[exhibit2001.jpg]





CARDERO RESOURCE CORP.

(An Exploration Stage Company)



Audited Consolidated Financial Statements



October 31, 2005 and 2004



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[exhibit2002.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, 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.









Henk van Alphen

Mike Kinley

Hendrik van Alphen,

Michael Kinley,

President & Chief Executive Officer

Chief Financial Officer



January 26, 2006

Vancouver, Canada







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CARDERO RESOURCE CORP.

(AN EXPLORATION STAGE COMPANY)

Consolidated Financial Statements

October 31, 2005 and 2004













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







---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





TO THE SHAREHOLDERS

CARDERO RESOURCE CORP.

(An Exploration Stage Company)



We have audited the accompanying consolidated balance sheets of Cardero Resource Corp. (An Exploration Stage Company) as of October 31, 2005 and 2004 and the related consolidated statements ofoperations and deficit and cash flows for each of the years ended October 31, 2005, 2004 and 2003.  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.  We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as at October 31, 2005 and 2004 and the results of its operations and its cash flows for each of the years ended October 31, 2005, 2004 and 2003 in conformity with Canadian generally accepted accounting principles.   Accounting principles generally accepted in Canada differ in certain significant respects from accounting principles generally accepted in the United States of America and are discussed in Note 11 to these consolidated financial statements.









"Smythe Ratcliffe"

Chartered Accountants

Vancouver, Canada

January 17, 2006



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CARDERO RESOURCE CORP.

(AN EXPLORATION STAGE COMPANY)

Consolidated Balance Sheets

October 31





|                                           | 2005                 | 2004                
|------------------------------------------ | -------------------- | --------------------
|                                           |                      |                     
|Assets                                     |                      |                     
|                                           |                      |                     
|Current                                    |                      |                     
|Cash and cash equivalents                  | $
        15,206,219 | $
        16,920,909
|Accounts receivable                        | 575,436              | 500,361             
|Prepaid expenses                           | 464,250              | 172,133             
|                                           |                      |                     
|Total Current Assets                       | 16,245,905           | 17,593,403          
|                                           |                      |                     
|Equipment (note 4)                         | 45,815               | 47,785              
|                                           |                      |                     
|Resource Properties (notes 5 and 6)        | 12,188,346           | 6,590,392           
|                                           |                      |                     
|Total Assets                               | $
        28,480,066 | $
        24,231,580
|                                           |                      |                     
|Liabilities                                |                      |                     
|                                           |                      |                     
|Current                                    |                      |                     
|Accounts payable and accrued liabilities   | $
        809,232    | $
        804,112   
|                                           |                      |                     
|Stockholders' Equity                       |                      |                     
|                                           |                      |                     
|Capital Stock (note 6)                     | 43,917,324           | 34,666,470          
|Contributed Surplus (note 6)               | 4,975,930            | 3,520,528           
|Deficit                                    | (21,222,420)         | (14,759,530)        
|                                           |                      |                     
|Total Stockholders Equity                 | 27,670,834           | 23,427,468          
|                                           |                      |                     
|Total Liabilities and Stockholders Equity | $
        28,480,066 | $
        24,231,580

Contingent Liabilities (note 9)

Subsequent Events (note 10)



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





|                                              | 2005                   | 2004                   | 2003                 
|--------------------------------------------- | ---------------------- | ---------------------- | ---------------------
|                                              |                        |                        |                      
|Administrative Expenses                       |                        |                        |                      
|Stock-based compensation (note 6)             | $
        2,398,396    | $
        3,433,900    | $
        740,408    
|Travel and promotion                          | 1,264,932              | 640,197                | 230,817              
|Professional fees (note 7)                    | 704,687                | 388,900                | 238,946              
|Salaries                                      | 495,422                | 179,272                | -                    
|Property evaluations                          | 472,957                | 101,903                | -                    
|Office costs                                  | 183,352                | 221,929                | 105,260              
|Filing fees                                   | 86,314                 | 39,835                 | 34,138               
|Transfer agent fees                           | 17,149                 | 15,509                 | 13,129               
|Management charges (note 7)                   | -                      | 32,000                 | 129,000              
|Amortization                                  | 19,635                 | 20,477                 | 6,818                
|                                              |                        |                        |                      
|Loss Before Other Items                       | (5,642,844)            | (5,073,922)            | (1,498,516)          
|                                              |                        |                        |                      
|Other Items                                   |                        |                        |                      
|Interest income                               | 376,289                | 284,858                | 52,997               
|Write-off of resource properties (note 5)     | (1,190,641)            | (4,521,367)            | -                    
|Foreign exchange loss                         | (5,694)                | (12,571)               | (267,733)            
|                                              |                        |                        |                      
|                                              | (820,046)              | (4,249,080)            | (214,736)            
|                                              |                        |                        |                      
|Net Loss for Year                             | (6,462,890)            | (9,323,002)            | (1,713,252)          
|Deficit, Beginning of Year                    | (14,759,530)           | (5,436,528)            | (3,723,276)          
|                                              |                        |                        |                      
|Deficit, End of Year                          | $
        (21,222,420) | $
        (14,759,530) | $
        (5,436,528)
|                                              |                        |                        |                      
|Loss Per Share (note 2(h))                    | $
        (0.16)       | $
        (0.26)       | $
        (0.08)     
|                                              |                        |                        |                      
|Weighted Average Number of Shares Outstanding | 40,938,200             | 35,198,762             | 22,349,311           



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





|                                                      | 2005                          | 2004                  | 2003                 
|----------------------------------------------------- | ----------------------------- | --------------------- | ---------------------
|                                                      |                               |                       |                      
|Operating Activities                                  |                               |                       |                      
|Net loss for year                                     | $
        (6,462,890)         | $
        (9,323,002) | $
        (1,713,252)
|Items not involving cash                              |                               |                       |                      
|Amortization                                          | 19,635                        | 20,477                | 6,818                
|Stock-based compensation                              | 2,398,396                     | 3,433,900             | 740,408              
|Write-off of resource properties                      | 1,190,641                     | 4,521,367             | -                    
|Changes in Non-Cash Working Capital Items             |                               |                       |                      
|Accounts receivable                                   | (75,075)                      | (253,927)             | (233,145)            
|Prepaid expenses                                      | (292,117)                     | (64,598)              | (99,547)             
|Accounts payable and accrued liabilities              | 5,120                         | 384,051               | 373,507              
|Cash Used in Operating Activities                     | (3,216,290)                   | (1,281,732)           | (925,211)            
|                                                      |                               |                       |                      
|Investing Activities                                  |                               |                       |                      
|Investment in and expenditures on resource properties | (5,533,145)                   | (4,605,684)           | (2,567,847)          
|Purchase of equipment                                 | (17,665)                      | (49,227)              | (11,405)             
|Cash Used in Investing Activities                     | (5,550,810)                   | (4,654,911)           | (2,579,252)          
|                                                      |                               |                       |                      
|Financing Activities                                  |                               |                       |                      
|Proceeds from shares issued                           | 7,052,410                     | 19,473,309            | 6,434,902            
|Share issue costs                                     | -                             | (368,062)             | (241,613)            
|Cash Provided by Financing Activities                 | 7,052,410                     | 19,105,247            | 6,193,289            
|                                                      |                               |                       |                      
|Increase (Decrease) in Cash and Cash Equivalents      | (1,714,690)                   | 13,168,604            | 2,688,826            
|Cash and Cash Equivalents, Beginning of Year          | 16,920,909                    | 3,752,305             | 1,063,479            
|                                                      |                               |                       |                      
|Cash and Cash Equivalents, End of Year                | $
        15,206,219          | $
        16,920,909  | $
        3,752,305  
|                                                      |                               |                       |                      
|Supplemental Cash Flow Information                    |                               |                       |                      
|Shares issued for property option payments            | $
        1,255,450           | $
        1,555,500   | $
        1,461,000  
|Shares issued for data acquisition                    | $
        -                   | $
        198,000     | $
        53,000     
|Shares issued for brokers commission                 | $
        -                   | $
        545,430     | $
        -          
|Income tax paid                                       | $
        -                   | $
        -           | $
        -          
|Interest paid                                         | $
        -                   | $
        -           | $
        -          
|                                                      |                               |                       |                      
|Cash and cash equivalents                             |                               |                       |                      
|Consists of:                                          |                               |                       |                      
|Cash                                                  | $
        1,206,219
        4 | $
        1,126,639   | $
        306,623    
|Term deposits                                         | $
        14,000,000          | $
        15,794,270  | $
        3,445,682  

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CARDERO RESOURCE CORP.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

Years Ended October 31, 2005, 2004 and 2003









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.



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.



2.

SIGNIFICANT ACCOUNTING POLICIES



(a)

Basis of presentation



These consolidated financial statements include the accounts of Cardero Resource Corp. and its wholly-owned subsidiaries, Cardero Argentina, S.A. (Cardero Argentina) and Minerales Y Metales California, S.A. de C.V. (MMC) (collectively, the "Company").   All intercompany 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.



(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 disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  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

-

30%



(e)

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.



(f)

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 year.



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



(g)

Stock-based compensation



Effective November 1, 2003, the Company adopted the amended recommendations of the Canadian Institute of Chartered Accountants for stock-based compensation and other stock-based payments.  Under the amended recommendations, the Company accounts for stock options granted to directors, employees and consultants using the fair value method.  The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model and charged to earnings over the vesting period with a corresponding increase in contributed surplus.  Upon exercise of the stock options, consideration received together with the amount previously recognized in contributed surplus is recorded as an increase to capital stock.



During the year ended October 31, 2003, the Company applied the settlement method in accounting for its employee stock option plan.  No compensation expense is recorded when options are granted to employees. Options granted to non-employees were accounted for using the fair value method.



The Company previously disclosed the pro-forma effects of accounting for stock options granted to directors and employees in the notes to financial statements as if the fair value based method had been used. The amended recommendations have been applied prospectively; accordingly, results from prior years have not been restated.



(h)

Loss per share



Loss per share computations are based on the weighted average number of common shares outstanding during the year.  Diluted loss per share has not been presented separately as the outstanding options and warrants are anti-dilutive for each of the years presented.



(i)

Revenue recognition



Interest income is recorded on an as-earned basis.



(j)

Asset retirement obligations



An asset retirement obligation is a legal obligation associated with the retirement of tangible long-lived assets the Company is required to settle.  This would include obligations related to future removal of property and equipment, and site restoration costs.  The Company recognizes the fair value of a liability for an asset retirement obligation in the year in which it is incurred when a reasonable estimate of fair value can be made.  The carrying amount of the related long-lived asset is increased by the same amount as the liability.  The adoption of this accounting policy has not affected the Companys financial statements.



(k)

Income taxes



The Company uses 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 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 likely 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 maturity of these financial instruments.



(b)

Interest rate risk



The Company is not exposed to significant interest rate price 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.



(a)

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, 2005, the Company held foreign currencies of CDN $38,090 (MXN 349,772) (2004  CDN $12,823, MXN 121,391) and CDN $118,873 (ARS 304,257) (2004  CDN $87,754, ARS 182,808) for the purposes of financing operations and capital expenditures in those currencies.



4.

EQUIPMENT



|                   | 2005             | 2004            
|------------------ | ---------------- | ----------------
|                   |                  | Accumulated     
|                   | Cost             | Amortization    
|Computer equipment | $
        72,262 | $
        38,765
|Office equipment   | 24,915           | 12,597          
|                   | $
        97,177 | $
        51,362



5.

RESOURCE PROPERTIES



The Company incurred acquisition and exploration expenditures on its resource properties as follows:



|                                | Mexico              | Argentina           | Peru                | Total               
|------------------------------- | ------------------- | ------------------- | ------------------- | --------------------
|                                | (note 5(a))         | (note 5(b))         | (note 5(c))         |                     
|Opening balance,                |                     |                     |                     |                     
|October 31, 2002                | $
        424,383   | $
        246,345   | $
        -         | $
        670,728   
|Acquisition costs               |                     |                     |                     |                     
|Cash payments                   | 100,126             | 328,800             | 105,000             | 533,926             
|Common shares issued            | 490,500             | 573,000             | 397,500             | 1,461,000           
|                                | 590,626             | 901,800             | 502,500             | 1,994,926           
|Deferred exploration costs      |                     |                     |                     |                     
|Camp costs                      | 317,920             | 728,841             | 45,860              | 1,092,621           
|Drilling and analysis           | -                   | 733,420             | 1,833               | 735,253             
|Personnel                       | 132,000             | 118,547             | 8,500               | 259,047             
|                                | 449,920             | 1,580,808           | 56,193              | 2,086,921           
|Total expenditures for year     | 1,040,546           | 2,482,608           | 558,693             | 4,081,847           
|                                |                     |                     |                     |                     
|Balance, October 31, 2003       | 1,464,929           | 2,728,953           | 558,693             | 4,752,575           
|Acquisition costs               |                     |                     |                     |                     
|Cash payments                   | 184,384             | 551,686             | 678,625             | 1,414,695           
|Common shares issued            | 680,000             | 547,500             | 328,000             | 1,555,500           
|                                | 864,384             | 1,099,186           | 1,006,625           | 2,970,195           
|Deferred exploration costs      |                     |                     |                     |                     
|Camp costs                      | 521,594             | 508,134             | 437,657             | 1,467,385           
|Drilling and analysis           | 47,757              | 507,686             | 866,807             | 1,422,250           
|Personnel                       | 192,645             | 215,975             | 90,734              | 499,354             
|                                | 761,996             | 1,231,795           | 1,395,198           | 3,388,989           
|Total expenditures for the year | 1,626,380           | 2,330,981           | 2,401,823           | 6,359,184           
|Write-offs                      | -                   | (4,521,367)         | -                   | (4,521,367)         
|                                |                     |                     |                     |                     
|Balance, October 31, 2004       | 3,091,309           | 538,567             | 2,960,516           | 6,590,392           
|Acquisition costs               |                     |                     |                     |                     
|Cash payments                   | 185,467             | 843,119             | 931,735             | 1,960,321           
|Common shares issued            | 169,000             | 256,900             | 829,550             | 1,255,450           
|                                | 354,467             | 1,100,019           | 1,761,285           | 3,215,771           
|Deferred exploration costs      |                     |                     |                     |                     
|Camp costs                      | 218,620             | 629,597             | 1,017,559           | 1,865,776           
|Drilling and analysis           | 516,646             | 78,000              | 454,243             | 1,048,889           
|Personnel                       | 127,155             | 370,981             | 160,023             | 658,159             
|                                | 862,421             | 1,078,578           | 1,631,825           | 3,572,824           
|Total expenditures for year     | 1,216,888           | 2,178,597           | 3,393,110           | 6,788,595           
|Write-offs                      | (1,044,407)         | (5,600)             | (140,634)           | (1,190,641)         
|                                |                     |                     |                     |                     
|Balance, October 31, 2005       | $
        3,263,790 | $
        2,711,564 | $
        6,212,992 | $
        12,188,346





(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 with work programs planned for 2006.



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 owns 8,055 hectares of mineral concessions situated in Baja California State, Mexico, in consideration of aggregate payments of USD 75,000 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).



iii.

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).



iv.

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:



-

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 5(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 an agreement dated November 26, 2003) between the Company and Anglo, Anglo has 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 can 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 will 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 has assumed operatorship of the project.  Under the terms of the amending agreement, the Company must incur exploration expenditures of not less than USD 500,000 within a 12-month period and, upon doing so, will have 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 may either elect to terminate its expenditure period by delivering a resumption notice to Anglo, or may elect to remain as operator and continue to incur exploration expenditures.  If the Company elects to continue incurring exploration expenditures following the USD 500,000 having been incurred, it will earn an additional one-tenth of one percent (0.1%) interest for each additional USD 10,000 of exploration expenditures incurred.  If the Company elects 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 must deliver an election request notice to Anglo.  Upon receipt by Anglo of a resumption notice or an election request notice, Anglo must (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 delivers a resumption notice, or if the Company delivers an election request notice and Anglo elects to continue incurring exploration expenditures, and thereafter Anglo fails to maintain its option in good standing, the Company may terminate the agreement.  If the Company delivers an election request notice and Anglo does not elect to resume incurring exploration expenditures, the agreement is automatically terminated.  In either case, in the event of termination, the Company will retain its 100% interest in the project, with Anglo having no residual interest therein.



The Company is currently actively exploring this property with programs planned for 2006.





vi.

Franco Project, San Luis Potosi State, Mexico



Pursuant to an agreement dated August 29, 2003 and accepted on September 3, 2003, as 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;

-

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;

-

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, 2005, 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;

-

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 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 was 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 was 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 was written off.



-

Olaroz Chico and Tola Concessions, Jujuy Province, Argentina



Pursuant to an agreement dated May 8, 2002 (as amended on August 8, 2002) among 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 was 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 was 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.



Two of these concessions form part of the Olaroz Silver Project (Note 5(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 this an active property, although we have no work programs planned for 2006.



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 has 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 is with respect to the acquisition by the Company of the interest of the Shareholders in Somicadem and the second is 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 has 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 is 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, it can 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 is a modification agreement dated January 12, 2005 among the Shareholders, Somicadem and the Company to amend the Existing Lease, the Company has 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 is 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 exercises the mining lease option (which must be exercised on or before March 12, 2011), it will 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 will 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.



The Company is currently actively exploring this project.



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 has 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 is 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;

-

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

-

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





If the Company exercises the option to purchase the property prior to May 12, 2007, the requirement to make any remaining option payments outlined above ceases.  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 has the option to purchase the 0.5% NSR at any time for the sum of USD 1,000,000.



The Company considers this an active property with work programs planned for 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 before April 13, 2006;

-

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 work programs planned for 2006.



vi.

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 property.



-

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;

-

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.



-

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 was 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 subsequent to year-end).



The Company is currently actively exploring this project with work programs planned for 2006.





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 is currently actively exploring this property with work programs planned for 2006.



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 is currently actively exploring this property with work programs planned for 2006.



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 5(c)(i)), and an additional 39 mineral claims acquired by staking at a cost of USD 77,000, in the Department of Arequipa, Peru.





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 5(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 2006.



v.

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 was 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 which to date, has not yet been received;

-

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

-

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



The Company is currently actively exploring this property with work programs planned for 2006.



6.

CAPITAL STOCK



(a)

Authorized



100,000,000 Common shares without par value



(b)

Issued and outstanding



|                                                                | 2005                     | 2004                 | 2003                    
|--------------------------------------------------------------- | ------------------------ | -------------------- | ------------------------
|                                                                | Number
        of Shares | Amount               | Number
        of Shares
|                                                                |                          |                      |                         
|Balance, beginning of year                                      | 38,247,958               | $34,666,470          | 26,611,796              
|Issued during the year:                                         |                          |                      |                         
|For cash:                                                       |                          |                      |                         
|Pursuant to private 
   placements (net of share
  issue costs) | -                        | -                    | 6,439,427               
|On exercise of share 
   purchase warrants                      | 2,121,781                | 4,803,410            | 2,724,235               
|On exercise of share options                                    | 960,500                  | 2,249,000            | 1,837,500               
|                                                                | 3,082,281                | 7,052,410            | 11,001,162              
|                                                                |                          |                      |                         
|Pursuant to resource property options                           | 355,000                  | 1,255,450            | 535,000                 
|Pursuant to data purchases                                      | -                        | -                    | 100,000                 
|Reallocated from contributed surplus                            | -                        | 942,994              | -                       
|                                                                | 355,000                  | 2,198,444            | 635,000                 
|                                                                |                          |                      |                         
|Balance, end of year                                            | 41,685,239               | $
        43,917,324 | 38,247,958              



(c)

Contributed Surplus



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



Contributed surplus arising from stock options exercised in 2004 for which stock-based compensation had been recorded, totalling $653,780, should have been reallocated to capital stock.  This adjustment has been included above and the 2004 amounts restated accordingly.



(d)

Private placements



During the year ended October 31, 2004, the Company completed two brokered private placements.  On December 11, 2003, the Company completed a private placement of 3,565,000 units at $1.65 per unit.  Each unit consisted of one common share and one-half of a common share purchase warrant.  Each whole warrant was exercisable at a price of $2.25 to purchase one common share to December 10, 2004.  Share issue costs related to the private placement were $437,016, which included an agents commission of $352,933 of which $61,004 was paid in cash and $291,924 was paid through the issuance of 176,927 units, having the same terms and conditions as the units issued pursuant to the original private placement.  The Company also issued agents option units related to the private placement to purchase 356,500 units at a price of $1.70 per unit.  Each agents unit consisted of one common share and one-half of a common share purchase warrant, with each full warrant being exercisable to acquire an additional common share at a price of $2.30 until December 10, 2004.  All of the warrants and agents warrants were exercised prior to their respective expiry dates.



On March 18, 2004, the Company completed a private placement of 2,600,000 units at a price of $2.60 per unit.  Each unit consisted of one common share and one common share purchase warrant.  Each warrant was exercisable for a period of 18 months to acquire one additional share at a price of $3.25 per warrant share until March 17, 2005 and $3.50 per warrant share until September 17, 2005.  Share issue costs related to the private placement were $476,476, which included an agents commission of $405,600 of which $152,100 was paid in cash and $253,500 was paid through the issuance of 97,500 units, having the same terms and conditions as the units issued pursuant to the original placement. The Company also issued agents option units entitling the agent to purchase up to 260,000 units of the Company at a price of $2.65 per unit until March 17, 2005.  Each unit consisted of one common share and one common share purchase warrant, each warrant was exercisable to purchase one common share at a price of $3.30 per share until March 17, 2005 and $3.55 per share until September 17, 2005.  On September 2, 2005, the Company received TSX Venture Exchange acceptance to extend the 2,600,000 warrants to March 17, 2006.



During the year ended October 31, 2003, the Company completed the following private placements:



-

On December 24, 2002, a private placement of 2,238,461 units for $1.30 per unit. Each unit consisted of one common share and one-half common share purchase warrant.  Each whole warrant was

exercisable at a price of $1.60 to purchase one common share to December 27, 2003.  Share issue costs related to this private placement were $241,613.





(e)

Stock options



The Company has a stock option plan whereby the Company may grant options to directors, officers, employees and consultants of up to 10% of the common shares outstanding at the time of 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.



A summary of the status of the stock option plan as of October 31, 2005 and 2004, and changes during the years ended on those dates is presented below:



|                                       | 2005                     | 2004                           
|-------------------------------------- | ------------------------ | -------------------------------
|                                       | Number of
        Shares | Weighted Average Exercise Price
|                                       |                          |                                
|Options outstanding, beginning of year | 3,477,500                | $2.60                          
|Expired/Forfeited                      | (50,000)                 | $(2.50)                        
|Exercised                              | (960,500)                | $(2.34)                        
|Granted                                | 1,175,000                | $3.16                          
|Options outstanding, end of year       | 3,642,000                | $2.83                          



Stock options outstanding are as follows:



|                  | 2005     |           | 2004        |         
|----------------- | -------- | --------- | ----------- | --------
|                  | Exercise | Number of | Exercisable | Exercise
|Expiry Date       | Price    | Shares    | At Year End | Price   
|                  |          |           |             |         
|November 29, 2004 | -        | -         | -           | $1.48   
|October 24, 2005  | -        | -         | -           | $1.90   
|January 27, 2006  | $2.35    | 487,500   | 487,500     | $2.35   
|April 16, 2006    | $3.25    | 350,000   | 350,000     | $3.25   
|June 11, 2006     | $2.50    | 1,329,500 | 1,329,500   | $2.50   
|October 6, 2006   | $3.25    | 300,000   | 300,000     | $3.25   
|November 16, 2006 | $3.25    | 350,000   | 300,000     | -       
|June 9, 2007      | $3.25    | 400,000   | 381,250     | -       
|July 29, 2007     | $3.00    | 200,000   | 200,000     | -       
|September 1, 2007 | $3.00    | 225,000   | 225,000     | -       
|                  |          | 3,642,000 | 3,573,250   |         



In fiscal 2005 and 2004, the Company used the fair value method for determining compensation expense for all options granted during the year.  The fair value was determined using the Black-Scholes option pricing model based on the following assumptions.



|                      | 2005          | 2004         
|--------------------- | ------------- | -------------
|                      |               |              
|Expected life (years) | 2.0           | 2.0          
|Interest rate         | 2.43% - 2.67% | 2.96%        
|Volatility            | 67.6  105.2% | 79.1% - 94.6%
|Dividend yield        | 0.00%         | 0.00%        



During 2005, 1,418,260 options vested.  Stock-based compensation charge of $2,398,396 resulted from amortizing the compensation expense over the vesting period.



During 2004, 2,815,000 options vested.  Stock-based compensation charge of $3,433,900 resulted from amortizing the compensation expense over the vesting period.



In fiscal 2003, the Company applied the settlement method in accounting for its stock options granted to directors and employees, and accordingly, no compensation expense is recorded in these financial statements for those options granted.  Had compensation expense been determined as provided in the fair value method using the Black-Scholes option pricing model, the pro-forma effect on the Companys net loss and per share amounts for the year ended October 31, 2003 would have been as follows:



|                            |             
|--------------------------- | ------------
|Net loss, as reported       | $(1,713,252)
|Net loss, pro-forma         | $(2,693,847)
|Loss per share, as reported | $(0.08)     
|Loss per share, pro-forma   | $(0.12)     



The Company applied the fair value method using the Black-Scholes option pricing model in accounting for options granted to non-employees, during the year ended October 31, 2003.  100,000 options were granted to non-employees, which resulted in a stock-based compensation expense totalling $740,408.



The fair value of each option grant was calculated using the following weighted average assumptions:



|                      |       
|--------------------- | ------
|Expected life (years) | 1.5   
|Interest rate         | 3.00% 
|Volatility            | 100.1%
|Dividend yield        | 0.00% 



(f)

Share purchase warrants



At October 31, 2005 and 2004, the following common share purchase warrants were outstanding entitling the holders thereof the right to purchase one common share for each warrant held as follows:





|                                        | 2005               | 2004                           
|--------------------------------------- | ------------------ | -------------------------------
|                                        | Number of Warrants | Weighted Average Exercise Price
|                                        |                    |                                
|Warrants exercisable, beginning of year | 5,000,661          | $2.53                          
|Expired                                 | (278,880)          | $(3.29)                        
|Exercised                               | (2,121,781)        | $(2.26)                        
|Granted                                 | -                  | -                              
|Warrants exercisable, end of year       | 2,600,000          | $3.50                          



|                 |                            | 2005                     | 2004            
|---------------- | -------------------------- | ------------------------ | ----------------
|Expiry Date      | Type                       | Exercise Price
Per Share | Number of Shares
|Mar. 17, 2006    | Private placement warrants | $3.50                    | 2,600,000       
|Dec. 10, 2004    | Agent option units         | -                        | -               
|Dec. 10, 2004    | Private placement warrants | -                        | -               
|Dec. 10, 2004    | Agent option warrants      | -                        | -               
|Mar./Sept. 17/05 | Private placement warrants | -                        | -               
|Mar./Sept. 17/05 | Agent option warrants      | -                        | -               
|Mar./Sept. 17/05 | Agent option units         |                          | -               



7.

RELATED PARTY TRANSACTIONS



During the years ended October 31, 2005, 2004 and 2003, the Company incurred the following expenses paid to directors of the Company or companies with common directors:



|                            |             
|--------------------------- | ------------
|Net loss, as reported       | $(1,713,252)
|Net loss, pro-forma         | $(2,693,847)
|Loss per share, as reported | $(0.08)     
|Loss per share, pro-forma   | $(0.12)     



At October 31, 2005, $24,816 (2004 - $23,707) was included in accounts payable and accrued liabilities, which relate to professional fees payable to a law firm of which a director of the Company is a partner.  Professional fees include $353,734 (2004 - $207,045) paid to a law firm of which a director is a partner.



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.



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.  As such, 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 to acquire interests in mineral properties 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 5(c)(i)), the Pampa de Pongo Property (Note 5(c)(ii)), the Katanga Property (Note 5(c)(iii), the Lircay Project (Note 5(c)(v)) and the Corongo Project (Note 5(c)(vi)).



8.

INCOME TAX LOSSES



|                                                        | 2005                  | 2004                  | 2003               
|------------------------------------------------------- | --------------------- | --------------------- | -------------------
|                                                        |                       |                       |                    
|Income tax benefit computed at Canadian statutory rates | $
        (2,269,336) | $
        (3,542,741) | $
        (651,036)
|Permanent differences                                   | 725,683               | 1,308,682             | 283,255            
|Write-down of properties                                | 418,074               | 1,718,119             | -                  
|Other temporary differences                             | (35,413)              | (33,777)              | 59,031             
|Unrecognized tax losses                                 | 1,160,992             | 549,717               | 308,750            
|                                                        |                       |                       |                    
|                                                        | $
        -           | $
        -           | $
        -        



The components of future income tax assets are as follows:



|                                              | 2005        | 2004       
|--------------------------------------------- | ----------- | -----------
|                                              |             |            
|Future income tax assets                      |             |            
|Non-capital loss carry-forwards for           |             |            
|Canadian income tax purposes                  | $
7,308,600 | $
2,924,900
|Difference between undepreciated capital cost |             |            
|over net book value of property and equipment | (6,398)     | 31,727     
|Cumulative eligible capital deduction         | 54,712      | 58,830     
|Unused cumulative foreign exploration and     |             |            
|development expenditures                      | 2,017,969   | 1,175,416  
|                                              |             |            
|                                              |             | 4,190,873  
|Tax rate                                      | 34%         | 38%        
|                                              | 3,196,835   | 1,592,532  
|Less:  Valuation allowance                    | (3,196,835) | (1,592,532)
|                                              |             |            
|                                              | $
-         | $
-        



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     
|------------ | -----------
|             |            
|2006         | $
52,300   
|2007         | 115,500    
|2008         | 145,300    
|2009         | 362,200    
|2010         | 817,500    
|2014         | 1,446,600  
|2015         | 4,369,200  
|             |            
|             | $
7,308,600



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.



9.

CONTINGENT LIABILITIES



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 pleadings are closed and documents have been exchanged.  Discoveries have been partially completed, and trial is currently set for April 2006.



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, 2005 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.



10.

SUBSEQUENT EVENTS



Subsequent to October 31, 2005, the following incentive options were exercised:



-

300,000 options were exercised at a price of $2.35;

-

275,000 options were exercised at a price of $3.25;

-

30,000 options were exercised at a price of $2.50; and

-

69,100 options were exercised at a price of $3.25.



Subsequent to October 31, 2005, the following incentive stock options were granted:



-

200,000 options at a price of $4 expiring on or before January 11, 2008.



11.

DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTEDACCOUNTING 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(e).



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.



Under US GAAP, mining projects and properties are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. If estimated future cash flows expected to result from the use of the mining project or property are less than the capitalized costs, an impairment is recognized based upon the estimated fair value of the mining project or property.  Fair value generally is based on the present value of estimated future net cash flows for each mining project or property, calculated using estimated mineable reserves and mineral resources based on engineering reports, projected rates of production over the estimated mine life, recovery rates, capital requirements, remediation costs and future prices considering the Companys hedging and marketing plans.



ii.

Stock-based compensation



Under Canadian GAAP, the Company elected to use the settlement method for employee stock options during 2003 where no compensation expense is recorded for options granted to employees. For US GAAP purposes the settlement method is not available, and therefore, the Company has elected to measure compensation expense using the intrinsic value-based method for employee stock options for US GAAP purposes.  For 2004 and 2005, the Company used the fair value method for both Canadian and US GAAP purposes.





iii.

Reconciliation of total assets, liabilities and stockholders equity:



|                                         | 2005                 | 2004                
|---------------------------------------- | -------------------- | --------------------
|Total assets per Canadian GAAP           | $
        28,480,066 | $
        24,231,580
|Expenditures on resource properties      |                      |                     
|expensed under US GAAP                   | (12,188,346)         | (6,590,392)         
|Total assets per US GAAP                 | $
        16,291,720 | $
        17,641,188
|Total liabilities per Canadian GAAP      | $
        809,232    | $
        804,112   
|Adjustments to US GAAP                   | -                    | -                   
|Total liabilities per US GAAP            | 809,232              | 804,112             
|Total equity per Canadian GAAP           | 27,670,834           | 23,427,468          
|Expenditures on resource properties      |                      |                     
|expensed under US GAAP                   | (12,188,346)         | (6,590,392)         
|Total equity per US GAAP                 | 15,482,488           | 16,837,076          
|                                         |                      |                     
|Total liabilities and equity per US GAAP | $
        16,291,720 | $
        17,641,188



iv.

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



Statement of operations for the year ended October 31



|                                              | 2005                   | 2004                   | 2003                 
|--------------------------------------------- | ---------------------- | ---------------------- | ---------------------
|Reconciliation of net loss from Canadian      |                        |                        |                      
|GAAP to US GAAP                               |                        |                        |                      
|Net loss per Canadian GAAP                    | $
        (6,462,890)  | $
        (9,323,002)  | $
        (1,713,252)
|Acquisition of mineral properties             | (3,215,771)            | (2,970,195)            | (1,994,926)          
|Exploration and development costs, net        | (3,572,824)            | (3,388,989)            | (2,086,921)          
|Reverse amounts written-off                   | 1,190,641              | 4,521,367              | -                    
|Stock-based compensation using intrinsic      |                        |                        |                      
|method                                        | -                      | -                      | (30,500)             
|Net loss per US GAAP                          | $
        (12,060,844) | $
        (11,160,819) | $
        (5,825,599)
|                                              |                        |                        |                      
|Net loss per share in                         |                        |                        |                      
|accordance with Canadian GAAP                 | $(0.16)                | $(0.26)                | $(0.08)              
|Total differences                             | $(0.14)                | $(0.06)                | $(0.18)              
|Net loss per share in                         |                        |                        |                      
|accordance with US GAAP                       | $(0.30)                | $(0.32)                | $(0.26)              
|Weighted average number of shares outstanding | 40,938,200             | 35,198,762             | 22,349,311           



(b)

Stock-based compensation



In 2003, had compensation expense for employee stock options been determined in accordance with the fair value method using the Black-Scholes option pricing model, the pro-forma effect on the Companys net loss and per share amounts would have been as follows:



|                                                          |  |  | 2003                 
|--------------------------------------------------------- |  |  | ---------------------
|                                                          |  |  |                      
|Net loss per US GAAP                                      |  |  | $
        (5,825,599)
|Add: Total compensation expense under intrinsic method    |  |  | 30,500               
|Deduct:  Total stock-based compensation expense           |  |  |                      
|determined under fair value based method for              |  |  |                      
|all awards, net of related tax effects                    |  |  | (980,595)            
|                                                          |  |  |                      
|Net loss, pro-forma                                       |  |  | $
        (6,775,694)
|                                                          |  |  |                      
|Net loss per share per US GAAP                            |  |  | $
        (0.26)     
|Deduct: Total compensation expense under intrinsic method |  |  | -                    
|Add:  Total stock-based compensation                      |  |  |                      
|expense determined under fair value based                 |  |  |                      
|method for all awards, net of related tax effects         |  |  | (0.04)               
|                                                          |  |  |                      
|Net loss per share, pro-forma                             |  |  | $
        (0.30)     



The fair value of each option grant is calculated using the following weighted average assumptions:



|                      |  |  | 2003  
|--------------------- |  |  | ------
|                      |  |  |       
|Expected life (years) |  |  | 1.5   
|Interest rate         |  |  | 3.0%  
|Volatility            |  |  | 100.1%
|Dividend yield        |  |  | 0%    



(c)

Recent US accounting pronouncements



i.

FAS 151, Inventory Costs. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 24, 2004. The provisions of this Statement should be applied prospectively. There is no impact on the Companys financial statements.



ii.

FAS 152, Accounting for Real Estate Time-Sharing Transactions. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Restatement of previously issued financial statements is not permitted. There is no impact on the Companys financial statements.





iii.

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.



iv.

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.



i.

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.



12.

COMPARATIVE FIGURES



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