltd. (TSXV: ITH), plus common share purchase warrants to purchase up to an additional 2,000,000 common shares at a price $1.00 until August 4, 2008, at a gross cost of $2,240,000.  As a result of this acquisition, the Company held approximately 13.32% of the issued and outstanding common shares of ITH as at August 4, 2006.  Assuming the exercise of the 2,000,000 warrants, the Company would then hold approximately 18.74% of the then issued common shares of ITH (assuming no other warrant or option exercises).  ITH is considered to be a related party (Note 8).



At October 31, 2006, the quoted market value of ITH was $2.27 per share, or a total market value for the Companys investment of $9,080,000 (not including any value ascribed to the ITH warrants held by the Company).



Subsequent to October 31, 2006, the Company sold 1,000,000 shares of ITH (Note 11(c)).









6.

RESOURCE PROPERTIES

The Companys capitalized acquisition and exploration expenditures on its resource properties are as follows:



|                                | Mexico       | Argentina

Total | Peru         | Total        
|------------------------------- | ------------ | ---------------- | ------------ | -------------
|Baja
Anglo                      | Baja
Cardero | Other            | Total        | Marcona      
|                                |              |                  |              |              
|Balance, October 31, 2003       | $  588,392   | $  644,814       | $   231,723  | $ 1,464,929  
|Acquisition costs               | 547,039      | -                | 317,345      | 864,384      
|Deferred exploration costs      |              |                  |              |              
|Camp                            | 13,672       | 387,214          | 120,708      | 521,594      
|Drilling and analysis           | -            | 8,273            | 39,484       | 47,757       
|Personnel and geology           | 45,898       | 58,396           | 88,351       | 192,645      
|                                | 59,570       | 453,883          | 248,543      | 761,996      
|Total expenditures for the year | 606,609      | 453,883          | 565,888      | 1,626,380    
|Total before write-offs         | 1,195,001    | 1,098,697        | 797,611      | 3,091,309    
|Write-offs                      | -            | -                | -            | -            
|Balance, October 31, 2004       | 1,195,001    | 1,098,697        | 797,611      | 3,091,309    
|Acquisition costs               | 95,212       | -                | 259,255      | 354,467      
|Deferred exploration costs      |              |                  |              |              
|Camp                            | 132,194      | -                | 86,426       | 218,620      
|Drilling and analysis           | 401,936      | 698              | 114,012      | 516,646      
|Personnel and geology           | 77,614       | 16,883           | 32,658       | 127,155      
|                                | 611,744      | 17,581           | 233,096      | 862,421      
|Total expenditures for the year | 706,956      | 17,581           | 492,351      | 1,216,888    
|Total before write-offs         | 1,901,957    | 1,116,278        | 1,289,962    | 4,308,197    
|Write-offs                      | -            | -                | (1,044,407)  | (1,044,407)  
|Balance, October 31, 2005       | 1,901,957    | 1,116,278        | 245,555      | 3,263,790    
|                                |              |                  |              |              
|Acquisition costs               | 285,186      | 25,034           | 3,607        | 313,827      
|Deferred exploration costs      |              |                  |              |              
|Camp                            | 61,294       | 151,668          | 86,801       | 299,763      
|Drilling and analysis           | 905,845      | 437,456          | 114,473      | 1,457,774    
|Personnel and geology           | 253,774      | 138,623          | 22,137       | 414,534      
|                                | 1,220,913    | 727,747          | 223,411      | 2,172,071    
|Total expenditures for the year | 1,506,099    | 752,781          | 227,018      | 2,485,898    
|Total before write-offs         | 3,408,056    | 1,869,059        | 472,573      | 5,749,688    
|Write-offs                      | -            | -                | (117,008)    | (117,008)    
|Balance, October 31, 2006       | $ 3,408,056  | $1,869,059       | $    355,565 | $   5,632,680





(a)

Mexico



The properties in Mexico consist of the following:



i.

Sirena Project, Baja California State, Mexico



Pursuant to an agreement dated December 12, 2001 between the Company and a private Mexican company, the Company acquired a 100% interest in six mineral concessions located in Baja California State, Mexico, in consideration of the issuance of an aggregate of 400,000 common shares of the Company (issued).  The Company considers this an active project, although no work programs are presently planned for 2007.



ii.

Acquisition of MMC



Pursuant to an agreement dated September 9, 2002 between the Company and two Mexican individuals, the Company acquired a 100% interest in MMC, a private Mexican corporation that owned 8,055 hectares of mineral concessions situated in Baja California State, Mexico, in consideration of aggregate payments of USD 75,000 (paid) and the issuance of an aggregate of 225,000 common shares of the Company (issued).



In addition to the above concessions, pursuant to an agreement made November 3, 2003, between MMC and a Mexican individual, MMC acquired a 100% interest in three mineral concessions covering 30 hectares upon payment of USD 45,000 (paid).



During 2006, the Company wrote off $117,008 relating to the Ludavina concessions, which were held by MMC at the time of its acquisition by the Company.



vi.

Coahuila Copper Data Acquisition, Coahuila de Zaragoza State, Mexico



Pursuant to an acquisition agreement dated August 22, 2003 between the Company and two individuals, the Company obtained copies of and non-exclusive rights to use and retain certain property data and other information pertaining to copper prospects in Coahuila de Zaragoza State, Mexico, in consideration of the issuance of an aggregate of 20,000 common shares (issued).



vi.

Crockite IOCG Data Acquisition, Baja California State, Mexico



Pursuant to an agreement dated October 27, 2003 between the Company, an individual and a private B.C. company, the Company acquired all right, title and interest to certain geological information, data and materials with respect to the potential for, and occurrences of, iron oxide copper gold (IOCG) type deposits in Baja California State, Mexico, in consideration of the issuance of an aggregate of 200,000 common shares, as follows:



-

100,000 common shares on January 20, 2004 (issued); and

-

100,000 common shares on or before the day that is ten business days from the earliest of the following to occur (issued April 19, 2006):



-

Anglo American Mexico S.A. de C.V. (Anglo) having earned an interest in certain mineral concessions situated in Baja California State in accordance with and pursuant to the agreement between Anglo and the Company (the Anglo Agreement as described in note 6(a)(v));

-

The Company having been advised by Anglo that Anglo has incurred aggregate Exploration Expenditures (as defined in the Anglo Agreement) of not less than USD 2,000,000; and



-

If the Anglo Agreement is terminated prior to Anglo having incurred USD 2,000,000 in Exploration Expenditures, then upon Anglo, the Company or any third party that subsequently enters into an agreement with the Company to earn an interest in the Companys IOCG properties in Baja California State collectively having incurred Exploration Expenditures of not less than USD 2,000,000.



v.

Baja IOCG Project, Baja California State, Mexico



Pursuant to an agreement dated December 1, 2002 (as amended by agreements dated November 26, 2003 and June 30, 2005) between the Company and Anglo (the Anglo Agreement), Anglo agreed to manage and fund exploration expenditures for the identification and acquisition of not less than one mineral concession within an area of interest measuring approximately 50,050 square kilometres in size. Anglo could earn a 70% interest in the mineral concession(s) so acquired, as well as in certain mineral concessions held by the Company, and a 70% interest in a new Mexican company to be formed to hold such concessions, by incurring aggregate exploration expenditures of not less than USD 3,700,000, as follows:



-

USD 200,000 on or before December 1, 2003 (incurred);

-

USD 800,000 on or before December 1, 2004 (incurred);

-

USD 1,200,000 on or before December 1, 2005 (incurred); and

-

USD 3,700,000 on or before December 1, 2006.



Upon Anglo incurring an aggregate USD 3,700,000 of exploration expenditures, a joint venture would be formed, with each party required to contribute its pro rata share of all future exploration expenditures.  A non-participating party can be diluted to a minimum 10% working interest, below which percentage its interest would be automatically converted to a 5% net profit interest.



Pursuant to an amending agreement dated June 30, 2005 between the Company and Anglo, the Company assumed operation of the project.  Under the terms of the amending agreement, the Company was required to incur Exploration Expenditures of not less than USD 500,000 within a 12-month period and, upon doing so, earned an additional 10% interest, thereby increasing its retained interest in the project to 40% upon the exercise by Anglo of its option.  Upon having incurred the required USD 500,000 in Exploration Expenditures, the Company could either elect to terminate its expenditure period by delivering a resumption notice to Anglo, or to elect to remain as operator and continue to incur Exploration Expenditures.  If the Company elected to continue incurring Exploration Expenditures following the USD 500,000 having been incurred, it would earn an additional one-tenth of one percent (0.1%) interest for each additional USD 10,000 of Exploration Expenditures incurred.  If the Company elected to continue incurring Exploration Expenditures, at such time as it has incurred an aggregate of USD 1,400,000 (and has thereby increased its retained interest to 49% upon the exercise by Anglo of its option), it was required to deliver an election request notice to Anglo.  Upon receipt by Anglo of a resumption notice or an election request notice, Anglo was required to (unless it otherwise so elects) immediately resume incurring aggregate exploration expenditures of USD 3,700,000 in order to earn its interest in the project (which will range from 60% to 51%, depending upon the amount of exploration expenditures incurred by the Company prior to the delivery of a resumption notice) with the original exploration expenditure dates extended to take into account the time the Company acted as operator.  If the Company delivered a resumption notice, or if the Company delivered an election request notice and Anglo elected to continue incurring exploration expenditures, and thereafter Anglo fails to maintain its option in good standing, the Company could terminate the agreement.  If the Company delivered an election request notice and Anglo did not elect to resume incurring exploration expenditures, the agreement would be automatically terminated.  In either case, in the event of termination, the Company would retain its 100% interest in the project, with Anglo having no residual interest therein.



As at October 31, 2006, total expenditures incurred on the Baja IOCG Project included in acquisition and exploration costs for Mexico are as follows:



|                            | 2006                | 2005               
|--------------------------- | ------------------- | -------------------
|Beginning balance           | $
        1,901,957 | $
        1,195,001
|Acquisition costs           | 285,186             | 95,212             
|Deferred exploration costs: |                     |                    
|Camp costs                  | 61,294              | 132,194            
|Drilling and analysis       | 905,845             | 401,936            
|Personnel                   | 253,774             | 77,614             
|Balance, October 31         | $
        3,408,056 | $
        1,901,957



Effective May 30, 2006, Anglo elected to terminate the Anglo Agreement and thereby forfeited any interest in, or rights to earn any interest in, the mineral concessions that were the subject of that agreement.  Accordingly, the Company is now the owner of a 100% interest in the concessions comprising the Baja IOCG Project.



vi.

Franco Project, San Luis Potosi State, Mexico



Pursuant to an agreement dated August 29, 2003, as accepted on September 3, 2003, and amended by agreements dated October 1, 2004 and September 13, 2005, between the Company and a private Mexican company, the Company can acquire a 100% interest (subject to a 2% Net Smelter Return (NSR) retained by the vendor) in the Franco Project, San Luis Potosi State, Mexico, upon completion of the following:



Payments aggregating USD 1,145,000, as follows:



-

USD 15,000 on or before September 18, 2003 (paid);

-

USD 20,000 on or before March 24, 2004 (paid);

-

USD 30,000 on or before January 13, 2005 (paid);

-

USD 30,000 on or before October 3, 2005 (postponed due to force majeure);

-

USD 100,000 on or before October 3, 2006 (postponed due to force majeure);

-

USD 150,000 on or before October 3, 3007; and

-

USD 800,000 on or before October 3, 2008.



Exploration expenditures on the property aggregating USD 1,050,000, as follows:



-

USD 50,000 on or before October 3, 2005 (postponed due to force majeure);

-

USD 200,000 on or before October 3, 2006 (postponed due to force majeure);

-

USD 300,000 on or before October 3, 2007; and

-

USD 500,000 on or before October 3, 2008.



If the Company terminates the agreement before incurring not less than USD 250,000 of exploration expenditures, then the Company is required to pay to the vendor the difference between USD 250,000 and the amount of exploration expenditures actually incurred.  The Company can buy one-half (being 1%) of the NSR retained by the vendor at any time for USD 2,000,000.



On November 5, 2003, the Company optioned the property to a public B.C. company (the Optionee) whereby the Optionee could acquire a 50% interest by paying the Company the sum of USD 50,000, making the underlying USD 20,000 and USD 60,000 payments above and incurring cumulative exploration expenditures of USD 250,000 above.  On November 2, 2004, the Optionee returned the property to the Company and all funds advanced by the Optionee to the Company (which was the operator) to incur exploration expenditures were returned to the Optionee.



On November 18, 2005, as a result of the inability of the Company to obtain safe and unrestricted access to the Franco property in order to carry out exploration work, the Company declared an event of force majeure, effective as and from September 19, 2005, thereby suspending all ongoing obligations to make payments to the vendor or to incur any exploration expenditures.  The Company is attempting to resolve the issues giving rise to the force majeure but has, as of October 31, 2006, been unable to do so. The Company plans to drill this property as soon as access is safe and unrestricted.



vii.

La Zorra Project, Sonora State, Mexico



The La Zorra Project (formerly, the Gachupines Project) consists of two exploration concessions and two exploitation concessions located in Sonora State, Mexico.



Pursuant to an agreement dated October 23, 2003, and accepted on October 30, 2003, between the Company and a private Mexican company, the Company had the right to earn a 100% interest, subject to a 2% NSR retained by the vendor, in two exploration concessions comprised in the La Zorra Project, on completion of the following:



Payment of an aggregate of USD 320,000, as follows:



-

USD 5,000 on October 30, 2003 (paid);

-

USD 15,000 on or before April 30, 2004 (paid);

-

USD 30,000 on or before October 30, 2004 (paid);

-

USD 60,000 on or before October 30, 2005;

-

USD 90,000 on or before October 30, 2006; and

-

USD 120,000 on or before October 30, 2007.



Exploration expenditures on the property aggregating USD 85,000 before May 30, 2004 (completed).



Issuing an aggregate of 255,000 common shares of the Company, as follows:



-

5,000 common shares within 10 business days of TSX Venture Exchange (TSXV acceptance (issued);

-

50,000 common shares on or before April 30, 2004 (issued);

-

50,000 common shares on or before October 30, 2004 (issued);

-

50,000 common shares on or before October 30, 2005;

-

50,000 common shares on or before October 30, 2006; and

-

50,000 common shares on or before October 30, 2007.



The Company had the right to buy one-half (being 1%) of the NSR retained by the vendor at any time for USD 1,000,000.



Pursuant to a lease with option to purchase executed May 19, 2004 between the Company and four Mexican individuals, the Company had the right to acquire a 100% interest, subject to a 1% NSR retained by the vendors, in one of the exploitation concessions comprised in the La Zorra Project upon payment of USD 10,000 on execution (paid) and further payments aggregating USD 890,000 over five years to May 19, 2009.  The Company had the right to buy the NSR retained by the vendors at any time for USD 1,000,000.



Pursuant to a lease with option to purchase executed October 6, 2004 between the Company and two Mexican individuals, the Company had the right to acquire a 100% interest, subject to a 1% NSR retained by the vendor, in one of the exploitation concessions comprised in the La Zorra Project upon payment of USD 10,000 on execution (paid) and further payments aggregating USD 265,000 over four years to October 6, 2008.  The Company had the right to buy the NSR retained by the vendors at any time for USD 300,000.



In the fiscal year ended October 31, 2005, the Company returned all of the concessions comprised in the La Zorra project to the respective vendors thereof and $1,038,942 in associated acquisition and exploration costs were written off.

.

(b)

Argentina



i.

Olaroz Silver Project, Jujuy Province, Argentina, consisting of the following concessions:



-

Providencia Norte Concession, Jujuy Province, Argentina



Pursuant to an agreement dated August 8, 2002 between the Company and a private Argentinean company, the Company had the right to earn a 100% interest (subject to a 1.5% NSR payable to the vendor) in the Providencia Norte Concession, Jujuy Province, Argentina.



During the fiscal year ended October 31, 2004, the Providencia Norte Concession was abandoned and $685,500 in associated acquisition and exploration costs were written off.



-

La Providencia Concession, Olaroz District, Jujuy Province, Argentina



Pursuant to an agreement dated August 8, 2002 between the Company and an Argentinean individual, the Company had the right to earn a 100% interest in the La Providencia Concession upon payment of an aggregate of USD 365,000.



During the fiscal year ended October 31, 2004, the La Providencia Concession was abandoned and $3,598,881 in associated acquisition and exploration costs were written off.



-

Olaroz Chico and Tola Concessions, Jujuy Province, Argentina



Pursuant to an agreement dated May 8, 2002 (as amended on August 8, 2002) between the Company and two Argentinean individuals, the Company had the right to earn a 100% interest (subject to a 2% NSR payable to the vendors) in two concessions upon making an aggregate of USD 475,000 in payments.



During the fiscal year ended October 31, 2004, the Olaroz Chico and Tola Concessions were abandoned and $97,370 in associated acquisition and exploration costs were written off.  During the year ended October 31, 2006, the balance of the property costs of $155,015 were written off.



-

La Libertad Concession, Jujuy Province, Argentina



Pursuant to an agreement dated April 17, 2003 between the Company and an Argentinean individual, the Company had the right to acquire a 100% interest in one mineral concession located in Jujuy Province in consideration of payments aggregating USD 100,000.



During the fiscal year ended October 31, 2005, the Company returned the property to the vendor and $5,600 in associated acquisition and exploration costs were written off.





ii.

Chingolo Silver Project, Jujuy Province, Argentina, consisting of the following concessions:



-

Cavok Property, Jujuy Province, Argentina



Pursuant to an agreement dated May 22, 2002 between the Company and a private Argentinean company, the Company has the right to acquire a 100% interest in three mineral concessions in Jujuy Province, Argentina, by making a payment of USD 10,000 on or before October 18, 2002 (paid) and issuing an aggregate of 250,000 common shares, as follows:



-

50,000 common shares on or before October 18, 2002 (issued);

-

100,000 common shares on or before October 18, 2003 (issued); and

-

100,000 common shares on or before October 18, 2006 (issued subsequent to year-end).



Two of these concessions form part of the Olaroz Silver Project (Note 6(b)(i)) and, during the fiscal year ended October 31, 2004, these two concessions were written down by $4,381,701 to a nominal value of $1.  The third concession forms part of the Chingolo Silver Project.



-

Cozzi Property, Jujuy Province, Argentina



Pursuant to an agreement dated December 9, 2002 between the Company and an Argentinean individual, the Company purchased a 100% interest in three mineral concessions located in Jujuy Province, Argentina, in consideration of 100,000 common shares issued to such individual.



The Company considers the Chingolo Silver Project to be an active property although no work programs are planned for 2007.



iii.

Cerro Atajo Project, Catamarca Province, Argentina



In order to acquire an interest in the Cerro Atajo Project, consisting of 17 mineral concessions in Catamarca Province, Argentina, the Company entered into two agreements involving Sociedad Minera Catamarquena de Economia Mixta (Somicadem), a governmental corporation owned as to 51% by the Province of Catamarca and 49% by two private Argentinean companies (the Shareholders).  Somicadem is the holder of the Cerro Atajo property.  The first of these agreements was with respect to the acquisition by the Company of the interest of the Shareholders in Somicadem and the second was with respect to the acquisition by the Company from Somicadem of the rights to explore and exploit the property itself.



Pursuant to the first agreement, dated August 24, 2004 (as amended by an agreement dated December 10, 2004), among the Company and the Shareholders, the Company had the option to acquire the 49% of the issued capital stock of Somicadem from the Shareholders, together with all of the interest of the Shareholders in their existing Exploration, Exploitation and Mining Lease Agreements dated September 10, and 13, 1991 (collectively, the Existing Lease) with Somicadem relating to the Cerro Atajo property.  In order to exercise the option, the Company was required to pay the Shareholders an aggregate of USD 11,650,000, and issue 1,750,000 common shares to the Shareholders, as follows:



Payments



-

USD 300,000 upon the Company having completed its due diligence (as provided for below) following the Company having entered into a satisfactory amendment to the Existing Lease (which occurred, and the payment was made, on January 12, 2005);

-

USD 350,000 on or before January 12, 2006 (subsequently re-negotiated for six months to June 12, 2006);

-

USD 1,000,000 on or before January 12, 2007;

-

USD 2,000,000 on or before January 12, 2008;

-

USD 3,000,000 on or before January 12, 2009; and

-

USD 5,000,000 on or before January 12, 2010.



Share Issuances



-

100,000 common shares on or before January 12, 2006 (subsequently re-negotiated for six months to June 12, 2006);

-

150,000 common shares on or before January 12, 2007;

-

500,000 common shares on or before January 12, 2008; and

-

1,000,000 common shares on or before January 12, 2009.



At the election of the Company, could settle the obligation to issue some or all of the foregoing common shares by making payments to the Shareholders equal to USD 5 per share (up to USD 8,750,000 in total).



Pursuant to the second agreement, which was a modification agreement dated January 12, 2005 among the Shareholders, Somicadem and the Company to amend the Existing Lease, the Company had the right to carry out prospecting, exploration, development and exploitation activities at Cerro Atajo, and the option to enter into a 40-year mining lease.  In order to maintain the exploration rights and option to enter into a mining lease in good standing, the Company was required to complete the following:



Payments to the Province of Catamarca aggregating USD 550,000, as follows:



-

USD 50,000 on execution of the modification agreement (paid);

-

USD 100,000 on or before January 12, 2007;

-

USD 100,000 on or before January 12, 2008;

-

USD 100,000 on or before January 12, 2009;

-

USD 100,000 on or before January 12, 2010; and

-

USD 100,000 on or before January 12, 2011.



Exploration expenditures of not less than USD 1,525,000 on or before January 12, 2011 (to be incurred in carrying out a prescribed program of work).



If the Company exercised the mining lease option (which must be exercised on or before March 12, 2011), it would be required to make aggregate payments of USD 27,000,000 to the Province of Catamarca, as follows:



-

USD 10,000,000 following a production decision and prior to the commencement of production; and

-

USD 17,000,000 during the first two years of production.



In addition, the Company would be required to pay to the Province of Catamarca a royalty consisting of 15% of the net profits realized by the Company from the exploitation of the property.



During the year ended October 31, 2006, the Cerro Atajo Project was abandoned and $1,137,656 in associated acquisition and exploration costs was written off.



iv.

Cerro Juncal Property, Salta Province, Argentina



Pursuant to an agreement dated November 12, 2004 between the Company and a private Argentinean company, the Company had the right to acquire a 100% interest, subject to a 0.5% NSR to the vendor, in two mineral concessions (approximately 2,600 hectares) in Salta Province, Argentina, in consideration of payment to the vendor of USD 2,000,000 on or before the date that is three years after the Company commences exploration on the property.  Prior to the exercise of the purchase option, the Company was required to pay the vendor an aggregate of USD 360,000 in order to keep the purchase option in good standing, as follows:



-

USD 25,000 on signing (paid);

-

USD 60,000 on or before November 12, 2005 (paid);

-

USD 50,000 on or before May 12, 2006 (paid);

-

USD 75,000 on or before November 12, 2006; and

-

USD 150,000 on or before May 12, 2007.



If the Company exercised the option to purchase the property prior to May 12, 2007, the requirement to make any remaining option payments outlined above ceased.  Commencing with the fifth year after execution of the agreement if, in such year or any subsequent year prior to the exercise of the purchase option, the vendor has not received at least USD 100,000 pursuant to the NSR in such year, the Company is required to pay to the vendor the difference between USD 100,000 and the amount received by the vendor pursuant to the NSR.  The Company had the option to purchase the 0.5% NSR at any time for the sum of USD 1,000,000.



As a result of the status of ongoing negotiations concerning the property, the Company did not make the November 12, 2006 payment.  As a consequence, the property was returned to the vendor, and accordingly, the book value of $394,172 was written off as at October 31, 2006.



v.

Huachi Property, Argentina



Pursuant to an agreement dated June 13, 2005 between the Company and a private Argentinean company, the Company can acquire a 100% interest in 30 mining concessions referred to as the Huachi Property in the Province of San Juan, Argentina.  In order to maintain the option in good standing and to be permitted to carry out exploration activities prior to such exercise, the Company is required to make payments and incur exploration expenditures as follows:



Payments of USD 5,500,000, as follows:



-

USD 70,000 on June 13, 2005 (paid);

-

USD 70,000 on or beforeApril 13, 2006 (paid);

-

USD 200,000 on or before June 13, 2007;

-

USD 600,000 on or before April 13, 2008;

-

USD 1,000,000 on or before June 13, 2009; and

-

USD 3,560,000 on or before June 13, 2010.



Exploration expenditures of USD 2,000,000, as follows:



-

USD 750,000 on or before December 13, 2007; and

-

USD 1,250,000 on or before June 13, 2010.



The Company is currently exploring this property with drill programs planned for 2007.





vi.

Sediment Hosted Vein (SHV) Project, northwestern Argentina.  The SHV project is an exploration program based on a specific geological model, and involves an initial reconnaissance program, followed by the acquisition of properties believed to be prospective for this type of deposit.  During the year ended October 31, 2006, the Company acquired interests in, or the right to acquire an interest in, 11 separate properties that, together, make up the Companys SHV Project.  Additional properties may be acquired, as reconnaissance and property evaluation is ongoing.  Details of the existing properties (all of which are considered active properties, with work programs either ongoing or planned for 2007) are as follows:



a.

Incahuasi Property, Catamarca Province, Argentina.  The Incahuasi Property presently consists of seven minas, two cateos and one tailings concession (approximately 2,292 hectares) located in Catamarca Province, Argentina, and acquired by the Company as follows:



Pursuant to an agreement with an Argentinean individual dated April 29, 2006, the Company has the option to acquire a 100% interest in four minas (two of which form part of the Incahuasi property and two of which do not) and one tailings concession by making aggregate payments of USD 1,410,000 over five years, as follows:



-

USD 20,000 on or before May 29, 2006 (paid);

-

USD 30,000 on or before November 29, 2006 (paid subsequent to October 31, 2006);

-

USD 60,000 on or before May 29, 2007;

-

USD 100,000 on or before May 29, 2008;

-

USD 200,000 on or before May 29, 2009;

-

USD 400,000 on or before May 29, 2010; and

-

USD 600,000 on or before May 29, 2011.



The property is subject to a 2% NSR to the vendor, which the Company can purchase at any time for USD 500,000.



Pursuant to an agreement dated April 29, 2006 between the Company and the vendor of the foregoing properties, the Company and the vendor have also applied for three abandoned minas originally held by a third party in which each of the Company and the vendor will have an initial 50% interest (subject to the grant thereof by the applicable mining tribunal).  The Company will acquire the 50% interest of the vendor in such minas upon the exercise of the option with respect to the vendors properties as set out above.



The Company has also staked and applied for two additional cateos surrounding the foregoing minas and tailings concession, and has applied for one new mina and one additional abandoned mina adjacent to the property.



b.

Salar de Oro Property, Jujuy Province, Argentina.  The Salar de Oro Property consists of five continuous cateos and six minas (approximately 25,409 hectares) located in Jujuy Province, Argentina, and acquired by the Company as follows:



Pursuant to an agreement dated July 11, 2006 between the Company and a private Argentinean company, the Company has the option to acquire a 100% interest (excluding surficial placer rights) in three of the cateos and the six minas by making aggregate payments of USD 2,470,000 over four years to May 3, 2010, as follows:





-

USD 35,000 on or before April 4, 2006 (paid);

-

USD 135,000 on or before May 3, 2007;

-

USD 300,000 on or before May 3, 2008;

-

USD 300,000 on or before May 3, 2009; and

-

USD 1,700,000 on or before May 3, 2010.



In addition to the foregoing, the Company has staked and applied for two cateos surrounding the foregoing property.



c.

Il Torno Property, Jujuy Province, Argentina.  The Il Torno Property consists of four minas (approximately 5,046 hectares) located in Jujuy Province, Argentina, and acquired by the Company as follows:



Pursuant to an agreement dated October 3, 3006 between the Company and an Argentinean individual, the Company has the option to acquire a 100% interest (excluding surficial placer rights to a portion of the property) in the four minas for USD 3,000,000.  In order to maintain the option in good standing and to be able to explore the property prior to the exercise of the option (which must be exercised, if at all, on or before December 3, 2010), the Company is required to make the following payments:



-

USD 30,000 on signing (paid);

-

USD 30,000 on or before April 3, 2007;

-

USD 50,000 on or before October 3, 2007;

-

USD 50,000 on or before April 3, 2008;

-

USD 100,000 on or before October 3, 2008;

-

USD 100,000 on or before April 3, 2009;

-

USD 100,000 on or before October 3, 2009;

-

USD 100,000 on or before April 3, 2010;

-

USD 150,000 on or before October 3, 2010; and

-

USD 200,000 on or before December 3, 2010.



The property is subject to a 2% NSR to the vendor, which the Company can purchase at any time for USD 2,000,000.  The Company is required (subject to receipt of approval of the required environmental impact statement) to commence prospecting work on or before January 3, 3007, and to formulate and implement a work program on the property on or before October 3, 2007.



d.

5A3/5A4 Property, Jujuy Province, Argentina.  The 5A3/5A4 Property presently consists of two minas and two cateos (approximately 1,602 hectares) located in Jujuy Province, Argentina, and acquired by the Company as follows:



Pursuant to an agreement with a private Argentinean company dated May 2, 2006, the Company has the option to acquire a 100% interest in one cateo (excluding surficial placer rights for a period of five years) by making aggregate payments of USD 350,000 over five years, as follows:



-

USD 7,000 on or before June 2, 2006 (paid);

-

USD 14,000 on or before November 2, 2006 (paid subsequent to October 31, 2006);

-

USD 14,000 on or before June 2, 2007;

-

USD 28,000 on or before June 2, 2008;

-

USD 56,000 on or before June 2, 2009;

-

USD 91,000 on or before June 2, 2010; and

-

USD 140,000 on or before June 2, 2011.



Pursuant to an agreement dated May 2, 2006 between the Company and four Argentinean individuals (as amended by an agreement dated May 17, 2006), the Company has the option to acquire a 100% interest in two minas and one cateo (excluding surficial placer rights for a period of five years) by making aggregate payments of USD 500,000 over five years, as follows:



-

USD 10,000 on or before June 2, 2006 (paid);

-

USD 20,000 on or before November 2, 2006 (paid subsequent to October 31, 2006);

-

USD 20,000 on or before May 2, 2007;

-

USD 40,000 on or before May 2, 2008;

-

USD 80,000 on or before May 2, 2009;

-

USD 130,000 on or before May 2, 2010; and

-

USD 200,000 on or before May 2, 2011.



e.

Rinconada Property, Jujuy Province, Argentina.  The Rinconada Property presently consists of three minas and one cateo (approximately 11,495 hectares) located in Jujuy Province, Argentina, and acquired by the Company as follows:



Pursuant to an agreement with a private Argentinean company dated September 19, 2006, the Company has the option to acquire a 100% interest in one mina by making aggregate payments of USD 380,000 over five years, as follows:



-

USD 18,000 on or before September 19, 2006 (paid);

-

USD 12,000 on or before February 19, 2007;

-

USD 20,000 on or before September 19, 2007;

-

USD 40,000 on or before September 19, 2008;

-

USD 70,000 on or before September 19, 2009;

-

USD 90,000 on or before September 19, 2010; and

-

USD 130,000 on or before September 19, 2011.



Pursuant to an agreement dated May 2, 2006 between the Company and an Argentinean individual, the Company has the option to acquire a 100% interest in two minas for USD 940,000.  In order to maintain the option in good standing and to be able to explore the property prior to the exercise of the option (which must be exercised, if at all, on or before September 2, 2010), the Company is required to make the following payments:



-

USD 15,000 on or before June 2, 2006 (paid);

-

USD 15,000 on or before July 2, 2006 (paid);

-

USD 15,000 on or before August 2, 2006 (paid);

-

USD 15,000 on or before November 2, 2006 (paid subsequent to October 31, 2006);

-

USD 60,000 on or before August 2, 2007;

-

USD 60,000 on or before April 2, 2008;

-

USD 60,000 on or before November 2, 2008;

-

USD 80,000 on or before November 2, 2009;

-

USD 80,000 on or before February 2, 2010; and

-

USD 600,000 on or before September 2, 2010.



In addition to the foregoing, the Company has staked and applied for one cateo adjoining the foregoing property.



f.

El Carmen Property, Jujuy Province, Argentina.  The El Carmen Property presently consists of four cateos (approximately 8,088 hectares) located in Jujuy Province, Argentina, and acquired by the Company through the staking and application therefor.



g.

Oros Mayo Property, Jujuy Province, Argentina.  The Oros Mayo Property presently consists of one cateo (approximately 4,010 hectares) located in Jujuy Province, Argentina, and acquired by the Company through the staking and application therefor.



h.

5C2/5C3 Property, Jujuy Province, Argentina.  The 5C2/5C3 Property presently consists of one cateo (approximately 4,391 hectares) located in Jujuy Province, Argentina, and acquired by the Company through the staking and application therefor.



i.

5C1 South Property, Jujuy Province, Argentina.  The 5C1 South Property presently consists of two cateos (approximately 8,778 hectares) located in Jujuy Province, Argentina, and acquired by the Company through the staking and application therefor.



j.

El Toro East/5C5, Jujuy Province, Argentina.  The El Toro East/5C5 Property presently consists of two cateos (approximately 2,612 hectares) located in Jujuy Province, Argentina, and acquired by the Company through the staking and application therefor.



k.

El Toro Property, Jujuy Province, Argentina.  The El Toro Property presently consists of one cateo (approximately 8,820 hectares) located in Jujuy Province, Argentina, and acquired by the Company through the staking and application therefor.



vii.

Other Argentinean Properties



-

Organullo Property, Salta Province, Argentina



Pursuant to an agreement dated October 1, 2004 between the Company and an Argentinean individual, the Company purchased a 100% interest in eight mineral concessions in Salta Province, Argentina, in consideration of the issuance of 70,000 common shares.  These common shares were issued during the fiscal year ended October 31, 2005.



The Company considers this an active project however no work programs are currently planned.



-

Mina Angela Property, Chubut Province, Argentina



Pursuant to an agreement dated April 25, 2004 between the Company and a private Argentinean company, the Company can acquire a 100% interest in 44 mineral concessions in Chubut Province, Argentina, subject to a 1% NSR to the vendor, in consideration of aggregate cash payments to the vendor of USD 400,000, as follows:



-

USD 50,000 on or before April 25, 2005 (paid);

-

USD 50,000 on or before April 25, 2006 (renegotiated, with $10,000 paid on April 25, 2006 and the balance of US$40,000 being paid in October, 2006);

-

USD 150,000 on or before April 25, 2007; and

-

USD 150,000 on or before April 25, 2008.



The Company is required to carry out a program of work on the property as agreed between the vendor and the Company, but the extent and cost thereof have not yet been agreed.  The Company has the option to purchase the 1% NSR royalty from the vendor for the sum of USD 500,000 at any time.



The Company considers this an active project, however no work programs are currently planned.



-

Condor Yacu and Relincho Concessions, Catamarca Province, Argentina



Pursuant to an agreement dated June 27, 2001 (as amended on January 21, 2002 and January 10, 2003) between the Company and an Argentinean individual, the Company had the right to acquire a 100% interest in certain mining concessions located in Catamarca Province by making aggregate payments of USD 1,050,000.



The Condor Yacu and Relincho Concessions were returned to the original vendors during the fiscal year ended October 31, 2004 and $139,666 in associated acquisition and exploration costs were written off.



(c)

Peru



i.

Marcona Project, Lucanas, Nazca and Caraveli Provinces, Peru (Carbonera and Daniella Properties)



Pursuant to option agreements dated October 1, 2003 and October 23, 2003 between the Company and a private Peruvian company, the Company acquired mineral concessions covering approximately 30,000 hectares in Lucanas, Nazca and Caraveli Provinces, Peru.  Approximately 10,500 hectares of these concessions are subject to an underlying agreement with Rio Tinto Mining and Exploration Limited (Rio Tinto).  The private company holds the exclusive right and option to acquire a 100% interest from Rio Tinto, subject to a 0.5% NSR to Rio Tinto, by incurring USD 450,000 in exploration expenditures over three years ending August 22, 2006 and  by paying Rio Tinto USD 500,000 (of which USD 50,000 has been paid) on or before January 27, 2008.  The Company can earn a 100% interest in all 30,000 hectares by assuming and performing all commitments to Rio Tinto pursuant to the underlying agreement, paying the vendor an aggregate of USD 120,000 (paid) and issuing an aggregate of 650,000 common shares to the vendor, as follows:



-

150,000 common shares on TSXV acceptance (issued);

-

100,000 common shares on or before May 28, 2004 (issued);

-

200,000 common shares on or before November 28, 2004 (issued); and

-

200,000 common shares on or before November 28, 2005 (issued).



The Company considers this an active project, however no work programs are currently planned.



ii.

Pampa de Pongo Property, Caraveli Province, Peru



Pursuant to an option agreement dated February 2, 2004 between the Company and a private Peruvian company, the Company can acquire a 100% interest in mineral concessions covering approximately 8,000 hectares in Caraveli Province, Peru.  The private Peruvian company holds the exclusive right and option to acquire a 100% interest in these concessions from Rio Tinto in consideration of the payment to Rio Tinto of aggregate payments of USD 500,000 over four years. The Company can earn a 100% interest in the property by assuming all of the obligations of the private company pursuant to the underlying agreement with Rio Tinto, and making the following payments and share issuances:



Payments aggregating USD 130,900 as follows:



-

USD 65,900 on or before March 12, 2004 (for back taxes on the property) (paid); and

-

USD 65,000 on or before March 12, 2004 (paid).



Issuance of an aggregate of 70,000 common shares, as follows:



-

35,000 shares on or before March 12, 2004 (issued); and

-

35,000 shares on or before September 12, 2004 (issued).



The Company considers this an active project, however no work programs are currently planned.



iii.

Katanga Property, Chumbirilcas Province, Peru



Pursuant to an option agreement dated October 1, 2004 between the Company and a private Peruvian company, the Company can acquire a 100% interest in approximately 9,560 hectares of mineral concessions in Chumbirilcas Province, Peru.



The private Peruvian company holds the exclusive right and option to acquire a 100% interest in these concessions from a group of vendors comprised of three private Peruvian companies and two Peruvian individuals (Underlying Vendors).  The private Peruvian company has the right to acquire a 100% interest in the subject concessions in consideration of aggregate payments of USD 1,900,000 over five years.  The Company can acquire a 100% interest in the concessions by assuming the obligations of the private Peruvian company to the Underlying Vendors and making aggregate payments to the private Peruvian company of USD 501,000, as follows:



-

USD 261,000 on or before the execution of the agreement (paid); and

-

USD 240,000, as to USD 10,000 on or before November 1, 2004 and as to the balance on or before the first day of each succeeding month (paid).



The Company has returned a significant portion of the underlying claims to the vendor and, accordingly, has recognized a write-down of $248,294 during the year ended October 31, 2006.  As a consequence, the Underlying Vendor has agreed to renegotiate the USD 1,900,000 purchase price, and the Company has not been required to make further payments (including the USD 100,000 payment originally due June 30, 2006) while such renegotiations are ongoing.  The balance of the property continues to be evaluated for further exploration potential.



iv.

Iron Sands Project, Nazca Province, Peru



The Companys Iron Sands Project consists of approximately 32,000 hectares of unconsolidated and semi-consolidated mineral bearing sands, the rights to which are encompassed by the mineral claims comprising the Carbonera and Daniella properties (Note 6(c)(i)), and an additional 39 mineral claims acquired by staking at a cost of USD 77,000, in the Department of Arequipa, Peru.



In addition to the foregoing, the Company has assumed, from a private Peruvian company, all rights and obligations under an agreement dated December 16, 2005 between a private Peruvian company and Minera Ataspacas S.A., an arms length private Peruvian company, whereby the private Peruvian company has the option to acquire, from Minera Ataspacas, an initial 70% interest in five mineral sand concessions (3,500 hectares total) situated immediately adjacent to the Companys mineral tenures noted above.  In order to exercise the option, the Company is required to pay a total of USD 2,500,000 over five years to December 15, 2010 (with an initial payment of USD 20,000 on or before December 16, 2005 (paid)) and incur exploration expenditures of not less than USD 250,000 over the same period.  Upon the Company having acquired the 70% interest, a joint venture company will be formed with Minera Ataspacas, and each party will thereafter be required to contribute its share of ongoing expenditures or be diluted.  If either party is diluted to less than 10%, such interest will be converted to a 2% NSR royalty.  If Minera Ataspacas is reduced to the 2% NSR, the Company may purchase half the NSR (1%) for USD 2,000,000 within 24 months of the exercise of the option, and the remaining half (1%) for USD 8,000,000 within 36 months of the exercise of the option.



The Company has entered into an agreement dated October 20, 2005 with the Peruvian subsidiary of a public B.C. company (the Optionee), whereby the Company has granted the Optionee the right to earn a 70% interest in the hard rock mineral rights (thereby excluding the unconsolidated and semi-consolidated mineral sands on such claims) accruing to the mineral claims comprising the Iron Sands Project.  In order to exercise the option, the Optionee is required to incur an aggregate of USD 3,000,000 in expenditures over four years to November 18, 2009 and perform all of the obligations of the Company under the underlying agreements with respect to the Carbonera and Daniella properties (Note 6(c)(i)), including making all payments and incurring all exploration expenditures required thereunder.  Upon the Optionee having earned its 70% interest, the Optionee and the Company will incorporate a new Peruvian company to hold such rights, in which the Optionee and the Company will hold a 70% and a 30% interest therein, respectively.  Each party will thereafter be required to contribute its pro rata share of future expenditures, and a party failing to contribute will have its interest in the joint venture company diluted.  At such point as a partys interest in the joint venture company is reduced to 10%, such interest will be acquired by the joint venture company in exchange for the grant to the diluted party of a 1% NSR.



The Company is currently actively exploring this property with work programs planned for 2007.



vi.

Lircay Project, Huancavelica Province, Peru



Pursuant to an option agreement between the Company and a private Peruvian company made as of May 15, 2005, the Company had the option to acquire a 100% interest in 15 mineral claims located in the Department of Huancave, Peru, covering approximately 9,000 hectares by making a payment of USD 60,000 upon signing (paid), issuing the following shares and incurring the following exploration expenditures:



An aggregate of 300,000 common shares, as follows:



-

100,000 shares on or before November 15, 2005;

-

100,000 shares on or before November 15, 2006; and

-

100,000 shares on or before November 15, 2008.



Exploration expenditures of USD 1,000,000, as follows:



-

USD 50,000 on or before May 15, 2006;

-

an additional USD 150,000 on or before May 15, 2007;

-

an additional USD 300,000 on or before May 15, 2008; and

-

an additional USD 500,000 on or before May 15, 2009.



In addition, three of the claims (1,200 hectares) were subject to an agreement with an underlying vendor, and the Company was required to assume the obligations of the private Peruvian company thereunder.



The Lircay property was returned to the vendor during the fiscal year ended October 31, 2005 and $140,634 in associated acquisition and exploration costs were written off.



vi.

Corongo Project, Huanuco Province, Peru



Pursuant to an option agreement between the Company and a private Peruvian company made as of May 15, 2005, the Company has the option to acquire a 100% interest in 10 mineral claims located in the Department of Ancash, Peru covering approximately 6,400 hectares by making a payment of USD 40,000 upon signing (paid) and issuing an aggregate of 300,000 common shares, as follows:



-

100,000 shares on or before 10 days after the date of regulatory acceptance (issued);

-

100,000 shares on or before November 15, 2006 (issued subsequent to year end); and

-

100,000 shares on or before May 15, 2008.



The Company considers this an active project, however no work programs are currently planned.



vi.

Bocana Property, Peru



Pursuant to an option agreement dated August 1, 2006, between the Company, a Peruvian individual and a private Panamanian corporation, the Company has the right to acquire a 75% interest in two mining concessions (approximately 1,795 hectares).  In order to maintain the option in good standing and to be permitted to carry out exploration activities prior to such exercise, the Company is required to make payments and incur exploration expenditures as follows:



Payments of USD 500,000, as follows:



-

USD 50,000 on signing (paid);

-

USD 100,000 on or beforeAugust 1, 2007;

-

USD 150,000 on or before August 1, 2008; and

-

USD 200,000 on or before August 1, 2009.



In addition to the foregoing, the agreement requires aggregate payments of USD 120,000 (USD 5,000 per month) to a third party (a private Florida corporation) for a period of 24 months following the execution of the agreement (all of which have been paid for the fiscal year ending October 31, 2006 and for the subsequent period up to January 2007).



Cumulative exploration expenditures of USD 1,850,000, as follows:



-

USD 350,000 on or before August 1, 2007;

-

USD 850,000 on or before August 1, 2008; and

-

USD 1,850,000 on or before August 1, 2009.



Upon the Company having exercised the option, the property will be transferred to a new private Peruvian company, in which the Company will have a 75% interest and the vendor will have a 25% interest.  The Company is responsible for funding 100% of the expenditures incurred by the new company (the interest of the vendor therein being carried).  The Company will have the option to acquire the 25% interest of the vendor in the new company for the sum of USD 2,500,000 at any time after the Company exercises the option to acquire the initial 75% interest.



The Company considers this an active project, however no work programs are currently planned.



(d)

Title and environmental



Although the Company has taken steps to verify the title to mineral properties in which it has or has a right to acquire an interest in accordance with industry standards for the current stage of exploration of such properties, these procedures do not guarantee title (whether of the Company or of any underlying vendor(s) from whom the Company may be acquiring its interest).  Title to mineral properties may be subject to unregistered prior agreements or transfers, and may also be affected by undetected defects or the rights of indigenous peoples.



Environmental legislation is becoming increasingly stringent and costs and expenses of regulatory compliance are increasing.  The impact of new and future environmental legislation on the Companys operations may cause additional expenses and restrictions.  If the restrictions adversely affect the scope of exploration and development on the mineral properties, the potential for production on the property may be diminished or negated.



7.

CAPITAL STOCK



(a)

Authorized



An unlimited number of common shares without par value



(b)

Issued and outstanding



|                                              | 2006                     | 2005                 | 2004                    
|--------------------------------------------- | ------------------------ | -------------------- | ------------------------
|                                              | Number
        of Shares | Amount               | Number
        of Shares
|                                              |                          |                      |                         
|Balance, beginning of year                    | 41,685,239               | $
        43,917,324 | 38,247,958              
|Issued during the year:                       |                          |                      |                         
|For cash:                                     |                          |                      |                         
|Pursuant to private placements                | -                        | -                    | -                       
|On exercise of share purchase warrants        | -                        | -                    | 2,121,781               
|On exercise of stock options                  | 1,037,200                | 2,732,775            | 960,500                 
|                                              | 1,037,200                | 2,732,775            | 3,082,281               
|                                              |                          |                      |                         
|Pursuant to resource property
        options | 300,000                  | 1,211,000            | 355,000                 
|Pursuant to data purchases                    | 100,000                  | 300,000              | -                       
|Reallocated from contributed
        surplus  | -                        | 1,299,217            | -                       
|                                              | 400,000                  | 2,810,217            | 355,000                 
|                                              |                          |                      |                         
|Balance, end of year                          | 43,122,439               | $
        49,460,316 | 41,685,239              



(c)

Contributed Surplus



|                             | 2006                | 2005                | 2004               
|---------------------------- | ------------------- | ------------------- | -------------------
|                             |                     |                     |                    
|Balance, beginning of year   | $
        4,975,930 | $
        3,520,528 | $
        740,408  
|Stock-based compensation     | 2,969,183           | 2,398,396           | 3,433,900          
|Reallocated to capital stock | (1,299,217)         | (942,994)           | (653,780)          
|                             |                     |                     |                    
|Balance, end of year         | $
        6,645,896 | $
        4,975,930 | $
        3,520,528



(d)

Stock options



The Company has a stock option plan whereby the Company may grant options to directors, officers, employees and consultants to purchase common shares, provided that the number of shares subject to such options may not exceed 10% of the common shares outstanding at the time of any grant.  The exercise price of each option is equal to or higher than the market price of the Companys common shares at the date of the grant.  The option term and vesting period is determined by the board of directors within regulatory guidelines.  All options are granted at fair value.

7.

CAPITAL STOCK (Continued)



A summary of the status of the stock option plan as of October 31, and changes during the years ended on those dates is presented below:



|                                       | 2006                     | 2005                           
|-------------------------------------- | ------------------------ | -------------------------------
|                                       | Number of
        Shares | Weighted Average Exercise Price
|                                       |                          |                                
|Options outstanding, beginning of year | 3,642,000                | $2.83                          
|Expired                                | (1,854,000)              | $(2.83)                        
|Exercised                              | (1,037,200)              | $(2.63)                        
|Granted                                | 3,400,000                | $2.38                          
|Options outstanding, end of year       | 4,150,800                | $2.51                          



Stock options outstanding are as follows:



|                  | 2006                   | 2005                    
|----------------- | ---------------------- | ------------------------
|Expiry Date       | Exercise
        Price | Number of
        Shares
|                  |                        |                         
|January 27, 2006  | $2.35                  | -                       
|April 16, 2006    | $3.25                  | -                       
|June 11, 2006     | $2.50                  | -                       
|October 6, 2006   | $3.25                  | -                       
|November 16, 2006 | $3.25                  | 350,000                 
|June 9, 2007      | $3.25                  | 305,800                 
|July 29, 2007     | $3.00                  | 200,000                 
|September 1, 2007 | $3.00                  | 175,000                 
|May 2, 2008       | $2.80                  | 1,400,000               
|August 4, 2008    | $1.95                  | 1,300,000               
|October 12, 2008  | $1.70                  | 420,000                 
|                  |                        |                         



All November 16, 2006 options expired, unexercised, on that date.



During the years ended October 31, 2006, 2005 and 2004, the Company used the fair value method for determining stock-based compensation expense for all options granted during the fiscal years.  The fair value was determined using the Black-Scholes option pricing model based on the following assumptions.



|                      | 2006   | 2005  | 2004 
|--------------------- | ------ | ----- | -----
|                      |        |       |      
|Expected life (years) | 2.0    | 2.0   | 2.0  
|Interest rate         | 4.33%  | 3.3%  | 2.9% 
|Volatility            | 60.96% | 84.0% | 86.6%
|Dividend yield        | 0.00%  | 0.0%  | 0.0% 



Stock-based compensation charge of $2,969,183(2005 - $2,398,396; 2004 - $3,433,900) resulted from amortizing the compensation expense over the vesting period.



(e)

Share purchase warrants



At October 31, the following common share purchase warrants were outstanding entitling the holders thereof the right to purchase one common share for each warrant.  On March 17, 2006, the outstanding warrants expired, unexercised.



|                                        | 2006               | 2005                           
|--------------------------------------- | ------------------ | -------------------------------
|                                        | Number of Warrants | Weighted Average Exercise Price
|                                        |                    |                                
|Warrants exercisable, beginning of year | 2,600,000          | $3.50                          
|Expired                                 | (2,600,000)        | $(3.50)                        
|Exercised                               | -                  | -                              
|Warrants exercisable, end of year       | -                  | $    -                         



8.

RELATED PARTY TRANSACTIONS



During the years ended October 31, 2006, 2005 and 2004, the Company incurred the following expenses paid to directors of the Company or companies with common directors:



|                  | 2006            | 2005              | 2004             
|----------------- | --------------- | ----------------- | -----------------
|Professional fees | $
        4,458 | $
        366,636 | $
        221,420
|Management fees   | $
        -     | $
        -       | $
        32,000 



At October 31, 2006 there was $12,012 (October 31, 2005 - $24,816; 2004 - $23,707) included in accounts payable and accrued liabilities owing to related parties.  Professional fees include $133,791 (2005 - $353,734; 2004 - $207,045) paid to a law firm of which a director was a partner.  The Company also recovered $55,686 (2005 - $121,373; 2004 - $66,846) during 2006 in rent and administration costs from Wealth Minerals Ltd., International Tower Hill Mines Ltd. and Athlone Energy Inc., companies with common officers or directors, of which $23,045 (2005 - $13,981; 2004 - $20,000) was included in accounts receivable.



These charges were measured by the exchange amount, which is the amount agreed upon by the transacting parties and are on terms and conditions similar to non-related entities.



During the years ended October 31, 2006 and 2005, the Company used the fair value method for determining stock-based compensation expense for all options granted during the fiscal years.  The fair value was determined using the Black-Scholes option pricing model based on the following assumptions.



Effective October 1, 2005, the Company retained Mr. Carlos Ballon of Lima, Peru, to provide management services on behalf of the Company in Peru through his private Peruvian company, Minera Koripampa del Peru S.A. for a fee of USD 10,000 per month, which has been expensed to consulting fees.  Accordingly, Mr. Ballon is now a related party with respect to the Company.  Prior to Mr. Ballon becoming a related party, the Company entered into a number of mineral property acquisition/option agreements from either Minera Koripampa del Peru S.A. or Sudamericana de Metales Peru S.A., another private Peruvian company controlled by Mr. Ballon.  Such property transactions include those with respect to the Carbonera and Daniella Properties (Note 6(c)(i)), the Pampa de Pongo Property (Note 6(c)(ii)), the Katanga Property (Note 6(c)(iii), the Lircay Project (Note 6(c)(v)) and the Corongo Project (Note 6(c)(vi)).  Mr. Ballon became President of Cardero Peru in April 2006.



The presidents of MMC and Cardero Argentina provide management services for USD 5,000 each per month, which is expensed to consulting fees or capitalized to property costs depending upon the nature of the services.



9.

GEOGRAPHIC SEGMENTED DATA



2006Canada
      Peru
      Argentina
      Mexico
      TotalResource Properties
      $
          -
      $
          9,503,822
      $
          3,543,814
      $
          5,632,680
      $
          18,680,316Cash
      4,506,165
      -
      -
      -
      4,506,165Investment
      2,240,000
      -
      -
      -
      2,240,000Other
      1,745,790
      -
      -
      -
      1,745,790$
          8,491,955
      $
          9,503,822
      $
          3,543,814
      $
          5,632,680
      $
          27,172,271




2005Canada
      Peru
      Argentina
      Mexico
      TotalResource Properties
      $
          -
      $
          6,212,992
      $
          2,711,564
      $
          3,263,790
      $
          12,188,346Cash
      15,206,219
      -
      -
      -
      15,206,219Investment
      -
      -
      -
      -
      -Other
      1,085,501
      -
      ­-
      -
      1,085,501$
          16,291,720
      $
          6,212,992
      $
          2,711,564
      $
          3,263,790
      $
          28,480,066




10.

INCOME TAX LOSSES



|                            | 2006                  | 2005                  | 2004                 
|--------------------------- | --------------------- | --------------------- | ---------------------
|                            |                       |                       |                      
|Income tax benefit          | $
        (2,792,838) | $
        (2,269,336) | $
        (3,542,741)
|Permanent differences       | 1,021,016             | 725,683               | 1,308,682            
|Write-down of properties    | 699,781               | 418,074               | 1,718,119            
|Other temporary differences | (34,659)              | (35,413)              | (33,777)             
|Unrecognized tax losses     | 115,224               | 1,160,992             | 549,717              
|                            | $
        -           | $
        -           | $
        -          





The components of future income tax assets are as follows:



|                                                          | 2006                    | 2005               
|--------------------------------------------------------- | ----------------------- | -------------------
|Future income tax assets                                  |                         |                    
|Non-capital loss carry-forwards                           | $
        12,323,146    | $
        7,308,600
|Difference between undepreciated capital cost             |                         |                    
|over net book value of property and equipment             | 7,931                   | (6,398)            
|Cumulative eligible capital deduction                     | 54,712                  | 54,712             
|Tax value of resource properties in excess of book values | 1,723,956               | 2,017,969          
|                                                          |                         |                    
|                                                          | 14,109,745              |                    
|Tax rate                                                  | 34%                     | 34%                
|                                                          | 4,797,313               | 3,196,835          
|Less:  Valuation allowance                                | (4,797,313)             | (3,196,835)        
|                                                          |                         |                    
|                                                          | $                     - | $
        -        



The valuation allowance reflects the Company's estimate that the tax assets, more likely than not, will not be realized.



The Company has available approximate non-capital losses that may be carried forward to apply against future years' income for Canadian income tax purposes.  The losses expire as follows:



|Available to | Amount              
|------------ | --------------------
|2007         | $
        115,500   
|2008         | 145,300             
|2009         | 362,200             
|2010         | 839,922             
|2014         | 2,046,348           
|2015         | 4,369,200           
|2016         | 1,580,780           
|2026         | 2,863,897           
|             |                     
|             | $
        12,323,146



The Company also has approximately $1,098,200 of capital losses that can be applied against future capital gains taxable in Canada, which carry-forward indefinitely.  The benefit of these losses has not been recorded in these financial statements.



11.

CONTINGENT LIABILIITY



On May 20, 2004, Western Telluric Resources Inc. (Western Telluric) and Minera Olympic, S. de R.L. de C.V. (Minera) (collectively, the Plaintiffs) commenced an action in the British Columbia Supreme Court (Vancouver Registry, No. S042795) against the Company and James Dawson, Murray McClaren and their respective companies, Dawson Geological Consultants Ltd. and 529197 B.C. Ltd. (carrying on business as Crockite Resources).  The relief claimed against the Company is the setting aside of an agreement dated December 12, 2001 between the Company and Minera regarding the acquisition of mineral concessions.  The Company has filed a Statement of Defence in which it denies any liability as well as a Counterclaim against the Plaintiffs.  The pleadings are closed and documents have been exchanged.  Discoveries have been partially completed, and trial is currently set for March 2007.



The Company is not currently in a position to quantify the potential exposure to the Company or the potential recovery that may be had pursuant to the Companys Counterclaim.  No specific amounts are claimed in either the Statement of Claim or the Counterclaim.  The Plaintiffs have not delivered any evidence with respect to quantum.  In addition, the size of any damage award against the Company may be affected by results of work on the subject mineral properties between October 31, 2006 and trial.  Accordingly, no provision for the outcome has been included in these financial statements.  Any outcome, if any, will be recorded in future periods as they become known.



12.

SUBSEQUENT EVENTS



Subsequent to October 31, 2006, the Company:

(a)

Granted 600,000 stock options at a price of $2.00 per share for a period of two years on November 29, 2006, and 300,000 stock options at a price of $1.70 per share for a period of two years on December 20, 2006.

(b)

On January 12, 2007, closed a non-brokered private placement of 1,500,000 units and on January 23, 2007 closed a brokered private placement of 2,200,000 units.  In each placement the units were sold at $1.50 per unit, and a unit consisted of one common share and one-half of a warrant to purchase an additional common share at a price of $2.00 for a period of eighteen months.  The net proceeds from the private placements was $5,292,770.

(c)

On December 14, 2006, sold 1,000,000 shares of its investment in International Tower Hill Mines Ltd. for net proceeds of $2,378,236.

(d)

Issued 200,000 shares pursuant to mineral property option agreements, 120,000 shares on exercise of stock options for proceeds of $204,000 and 280,800 options were returned unexercised.

(e)

Entered into an option agreement dated November 30, 2006 to acquire a 50% interest in one mina adjacent to the Huachi Property, Argentina (Note 6(b)(v)).  In order to exercise the option, the Company is required to make aggregate payments of USD 965,000 over a period of five years to November 11, 2011 (with an initial payment of USD 5,000 on signing (paid)).



13.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP)



(a)

Differences in accounting principles

i.

Exploration expenditures



Under Canadian GAAP, acquisition costs and exploration expenditures are deferred as explained in note 2(f).



Under US GAAP, exploration costs incurred in locating areas of potential mineralization are expensed as incurred.  Commercial feasibility is established in compliance with Industry Guide 7, which consists of identifying that part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination.  After an area of interest has been assessed as commercially feasible, expenditures specific to the area of interest for further development are capitalized.  In deciding when an area of interest is likely to be commercially feasible, management may consider, among other factors, the results of prefeasibility studies, detailed analysis of drilling results, the supply and cost of required labour and equipment, and whether necessary mining and environmental permits can be obtained.



13.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) (Continued)



i.

Financial instruments



Under Canadian GAAP, investments are carried at the lower of aggregate cost or quoted market value.  Under US GAAP, investments in marketable securities classified as available for sale are recognized at fair value.  Unrealized gains and losses are included in other comprehensive income.



iii.

Reconciliation of total assets, liabilities and stockholders equity:



|                                         | 2006                 | 2005                
|---------------------------------------- | -------------------- | --------------------
|Total assets per Canadian GAAP           | $
        27,172,271 | $
        28,480,066
|Expenditures on resource properties      |                      |                     
|expensed under US GAAP                   | (18,680,316)         | (12,188,346)        
|Fair value adjustment to investment      | 6,840,000            | -                   
|Total assets per US GAAP                 | $
        15,331,955 | $
        16,291,720
|Total liabilities per Canadian GAAP      | $
        478,621    | $
        809,232   
|Adjustments to US GAAP                   | -                    | -                   
|Total liabilities per US GAAP            | 478,621              | 809,232             
|Total equity per Canadian GAAP           | 26,693,650           | 27,670,834          
|Expenditures on resource properties      |                      |                     
|expensed under US GAAP                   | (18,680,316)         | (12,188,346)        
|Accumulated other comprehensive income   | 6,840,000            | -                   
|Total equity per US GAAP                 | 14,853,334           | 15,482,488          
|                                         |                      |                     
|Total liabilities and equity per US GAAP | $
        15,331,955 | $
        16,291,720



iv.

Reconciliation of net loss reported in Canadian GAAP and US GAAP:



Statement of operations for the year ended October 31:



|                                                     | 2006                  | 2005                   | 2004                  
|---------------------------------------------------- | --------------------- | ---------------------- | ----------------------
|                                                     |                       |                        |                       
|Reconciliation of net loss from Canadian             |                       |                        |                       
|GAAP to US GAAP                                      |                       |                        |                       
|Net loss per Canadian GAAP                           | $
        (8,190,142) | $
        (6,462,890)  | $
        (9,323,002) 
|Acquisition of mineral properties                    | (2,473,282)           | (3,215,771)            | (2,970,195)           
|Exploration and development costs, net               | (6,070,834)           | (3,572,824)            | (3,388,989)           
|Reverse amounts written-off                          | 2,052,145             | 1,190,641              | 4,521,367             
|Net loss per US GAAP                                 | (14,682,113)          | (12,060,844)           | (11,160,819)          
|Unrealized gain on investment                        | 6,840,000             | -                      | -                     
|Total comprehensive income per US GAAP               | $
        (7,842,113) | $
        (12,060,844) | $
        (11,160,819)
|Net loss per share in                                |                       |                        |                       
|accordance with Canadian GAAP                        | $(0.19)               | $(0.16)                | $(0.26)               
|Total differences                                    | (0.15)                | (0.14)                 | (0.06)                
|Net loss per share in accordance with US GAAP        | $(0.34)               | $(0.30)                | $(0.32)               
|Weighted average number of common shares outstanding | 42,741,186            | 40,938,200             | 35,198,762            





v.

Reconciliation of cash flows in accordance with Canadian GAAP and US GAAP:



|                                                                                                                 | 2006         | 2005         | 2004        
|---------------------------------------------------------------------------------------------------------------- | ------------ | ------------ | ------------
|Net cash used in operating activities of continuing operations in accordance with Canadian GAAP                  | $(3,782,770) | $(3,308,690) | $(1,613,964)
|Adjustments to net loss involving use of cash                                                                    |              |              |             
|Write-off of capitalized resource property costs                                                                 | (7,330,739)  | (5,440,745)  | (4,273,452) 
|                                                                                                                 |              |              |             
|Net cash used in operating activities of continuing operations in accordance with US GAAP                        | (11,113,509) | (8,749,435)  | (5,887,416) 
|                                                                                                                 |              |              |             
|Net cash used in investing activities of continuing operations in accordance with Canadian GAAP                  | (9,650,059)  | (5,458,410)  | (4,322,679) 
|Reclassification of capitalized resource property expenditures                                                   | 7,330,739    | 5,440,745    | 4,273,452   
|                                                                                                                 |              |              |             
|Net cash used in investing activities of continuing operations in accordance with US GAAP                        | (2,319,320)  | (17,665)     | (49,227)    
|                                                                                                                 |              |              |             
|Net cash flows provided by financing activities of continuing operations in accordance with Canadian and US GAAP | 2,732,775    | 7,052,410    | 19,105,247  
|                                                                                                                 |              |              |             
|Net increase (decrease) in cash in accordance with Canadian and US GAAP                                          | (10,700,054) | (1,714,690)  | 13,168,604  
|Cash, beginning of year in accordance with Canadian and US GAAP                                                  | 15,206,219   | 16,920,909   | 3,752,305   
|                                                                                                                 |              |              |             
|Cash, end of year in accordance with Canadian and US GAAP                                                        | $ 4,506,165  | $15,206,219  | $16,920,909 



(b)

Recent US accounting pronouncements



i.

FAS 153, Exchanges of Non-Monetary Assets.  The provisions of this Statement are effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.  Earlier application is permitted for non-monetary asset exchanges occurring in fiscal periods beginning after December 16, 2004.  The provisions of this Statement should be applied prospectively.  There is no impact on the Companys financial statements.



ii.

FIN 46(R), Consolidation of Variable Interest Entities, applies at different dates to different types of enterprises and entities, and special provisions apply to enterprises that have fully or partially applied Interpretation 46 prior to issuance of Interpretation 46(R).  Application of Interpretation 46 or Interpretation 46(R) is required in financial statements of public entities that have interests in variable interest entities or potential variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003.  Application by public entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004.  Application by small business issuers to entities other than special-purpose entities and by non-public entities to all types of entities is required at various dates in 2004 and 2005.  In some instances, enterprises have the option of applying or continuing to apply Interpretation 46 for a short period of time before applying Interpretation 46(R).  There is no impact on the Companys financial statements.





iii.

In 2004, FASB issued Statement No. 123 (revised 2004), Share-Based Payment (SFAS 123R).  This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.  This revised pronouncement requires that all stock options and warrants be accounted for using the fair value method.  This pronouncement will have no impact on the Company, as the Company accounts for all options and warrants using the fair value method, under Canadian GAAP.



iv.

On June 7, 2005, FASB issued Statement No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in Interim Financial Statements.  Statement 154 changes the requirements for the accounting for and reporting of a change in accounting principle.  Previously, most voluntary changes in accounting principles required recognition of a cumulative effect adjustment within net income of the period of the change.  Statement 154 requires retrospective application to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change.  Statement 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005; however, the Statement does not change the transition provisions of any existing accounting pronouncements.  The Company does not believe adoption of Statement 154 will have a material effect on its consolidated financial position, results of operations or cash flows.



v.

On July 13, 2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109.  Interpretation 48 clarifies the accounting for uncertainty in income taxes recognized in an entitys financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return.  Additionally, Interpretation 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Interpretation 48 is effective for fiscal years beginning after December 15, 2006, with early adoption permitted.  The Company is currently evaluating whether the adoption of Interpretation 48 will have a material effect on its consolidated financial position, results of operations or cash flows.



vi.

In 2006, FASB issued Statement No. 157, Fair Value Measurements.  This new pronouncement provides guidance for using fair value to measure assets and liabilities.  FASB believes the pronouncement also responds to investors requests for expanded information about the extent to which corporations measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings.  Statement 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances.  The standard clarifies that for items that are not actively traded, such as certain kinds of derivatives, fair value should reflect the price in a transaction with a market participant, including an adjustment for risk, not just the companys mark-to-market value.  Statement 157 also requires expanded disclosure of the effect on earnings for items measured using unobservable data. The Company does not believe adoption of Statement 157 will have a material effect on its consolidated financial position, results of operations or cash flows.