UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 20-F/A



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



For the fiscal year ended December 31, 2004



Commission file number  0 50437



MAG Silver Corp. (formerly Mega Capital Investments Inc.)

(Exact name of Registrant as specified in its charter)



Not Applicable

(Translation of Registrants name into English)



British Columbia

(Jurisdiction of incorporation or organization)



Suite 328, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 2B5

(Address of principal executive offices)



Securities registered or to be registered pursuant to Section 12(b) of the Act.



Title of each class

Name of each exchange on which registered

None

N/A



Securities registered or to be registered pursuant to Section 12(g) of the Act.



Common Shares Without Par Value

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.



None

(Title of Class)



Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report:



25,829,538 Common Shares at December 31, 2004



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



XYes     No



Indicate by check mark which financial statement item the registrant has elected to follow.





X  
Item 17     Item 18







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TABLE OF CONTENTS



GLOSSARY

PART I

7

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

7

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

7

ITEM 3.

KEY INFORMATION

7

ITEM 4.

INFORMATION ON THE COMPANY

13

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

32

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

39

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

44

ITEM 8.

FINANCIAL INFORMATION

45

ITEM 9.

THE OFFER AND LISTING

45

ITEM 10.

ADDITIONAL INFORMATION

46

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

56

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

56

PART II

56

ITEM 13.

DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES



ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS

AND USE OF
PROCEEDS56

ITEM 15.

CONTROLS AND PROCEDURES

56

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

56

ITEM 16B.

CODE OF ETHICS

57

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

57

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

58

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

58

PART III

58

ITEM 17.

FINANCIAL STATEMENTS

58

ITEM 18.

FINANCIAL STATEMENTS

86

ITEM 19.

EXHIBITS

86



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INTRODUCTION AND USE OF CERTAIN TERMS

MAG Silver Corp. is a company incorporated on April 21, 1999 under the Company Act (British Columbia), which has been superseded by the Business Corporations Act (British Columbia).  As used herein, except as the context otherwise requires, the terms Company or MAG refer to MAG Silver Corp.  Our financial statements are prepared in accordance with Canadian generally accepted accounting principles with a reconciliation to United States Generally Accepted Accounting Principles and are presented in Canadian dollars.  All monetary amounts contained in this Annual Report are in Canadian dollars unless otherwise indicated.



Our North American office and principal place of business is located atSuite 328, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 2B5. Our registered office is located at Suite 1400, 1055 West Hastings Street, Vancouver, British Columbia, Canada, V6E 2E9.



FORWARD-LOOKING STATEMENTS

The following discussion contains forward-looking statements regarding events and financial trends, which may affect our future operating results and financial position.  Such statements are subject to risks and uncertainties that could cause our actual results and financial position to differ materially from those anticipated in forward-looking statements.  These factors include, but are not limited to, the fact that we will need additional financing to fully execute our business plan and will be subject to certain risks, all of which factors are set forth in more detail in Item 3. Key Information - Risk Factors and Item 5. Operating and Financial Review and Prospects.

When used in this Annual Report, the words estimate, intend, expect, anticipate and similar expressions are intended to identify forward-looking statements.  Readers are cautioned not to place undue reliance on these statements, which speak only as of the date of this Annual Report.  These statements are subject to risks and uncertainties that could cause results to differ materially from those contemplated in such forward-looking statements.







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4





GLOSSARY

The following is a glossary of terms that appear in this Annual Report.

|Ag                     | The elemental symbol for silver.                                                                                                                                                                                                                                                                                                                                                                                             
|---------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|alteration             | Usually referring to chemical reactions in a rock mass resulting from the passage of hydrothermal fluids.                                                                                                                                                                                                                                                                                                                    
|alunite                | A potassium-aluminum sulfate mineral, a common component of hydrothermal alteration assemblages.                                                                                                                                                                                                                                                                                                                             
|andesite               | Volcanic rock, low in quartz content, generally fine grained and moderately dark coloured.                                                                                                                                                                                                                                                                                                                                   
|anomalous              | A value, or values, in which the amplitude is statistically between that of a low contrast anomaly and a high contrast anomaly in a given data set.                                                                                                                                                                                                                                                                          
|basalt                 | Volcanic rock, low in quartz content, generally fine grained and dark coloured.                                                                                                                                                                                                                                                                                                                                              
|calcite                | Calcium carbonate mineral.  It is a common constituent of many rock types as well as occurring in veins and alteration assemblages.                                                                                                                                                                                                                                                                                          
|carbonate              | Minerals which have the formula XCO3.   Calcite is the most common carbonate mineral.                                                                                                                                                                                                                                                                                                                                      
|Cascabel               | Minera Cascabel, S.A. de C.V., a company incorporated pursuant to the laws of the Mexican Republic.                                                                                                                                                                                                                                                                                                                          
|Common Shares          | Common Shares without par value in the capital stock of the Company.                                                                                                                                                                                                                                                                                                                                                         
|Company                | MAG Silver Corp.                                                                                                                                                                                                                                                                                                                                                                                                             
|Cretaceous             | The geological period extending from 135 million to 63 million years ago.                                                                                                                                                                                                                                                                                                                                                    
|diorites               | Medium-coloured intrusive igneous rocks of intermediate composition.                                                                                                                                                                                                                                                                                                                                                         
|Don Fippi Property     | The Don Fippi Property as defined in Item 4. Information on the Company  Description of the Business - Don Fippi.                                                                                                                                                                                                                                                                                                           
|Don Fippi Shares       | Up to 2,000,000 Common Shares which may be issued by the Company in connection with its acquisition of the Don Fippi Property as described in Item 4. Information on the Company - Business Overview  The Don Fippi Property.                                                                                                                                                                                               
|Exchange               | TSX Venture Exchange.                                                                                                                                                                                                                                                                                                                                                                                                        
|exploration concession | A defined area for which mineral tenure has been granted by the Mexican government for a period of six years to allow exploration.  The concession may subsequently be upgraded to exploitation status.                                                                                                                                                                                                                      
|fault                  | A fracture in rock where there has been displacement of the two sides.                                                                                                                                                                                                                                                                                                                                                       
|flow                   | Volcanic rock comprised of flow lava.                                                                                                                                                                                                                                                                                                                                                                                        
|fracture               | Breaks in a rock, usually due to intensive folding or faulting.                                                                                                                                                                                                                                                                                                                                                              
|g/T                    | Grams per tonne (31.1 g/T = 1.0 troy ounce/tonne).                                                                                                                                                                                                                                                                                                                                                                           
|gangue                 | Minerals incorporated in an orebody other than those of economic interest.                                                                                                                                                                                                                                                                                                                                                   
|grade                  | The concentration of each ore metal in a rock sample, usually given as weight percent.  Where extremely low concentrations are involved, the concentration may be given in grams per tonne (g/T) or ounces per ton (oz/T).  The grade of an ore deposit is calculated, often using sophisticated statistical procedures, as an average of the grades of a very large number of samples collected from throughout the deposit.
|Guigui Property        | The Guigui Property as defined in Item 4. Information on the Company  Description of the Business  Guigui.                                                                                                                                                                                                                                                                                                                 







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5







|Guigui Shares                      | Up to 2,000,000 Common Shares which may be issued by the Company in connection with its acquisition of the Guigui Property as described in Item 4. Information on the Company - Business Overview - The Guigui Property.                                                                                                                                                                                                                                                                                                                                                                                     
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|hydrothermal                       | Hot fluids, usually mainly water, in the earths crust which may carry metals and other compounds in solution to the site of ore deposition or wall rock alteration.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|igneous                            | A rock formed by the cooling of molten silicate material.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|intrusive                          | A rock mass formed below the earths surface from magma which has intruded into a pre-existing rock mass.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Juanicipio Property                | The Juanicipio Property as defined in Item 4. Information on the Company  Description of the Business  Juanicipio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|kaolinite                          | An aluminum-silicate clay mineral.  It is a common component of hydrothermal alteration of siliceous rocks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Lagartos                           | Minera Los Lagartos, S.A. de C.V., a company incorporated pursuant to the laws of the Mexican Republic, the principal of which is the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|magma                              | Molten rock formed within the crust or upper mantle of the earth.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Mexico or Mexican Republic         | United Mexican States                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|mill                               | A facility for processing ore to concentrate and recover valuable minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|mineral reserve                    | That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. The economically mineable part of a measured or indicated mineral resource demonstrated by at least a preliminary feasibility study.  The study must include adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.  A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined.
|mineral resource                   | A concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earths crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction.  The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. Industry Guide 7 does not provide for the disclosure of mineral resource estimates.                                                                                           
|mineralization                     | Usually implies minerals of value occurring in rocks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|monzonite                          | An intermediate intrusive rock related to granite.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|net smelter returns royalty or NSR | Payment of a percentage of mining revenues after deducting applicable smelter charges.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|ore                                | A natural aggregate of one or more minerals which may be mined and sold at a profit, or from which some part may be profitably separated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|outcrop                            | An exposure of rock at the earths surface.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|oz/T                               | Troy ounces per tonne.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Policy 2.4                         | The Policy of the Exchange entitled Capital Pool Companies which sets forth the steps for listing a company on the Exchange as a capital pool company (which is essentially a blind pool) and the steps that company must take, including its Qualifying Transaction, to qualify for a regular listing on the Exchange.                                                                                                                                                                                                                                                                                  
|porphyry                           | Rock type with mixed crystal sizes, i.e., containing larger crystals of one or more minerals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|portal                             | Entrance from surface into an underground development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Property Shares                    | The Don Fippi Shares and the Guigui Shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  







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6







|pyrite                       | Iron sulfide mineral.                                                                                                                                                                                                                                                                                                                                                               
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Qualifying Transaction       | The transaction conducted pursuant to Policy 2.4 whereby the Company acquired significant assets, other than cash, by way of purchase, amalgamation, merger or arrangement with another company or by other means and then qualified for a regular listing on the Exchange.                                                                                                         
|quartz                       | Si02, a common constituent of veins, especially those containing gold and silver mineralization.                                                                                                                                                                                                                                                                                    
|Recently Acquired Properties | The properties described in Item 2. Information on the Company  Business Overview  Recently Acquired Properties.                                                                                                                                                                                                                                                                  
|rhyolite                     | Volcanic rock high in quartz content, generally fine grained and light coloured.                                                                                                                                                                                                                                                                                                    
|serpentinite                 | A rock composed of serpentine, typically formed from the alteration of mafic igneous rocks.                                                                                                                                                                                                                                                                                         
|silicification               | Replacement of the constituents of a rock by quartz.                                                                                                                                                                                                                                                                                                                                
|tailings                     | material rejected from a mill after recoverable valuable minerals have been extracted.                                                                                                                                                                                                                                                                                              
|Tertiary                     | The geological period extending from 63 million to 2 million years ago.                                                                                                                                                                                                                                                                                                             
|tonne or T                 | Metric ton = 1,000 kilograms or 1,000,000 grams.                                                                                                                                                                                                                                                                                                                                    
|VAT                          | An acronym for Value Added Tax which, in Mexico, is charged on all goods and services at a rate of 15%.  Proprietors selling goods or services must collect VAT on behalf of the government.  Goods or services purchased incur a credit for VAT paid.  The resulting net VAT is then remitted to, or collected from the Government of Mexico through a formalized filing process.
|veinlets                     | Small veins, generally measuring only a few millimetres in thickness, filling fractures in rocks.                                                                                                                                                                                                                                                                                   
|veins                        | The mineral deposits that are found filling openings in rocks created by faults or replacing rocks on either side of faults.                                                                                                                                                                                                                                                        
|volcaniclastic               | Coarse-grained sedimentary rocks (sandstone or conglomerate) composed of fragments of volcanic rocks.                                                                                                                                                                                                                                                                               







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7





PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Selected Financial Data

The following table sets forth our selected consolidated financial information, which has been derived from our consolidated financial statements included in this Annual Report prepared in accordance with Canadian Generally Accepted Accounting Principles.  Information for the 12 months ended December 31, 2004, 2003 and 2002 are derived from audited financial statements which are included elsewhere in this Report. Information for the years ended December 31, 2001 and December 31, 2000 are derived from audited financial statements that are not included in this Report.  The financial data should be read in conjunction with our consolidated financial statements and notes thereto and Item 5. Operating and Financial Review and Prospects.



|                                           | 12 months ended Dec. 31, 2004 | 12 months ended Dec. 31, 2003 | 12 months ended Dec. 31, 2002 | 12 months ended Dec. 31, 2001 | 12 months ended Dec. 31, 2000
|------------------------------------------ | ----------------------------- | ----------------------------- | ----------------------------- | ----------------------------- | -----------------------------
|Revenue                                    | $Nil                          | $Nil                          | $Nil                          | $Nil                          | $Nil                         
|Total Expenses                             | $800,896                      | $915,007                      | $123,536                      | $288,449                      | $19,066                      
|Net Loss                                   | $(733,897)                    | $(837,539)                    | $(122,631)                    | $(279,639)                    | $(5,641)                     
|Basic and Diluted Loss per Share           | $(0.03)                       | $(0.06)                       | $(0.08)                       | $(0.19)                       | $(0.00)                      
|Weighted Average Common Shares Outstanding | 24,578,037                    | 14,455,369                    | 1,500,000                     | 1,500,000                     | 1,304,066                    
|Consolidated  Balance Sheet                |                               |                               |                               |                               |                              
|Total Assets                               | $9,774,297                    | $8,534,794                    | $408,125                      | $110,904                      | $386,192                     
|Total Liabilities                          | $61,837                       | $208,018                      | $58,880                       | $14,028                       | $9,677                       
|Working Capital                            | $2,360,343                    | $4,920,182                    | $108,472                      | $76,876                       | $376,515                     
|Shareholders Equity                       | $9,712,460                    | $8,326,776                    | $349,245                      | $96,876                       | $376,515                     

Under U.S. GAAP, all amounts in the foregoing table remain the same except the following:



|Net Loss                         | $2,710,519 | $(4,091,436) | $(160,433) | $(279,639) | $(5,641)
|-------------------------------- | ---------- | ------------ | ---------- | ---------- | --------
|Basic and Diluted Loss per Share | $(0.11)    | $(0.28)      | $(0.11)    | $(0.19)    | $(0.00) 
|Total Assets                     | $5,740,133 | $5,876,252   | $370,323   | $110,904   | $386,192
|Shareholders Equity             | $5,678,296 | $5,668,234   | $311,443   | $96,876    | $376,515

On May 31, 2005, the Interbank rate of exchange for converting Canadian dollars into United States dollars equalled 0.7994 Canadian dollars for one United States dollar.  The following table presents a history of the high and low exchange rates of Canadian dollars into United States dollars for the previous six months.







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8







|Month         | High   | Low   
|------------- | ------ | ------
|May 2005      | 1.2703 | 1.2373
|April 2005    | 1.2568 | 1.2146
|March 2005    | 1.2463 | 1.2017
|February 2005 | 1.2562 | 1.2294
|January 2005  | 1.2422 | 1.1982
|December 2004 | 1.2401 | 1.1899

The following table presents a five-year history of the average annual exchange rates of Canadian dollars into United States dollars, calculated by using the average of the exchange rates on the last day of each month during the given year.

|Year | Average Exchange Rate
|---- | ---------------------
|2004 | 1.3016               
|2003 | 1.4012               
|2002 | 1.5705               
|2001 | 1.5490               
|2000 | 1.4855               

Risk Factors

The following is an overview of the risk factors to be considered in relation to our business. Specific risk factors to be considered are as follows:

1.

Values attributed to the Companys assets may not be realizable, the Company has no proven history and its ability to continue as a going concern depends upon a number of significant variables. The amounts attributed to the Companys exploration concessions in its financial statements represent acquisition and exploration costs and should not be taken to represent realizable value. Further, the Company has no proven history of performance, revenues, earnings or success. As such, the Companys ability to continue as a going concern is dependent upon the existence of economically recoverable resources, the ability of the Company to obtain the necessary financing to complete the development of its interests and future profitable production or alternatively, upon the Companys ability to dispose of its interests on a profitable basis.

2.

The Company is dependent on its key personnel, who have not entered into written agreements with the Company and whom are not insured by the Company. The Company is dependent upon the continued availability and commitment of its key management and consultants, whose contributions to immediate and future operations of the Company are of central importance.  The Company relies on its President, Dan MacInnis, and its other officers, none of whom has entered into a written employment agreement with the Company, for the day-to-day operation of the Company, its projects and the execution of the Companys business plan.  The Company also relies heavily on Dr. Peter Megaw for the planning, execution and assessment of the Companys exploration programs.  Dr. Megaw is an arms length consultant to the Company and he is paid a fee for his services based on fair market rates and his submission of invoices for services rendered. The Company has not obtained key man insurance for any of its management or consultants. The loss of either Dan MacInnis or Dr. Megaw may have a temporary negative impact on the Company until they were replaced.

3.

The Company does not pay dividends. Payment of dividends on the Companys shares is within the discretion of the Companys Board and will depend upon the Companys future earnings, its capital requirements and financial condition, and other relevant factors.  The Company does not currently intend to declare any dividends for the foreseeable future.

4.

The Companys directors and officers may have conflicts of interest which may not be resolved in favour of the Company, which in turn may adversely affect the Company. None of the Companys directors or officers devote their full time to the affairs of the Company. All of the directors and officers of the Company are also directors, officers and shareholders of other natural resource or public companies, as a result of which they may find themselves in a position where their duty to another company conflicts with their duty to the Company.  None of the Companys constating documents or any of its other agreements contain any provisions mandating







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9





a procedure for addressing such conflicts of interest. There is no assurance that any such conflicts will be resolved in favour of the Company.  If any of such conflicts are not resolved in favour of the Company, the Company may be adversely affected. See Item 6. Directors, Senior Management and Employees for details of other companies that the Companys officers and directors are involved with.

Risk Factors Relating to Title

5.

Title to the properties in which the Company has an interest may be in doubt and any challenge to the title to any of such properties may have a negative impact on the Company.  A full investigation of legal title to the Companys property interests has not been carried out at this time.  Accordingly, title to these property interests may be in doubt.  Other parties may dispute title to the properties in which the Company has an interest.  The Companys property interests may also be subject to prior unregistered agreements or transfers or land claims and title may be affected by undetected defects.  Any challenge to the title to any of the properties in which the Company has an interest may have a negative impact on the Company as the Company will incur delay and expenses in defending such challenge and, if the challenge is successful, the Company will lose any interest it may have in the subject property.  In addition, the Companys ability to explore and exploit the property interests is subject to ongoing approval of local governments.

6.

Title opinions provide no guarantee of title and any challenge to the title to any of such properties may have a negative impact on the Company.  Although the Company has or will receive title opinions for any concessions in which it has or will acquire a material interest, there is no guarantee that title to such concessions will not be challenged or impugned.  In Mexico, a title opinion does not provide absolute comfort that the holder has unconditional or absolute title.  Any challenge to the title to any of the properties in which the Company has an interest may have a negative impact on the Company as the Company will incur expenses in defending such challenge and, if the challenge is successful, the Company will lose any interest it may have in the subject property.

7.

Titles to the properties in which the Company has an interest are not registered in the name of the Company, which may result in potential title disputes having a negative impact on the Company. All of the agreements under which the Company may earn interests in properties have either been registered or been submitted for registration with the Mexican Public Registry of Mining, but title relating to the properties in which the Company may earn its interests are held in the names of parties other than the Company. Furthermore, in the case of the Adargas Agreement (as defined below), the parties thereto will need to execute an addendum and subsequently file such Agreement and addendum with the Mexican Public Registry of Mining for its recordation. Any of such properties may become the subject of an agreement which conflicts with the agreement pursuant to which the Company may earn its interest, in which case the Company may incur expenses in resolving any dispute relating to its interest in such property and such a dispute could result in the delay or indefinite postponement of further exploration and development of properties with the possible loss of such properties.

Risk Factors Relating to the Companys Property Interests

8.

The properties in which the Company has an interest are in the exploration stage and most exploration projects do not result in the discovery of commercially mineable deposits.  All of the Companys property interests are at the exploration stage only (even when some of the mining concession titles covering such property interests were issued as exploitation concessions) and there are no known commercial quantities of minerals or precious gems on such properties.  Most exploration projects do not result in the discovery of commercially mineable deposits of ores or gems. Estimates of reserves, mineral deposits and production costs can be affected by such factors as environmental permit regulations and requirements, weather, environmental factors, unforeseen technical difficulties, unusual or unexpected geological formations and work interruptions. In addition, the grade of precious metals ultimately discovered may differ from that indicated by drilling results. There can be no assurance that precious metals recovered in small-scale tests will be duplicated in large-scale tests under on-site conditions or in production scale. Because the probability of an individual prospect ever having reserves is extremely remote, in all probability the Companys properties do not contain any reserves, and any funds spent on exploration will be







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10





lost. The failure of the Company to find an economic mineral deposit on any of its exploration concessions will have a negative effect on the Company.

9.

The properties in which the Company has an interest are in Mexico.  The Companys property interests are located in Mexico.  Any changes in governmental laws, regulations, economic conditions or shifts in political attitudes or stability in Mexico are beyond the control of the Company and may adversely affect its business. See Item 4. Information on the Company  Business Overview  Carrying on Business in Mexico.

10.

There is no guarantee licenses and permits required by the Company will be obtained which may result in the Company losing its interest in the subject property.  The operations of the Company may require licenses and permits from various governmental authorities.  The Company may not be able to obtain all necessary licenses and permits that may be required to carry out exploration, development and mining operations at its projects.  Failure to obtain such licenses and permits may adversely affect the Companys business as the Company would be unable to legally conduct its intended exploration work, which may result in it losing its interest in the subject property.

11.

Environmental regulations are becoming more onerous to comply with and the cost of compliance with environmental regulations and changes in such regulations may reduce the profitability of the Companys operations.  The Companys operations are subject to environmental regulations promulgated by government agencies from time to time.  Environmental legislation provides for restrictions and prohibitions of spills, release or emission of various substances produced in association with certain mining industry operations, such as seepage from tailing disposal areas, which could result in environmental pollution.  Failure to comply with such legislation may result in the imposition of fines and penalties.  In addition, certain types of operations require submissions to and approval of environmental impact assessments.  Environmental legislation is evolving in a manner which means stricter standards and enforcement, fines and penalties for non-compliance are more stringent.  Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers and employees.  The cost of compliance with environmental regulations and changes in such regulations may reduce the profitability of the Companys operations. See Item 4. Information on the Company  Business Overview  Carrying on Business in Mexico  Environmental Regulation.

12.

Mexican Foreign Investment and Income Tax Laws apply to the Company.  Under the Foreign Investment Law of Mexico, there is presently no limitation on foreign capital participation in mining operations; however, the applicable laws may change in a way which may adversely impact the Company and its ability to repatriate profits.  Under Mexican Income Tax Law, dividends paid out of previously taxed net earnings are not subject to Mexican taxes if paid to a foreign investor.  Otherwise, such dividends paid to a foreign resident corporation are subject to the Mexican corporate tax rate, which presently is 30 percent over a gross up basis (amount of the dividend times 1.4286), payable by the Mexican company.  Currently, there is no withholding tax on dividends paid by a Mexican company to a foreign shareholder.

13.

Foreign currency fluctuations and inflationary pressures may have a negative impact on the Companys financial position and results.  The Companys property interests in Mexico make it subject to foreign currency fluctuations and inflationary pressures which may adversely affect the Companys financial position and results. Several of the Companys options to acquire properties in Mexico may result in option payments by the Company denominated in Mexican Pesos or in US dollars over the next few years. Exploration and development programs to be conducted by the Company in Mexico will also be funded in Mexican Pesos or in US dollars. As the Company maintains its accounts in Canadian and US dollars, any appreciation in Mexican currency against the Canadian or US dollar will increase our costs of carrying out operations in Mexico.  Further, any decrease in the US dollar against the Canadian dollar will result in a loss on our books to the extent we hold funds in US dollars.  The steps taken by management to address foreign currency fluctuations may not eliminate all adverse effects and, accordingly, the Company may suffer losses due to adverse foreign currency fluctuations. The Company also bears the risk of incurring losses occasioned as a result of inflation in Mexico.

14.

None of the properties in which the Company has an interest has any reserves. Currently, there are no reserves on any of the properties in which the Company has an interest.







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11





Risk Factors Relating to Mining Generally

15.

Mining exploration is a speculative business and most exploration projects do not result in the discovery of commercially mineable deposits.  Exploration for minerals or precious gems is a speculative venture necessarily involving substantial risk. The expenditures made by the Company described herein may not result in discoveries of commercial quantities of minerals or precious gems. The failure to find an economic mineral deposit on any of the Companys exploration concessions will have a negative effect on the Company.

16.

Mining operations generally involve a high degree of risk and potential liability.  Hazards such as unusual or unexpected formations and other conditions are involved in mining.  The Company may become subject to liability for pollution, fire, explosions, cave-ins or hazards against which it cannot insure or against which it may elect not to insure.  The incurrence of any such liabilities may have a material, adverse effect on the Companys financial position.

17.

Mineral prices and marketability fluctuate and any decline in mineral prices may have a negative effect on the Company.  Mineral prices, particularly gold and silver prices, have fluctuated widely in recent years.  The marketability and price of minerals and precious gems which may be acquired by the Company will be affected by numerous factors beyond the control of the Company.  These other factors include delivery uncertainties related to the proximity of its reserves to processing facilities and extensive government regulation relating to price, taxes, royalties, allowable production land tenure, the import and export of minerals and precious gems and many other aspects of the mining business.  Declines in mineral prices may have a negative effect on the Company.

18.

Mining is a highly competitive industry.  The mining industry is intensely competitive and the Company must compete in all aspects of its operations with a substantial number of large established mining companies with substantial capabilities and greater financial and technical resources than the Company.  The Company may be unable to acquire additional attractive mining properties on terms it considers to be acceptable.  The inability of the Company to acquire attractive mining properties would result in difficulties in it obtaining future financing and profitable operations.

Risk Factors Relating to Financing

19.

Adequate funding may not be available, resulting in the possible loss of the Companys interests in its properties.  Sufficient funding may not be available to the Company for further exploration and development of its property interests or to fulfil its obligations under applicable agreements.  The Company may not be able to obtain adequate financing in the future or the terms of such financing may not be favourable.  Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development of properties with the possible loss of such properties.  The Company will require new capital to continue to operate its business and to continue with exploration on its properties, and additional capital may not be available when needed, if at all.

20.

Funding and property commitments will result in dilution to the Companys shareholders. It is likely any additional capital required by the Company as described in Risk Factor #19 above will be raised through the issuance of additional equity which will result in dilution to the Companys shareholders. Further, as described in Item 4. Information on the Company  Business Overview, the Company is required to issue common shares in order for Lagartos to earn its interests in properties. Such property share issuances will also result in dilution to the Companys shareholders.

21.

Substantial expenditures are required for commercial operations and if financing for such expenditures is not available on acceptable terms, the Company may not be able to justify commercial operations.  If mineable deposits are discovered, substantial expenditures are required to establish reserves through drilling, to develop processes to extract the resources and, in the case of new properties, to develop the extraction and processing facilities and infrastructure at any site chosen for extraction.  Although substantial benefits may be derived from the discovery of a major deposit, resources may not be discovered in sufficient quantities to justify commercial operations or the funds required for development may not be obtained at all or on terms acceptable to the Company.







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22.

Lack of funding to satisfy contractual obligations may result in the Companys loss of property interests.  The Company may, in the future, be unable to meet its share of costs incurred under agreements to which it is a party and the Company may have its property interests subject to such agreements reduced as a result or even face termination of such agreements.  The Company has acquired options to acquire interests in six properties in Mexico and in order to obtain ownership of each of such properties, it must make payments to the current owners and incur certain exploration expenditures on those properties. In order to secure ownership of these properties, additional financing will be required. Failure of the Company to make the requisite payments in the prescribed time periods will result in the Company losing its entire interest in the subject property and the Company will no longer be able to conduct its business as described in this Annual Report. The Company may not have sufficient funds to: (a) make the minimum expenditures to maintain the Don Fippi Property in good standing under Mexican law; and (b) make the minimum expenditures to earn its interest in any of the Recently Acquired Properties.  In such event, in respect of any of the properties, the Company may seek to enter into a joint venture or sell the subject property or elect to terminate its option. The Company will have to raise further financing to fund the required exploration on the Don Fippi Property. See Item 4. Information on the Company - Business Overview and Item 5. Operating and Financial Review and Prospects  Tabular Disclosure of Contractual Obligations for details of the property payments the Company is required to make to earn its interests.

Miscellaneous Risk Factors

23.

The price of the Companys shares is volatile.  Publicly quoted securities are subject to a relatively high degree of price volatility.  It may be anticipated that the quoted market for the shares of the Company will be subject to market trends generally, notwithstanding any potential success of the Company in creating sales and revenues.

24.

There is an absence of a liquid trading market for the Companys shares.  Shareholders of the Company may be unable to sell significant quantities of shares into the public trading markets without a significant reduction in the price of their shares, if at all.  The Company may not continue to meet the listing requirements of the Exchange or achieve listing on any other public listing exchange.

25.

The Penny-Stock Rule may limit trading in the Companys shares.  In October 1990, Congress enacted the Penny Stock Reform Act of 1990. Penny Stock is generally any equity security other than a security (a) that is registered or approved for registration and traded on a national securities exchange or an equity security for which quotation information is disseminated by The National Association of Securities Dealers Automated Quotation (NASDAQ) System on a real-time basis pursuant to an effective transaction reporting plan, or which has been authorized or approved for authorization upon notice of issuance for quotation in the NASDAQ System, (b) that is issued by an investment company registered under the Investment Company Act of 1940, (c) that is a put or call option issued by Options Clearing Corporation, (d) that has a price of five dollars (US) or more, or (e) whose issuer has net tangible assets in excess of $2,000,000(US), if the issuer has been in continuous operation for at least three years, or $5,000,000(US) if the issuer has been in continuous operation for less than three years, or average revenue of at least $6,000,000(US) for the last three years.

The Companys Common Shares are presently considered penny stock under these criteria. Therefore, the Common Shares are subject to Rules 15g-2 through 15g-9 (the Penny Stock Rules) under the Exchange Act. The penny stock trading rules impose duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in the Companys shares, including determination of the purchasers investment suitability, delivery of certain information and disclosures to the purchaser, and receipt of a specific purchase agreement from the purchaser prior to effecting the purchase transaction.  Compliance with the penny stock trading rules affect or will affect the ability to resell the Companys shares by a holder principally because of the additional duties and responsibilities imposed upon the broker-dealers and salespersons recommending and effecting sale and purchase transactions in such securities.  In addition, many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules.  Consequently, the penny stock trading rules may materially limit or restrict the number of potential purchasers of the Companys shares and the ability of a holder to resell our stock.







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So long as the Common Shares are within the definition of Penny Stock as defined in Rule 3a51-1 of the Exchange Act, the Penny Stock Rules will continue to be applicable to the Common Shares. Unless and until the price per share of Common Shares is equal to or greater than $5.00(US), or an exemption from the rule is otherwise available, the Common Shares may be subject to substantial additional risk disclosures and document and information delivery requirements on the part of brokers and dealers effecting transactions in the Common Shares. Such additional risk disclosures and document and information delivery requirements on the part of such brokers and dealers may have an adverse effect on the market for and/or valuation of the Common Shares.

26.

Classification as a Passive Foreign Investment Company has adverse income tax consequences for United States shareholders. The Company believes it is a Passive Foreign Investment Company (PFIC), as that term is defined in Section 1297 of the Internal Revenue Code of 1986, as amended, and believes it will be a PFIC in the foreseeable future. Consequently, this classification will result in adverse tax consequences for U.S. holders of the Companys shares. For an explanation of these effects on taxation, see Item 10. Additional Information  United States Federal Income Tax Consequences. U.S. shareholders and prospective holders of the Companys shares are also encouraged to consult their own tax advisers.

27.

The Company and its principals and assets are located outside of the United States which makes it difficult to effect service of process or enforce within the United States any judgments obtained against the Company or its officers or directors. Substantially all of the Companys assets are located outside of the United States and the Company does not currently maintain a permanent place of business within the United States.  In addition, most of the directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons assets are located outside the United States.  As a result, it may be difficult for investors to effect service of process or enforce within the United States any judgments obtained against the Company or its officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.  In addition, there is uncertainty as to whether the courts of Canada, Mexico and other jurisdictions would recognize or enforce judgments of United States courts obtained against the Company or its directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in Canada, Mexico or other jurisdictions against the Company or its directors and officers predicated upon the securities laws of the United States or any state thereof. Further, any payments as a result of judgments obtained in Mexico should be in pesos and service of process in Mexico must be effectuated personally and not by mail.

ITEM 4. INFORMATION ON THE COMPANY

History and Development of the Company

The Company was originally incorporated under the Company Act (British Columbia) on April 21, 1999 under the name 583882 B.C. Ltd..  On June 28, 1999, the Company changed its name to Mega Capital Investments Inc..  On April 22, 2003, the Company changed its name to MAG Silver Corp. to reflect its new business consequent upon the completion of its Qualifying Transaction.  Effective March 29, 2004, the Company Act(British Columbia) was replaced by the Business Corporations Act (British Columbia). Our North American office and principal place of business is located at Suite 328, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 2B5 (phone:  604-630-1399).

The Company is a reporting company in the Provinces of British Columbia, Alberta and Ontario.

The Companys Common Shares were listed and posted for trading on the Exchange (TSX VN: MGA) on April 19, 2000.  Concurrent with the Companys name change to MAG Silver Corp. on April 22, 2003, the trading symbol was changed to "MAG".

The Company does not have an agent in the United States.

The Qualifying Transaction

On April 5, 2001, the Company entered into a letter of intent to acquire all of the issued and outstanding share capital of Advanced Disc Manufacturing Corporation (ADMC), a private British Columbia start-up







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company engaged in the manufacture of injection moulded compact discs.  Effective May 2, 2001, a formal share exchange agreement was entered into among the Company, ADMC and the shareholders of ADMC in which the terms of the acquisition were set forth (the ADMC Agreement).  This proposed acquisition was intended to serve as the Companys Qualifying Transaction.  In contemplation of the closing of this transaction, the Company advanced ADMC a total of $268,758 to finance its operations.  On September 26, 2001, the Company issued a press release to announce that it would not be proceeding with its intended purchase of the share capital of ADMC as a result of certain breaches of the ADMC Agreement by the vendors of the ADMC shares.  Of the amounts advanced by the Company to ADMC, only $16,338 was returned.  As a result, the Company wrote off to expense the outstanding advances to ADMC in the amount of $252,420.

Subsequent to the termination of the ADMC Agreement, the Company was introduced to Dr. Peter Megaw who presented to the Company to consider what appeared to be favourable opportunities involving the acquisition and exploration of silver properties in Mexico.  After reviewing these new opportunities, the Company felt the proposal represented a favourable business concept for the Company.  Management was of the opinion that the Company was well equipped to pursue the opportunities and therefore proceeded with the concept.

In August 2002, the Company entered into an arms length agreement dated August 8, 2002 (the Lagartos Agreement) with Ing. Porfirio Cesar Augusto Padilla Lara, Dr. Peter Megaw and Dr. Carl Kuehn (collectively, the Vendors) pursuant to which the Company agreed to acquire (the Acquisition) 98% (later amended to include 99% registered ownership and beneficial ownership of the remaining 1%) of the issued and outstanding common shares of Lagartos.  Lagartos is a private company incorporated under the laws of the Mexican Republic in the mineral exploration business, as described below.  As consideration for the Acquisition, the Company agreed to pay the Vendors the sum of US$5,000, and to further pay the sum of US$50,000 for the reimbursement of funds advanced to secure the Juanicipio Option (described below under The Juanicipio Property), plus applicable purchase and transfer costs. The Acquisition of beneficial ownership of 100% of Lagartos was completed on January 15, 2003. The Companys Qualifying Transaction was completed on April 15, 2003, with a concurrent financing, which raised gross proceeds of $5,750,000.

As at June 15, 2005, $5,147,925 has been advanced by the Company as an intercorporate loan to Lagartos, with no fixed terms of repayment, for acquisition costs of mineral rights of $717,582 and exploration expenditures of $3,789,197. The balance, $641,146, is made up of cash, receivables, and other operating and administration activities.

Business Overview

The Company is in the mineral exploration and development business. The Company is an exploration stage company and there is no assurance that a commercially viable mineral deposit exists on any of our properties. Further exploration will be required before a final evaluation as to the economic and legal feasibility of any of the Companys properties is determined. Even if the Company completes its exploration program and is successful in identifying a mineral deposit, it will have to spend substantial funds on further drilling and engineering studies before it will know if it has a commercially viable mineral deposit or reserve.

Carrying on Business in Mexico

The Companys property interests are located in Mexico.  A summary of the regulatory regime material to the business and affairs of the Company is provided below.

Mining Regulation

The exploration and exploitation of minerals in Mexico may be carried out by Mexican citizens or Mexican companies incorporated under Mexican law by means of obtaining exploration and exploitation concessions.  Exploration concessions are granted by the Mexican federal government for a period of six years from the date of their recording in the Public Registry of Mining and are not renewable.  Holders of exploration concessions may, prior to the expiration of such exploration concessions, apply for one or more exploitation concessions covering all or part of the area covered by one exploration concession.  Failure to apply prior to the expiration of the term of the exploration concession will result in termination of the concession.  An exploitation concession has a term of 50 years, generally renewable for a further 50 years upon application within five years prior to the expiration of such concession.  Both exploration and







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exploitation concessions are subject to annual work requirements and payment of surface taxes which are assessed and levied on a semi-annual basis.  Such concessions may be transferred or assigned by their holders, but such transfers or assignments must comply with the requirements established by the Mexican Mining Law and be registered before the Public Registry of Mining in order to be valid against third parties.

Mineral exploration and exploitation concessions may also be obtained by foreign citizens or foreign corporations, in this latter case, through the establishment of a branch or subsidiary in Mexico, and in the case of foreign citizens, provided that they comply with certain requirements set forth in the Foreign Investment Law.  Foreign citizens are required to apply for the corresponding authorization before the Ministry of Foreign Affairs and register their investment in the National Registry of Foreign Investment.  In the case of a branch of foreign corporations, in addition to registration in the National Registry of Foreign Investment, additional authorization from the Ministry of Economy is required in order to obtain subsequent registration in the corresponding local Public Registry of Commerce.

Mexican mining law does not require payment of finders fees or royalties to the Government, except for a discovery premium in connection with national mineral reserves, concessions in marine zones and claims or allotments contracted directly from the Mexican Geological Service.  None of the property interests held by Lagartos are under such fee regime.  However, holders of exploration and exploitation concessions are required to pay surface taxes which are assessed and levied on a semi-annual basis.

Foreign Investment Regulation

Foreign investment regulation in Mexico is basically governed by the Law of Foreign Investment and its Regulations.  Foreign investment of up to 100% in Mexican mining companies is freely permitted.  Foreign companies or companies with foreign investment in their capital stock must be registered with the National Registry of Foreign Investment which is maintained by the Ministry of Economy.

Environmental Regulation

Mexico has federal and state laws and regulations relating to the protection of the environment, including regulations concerning water pollution, air pollution, noise pollution and hazardous substances.  The principal environmental legislation in Mexico is the Ley General del Equilibrio Ecológico y la Protección al Ambiente (the General Law of Ecological Balance and Environmental Protection or the General Law), which provides for general environmental rules and policies, with specific requirements set forth in regulations on air pollution, hazardous substances, environmental impact and others (the Environmental Regulations).  Additionally, there are a series of Mexican Official Norms that establish ecological and technical standards and requirements on various environmental related matters (the Ecological Standards).

The Secretaría de Medio Ambiente y Recursos Naturales (the Ministry of the Environment and Natural Resources or SEMARNAT for its initials in Spanish) is the federal agency in charge of monitoring compliance with and enforcing the General Law, the Environmental Regulations and the Ecological Standards (collectively the Environmental Laws).  On enforcement matters the SEMARNAT acts mainly through the Procuraduría Federal de Protección al Ambiente (the Federal Bureau of Environmental Protection or PROFEPA for its initials in Spanish) and in certain cases through other governmental entities under its control.

Environmental Laws also regulate environmental protection in the mining industry in Mexico.  In order to comply with these laws, a series of permits, licences and authorizations must be obtained by a concession holder during the exploration and exploitation stages of a mining project.  Generally, these permits and authorizations are issued on a timely basis after the completion of an application by a concession holder.  To the best of the Companys knowledge, all of the Companys property interests are currently in compliance with the Environmental Laws.

In the exploration stage, the cost of complying with such Environmental Laws is included in the exploration budget. Until such time as the Company conducts larger more invasive procedures, such as trenching or bulk sampling, there is only nominal cost associated with compliance with the Environmental Laws. The Companys programs are not yet sufficiently advanced to allow an estimate of the future cost of such environmental compliance.







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Currency

The official monetary unit of Mexico is the peso. The currency exchange rate freely floats and the country has no currency exchange restrictions.  Nevertheless, following the devaluation of the Mexican peso in December, 1994, uncertainties continue with respect to the financial situation of Mexico.  See Item 3. Key Information  Risk Factors, specifically those risk factors dealing with currency fluctuation and inflation.

The following table presents a five-year history of the average annual exchange rates to convert one Canadian dollar into Mexican pesos, calculated by using the average of the exchange rates on the last day of each month during the given year.



|Year | Average Exchange Rate
|---- | ---------------------
|2004 | 8.68913              
|2003 | 7.73190              
|2002 | 6.15751              
|2001 | 6.03241              
|2000 | 6.36996              

Value Added Tax

In Mexico, VAT is charged on all goods and services at a rate of 15% percent.  Proprietors selling goods or services must collect VAT on behalf of the government.  Goods or services purchased incur a credit for VAT paid.  The resulting net VAT is then remitted to, or collected from the Government of Mexico through a formalized filing process.

The Juanicipio Property

Pursuant to an agreement dated July 18, 2002 as amended December 19, 2002 between Lagartos and Ing. Martin Bernardo Sutti Courtade I (Sutti), of Zacatecas, Mexico (the Juanicipio Agreement), Sutti granted to Lagartos an option (the Juanicipio Option) to acquire a 100% interest in the Juanicipio Property.  Sutti subsequently assigned his interest to Minera Venus, S.A. de C.V.  In order to exercise the Juanicipio Option, Lagartos was required to:

(a)

drill a minimum of 3,500m of diamond core, reverse circulation or a combination of the two methods within 12 months following the date of ratification of the Juanicipio Agreement by all parties in the presence of a notary public (the Ratification Date), which was July 18, 2002 (which work was completed);

(b)

pay 1,000 pesos plus applicable taxes and pay the Mexican Treasury one payment of approximately 200,000 pesos (approximately $32,629) representing mining taxes owed for the first half of 2002 (which amount was paid);

(c)

make payments aggregating US$1,225,000 plus VAT on the following basis:

(i)

US$75,000 plus VAT on or before January 18, 2003 (which amount was paid);

(ii)

US$100,000 plus VAT on or before July 18, 2003;

(iii)

US$100,000 plus VAT on or before January 18, 2004;

(iv)

US$150,000 plus VAT on or before July 18, 2004;

(v)

US$150,000 plus VAT on or before January 18, 2005;

(vi)

US$200,000 plus VAT on or before July 18, 2005;

(vii)

US$200,000 plus VAT on or before January 18, 2006; and

(viii)

US$250,000 plus VAT on or before July 18, 2006 and during each semester subsequently until the Juanicipio Property commences production;

(d)

incur expenditures on the Juanicipio Property in the amount of at least US$2,500,000 on the following basis:







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(i)

US$750,000 (including amounts incurred in subparagraph (a) above) by July 18, 2004;

(ii)

the cumulative amount of US$1,500,000 by July 18, 2005; and

(iii)

the cumulative amount of US $2,500,000 by July 18, 2006; and

(e)

pay a NSR on the following basis:

(i)

3.5% for silver priced up to US $5.50/troy ounce;

(ii)

3.75% for silver priced greater than US $5.50/troy ounce and up to US $6.50/troy ounce;

(iii)

4.0% for silver priced greater than US $6.50/troy ounce and up to US $7.50/troy ounce;

(iv)

4.25% for silver priced greater than US $7.50/troy ounce and up to US $10/troy ounce; and

(v)

5% for silver priced greater than US $10/troy ounce.

Royalties on other precious metals were to be paid at the same percentage rate then in effect for silver. Royalties on base metals recovered would be paid at half the then prevailing percentage rate for silver.

Minera Venus, S.A. de C.V., the optionor of the Juanicipio Property, was owned as to 99% by Lexington Capital Group Inc. and as to 1% by Jose Ruiz Lopez. Lexington Capital Group Inc. was owned as to 100% by Strategic Investments Resources Ltd.  Pursuant to a stock purchase agreement dated May 29, 2003 between the Company and Strategic Investments Resources Ltd., on July 16, 2003, for consideration of US$250,000 and 200,000 common shares of the Company at a price of $0.90 per share for a deemed value of $180,000, the Company acquired 100% of the issued shares of Lexington Capital Group Inc., thereby acquiring 99% ownership of the Juanicipio Property (with the remaining 1% held by Jose Ruiz Lopez). As a result of the acquisition of Lexington Capital Group Inc. by the Company, the Company did not have to incur any of the originally required option payments and work commitments as described above to occur after such acquisition.  Subsequent to year end, the Company merged and amalgamated Minera Venus, S.A. de C.V. into Lagartos and terminated the Juanicipio Agreement, thereby eliminating its obligations (as described above) to make any further option payments, fulfill the above-described work commitments or pay any royalty.

Pursuant to an agreement dated March 17, 2005 (the LOI) with Industrias Peñoles, S.A. de C.V. (Peñoles), the Company and Lagartos have granted to Peñoles or any of its subsidiaries an option to earn a 56% interest in the Juanicipio Property in Mexico in consideration for Peñoles: (a) conducting US$5,000,000 (minimum US$750,000) of exploration on the property over the next five years as follows: (i) US$750,000 in year 1; (ii) US$1,000,000 in year 2; (iii) US$1,250,000 in year 3; and (iv) US$2,000,000 in year 4; and (b) Peñoles purchasing US$500,000 of Common Shares of the Company within 30 business days after the LOI becomes effective at a price calculated based on the average closing price of the Companys Common Shares for the 10 trading days prior to the purchase (which has been done); and (c) Peñoles purchasing US$500,000 of Common Shares of the Company within 30 business days after the first anniversary of the execution of the LOI, taking into account the average closing price of the Companys Common Shares for the 10 trading days prior to such purchase.

The Don Fippi Property

Pursuant to an arms length agreement (the Don Fippi Agreement) dated as of November 18, 2002 between the Company, Lagartos and Minera Bugambilias, S.A. de C.V. (Bugambilias), Bugambilias granted to Lagartos an option (the Don Fippi Option) to acquire a 100% interest in the Don Fippi Property. In order to exercise the Don Fippi Option, Lagartos must:

(a)

pay to Bugambilias an aggregate of US$550,000 plus VAT (the Don Fippi Payments) on the following basis:

(i)

US$50,000 plus VAT within five business days after the date the Don Fippi Agreement is accepted by the Exchange, which occurred on April 21, 2003 (the DF Effective Date) (which amount has been paid);







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(ii)

US$50,000 plus VAT on or before April 21, 2004 (which amount has been paid);

(iii)

US$100,000 plus VAT (the Third DF Payment) on or before April 21, 2005, provided that if during the ten trading days prior to the date the Third DF Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Third DF Payment is waived by Bugambilias and need not be made;

(iv)

US$150,000 plus VAT (the Fourth DF Payment) on or before April 21, 2006, provided that if during the ten trading days prior to the date the Fourth DF Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Fourth DF Payment is waived by Bugambilias and need not be made; and

(v)

US$200,000 plus VAT (the Fifth DF Payment) on or before April 21, 2007, provided that if during the ten trading days prior to the date the Fifth DF Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Fifth DF Payment is waived by Bugambilias and need not be made;

(b)

incur expenditures on the Don Fippi Property in the amount of at least US$4,000,000 (the Don Fippi Expenditures) on the following basis:

(i)

US$250,000 by April 21, 2004, of which US$15,000 must be spent by December 31, 2002 (all of which has been spent);

(ii)

the cumulative amount of US$1,000,000 by April 21, 2005;

(iii)

the cumulative amount of US$2,000,000 by April 21, 2006;

(iv)

the cumulative amount of US$3,000,000 by April 21, 2007; and

(v)

the cumulative amount of US$4,000,000 by April 21, 2008;

(c)

allot and issue to Bugambilias an aggregate of up to 2,100,000 Common Shares of the Company (the Don Fippi Shares) on the following basis:

(i)

100,000 Common Shares within five business days of April 21, 2003 (which have been issued at $0.50 per share); and

(ii)

commencing December 21, 2003, one Common Share for each US dollar expended by Lagartos as described in paragraph (b) above, up to a maximum of 2,000,000 Common Shares.

Pursuant to an amendment dated as of April 20, 2005 which is subject to the approval of the Exchange, the Don Fippi Agreement has been amended to delete the Don Fippi Payments due April 21, 2005, April 21, 2006 and April 21, 2007, to delete the Don Fippi Expenditures due to be incurred by April 21, 2005, April 21, 2006, April 21, 2007 and April 21, 2008, and to reduce the number of Don Fippi Shares to be issued under (c)(ii) above to the issuance of a final 750,000 Common Shares.

Lagartos also agreed to pay to Bugambilias a 4.5% NSR.

All properties acquired by Lagartos, Bugambilias or any of their affiliates within the borders of the Don Fippi Property will become part of the Don Fippi Property and be included under the Don Fippi Agreement.

Lagartos may terminate the Don Fippi Agreement at any time by providing Bugambilias with 60 days notice and failing to make any payment or incur any Don Fippi Expenditure when due, but must pay the applicable taxes for the following semester.

Lagartos has a right of first refusal in the event that Bugambilias wishes to dispose of its interest in the Don Fippi Agreement or NSR, except for transfers of interests in the NSR to Bugambilias shareholders or heirs which are permitted without restriction.

Bugambilias has a right of first refusal in the event that Lagartos wishes to dispose of its interest in the Don Fippi Agreement.







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The Guigui Property

Pursuant to an arms length agreement (the Guigui Agreement) dated as of November 18, 2002 between the Company, Lagartos and Minera Coralillo, S.A. de C.V. (Coralillo), Coralillo granted to Lagartos an option (the Guigui Option) to acquire a 100% interest in the Guigui Property.  In order to exercise the Guigui Option, Lagartos must:

(a)

pay to Coralillo an aggregate of US$550,000 plus VAT (the Guigui Payments) on the following basis:

(i)

US$50,000 plus VAT within five business days after the date the Guigui Agreement is accepted by the Exchange, which occurred on April 21, 2003 (the GG Effective Date) and which amount has been paid;

(ii)

US$50,000 plus VAT on or before June 20, 2004 (which has been paid);

(iii)

US$100,000 plus VAT (the Third Guigui Payment) on or before April 21, 2005, provided that if during the ten trading days prior to the date the Third Guigui Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Third Guigui Payment is waived by Coralillo and need not be made;

(iv)

US$150,000 plus VAT (the Fourth Guigui Payment) on or before April 21, 2006, provided that if during the ten trading days prior to the date the Fourth Guigui Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Fourth Guigui Payment is waived by Coralillo and need not be made; and

(v)

US$200,000 plus VAT (the Fifth Guigui Payment) on or before April 21, 2007, provided that if during the ten trading days prior to the date the Fifth Guigui Payment is due the average closing price of the Common Shares of the Company on the Exchange is more than US$0.50, the Fifth Guigui Payment is waived by Coralillo and need not be made;

(b)

incur expenditures on the Guigui Property in the amount of at least US$2,500,000 (the Guigui Expenditures) on the following basis:

(i)

US$100,000 by April 21, 2004 (which has been spent);

(ii)

the cumulative amount of US $750,000 by April 21, 2005;

(iii)

the cumulative amount of US $1,500,000 by April 21, 2006; and

(iv)

the cumulative amount of US $2,500,000 by April 21, 2007; and

(c)

allot and issue to Coralillo an aggregate of 2,100,000 Common Shares of the Company (the Guigui Shares) on the following basis:

(i)

100,000 Guigui Shares within five business days of the GG Effective Date (which have been issued at $0.50 per share); and

(ii)

commencing December 21, 2003, one Guigui Share for each US dollar expended by Lagartos as described in paragraph (b) above, up to a maximum of 2,000,000 Guigui Shares.

Pursuant to an amendment dated as of April 20, 2005 which is subject to the approval of the Exchange, the Guigui Agreement has been amended to delete the Guigui Payments due April 21, 2005, April 21, 2006 and April 21, 2007, to delete the Guigui Expenditures due to be incurred by April 21, 2005, April 21, 2006 and April 21, 2007, and to reduce the number of Guigui Shares to be issued under (c)(ii) above to the issuance of a final 750,000 Common Shares.

Lagartos also agreed to pay to Coralillo a 2.5% NSR.

All properties acquired by Lagartos, Coralillo or any of their affiliates within the borders of the Guigui Property will become part of the Guigui Property and be included under the Guigui Agreement.







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Lagartos may terminate the Guigui Agreement at any time by providing Coralillo with 60 days notice and failing to make any payment or incur any Guigui Expenditures when due, but must pay the applicable taxes for the following semester.

Lagartos has a right of first refusal in the event that the optionor wishes to dispose of its interest in the Guigui Agreement or NSR, except for transfers of interests in the NSR to Coralillos shareholders or heirs which are permitted without restriction.

Coralillo has a right of first refusal in the event that Lagartos wishes to dispose of its interest in the Guigui Agreement.

Recently Acquired Properties

Pursuant to an arms length agreement (the Sierra de Ramirez Agreement) dated as of December 14, 2003 among the Company, Lagartos and Minera Rio Tinto, S.A. de C.V. (Rio Tinto), Rio Tinto granted to Lagartos an option (the Sierra de Ramirez Option) to acquire a 100% interest in an exploration concession covering 4,443 hectares located in the Sierra de Ramirez district in Durango, Mexico (the Sierra de Ramirez Property), subject to a maximum 3% net smelter returns royalty.  In order to exercise the Sierra de Ramirez Option, Lagartos must:

(a)

pay US$55,000 to Rio Tinto within five days after Exchange acceptance of the Sierra de Ramirez Agreement, which occurred on July 26, 2004 (the RT Effective Date, which was changed to December 14, 2003 subsequent to year end), which was done;

(b)

make payments to Rio Tinto as follows:

(i)

US$50,000 on or before December 14, 2004 (Paid);

(ii)

US$25,000 on or before June 14, 2005 (Paid);

(iii)

US$100,000 on or before December 14, 2005;

(iv)

US$25,000 on or before June 14, 2006;

(v)

US$150,000 on or before December 14, 2006;

(vi)

US$25,000 on or before June 14, 2007;

(vii)

US$225,000 on or before December 14, 2007;

(viii)

US$25,000 on or before June 14, 2008;

(ix)

US$850,000 on or before December 14, 2008, of which up to US$500,000 may be paid in Common Shares of the Company; and

(c)

incur exploration expenditures on the property as follows:

(i)

US$50,000 by December 14, 2004 (done);

(ii)

an additional US$100,000 by December 14, 2005;

(iii)

an additional US$150,000 by December 14, 2006;

(iv)

an additional US$200,000 by December 14, 2007; and

(v)

an additional US$250,000 by December 14, 2008.

Pursuant to an arms length agreement (the Adargas Agreement) dated as of February 26, 2004 among the Company, Lagartos and Cascabel, Cascabel granted to Lagartos an option (the Adargas Option) to acquire a 100% interest in the Adargas property (the Adargas Property), subject to a 2.5% net smelter returns royalty. In order to exercise the Adargas Option, Lagartos must:

(a)

pay US$25,000 plus VAT to Cascabel and issue to Cascabel 75,000 Common Shares of the Company within five days after Exchange acceptance of the Adargas Agreement, which occurred on July 26, 2004 (the AD Effective Date), which was done;

(b)

make payments to Cascabel as follows:

(i)

US$75,000 plus VAT on or before July 26, 2005;

(ii)

US$125,000 plus VAT on or before July 26, 2006;







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(iii)

US$175,000 plus VAT on or before July 26, 2007;

(iv)

US$250,000 plus VAT on or before July 26, 2008;

(v)

US$350,000 plus VAT on or before July 26, 2009; and

(c)

incur exploration expenditures on the Adargas Property as follows:

(i)

US$100,000 by July 26, 2005;

(ii)

an additional US$200,000 by July 26, 2006;

(iii)

an additional US$200,000 by July 26, 2007;

(iv)

an additional US$250,000 by July 26, 2008; and

(v)

an additional US$250,000 by July 26, 2009.

Pursuant to an arms length agreement (the Cinco de Mayo Agreement) dated as of April 5, 2004 among the Company, Lagartos and Cascabel, Cascabel granted to Lagartos an option (the Cinco de Mayo Option) to acquire a 100% interest in the Cinco de Mayo property (the Cinco de Mayo Property), subject to a 2.5% net smelter returns royalty.  In order to exercise the Cinco de Mayo Option, Lagartos must:

(a)

pay US$25,000 plus VAT to Cascabel and issue to Cascabel 75,000 Common Shares of the Company within five days after Exchange acceptance of the Cinco de Mayo Agreement which occurred on July 26, 2004 (the CM Effective Date), which was done;

(b)

make payments to Cascabel as follows:

(i)

US$75,000 plus VAT on or before July 26, 2005;

(ii)

US$125,000 plus VAT on or before July 26, 2006;

(iii)

US$175,000 plus VAT on or before July 26, 2007;

(iv)

US$250,000 plus VAT on or before July 26, 2008;

(v)

US$350,000 plus VAT on or before July 26, 2009; and

(c)

incur exploration expenditures on the Cinco de Mayo Property as follows:

(i)

US$100,000 by July 26, 2005;

(ii)

an additional US$200,000 by July 26, 2006;

(iii)

an additional US$200,000 by July 26, 2007;

(iv)

an additional US$250,000 by July 26, 2008; and

(v)

an additional US$250,000 by July 26, 2009.

The Sierra de Ramirez Property, the Adargas Property and the Cinco de Mayo Property are collectively referred to as the Recently Acquired Properties.

Organizational Structure

The Company is the registered owner of 99% of the issued Class I shares of Lagartos. The remaining 1% of the issued Class I shares of Lagartos is held by Dave Pearce, a director of the Company, in trust for the Company. Lexington Capital Group Inc., the 100% owned subsidiary of the Company, owns 99% of the issued Class II shares of Lagartos and Jose Ruiz holds the remaining 1% of the issued Class II shares of Lagartos. This results in the Company effectively having 100% beneficial ownership of Lagartos. The registered and records office of Lagartos is located at Paseo de Los Tamarindos 60, Bosques de Las Lomas, 05120 Mexico, D.F., Mexico.

The Company is also the owner of 100% of the issued shares of Lexington Capital Group Inc., a British Virgin Islands company, which holds a 99% interest in the claims underlying the Juanicipio Property.

The following is a list of each subsidiary of the Company and the jurisdiction of incorporation and the direct or indirect percentage ownership by the Company of each subsidiary:







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|Name of Subsidiary                | Jurisdiction of 
Organization | Percentage of Voting Securities Owned of Controlled
|--------------------------------- | ----------------------------- | ---------------------------------------------------
|Minera Los Lagartos, S.A. de C.V. | Mexican Republic              | 100%*                                              
|Lexington Capital Group Inc.      | British Virgin Islands        | 100%                                               

*

The Company is the registered owner of 99% of the issued Class I shares of Lagartos. The remaining 1% of the issued Class I shares of Lagartos is held by Dave Pearce, a director of the Company, in trust for the Company. Lexington Capital Group Inc., the 100% owned subsidiary of the Company, owns 99% of the issued Class II shares of Lagartos and Jose Ruiz holds the remaining 1% of the issued Class II shares of Lagartos. This results in the Company effectively having 100% beneficial ownership of Lagartos.

Property, Plants and Equipment

The Companys administrative offices are located in leased premises at Suite 328, 550 Burrard Street, Vancouver, British Columbia, V6C 2B5. The Company has no significant plant or equipment for its operations.  Equipment used for exploration or drilling is rented or contracted as needed.

DESCRIPTION OF THE BUSINESS - JUANICIPIO

Some of the disclosure in this section is based on a November 19, 2002 report entitled The Geology and Exploration Potential of the Juanicipio Property, Fresnillo District, Zacatecas, Mexico prepared by Clancy J. Wendt (Wendt), P.G., of Pincock, Allen and Holt, of Lakewood, Colorado.

Property Description and Location

The Juanicipio Property (the Juanicipio Property or Juanicipio) is located in the Fresnillo District, Zacatecas, Mexico, approximately 6 kilometres (km.) west of the city of Fresnillo and the Fresnillo Mine of Peñoles, currently the worlds largest silver mine.

The Juanicipio Property covers approximately 7,679 hectares (18,967 acres) and is in the northeastern part of the Sierra Valdecañas, a 13 km. by 30 km. long mountain range that lies immediately west of Fresnillo.

The property lies on the western edge of the Mexican Altiplano or Mesa Central.  The Altiplano is that portion of central northern Mexico lying north of the Trans-Mexico Volcanic Belt, between the Sierra Madre Oriental and Sierra Madre Occidental.

Water is abundant at depth and water rights for mine development should be part of the mineral rights. Power is located a few miles from the main part of the property and is available.

Accessibility

Paved highways on the eastern, northern and western sides surround the Sierra Valdecañas, with a good-quality unpaved road linking the paved roads across the southern end of the range.  This southern road is in the process of being paved.  Despite the ruggedness of the central part of the Sierra Valdecañas, access to the northeastern area, where the Juanicipio Property is located, is good.  A high quality dirt road runs about 1.5 km. up the Linares Canyon from the village of Presa Linares.  This provides access to the extreme northeastern corner of the Juanicipio Property.  A separate road proceeds from Fresnillo to the village of Valdecañas, and from there to a pass that allows access to Linares Canyon, some 4 km. south of the village of Presa Linares.  Despite this road access, principal access to the bulk of the area of maximum interest is by foot.  One major drill target should be accessible from existing roads; others will require road building up Linares Canyon.  The routes for these roads have already been approved by the Mexican environmental agency.

Ownership

The Juanicipio Property was originally titled to Juan Antonio Rosales of Zacatecas on August 9, 1999.  The Juanicipio Property was sold by Juan Antonio Rosales to Sutti. Pursuant to the Juanicipio Agreement, Sutti granted to Lagartos an option to acquire a 100% interest in the Juanicipio Property. Sutti then assigned his interest to Minera Venus, S.A. de C.V. As described above, the Company acquired ownership of Lexington Capital Group Inc., which in turn owns 99% of Minera Venus, S.A. de C. V., resulting in the Company indirectly owning 99% of the Juanicipio Property, with the remaining 1% owned by Jose Ruiz Lopez.







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History

The Juanicipio Property has seen sporadic, small-scale prospecting by unknown individuals over the last several hundred years, but has seen no production.  Previous work by Sunshine Mining and the Consejo de Recursos Minerales (the Mexican Geologic Survey) has produced geologic maps, geochemical data bases, alteration and geologic maps, geophysical maps, Landsat images, topographic and structure maps.

Geological Setting

District Geology

The Fresnillo District section consists of the lower Cretaceous rocks composed of calcareous graywacke with interbedded shales and limestones.  The limestones are unconformably overlain (perhaps in overthrust contact) by the Chilitos Fm., composed of marine andesitic volcaniclastic sediments, andesite tuffs and flows, and mafic intrusive bodies.  The section is capped by the Tertiary basal conglomerates and volcaniclastics and overlying rhyolite ash-flow tuffs.  Everything older than the Fresnillo Fm. is intruded by andesite dikes and a quartz-monzonite porphyry. The pre-Tertiary section has been folded, tilted (N55W, 30SW) and complexly thrusted.

Juanicipio Geology

The stratigraphy of the Juanicipio area is very similar to that of the adjacent Fresnillo District. The (apparently) oldest rocks seen to date at Juanicipio are fragments of graywacke seen on dumps in the Cerro Colorado area.  These appear similar to the upper Valdecañas Graywackes of the Proaño Group seen in the main portion of the Fresnillo District.

The next oldest rocks are thinly bedded calcareous shales (lower) and andesitic volcaniclastic rocks. These rocks are poorly resistant to weathering and crop out sparingly beneath materials sloughed off the bold outcrops of volcanic rocks along Linares Canyon and at Piedras.  The uppermost surface of the Chilitos is an irregular unconformity, locally marked by deep weathering and paleo-calcrete.  This surface is buried by Tertiary volcaniclastic paleo-alluvium, surface debris, and a variety of tuffs welded and unwelded.

Environmental Surveys

The only environmental surveys done on the Juanicipio Property are those required for drill permitting.  These surveys involve preparing inventories of floral and faunal species and assessments of the impact of road building for drilling.  Drilling permits were granted to Sunshine by SEMARNAT on the basis of these studies.  The permits have been regenerated in the name of Lagartos.

The only surface disturbances on the Juanicipio are small prospect pits from which there has been no production.  Reconnaissance coverage indicates that there are no inherited environmental liabilities from these disturbances.

Mineral Resources and Reserves

The Juanicipio Property remains at an early exploration stage.  No data has yet been generated from which to estimate resources and reserves.

Interpretation and Conclusions

The geology, structure, geochemistry and geophysics at Juanicipio are similar enough to other productive systems that can be readily applied to Juanicipio to generate high quality, potentially high-grade, drilling targets.  The results of the initial mapping, geochemistry and geophysics include the following favourable comparisons:

1.

Similar structural environment with both parallel structures and structures aligned with previously drilled mineralized structures.

2.

A two-stage alteration history with early massive silicification cut by a later iron-oxide, pyrite, kaolinite and alunite stage.

3.

A geochemical signature that is anomalous in minerals that indicate potential mineralization at depth.







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4.

Strong NSAMT response for the major structures shows persistence to depth.

5.

The major geologic, geochemical and geophysical features coincide:  It is the late N50-70W structures that have the pyrite, kaolinite, and alunite alteration, geochemical anomalies, and NSAMT responses.

Work Program

Drill Targets

Six major target structures have been identified and were drilled in a Phase I program, based upon their orientation, alteration history, geochemistry and geophysics: the Fe Oxide Pit Structure, Zonge Structure A, Zonge Structure B, Zonge Structure C, South Target, and Zonge Structure D.



In 2004, MAG drilled two additional diamond drill holes on targets generated by the 2003 drilling results.  The previous seven diamond drill holes targeted major structures selected for their orientation, alteration history, geochemistry, geophysical anomalies and Fresnillo-style and grade of mineralization (up to 730 g/T Ag and 10.8 g/t Au was intersected in five of the seven holes).  The 2003 drilling results confirmed that Fresnillo style silver and gold rich mineralization continued into Juanicipio and indicated that the exploration techniques and exploration model being used was indeed correct.



The 2004 drilling was designed to test the intersection of two of the structures drilled in 2003 and made a third pass to test a major structure that was previously incompletely tested. Neither 2004 hole was designed to offset successful 2003 holes and the drilling intersected no more than trace mineralization.



The 2004 drilling was accompanied by a detailed Short-Wave Infrared (SWIR) survey and a detailed structural analysis.  These studies revealed several new targets, and target refining possibilities.



Plans are also underway to design a drill program for 2005 to follow up on the significant drill intercepts from the previous drill programs and to test several newly discovered structures.



In late 2004 MAG was approached by Peñoles who have expressed a keen interest in the formation of a joint venture with the Company on the Juanicipio Property. MAG elected to pursue this proposal with Peñoles because of their strong interest and valuable understanding of the Fresnillo Silver Camp. Working closely with Peñoles would be a great boost to MAG and its property holdings in the district (see Description of the Business  Lagartos).



Exploration over the past six years by Peñoles has focused on tracing the discovery of a series of new silver-rich veins to the west of the mine area. Peñoles has also been expanding production at the Fresnillo mine with the recent development of the high-grade silver San Carlos vein system. Peñoles current exploration campaign resulted in the recently announced Saucito silver-gold vein discovery lying near the eastern boundary of the Juanicipio Property. MAGs 2003-2004 exploration drilling intersected several vein structures with significant silver and gold values lying along the projection of the Saucito vein group. The initial joint venture exploration effort will focus on linking MAGs discoveries to the Saucito veins.



The principal features of the agreement are:



1.

Peñoles can earn a 56% interest in Juanicipio upon completion of a US$5,000,000 exploration program on or before the end of year 4 of the agreement.

2.

During the first year, Peñoles shall incur an obligatory work commitment expenditure of US$750,000.  Year 1 expenditures must include a minimum of 3,000 metres of diamond drilling.

3.

A flexible and staged exploration program is included in the contract.  Exploration work will be supervised by a technical committee comprised of three representatives from Peñoles and two from MAG.  Peñoles and MAG are obliged to share their information in the district.  Part of the geological and exploration work will be conducted by MAG consultants and in-house personnel.

4.

Exploration results from Juanicipio will be published as appropriate on an ongoing basis, with both companies to agree on the content.







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5.

Peñoles will subscribe for US$500,000 in MAG Common Shares, at a market based price on signing (which has been done) and an additional US$500,000 in MAG Common Shares, at a market based price, if the contract continues into the second year.

The Company is proceeding with the proposed work program. To December 31, 2004, approximately $1,775,609 has been spent on the Juanicipio Property.

DESCRIPTION OF THE BUSINESS - DON FIPPI

Some of the disclosure in this section is based on a November 19, 2002 report entitled The Geology and Exploration Potential of the Don Fippi Property, Batopilas District, Chihuahua, Mexico prepared for the Company by Wendt.

Property Description and Location

The Don Fippi Property comprises seven exploration claims covering approximately 3,511 ha. in the Batopilas Mining District in southwestern Chihuahua State of Mexico (the Don Fippi Property or Don Fippi).

Don Fippi lies in the topographically rugged central spine of the Sierra Madre. The Don Fippi project area is roughly centred on the town of Batopilas which lies at the bottom of the deep canyon of the Rio Batopilas at about 600 meters elevation.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

There is a good quality 70 km. unpaved road connecting Batopilas to the paved highway that leads to Creel and thence to the cities of La Junta, Cuauhtemoc and Chihuahua 300 km. to the east.  The main road runs along the river and is in very good condition through the town of Batopilas.  Conditions deteriorate south of the town, but the road is passable south to Satevo and west to Camuchin.  A few spur roads run from the main road to the area above the Porfirio Diaz Tunnel.  Access to the balance of the area is by foot or horseback.  Underground access is extensive through the Santo Domingo, San Miguel, Peñasquito and Pastrana mines.  The Porfirio Diaz Tunnel is caved about 1.5 km. from the portal, leaving the back 2.5 km. accessible only through stopes leading from the Peñasquito Level. Locals note that the tunnel has caved in the same place before and that past rehabilitation efforts have taken only a few days.

Both water and power are available at the property.

Ownership

On October 24, 1997, title to the Don Fippi Property vested with Bugambilias.  The Internal Property were acquired by the holders thereof as older claims expired and were liberated under Mexican mining law.  On November 18, 2002, Bugambilias granted to Lagartos an option on the Don Fippi Property.

History

High-grade native silver outcrops in the Batopilas district were discovered around 1630 and production records begin in 1632.  The district contains between 65 and 300 mines and an estimated 200,000,000 to 300,000,000 ounces of silver have been produced from the district.

Geological Setting

Regional Geology

The Batopilas District lies in the heart of the Sierra Madre Occidental magmatic province.  Geologically, this province consists of two thick Tertiary volcanic sequences deposited on a basement of Mesozoic sediments, metasediments, and intrusive rocks.  The two sequences are referred to as the lower volcanic complex and the upper volcanic complex.







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26





BatopilasDistrict Geology

Batopilas District mineralization is hosted entirely within the lower volcanic complex which here consists of intermediate composition intrusive rocks, dominantly dacites and diorites, and extrusive rocks, dominantly andesite tuffs, flows and volcaniclastic sediments.  Rhyolite ash-flows of the upper volcanic supergroup form the prominent mesas that rim the canyon several hundreds to thousands of meters above the vein system.

Mineralization and Alteration

Batopilas District Silver Mineralization

Mineralization in the silver zone dominantly occurs in the Pastrana Dacite, but some occurs in the Tahonas Granodiorite and Dolores Microdiorite.  Pre-mineral quartz-porphyry and post-intra-mineral basalt dikes in veins are mineralized and locally altered to serpentinite.  Mineralization throughout the silver zone overwhelmingly consists of crystallized native silver in calcite gangue.  The silver ores were high grade: ranging from the Batopilas Mining Companys 1880-1913 average direct-smelting grade of 8,000 g/T (257 oz/T) to extremely high-grade pods carrying up to 75% Ag.  The Batopilas Mining Company also produced a significant tonnage of milling ore grading 265 g/T (8.5 oz/T).  Oreshoots typically are 15 - 80 m. long, 0.5 - 4.6 m. wide (1 m. average) and up to 350 m. down plunge.  Shoots are connected by up to 90 m. of barren calcite veinlets, often only .1-.3 mm. wide.

Exploration

Exploration by Bugambilias

Bugambilias began its exploration with a comprehensive literature search and data acquisition phase.  The resulting data have been compiled, digitized and registered to a common UTM grid and elevation model.

Much of the historic data was incorporated into a mapping project conducted by Cascabel for the Mexican Mineral Resources Council (COREMI) in 2000.

Very little in the way of geochemistry and geophysics have been done in the past and much of the future work will be to complete these efforts to define targets for future work.

Environmental Surveys

Old workings and prospect pits dot the surface of the Don Fippi Property.  Most dumps, and all tailings were originally deposited on the banks of the Rio Batopilas, and 80 years of flooding have long since carried them away.

No environmental surveys have been done in the district by Bugambilias.

Mineral Resource and Mineral Reserves

The Don Fippi Property remains at an early exploration stage.  No data has yet been generated from which to estimate resources and reserves.

Exploration Program and Techniques

In general, the proposed exploration program has the principal goal of determining whether new geologic information and modern remote sensing techniques can locate blind high-grade native silver pods.  The old system of blind mining should not be necessary, although some of the mentioned targets could be tested by direct mining regardless of the geophysical results.

A two-stage pre-drilling exploration program should be undertaken:  Phase I should begin with continued acquisition and compilation of available data for the district.  This should include careful structural analysis.  This should be followed by detailed surface and underground geologic mapping and analysis.  The field priorities are:

(a)

accurately locate as many old workings as possible with GPS and underground surveying for integration into a district-scale GIS database;







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27





(b)

complete detailed surface mapping of the area above the Roncesvalles Fault to get a better idea of its offset;

(c)

map and sample the quartz-pyrite breccia pipes and evaluate the gold potential;

(d)

map the surface expression of the New Nevada breccia pipe and its possible analogs to the east; and

(e)

visit the Camuchin and Descubridora areas to determine the level of interest and priorities for acquisition and work in those areas.

The surface work should be complemented by underground mapping and sampling.  Some areas in the district will require some minor mine rehabilitation and mucking out of minor caved areas to ensure access.  The Porforio Diaz Tunnel (PDT) should be cleaned up and re-opened back to the Roncesvalles Fault zone to re-establish flow-through ventilation and allow the mine to breathe before underground work commences.  This will be especially important because much subsequent exploration will be underground from the PDT by either drilling or direct heading.  Examination of the upper levels along the Roncesvalles to evaluate the difficulty of rehabilitation should be done once the PDT is reopened.

Work Program

Because of the necessity of developing an effective set of exploration techniques for this large and topographically challenging district, MAG in 2004 selected a limited area in the central part of the district for initial exploration based on a combination of favorable geology, surface and underground access.  The area lies in a largely unexplored area across a major fault (the Roncesvalles Fault) and near a heavily mined area with excellent underground access via the 2.4 km long PDT.  The area is also accessible via one of the districts few surface roads.



The Roncesvalles Fault was considered to have been a barrier to mineralizing fluids (several major veins were mined to it and stopped) despite the fact that numerous shallow Spanish colonial era workings occur beyond the structure.  In 2003 and 2004, MAG reopened and rehabilitated the PDT, performed extensive underground mapping and sampling and used the PDT for underground geophysical studies.  A simultaneous surface based mapping, sampling and NSAMT geophysical program was also executed and used as the basis for a district and detailed structural analysis of the area.



The combined results have indicated several zones within the focus area where structures are favorably oriented and strong NSAMT anomalies coincide with the most favorable structures.  Preliminary drilling targets were indicated by these studies, and drilling permits have been obtained.  Detailed NSAMT work is underway in early 2005 to refine these anomalies prior to drilling.  The realities of road building in the area indicates that helicopter supported drilling is the most time and cost effective method. It is important to note that Batopilas served as the base of operations for Francisco Golds helicopter-supported drilling of the nearby El Sauzal Mine, so many of the logistical realities of using the technique in this region have already been addressed.

The Company has commenced this proposed work program. To December 31, 2004, approximately $795,074 has been spent on the Don Fippi Property.

DESCRIPTION OF THE BUSINESS - GUIGUI

Some of the disclosure in this section is based on a November 19, 2002 report entitled The Geology and Exploration Potential of the Guigui Silver, Lead, Zinc Project, Santa Eulalia District, Chihuahua, Mexico prepared for the Company by Wendt.

Property Description and Location

The Guigui Property comprises four exploration and three exploitation claims, as defined by the Mexican mining law, covering approximately 4,553 ha. of land between and south of the East and West Camps of Santa Eulalia Mining District in central Chihuahua State of Mexico (the Guigui Property or Guigui).

It is located 23 kilometers east of Chihuahua City and three kilometers by improved dirt road.  The district occupies the approximate center of the north-northwest elongate, fault-bounded Sierra Santa Eulalia (also called Sierra Santo Domingo) whose peaks rise up to 700 m. above the surrounding plains. Water and power are available locally and are near the property boundary.







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28





The Santa Eulalia District is divided into two portions called the West and East Camps, based on a combination of geography, production, and style of mineralization.  The West Camp lies on the western flank of the range and the East Camp lies on the eastern fringe of the range.  The 2.5 km. wide intervening zone is known as the Middle Camp.  The Middle Camp has numerous mineralized showings and small mines, but has not been systematically explored.  The Guigui Property covers the entire area south of the East and West Camps and a significant portion of the southeastern Middle Camp.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

Mexican Highway 15, connecting Chihuahua City to Mexico City, runs along the west side of the range, within about 4 km. of the western side of the Guigui Property.  A two-lane paved road cuts off Highway 15 and leads to the town of Santa Eulalia (also known as Aquiles Serdan).  Good quality paved and hard surfaced roads lead north and east from Santa Eulalia to the Buena Tierra, Potosi, and San Antonio Mines, or south into Guigui, which is crossed by a series of well-maintained ranch roads.

Ownership

Cascabel initially filed for the Guigui claims in 1992 and all such claims were subsequently transferred to Coralillo in 2000.  On November 18, 2002, Coralillo granted to Lagartos an option in respect of the Guigui Property.

History

There appears to have been little work done in the Guigui area prior to 1986, except for minor prospecting by unknown individuals.

Work completed between 1991 and 2002 included:

●

detailed geologic mapping of the Guigui Property, with emphasis on mapping volcanic stratigraphy, structures cutting the volcanics and alteration.  Geochemical samples were taken of all structures and mineralized outcrops.  This was accomplished via Landsat image analysis, 1:40,000 black and white air-photo analysis, and 1:10,000 scale geologic outcrop mapping.

●

geophysical surveys to locate the intrusive centre and to determine the thickness of the volcanic cover.  The surveys included: gravimetrics, ground magnetics, CSAMT (Controlled Source Audio Magneto Tellurics) and NSAMT (Natural Source Audio Magneto Tellurics).

●

defining and permitting of drilling targets based on geology, geochemistry and geophysics.  SEMARNAT (Secretaria de Medio Ambiente and Recursos Naturales which is the Secretary of the Environment and Natural Resources) approved 44 drilling sites, with permission for an initial 12-hole program in 1998.  These permits have been renewed annually and remain in effect.

Geological Setting

Geologic work that has been performed on the property consists of detailed geology mapping, geochemical sampling of outcrops, structures, and mineralized areas, geophysical surveys, and permitting of drill targets.

The Santa Eulalia District contains continuous, zoned mineralization and alteration concentrated on the east and west flanks of a southerly-plunging anticline.  Mineralization occurs in the same stratigraphic interval in close temporal and spatial relationship to distinctive felsite sills and dikes.

Exploration efforts to test the mineralized zones have included reconnaissance and detailed geologic and alteration mapping, geochemical sampling, and Gravity, Magnetics and Audio Magneto Tellurics (CSAMT and NSAMT) surveys.

These geologic and geophysical results were the basis for permitting a 6-12 hole-drilling program in 1998.  However, a significant additional area (>400 hectares in the Guigui 2, 3 and 4 claims) has been recently added to the claim package and it is recommended to advance the newly acquired ground to the same level of knowledge prior to drilling.  This should include detailed geologic outcrop mapping with particular attention paid to the areas between Guigui and known mineralization and the approximately 1 km long portion of the San Antonio Graben that lies within Guigui 2.  This mapping should be accompanied by geochemical sampling of all mineralized and altered outcrops.  Additional NSAMT and/or CSAMT geophysical lines should be run over targets identified by the above geologic mapping and consideration should be given to geophysically refining the previously identified targets within Guigui prior to drilling.







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Environmental Surveys

The only environmental surveys done on the Guigui Property to date are those required for drill permitting.  These include inventories of floral and faunal species and an assessment of the impact of road building for drilling.

The only surface disturbances in the claim are small prospect pits from which there has been no production and three old fluorite workings.  There are no inherited environmental liabilities from these disturbances.

Drilling

No drilling has been done within Guigui proper.  However, the 12 initial targets permitted for Advanced Projects remain to be drilled.  The permits are in the name of Cascabel and have been renewed annually since 1998.

Work Program

A six hole, 4,500 metre program was initiated in 2003 and continued into 2004.  In four holes, a range of intrusions, breccias, and visually distinctive alteration were intersected under the volcanic capping in the central Guigui area, but no significant mineralization was encountered. The presence of intrusive rocks is however, considered to be significant and will require further follow-up.



Significantly, two holes drilled 1,200 meters south and along the major graben structure that hosts the San Antonio Mine to the east of the district, cut 30-100 meters of manganoan-calcite cemented breccia in turn cut by narrow sulphide veinlets. Hole 5 returned a narrow intercept that assayed 3.5 ounces per ton of silver and 5.60% lead and 4.3 % zinc over 0.40 meters.  More significantly, Hole 6 returned with an 8.3 meter intercept of 4.2 ounces per ton silver. Most telling is that these intersections were within a 30 to 100 meter wide zone of manganoan-calcite (alteration) brecciation containing abundant veinlets and stringers of silver, lead and zinc minerals. The presence of base metal and silver mineralization within a broad alteration halo, not unlike the upper reaches of the East Camp deposits, is considered to be a most important development. It is managements contention that these mineralized intersections demonstrate that mineralization similar to the rich deposits of the San Antonio Mine and East Camp can be traced to the south and onto MAGs Guigui property. Three holes are planned in 2005.

It is important to note that Grupo Mexico, the largest Mexican mining company, has just restarted mining operations at the San Antonio Mine.



MAG now controls all of the ground to the immediate south and between the East and West Camps of the Santa Eulalia Mining District making us a significant player in any future developments in this historically silver rich district.

The Company has commenced the mapping portion of this program. To December 31, 2004, approximately $882,183 has been spent on the Guigui Property. A Phase II program will build on the work done during Phase I. The Phase I data will direct the exploration for Phase II.



DESCRIPTION OF THE BUSINESS - ADARGAS



The Adargas District is an under-explored 850 hectare Au, Ag, Pb, Zn, Cu Carbonate Replacement Deposit (CRD) target that lies at the intersection of two exceptionally productive regional ore deposit trends.  Adargas mineralization consists of a series of irregular dike-contact replacement chimneys that plunge generally north and widen with depth.  Historic data indicate that pre-1924 production from Adargas was roughly 350,000 T of oxide ores grading 9-27 g/T (.25-.9 oz/T) Au, 1000 g/T (34 oz/T) Ag, and 24-36% Pb.  High zinc grades are also present, but zinc was not recovered from the oxide ores.  High gold grades were encountered throughout the mine, with the highest in the deeper oxidized parts of the mine.



Adargas closely resembles the famous Naica deposit, which lies 120m to the NNW along one of the major regional trends.  Naica was rediscovered in the mid-1950s by following dike contact mineralization to depth changing it from an obscure occurrence to one of Mexicos major Pb-Ag-Zn mines. The exploration







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concept for Adargas is virtually identical. This is accomplished by working outwards from the old mine area and moving towards showings of similar mineralization that occur for several kilometers along strike.



The surface geology of the district can be generally described as a four km long, E-W-trending, northerly-convex arcuate anticline of Cretaceous limestone and shale. This stratigraphy is cut by E-W and N-S structures that host widespread silicification and distinctive rhyolite dikes that are closely related to replacement mineralization.  A rhyolite flow dome complex occupies the center of the anticline. The main Adargas Dike trends roughly NS and has a large central bulge around which pervasive silicification and replacement mineralization are focused. The dike is also known to carry anomalous gold.  The Ridge Dikes trend NW and occupy axial structures running the length of the anticline.  Mineralization occurs sporadically along these dikes as well, but has never been systematically explored.



MAG acquired the property from Cascabel who worked the property under contract from 1991 to 1998.  Over $250,000 was spent in surface and underground mapping, geophysics and drilling.  One of two diamond drill holes recorded 0.30 m of Zn-Pb-Ag bearing massive sulfides at the intersection of a strong CSAMT anomaly. This anomaly was also interpreted to be the inferred 200 m down-plunge projection of the principal Adargas Dike-contact chimney orebody.  With the industry downturn, interest in the property faded and it was subsequently abandoned. Cascabel reacquired the property in 2002 and MAG has unrestricted use of all existing core and data.



MAG drilled four diamond core holes in 2004, centered proximal to the known 0.30 m sulfide intercept.  All four holes intersected dikes, garnet-epidote skarn and variable amounts of sulfide mineralization.  The best hole returned 1.20 m of massive galena and sphalerite grading 300 ppb Au, 55 ppm Ag, 9.0% Pb and 5.8% Zn.



Subsequent borehole geophysics has identified a promising off-hole response indicative of a conductive source probably located below hole two and consistent with the geological model for Adargas. This target will most likely be drill tested early in the next exploration program.



Although these results are not overly promising in terms of grade they nonetheless do support the exploration model.  This has in turn attracted the interest of a major mining company in forming a joint venture on the Adargas property. MAG has elected to pursue this interest further and feels that the deeper targets, modeled on treating the surface mineralization as leakages from a larger system trapped beneath a relatively impermeable unit, remain untested and attractive.

The Company has commenced this proposed work program. To December 31, 2004, approximately $283,468 has been spent on the Adargas Property.



DESCRIPTION OF THE BUSINESS - CINCO DE MAYO

Cinco de Mayo is a 2,500 hectare Carbonate Replacement Deposit (CRD) prospect located in north-central Chihuahua, Mexico.  The acquisition of this property evolved from a review of data collected during 15 years of systematic exploration and a study of the geologic characteristics of the CRDs prospects in Chihuahua by Dr. Peter Megaw and Cascabel. This compilation revealed key features that set the important CRD systems like Santa Eulalia, Naica, Bismark, and San Pedro Corralitos apart from the numerous small CRD showings and Mississippi Valley Deposits that occur elsewhere in the region.  Cinco de Mayo lies directly along the same major deep crustal break that underlies these important CRD/skarn systems and shares many of the key features of the distal parts of Santa Eulalia, indicating that the potential for finding a large CRD system is excellent.



The Sierra Cinco de Mayo is an elongate limestone ridge, about 1 km wide and 4.5 km long flanked by broad alluvium mantled valleys. PEMEX data and outcrop reconnaissance indicate that the alluvial cover is very thin and that a very thick section of favorable carbonate host rocks lies immediately beneath the cover. The ridge is cut by NE-SW and NW-SE structures that host both mineralization and metal-bearing jasperoid alteration.  Little is known of the historic mining at Cinco de Mayo, but there are two old mines on the property that probably produced small amounts of high-grade silver and base metal ores.  The jasperoids were the focus of a systematic mapping and sampling program for a competitor in 1998. This







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program revealed a number of geochemical hot-spots along certain structural corridors leading towards the adjacent covered areas that are in turn underlain by highly favorable host rocks.



Exploration work in the covered areas will be largely blind and will necessitate using geochemical and geophysical techniques to trace mineralization beneath this thin cover.  The mineralization is known to contain magnetic pyrrhotite, indicating that airborne or ground magnetics may be useful.  NSAMT geophysics may also be useful in delineating deeper structure and various soil-geochemical prospecting tools will be employed to locate mineralization centers.  Drill targets can be developed quickly for drilling in 6-8 months.



MAG began preliminary regional geologic mapping and sampling at Cinco de Mayo in mid-2004.  Unfortunately, unusually heavy summer and fall rains deluged the region, washing out dams and cutting road access to the property.  The work program designed for 2004 will be carried out in 2005

The Company has commenced this proposed work program. To December 31, 2004, approximately $15,615 has been spent on the Cinco de Mayo Property.



DESCRIPTION OF THE BUSINESS - LAGARTOS



Consistently elevated gold values from MAGs 2003 Juanicipio drilling have suggested that a larger scale zoning may be in place than had previously been considered for the Fresnillo/Juanicipio/Lagartos district. MAG subsequently examined surrounding areas for possible extensions to the system(s), both in outcrop and under cover.  Satellite image and structural analysis of the region indicated areas of strong alteration similar to that drilled at Juanicipio. This alteration is also coincident with a very prominent regional structure that hosts at least three, one billion-plus ounce silver deposits.  In response, MAG acquired over 125,000 hectares of new claims, the Lagartos Property Package, on the most promising of areas using the Fresnillo/Juanicipio model. Preliminary work involved regional mapping and an orientation NSAMT geophysical survey as a possible first pass reconnaissance tool.



In 2004, the areas with the strongest alteration and NSAMT responses were mapped in detail and sampled. In addition, detailed NSAMT, SWIR (Short-Wave Infrared) surveying and an in-depth structural analysis were carried out.   The most promising area was identified about 35 km from Juanicipio (Lagartos NW) and two holes were drilled through covered terrain and targeted on the combined results of geophysics and geology. The best hole intersected 65 meters of strong advanced argillic alteration followed by 700 meters of strong silicification with abundant pyrite.  The drilling also significantly encountered several narrow mineralized structures, the best of which ran 1.3 g/T Au over nearly 1.5 meters.

The results strongly indicate that we are within a high-level portion of a major epithermal system (i.e. Fresnillo) only 30 kilometres along the structural trend from the Fresnillo silver district. Anomalous values of Gold (up to 1.3 g/t), Silver, Mercury, Antimony, and Arsenic are found throughout the holes and add to the significance that an epithermal system is in place.

Having confirmed that MAG has located a heretofore unidentified buried epithermal system within highly prospective terrain, our next step will be to quickly identify areas and/or vectors to where we can best concentrate our exploration efforts. We will accomplish this through ongoing and planned programs of geochemistry (bio-geochemistry) and geophysics planned for 2005.

We will be launching similar exploration programs to those we have applied at Juanicipio and Lagartos NW in due course.

The Company has commenced this proposed work program. To December 31, 2004, approximately $220,977 has been spent on the Lagartos Property.



DESCRIPTION OF THE BUSINESS - SIERRA RAMIREZ



The Sierra Ramirez District lies in eastern Durango State, approximately 80 km west of the famous Providencia-Concepcion del Oro, Zacatecas District.  Sierra Ramirez is a typical Mexican Carbonate







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Replacement Deposit (CRD) target that produced an estimated 750,000 - 1,000,000 tons of very high grade (1000-3000 g/T Ag) Ag-Pb-Zn ores from Spanish Colonial times until the mid 1960s.  Until recently the land status was high fractionated.  MAG has acquired over 80% of the district under option from Minera Rio Tinto of Chihuahua, Mexico.  Significant geotechnical work was conducted by a major company in the 1990s, but they abandoned the property during the downturn in the mineral industry and prior to drilling.



The Sierra Ramirez is a 7 by 15 km E-W oriented anticlinal fold composed of Jurassic Zuloaga Limestone cut by at least 2 rhyolitic plugs. Mineralization consists of Ag-Pb-Zn replacement veins in the western part of the area and mantos hosted in distinct carbonate strata in the central and eastern portions.  Small amounts of skarn are known to exist proximal to the rhyolite areas. Exploration of the district will involve the unraveling of the overall controls and metal zoning to best define the most favorable areas for further exploration.



To that end MAG executed district-scale mapping and sampling in 2004, with a focus on determining the size of the mineralized zone(s) and confirming existing concepts of district metal zoning.  The resulting district-scale metal ratio zoning patterns revealed three principal mineralization centers. On a positive note, two of them were found to extend well outside the limits of MAG Silvers original 4,443 hectare land position.  MAG subsequently filed to claim to an additional 11,167 hectares of land, including a vacated claim internal to their original holding, bringing our holdings in the district to over 15,500 hectares.



Heavy summer and fall rains hampered access to the property until December, but detailed mapping and sampling of the two principal mineralization centers controlled by MAG will resume early in 2005.

The Company has commenced this proposed work program. To December 31, 2004, approximately $61,238 has been spent on the Sierra Ramirez Property.

NONE OF THE EXPLORATION CONCESSIONS IN WHICH THE COMPANY HOLDS AN INTEREST ARE KNOWN TO CONTAIN COMMERCIAL QUANTITIES OF MINERALS OR PRECIOUS GEMS. ALL EXPLORATION PROGRAMS PROPOSED FOR ANY EXPLORATION CONCESSIONS IN WHICH THE COMPANY HAS AN INTEREST ARE EXPLORATORY IN NATURE.

Management reviews the carrying value, for accounting purposes, of mineral rights and deferred exploration costs as described in Item 5. Operating and Financial Review and Prospects.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The Companys main objective is to acquire mineral properties, finance their exploration and, if warranted, develop and bring them into commercial production either directly or by way of joint venture or option agreements or through a combination of the foregoing.  The Company is aiming to develop its exploration concessions to a stage where they could be exploited at a profit.  At that stage, its operations would to some extent be dependent upon the world market price of any minerals mined.

The Company had total deferred exploration costs and mineral rights of $7,310,714 at December 31, 2004 compared to $3,372,220 at December 31, 2003, $116,552 at December 31, 2002 and $Nil at December 31, 2001.  During Fiscal 2001 and most of 2002, the Company focused on the identification and completion of a Qualifying Transaction in industries other than mineral exploration and development (See Item 4. Information on the Company).  In August 2002, the Company entered into an agreement to acquire interests in exploration concessions and an operating subsidiary in Mexico.  During 2003, the Company commenced the exploration of its exploration concessions in Mexico.  This commencement of business in Mexico resulted in the Company incurring the deferred exploration costs described above.  The recoverability of deferred exploration costs and mineral rights is dependent upon the existence of economically recoverable reserves, securing and maintaining title and beneficial interest in the properties, the ability to obtain the necessary financing to meet its obligations under various option agreements and the completion of the development of its properties, future profitable production, or alternatively, upon its ability to dispose of its interests on an advantageous basis.  As a result, there is substantial doubt about the ability of the Company to continue as a going concern.







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Future write-downs of properties are dependent on many factors, including general and specific assessments of mineral resources, the likelihood of increasing or decreasing the resources, land costs, estimates of future mineral prices, potential extraction methods and costs, the likelihood of positive or negative changes to the environment, taxation, labour and capital costs.  We cannot assess the monetary impact of these factors at the current stage of our properties.  The dollar amounts shown as exploration concession interests are direct costs of maintaining and exploring properties.  These amounts do not necessarily reflect present or future values.

Additional financing will be required for further exploration and development of our properties.  Although we have been successful in the past in raising funds, there is no assurance that we will be able to raise the necessary funds to meet our funding obligations.

The Company has not been required to make any material expenditure for environmental compliance to date.  The operations of the Company may in the future be affected from time to time in varying degrees by changes in the environmental regulations.  Both the likelihood of new regulations and their overall affect upon the Company vary greatly and are not predictable.  See Item 3. Key Information - Risk Factors.

Operating Results

The discussion and analysis in this section compares the operating results of the year ended December 31, 2004 to the year ended December 31, 2003, and the year ended December 31, 2003 to the year ended December 31, 2002 and should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto provided at Item 17. Financial Statements.  At the present time, the Companys expenditures consist of primarily exploration costs, professional fees, listing and sustaining fees, and general and administrative expenditures.   The Company presently has no production from its interests in exploration concessions and has no significant revenue items.

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Interest income for the year ended December 31, 2004 amounted to $66,999 as compared to $77,468 in 2003.  Cash on hand during 2004 on average was lower than in 2003 and as a result, interest income was also lower in 2004.



During 2004 the Company continued to focus its acquisition and exploration efforts in Mexico.  The Company conducted exploration programs on seven projects for $1,976,622 in 2004, while $2,019,740 was spent on four properties in 2003.  Exploration concession acquisition costs of $1,961,872 were incurred in 2004 as compared to $1,235,928 in 2003.  Of the acquisition costs incurred in 2004, $880,467 was incurred by the issuance of 628,905 shares at a price of $1.40 per share, $300,000 was incurred by the issuance of 150,000 shares at a price of $2.00 per share, $88,812 was incurred by the issuance of 80,738 shares at a price of $1.10 per share, and $309,473 was incurred by the issuance of 499,150 shares at a price of $0.62 per share, while the balance was paid in cash.



Expenses for the year ended December 31, 2004 totalled $800,896, compared to $915,007 in 2003.  The Company was very active in both 2003 and 2004 and the amount of exploration expense in each year was similar.  Accounting and legal fees in 2004 amounted to $198,330 versus $250,954 in 2003.  During 2003 these professional fees were higher than in 2004 as the Company was actively pursuing the completion of a Qualifying Transaction and a financing by way of a public offering in Canada.  The Company also completed the 100% acquisitions of Minera Los Lagartos, S.A. de CV and Lexington Capital Group Inc.  The Lagartos acquisition was completed on January 15, 2003.  The main assets held in Lagartos are its interests in the Juanicipio, Don Fippi and Guigui properties located in Mexico.  The Lexington acquisition was completed on July 16, 2003.  Lexingtons sole asset is its indirect interest in the Juanicipio I claim.  The Company has consolidated the financial position and results of operations in its financial statements for both Lagartos and Lexington since their acquisition in 2003.



Telephone and Office expense increased to $190,910 in 2004 from $94,185 in 2003.  The Company operated and occupied full time office premises, with administrative services, for the whole year in 2004 for the first time.  Management and Consulting fees totalled $173,444 in 2004 (2003 - $259,220), of which $93,870 was paid to the Companys President (2003 - $97,325).  The balance was paid to arms length individuals for services related to legal contract completions, project management, corporate administration and geological services.









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Other significant expense items in 2004 were Travel  $52,839 (2003 - $130,732); Filing Fees paid to the Exchange and the British Columbia Securities Commission - $41,163 (2003 - $54,924); and Shareholder Relations - $81,277 (2003  61,359).  Other items related to general and administrative categories totalled an aggregate amount of $62,933 (2002 - $63,633).  Travel expenses related to visiting the Companys properties and business contacts in Mexico, to the attendance of trade shows, and general broker and financier meetings.

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Interest income for the year ended December 31, 2003 amounted to $77,468 as compared to $905 in 2002.  Cash on hand during 2002 was low and as a result, interest income was likewise low.  During the first quarter of 2003, the Company was actively pursuing the completion of a Qualifying Transaction and a financing by way of a public offering in Canada.  The acquisition of Lagartos was completed on January 15, 2003 and commencing on this date, the Company has consolidated Lagartos financial position and results of operations in its financial statements. The main assets held in Lagartos are its interests in the Juanicipio, Don Fippi and Guigui properties located in Mexico.  Expenses for the year ended December 31, 2003 totalled $915,007, compared to $123,536 in 2002.  The Company was not very active in the first half of 2002.  Increased activity levels combined with the filing of the Companys Qualifying Transaction and Prospectus in April 2003 caused the Company to incur higher costs in 2003.  In particular, accounting, legal and filing fees were much higher than in prior periods.  Significant expense items in 2003 were Accounting and Audit - $142,437 (2002 - $24,849); Legal - $108,517 (2002 - $58,849); Travel - $130,732 (2002 - nil); Filing Fees paid to the Exchange and the British Columbia Securities Commission - $54,924 (2002 - $29,166); Management and Consulting fees - $259,220 (2002 - nil) and Shareholder Relations - $61,359 (2002 - nil).  Other items related to general and administrative categories totalled an aggregate amount of $157,818 (2002 - $10,672).  Of the $259,220 incurred for Management and Consulting fees during 2003, $97,325 (2002  nil) was paid to the Companys President.  His duties include the management of corporate affairs, legal matters, property acquisitions, fundraising and financing, shareholder relations, and administrative and filing responsibilities.  A further $1,362 (2002  nil) was paid to a director for consulting services.  The balance of $160,533 was paid to arms length consultants for services related to legal contract completions, project management, corporate administration and geological services. The legal fees incurred during the year related primarily to the completion of the Companys Qualifying Transaction and Prospectus and the travel expenses primarily related to visiting the Companys properties in Mexico.



The commencement of business activities in Mexico during 2003 resulted in the Company incurring resource property expenditures for acquisitions and exploration programs.  Exploration expenditures for 2003 totalled $2,019,740 as compared to $37,802 in 2002.  Exploration concession acquisition costs of $1,235,928 were incurred in 2003 as compared to $78,750 in 2002.  Of the acquisition costs incurred in 2003, $530,000 was incurred by the issuance of 700,000 shares at a price of $0.50 per share and 200,000 shares at the price of $0.90 per share, while the balance was paid in cash.  During most of 2002, the Company was not actively exploring any mineral property.



On July 16, 2003, the Company acquired 100% of the issued and outstanding shares of Lexington Capital Group Inc. whose main asset is its indirect interest in the Juanicipio 1 claim that encompasses the Juanicipio Property.  Under the terms of the acquisition agreement, MAG paid the vendor US $250,000 and issued 200,000 shares of its common stock at a price of $0.90 per share.  By making this acquisition, the Company is now in a position to eliminate the future option payment and work commitments relating to the Juanicipio Property.  (See Item 4. Information on the Company  Description of the Business  The Juanicipio Property).

Critical Accounting Policies

The Companys accounting policies are set out in Note 2 of the accompanying Consolidated Financial Statements.  There are two policies that, due to the nature of the mining business, are more significant to the financial results of the Company.  These policies relate to the capitalizing of mineral exploration expenditures and the use of estimates.

Under Canadian GAAP, the Company defers all costs relating to the acquisition and exploration of its exploration concessions.  Any revenues received from exploration of these concessions are credited against







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the costs of the concession.  When commercial production commences on any of the Companys properties, any previously capitalized costs would be charged to operations using a unit-of-production method.

Management reviews the carrying value, for accounting purposes, of mineral rights and deferred exploration costs on at least a quarterly basis for evidence of impairment.  This review is generally made with reference to the project economics, including the timing of the exploration work, work programs proposed, exploration results achieved by the Company and others in the related area of interest and any changes in the status of the property.  When the results of this review indicate that a condition of impairment exists, the Company estimates the net recoverable amount of the deferred exploration costs and related mining rights by reference to the potential for success of further exploration activity and the likely proceeds to be received from a sale or assignment of rights.  When the carrying values of mineral rights or deferred exploration costs are estimated to exceed their net recoverable amounts, a provision is made for the decline in the value.

When assessing for evidence of impairment, the Company also refers to the other factors relevant for companies in the extractive industries.  These factors include unfavourable changes in the property (including disputes as to title), inability to access the site, environmental restrictions on exploration or development and political instability in the region in which the property is located.  Furthermore, the Company concludes an event of impairment has occurred when any of the following conditions exist:

a.

the Companys work program on a property has significantly changed such that previously-identified resource targets or work programs are no longer being pursued;

b.

exploration results are not promising and no more work is being planned in the foreseeable future; or

c.

remaining lease terms are insufficient to conduct necessary exploration work.

The existence of uncertainties during the exploration stage and the lack of definitive empirical evidence with respect to the feasibility of successful commercial development of any exploration property does create measurement uncertainty concerning the calculation of the amount of impairment.  The Company relies on its own or independent estimates of further geological prospects of a particular property and also considers the likely proceeds from a sale or assignment of the rights.  The latter will often be indicated by offers that the Company or others have received for exploration rights in the same or similar geological area.  In many cases, the identified condition of impairment will result in a determination that no further exploration activity be performed and the amount of the writedown is the entire carrying value of the interest.

Under U.S. GAAP, the Company expenses all costs relating to the exploration of its exploration concessions prior to the establishment of proven and probable reserves.  After that point, these costs are capitalized as exploration costs.  When commercial production commences on any of the Companys properties, any previously capitalized costs would be charged to operations using a unit-of-production method.  Furthermore, effective in 2004, the costs of acquisition of exploration concession rights are considered to have the characteristics of tangible assets as specified in EITF 04-2: Whether Mineral Rights are Tangible or Intangible Assets. As a result, under U.S. GAAP, the Company is capitalizing the cost of the exploration concession rights acquired until there is either evidence that they have become impaired, or commercial production is achieved.

The Companys financial statements are based on the selection and application of significant accounting policies, some of which require management to make estimates and assumptions.  Estimates are based on historical experience and on our future expectations that are believed to be reasonable; the combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results are likely to differ from our current estimates and those differences may be material.



Liquidity and Capital Resources

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

Cash and cash equivalents at December 31, 2004 amounted to $1,866,360 as compared to $4,795,822 at December 31, 2003.  Cash expenditures during the year ended December 31, 2004 related primarily to







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exploration on the Company projects in Mexico ($1,976,622; 2003 - $2,052,897), cash acquisition costs ($373,653; 2003  $202,132), general and administrative expenses ($800,896; 2003  $915,007) and networking capital expenditures ($369,623; 2003 - $183,164). Funds received during the year were primarily from the issue of equity related to warrant exercises ($480,562; 2003 - $3,068,996), stock option exercises ($50,800; 2003 - $26,000) and interest income ($66,999; 2003  $77,468).  Accounts payable and accrued liabilities relating to legal fees, finance fees, agency fees and exploration expenditures totalled $61,837 at December 31, 2004 (2003 - $208,018).

During 2003 the Company took steps to acquire 100% of Lexington Capital Group Inc.  Lexingtons sole asset is its indirect interest in the Juanicipio I claim.  In 2003 the Company also acquired 100% of Minera Los Lagartos, S.A. de CV.  The main assets held in Lagartos are its interests in the Juanicipio, Don Fippi and Guigui properties located in Mexico.  As a result of these acquisitions in 2003, the Company effectively acquired 100% of the Juanicipio property and therefore extinguished all of the originally required option payments and work commitments to occur after such acquisition.  (See Item 4. Information on the Company  Description of the Business  The Juanicipio Property)

Subsequent to year-end, on March 17, 2005, the Company and its subsidiary Lagartos entered into an agreement (the LOI) with Industrias Peñoles, S.A. de C.V. (Peñoles) whereby Peñoles or any of its subsidiaries have acquired an option to earn a 56% interest in the Juanicipio Property in Mexico in consideration for Peñoles: (a) conducting US$5,000,000 (minimum US$750,000) of exploration on the property over the next five years as follows: (i) US$750,000 in year 1; (ii) US$1,000,000 in year 2; (iii) US$1,250,000 in year 3; and (iv) US$2,000,000 in year 4; and (b) Peñoles purchasing US$500,000 of Common Shares of the Company within 30 business days after the LOI becomes effective at a price calculated based on the average closing price of the Companys Common Shares for the 10 trading days prior to the purchase (which has been done); and (c) Peñoles purchasing US$500,000 of Common Shares of the Company within 30 business days after the first anniversary of the execution of the LOI, taking into account the average closing price of the Companys Common Shares for the 10 trading days prior to such purchase.  This agreement with Peñoles both provides the Company with additional working capital and funds further exploration and development of the Juanicipio property.

The Company has sufficient free working capital to meet present requirements and execute its business plan.  The Company expects to it will need to raise additional funding by way of the issuance of equity in the next twelve to eighteen months.  However, there is no assurance that additional funding will be available to the Company and the Company may again become dependent upon the efforts and resources of its directors and officers for future working capital.

Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002

Cash and cash equivalents at December 31, 2003 amounted to $4,795,822, as compared to $167,276 at December 31, 2002.  The increase from December 31, 2002 is primarily the result of the issuance in April 2003 of 11,500,000 units of the Company for gross proceeds of $5,750,000 and the subsequent exercise of share purchase warrants.  Cash expenditures during the year ended December 31, 2003 resulted primarily from ongoing general and administrative expenses and costs related to the Qualifying Transaction and Prospectus offering completed in April 2003, the acquisition of Lagartos, and exploration concession acquisition and exploration expenditures.

Accounts payable and accrued liabilities relating to legal fees, finance fees, agency fees and exploration concession expenditures totalled $208,018 (2002 - $58,880) at December 31, 2003.

On April 15, 2003, concurrent with the completion of its Qualifying Transaction, the Company raised gross proceeds of $5,750,000 from its public offering of 11,500,000 units at a price of $0.50 per unit.  Each unit consists of one common share and one-half of one share purchase warrant, with each whole warrant entitling the holder to purchase one share at a price of $0.75 per share for a period of two years from closing.  The Agents for the offering, Raymond James Ltd. and Pacific International Securities Inc., were granted warrants to purchase up to 1,150,000 shares of the Company at a price of $0.50 exercisable for a period of two years from the date of closing.  Commissions on the offering were paid to the Agents consisting of 10,000 shares and $460,000.  Corporate finance fees, legal fees and disbursements related to the offering totalled $175,234.  Net proceeds to the Company from this financing were $5,109,766.  Subsequent to the completion of this financing the Company has sufficient free working capital to meet present requirements and execute its business plan.  However, there is no assurance that additional funding will be available to the Company and the Company may again become dependent upon the efforts and resources of its directors and officers for future working capital.







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37





Research and Development, Patents and Licenses

This section is not applicable to the Company.

Trend Information

Other than the obligations under the Companys property option agreements set out in Item 4. Information on the Company  Business Overview and Item 5. Operating and Financial Review and Prospects  Tabular Disclosure of Contractual Obligations, there are no identifiable trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, the Companys liquidity either increasing or decreasing at present or in the foreseeable future.  The Company will require sufficient capital in the future to meet its acquisition payments and other obligations under property option agreements for those properties it considers worthy to incur continued holding and exploration costs upon.  The need to make such payments is a Trend as it is unlikely that all such obligations will be eliminated from the Companys future business activities.  The Company intends to utilize cash on hand in order to meet its obligations under property option agreements until at least December 31, 2005. It is unlikely that the Company will generate sufficient operating cash flow to meet these ongoing obligations in the foreseeable future. Accordingly, subsequent to December 31, 2005, the Company may need to raise additional capital by issuance of equity.  At this time the Company has no plan or intention to issue any debt in order to raise capital for future requirements.

At the time of filing there is a noted favourable trend with regard to the market for metal commodities and related companies, however, it is the opinion of the Company that its own liquidity will be most affected by the results of its exploration activities.  The discovery of an economic mineral deposit on one of its exploration concessions may have a favourable effect on the Companys liquidity, and conversely, the failure to find one may have a negative effect.

Off-Balance Sheet Arrangements

The Company does not utilize off-balance sheet arrangements.

Tabular Disclosure of Contractual Obligations

Payments due by period



|Contractual Obligations*   | Total        | Less than 1 year | 1-3 Years    | 3-5 Years    | More than 5 years
|-------------------------- | ------------ | ---------------- | ------------ | ------------ | -----------------
|Sierra de Ramirez Property | US$1,625,000 | US$175,000       | US$525,000   | US$925,000   | Nil              
|Adargas Property           | US$1,761,000 | US$75,000        | US$586,000   | US$1,100,000 | Nil              
|Cinco de Mayo Property     | US$1,955,138 | US$155,138       | US$700,000   | US$1,100,000 | Nil              
|TOTAL                      | US$5,341,138 | US$405,138       | US$1,811,000 | US$3,125,000 | Nil              

* A description of the written agreements pursuant to which these obligations arise is contained in Item 4. Information on the Company  Business Overview.

Lagartos

Lagartos was incorporated in September 2001 and commenced operations in June 2002 when negotiations commenced leading to the Juanicipio Agreement.  Lagartos then entered into the Don Fippi Agreement and the Guigui Agreement.  The results of operations of Lagartos are consolidated into the financial statements of the Company commencing January 15, 2003.



Recent Accounting Pronouncements



In December 2003, the FASB issued Interpretation No. 46-Revised  (FIN 46-R), Consolidation of Variable Interest Entities, an  interpretation of ARB 51 (revised December 2003), which replaces  FIN 46. FIN 46-R incorporates certain modifications of FIN 46  adopted by the FASB subsequent to the issuance of FIN 46,  including modifications to the scope of FIN 46. For all non-special purpose entities (SPE) created prior to February 1, 2003, public entities will be required to adopt FIN 46-R at  the end of the first interim or annual reporting period ending  after March 15, 2004. For all entities (regardless of whether the







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38





entity is an SPE) that were created subsequent to January 31, 2003, public entities are already required to apply the provisions of FIN 46, and should continue doing so unless they elect to adopt the provisions of FIN 46-R early as of the first interim or annual reporting period ending after December 15, 2003. If they do not elect to adopt FIN 46-R early, public entites would be required to apply FIN 46-R to those post-January 31, 2003 entities as of the end of the first interim or annual reporting period ending after March 15, 2004.  The adoption of this standard had no effect on the financial position or results of operations of the Company.



In March 2004, the EITF reached a consensus, based upon the Committee's deliberations and ratified by the FASB, that mineral interests conveyed by leases should be considered tangible assets. On April 30, 2004, the FASB issued a FASB Staff Position  (FSP) amending SFAS No. 141 and SFAS No. 142 to provide that certain mineral use rights are considered tangible assets and that mineral use rights should be accounted for based on their substance. The FSP is effective for the first reporting period beginning after April 29, 2004, with early adoption permitted. The Company does not expect that the adoption of this statement will have a material impact on the Company's financial position or results of operation.



The EITF published Issue No. 04-03, Mining Assets: Impairment and Business Combinations. The consensus provided guidance with respect to commodity prices and value attributable to mineral resources other than proven and probable reserves to be used in the conduct of impairment tests and in the allocation of purchase price arising from a business combination. The Company has applied EITF Issue No. 04-03 for impairment tests conducted at December 31, 2004.



During 2004, the Emerging Issues Task Force began deliberations on Issue No. 04-6. In the mining industry, companies may be required to remove overburden and other mine waste materials to access mineral deposits.  The costs of removing overburden and waste materials are often referred to as stripping costs.  During the development of a mine (before production begins), it is generally accepted in practice that stripping costs are capitalized as part of the depreciable cost of building, developing, and constructing the mine. Those capitalized costs are typically amortized over the productive life of the mine using the units-of-production method.  A mining company may continue to remove overburden and waste materials, and therefore incur stripping costs, during the production phase of the mine.  Questions have been raised about the appropriate accounting for stripping costs incurred during the production phase, and diversity in practice exists.  In response to these questions, the EITF formed a task force to develop an Abstract to address the questions and clarify the appropriate accounting treatment for stripping costs under US GAAP.  In March 2005, the EITF issued EITF 04-6. The task force reached a consensus that stripping costs incurred during the production phase of a mine are variable costs that should be included in the costs of the inventory produced during the period that striping costs are incurred. EITF is effective for the first reporting period in fiscal years beginning after December 15, 2005, with an early adoption permitted. This EITF will be applied retroactively by restating its prior-period financial statements through retrospective application.



During 2004, EITF Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, was issued and establishes guidance to be used in determining when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The Company does not expect that the adoption of this statement will have a material impact on the Company's financial position or results of operation.



Differences between Canadian and United States Generally Accepted Accounting Principles

During the year ended December 31, 2004, net loss under Canadian GAAP was $733,897 compared to a net loss of $2,710,519 under US GAAP.  The difference relates principally to the expensing of exploration costs of $1,976,622 under US GAAP which are capitalized as part of deferred exploration costs under Canadian GAAP.

During the year ended December 31, 2003, net loss under Canadian GAAP was $837,539 compared to a net loss of $4,091,436 under US GAAP.  The difference relates to the expensing of exploration costs of $2,052,897 under US GAAP which are capitalized as part of resource property interests under Canadian GAAP, the recording of amortization expense of $601,000 related to exploration concession rights acquired from Lagartos and the recording of compensation of $600,000 relating to shares held in escrow for which the conditions of their release have been satisfied during the period.







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39





During the year ended December 31, 2002, net loss under Canadian GAAP was $122,631 compared to a net loss of $160,433 under US GAAP. The difference relates to the expensing of exploration costs of $37,802 under US GAAP.

There were no differences in the Companys financial statements between Canadian GAAP and US GAAP for the year ended December 31, 2001.

Under Canadian GAAP, exploration costs are capitalized until such time as management determines that the value of the interests in resource properties are impaired or commercial production of the mineral resource properties commences. Under US GAAP, exploration costs are not capitalized until a feasibility study has been completed indicating the presence of economically mineable reserves.

Under US GAAP, the satisfaction of conditions for the release of escrow shares is compensatory in nature.  Under Canadian GAAP, the Companys shares issued with escrow restrictions are recorded at their issue price and are not revalued upon their release from escrow.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management

The following table sets forth all of our current directors and executive officers, with each position and office held by them.  Each directors term of office expires at the next annual general meeting of shareholders.

All of our directors and senior management own, as a group, 3,170,502 shares or 11.33% of all of the outstanding shares as at May 31, 2005.

|Name, Age and Position Held and Place of Residence                                              | Director since   | Principal Occupation During the Past Five Years                                                                                                                                                                                                                                                                                                   
|----------------------------------------------------------------------------------------------- | ---------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Daniel T. MacInnis, 53
Director, President and Chief Executive Officer
British Columbia, Canada | February 1, 2005 | February 2005, President of the Company; October 2003 to February 2005, VP Exploration, Sargold Resources Corp. Sardinia, Italy; from 1999 to October 2003, Mr. MacInnis ran D. MacInnis Exploration and Consulting in Reno, Nevada.                                                                                                              
|George S. Young, 53
Director
Colorado, USA                                                      | March 31, 2003   | April 2003 to February 2005, President of the Company; Attorney with Pruitt Gushee & Bachtell from March 1998 to November 2002; previously Chief Executive Officer of Oro Belle Resources Corporation from September 1996 to March 1998                                                                                                           
|David G.S. Pearce, 49 Secretary, Director and Audit Committee Member
British Columbia, Canada   | June 11, 1999    | 1999 to April 2003, President of the Company; 1999 to present, director of the Company; June 1995 to present, President of Function Gate Hardware Ltd. and Function Gate Holdings Ltd.; 1992 to present, President of Mega Capital Corp.; 1992 to present, director of Kruger Capital Corp.; 1990 to present, President of Palmer Beach Properties
|Eric H. Carlson, 46 
Director and Audit Committee Member
British Columbia, Canada               | June 11, 1999    | 1999 to present, a director of the Company; July 1994 to present, President and Chief Executive Officer, Anthem Properties (1993) Ltd.; July 1994 to present, President and Chief Executive Officer, Anthem Properties Corp.; 1992 to present, President of Kruger Capital Corp.                                                                  







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40







|R. Michael Jones, 41 
Director and Audit Committee Member
British Columbia, Canada | March 31, 2003 | President of Platinum Group Metals Ltd. from February 2000 to present; previously Vice President of Corporate Development for Aber Resources Ltd. from September 1997 to September 1999.                                                                                                                        
|---------------------------------------------------------------------------------- | -------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Frank Hallam, 44 
Chief Financial Officer
British Columbia, Canada                 | N/A            | Chief Financial Officer of the Company since April 30, 2003; 2002 to present, Chief Financial Officer of Platinum Group Metals Ltd.; 1998 to present, Chief Financial Officer and Director of Derek Resources Corporation; previously Chartered Accountant with Coopers and Lybrand (now PricewaterhouseCoopers)

The business background and principal occupations of our officers, directors, and senior management for the preceding five years are as follows:

Daniel T. MacInnis (Age 53)

Mr. MacInnis is currently the Companys President and CEO. Mr. MacInnis is a registered professional geoscientist (P.Geo.) with almost thirty years of global experience in the exploration industry.  Working within the Noranda/Hemlo and Battle Mountain Gold organizations he held a number of senior management positions in Saudi Arabia, Ireland, Canada and the United States. This included Director of Exploration for North and Central America for Battle Mountain Gold. Most recently he was Vice President of Exploration for Sargold Resources Corporation in Italy. Mr. MacInnis has extensive global experience in property acquisitions and joint venture negotiations and exploration. A number of significant mineral discoveries have been made under the guidance of Mr. MacInnis. Discoveries include gold and base metal deposits in the US, Canada, Ireland and Mexico. Mr. MacInnis is a graduate of Saint Francis Xavier University with a BSc. in Geology.

George S. Young (Age 53)

Mr. Young is currently a director of the Company and was the Companys former President and Chief Executive Officer.  Mr. Young is an attorney and engineer by profession, formerly practicing law with the firm of Pruitt Gushee & Bachtell in Salt Lake City, Utah.  He also holds a B.Sc. in Metallurgical Engineering and a J.D. degree from the University of Utah and began his career at Kennecott Copper Corporation involved in the construction and start-up of a new copper smelter and later as general counsel and in management of major mining corporations and utilities.  Previous positions include the President, CEO and Director of Oro Belle Resources Corporation and General Counsel for Bond International Gold, Inc. Mr. Young is also currently a director of Bell Coast Capital Corp., an exploration company with properties in Mongolia, is a director and president of Palladon Ventures Ltd., an exploration company with properties in Southern Argentina and is a director and officer of Fellows Energy Limited.

Mr. Young will devote approximately 10% of his time towards the Companys affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

David G.S. Pearce (Age 49)

Since 1982, Mr. Pearce has been President of Mega Capital Corp., an investment holding company with real estate and equity holdings in the United States and Canada. Mr. Pearce co-founded, jointly with Robert C. Thornton, Mega Entertainment Corp., a subsidiary of Mega Capital Corp., which had video retail operations in 29 locations and was sold to Rogers Cable in June1994. Mr. Pearce has also been President of Palmer Beach Properties Inc. since January1990, which is an investment company with real estate, retail and equity holdings in Canada. Since June1995, Mr. Pearce has been President of both Function Gate Hardware Ltd., which owns and operates a home hardware store in Whistler, British Columbia, and Function Gate Holdings Ltd., a real estate development company operating in Whistler, British Columbia.

Mr. Pearce has been a director of Kruger Capital Corp., a public company listed on the Exchange and involved in ownership and financing of commercial real estate since December 1992.







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41





Mr. Pearce devotes approximately 10% of his time towards the Companys affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

Eric H. Carlson (Age 46)

Mr. Carlson has over 17 years of real estate investment, development, and management experience. Mr. Carlson has been President and Chief Executive Officer of Anthem Properties Corp. (Anthem) since July 1994.  Anthem is an investment group that specializes in the acquisition and management of Class B retail, multi-family residential and office properties in high growth markets in Canada and the United States.  Mr. Carlson has also been President and a director of Kruger Capital Corp. since December 1992.  Mr. Carlson is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of British Columbia.

Mr. Carlson devotes approximately 10% of his time towards the Companys affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

R. Michael Jones (Age 41)

Mr. Jones graduated from the University of Toronto in 1985 with a Bachelor of Applied Sciences Degree in Geological Engineering. He is a professional engineer licensed in Ontario, Canada. He has worked in the mining industry since 1985 and is currently the President of Platinum Group Metals Ltd. His experience includes exploration and mining development and production in public companies since 1985.

Mr. Jones devotes approximately 20% of his time towards the Companys affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

Frank R. Hallam (Age 44)

Mr. Hallam is a former auditor with Coopers and Lybrand (now PricewaterhouseCoopers). He has extensive experience at the senior management level with several publicly-listed resource companies.  Mr. Hallam is the former President, CEO and director of New Millennium Metals Corp. In addition to serving as Chief Financial Officer and director of the Company, Mr. Hallam serves as the Chief Financial Officer and director of Platinum Group Metals Ltd. and of Derek Resources Corporation.

Mr. Hallam devotes approximately 20% of his time towards the Companys affairs. He has not entered into a non-competition or non-disclosure agreement with the Company.

Compensation

The directors of the Company do not receive any cash compensation for services rendered in their capacity as directors of the Company.  Certain information about payments to particular officers and directors is set out in the following table:



|                                                                         |                                      | Annual Compensation                                 | Long Term Compensation                         |                                               
|------------------------------------------------------------------------ | ------------------------------------ | --------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------
|                                                                         |                                      |                                                     |                                                |                                               
|Name and Principal
      Position                                        | Year Ended                           | Salary ($)                                          | Bonus ($)                                      | Other Annual
      Compen-sation ($)          
|George S. Young(5)
      Former President and CEO                        | 2004
      2003
      2002 2001 2000 | $93,870
      $90,325
      Nil
      Nil
      Nil | Nil
      $7,000
      Nil
      Nil
      Nil | Nil
      Nil
      Nil
      Nil
      Nil   
|David G.S. Pearce
      Secretary and Director; Former President and CEO | 2004
      2003
      2002 2001 2000 | Nil
      Nil
      Nil
      Nil
      Nil         | Nil
      Nil
      Nil
      Nil
      Nil    | Nil
      Nil
      Nil
      Nil
      Nil   
|Eric H. Carlson
      Director; former CFO                               | 2004
      2003
      2002 2001 2000 | Nil
      Nil
      Nil
      Nil
      Nil         | Nil
      Nil
      Nil
      Nil
      Nil    | Nil
      Nil
      Nil
      Nil
      Nil   
|R. Michael Jones
      Director                                          | 2004
      2003
      2002 2001 2000 | Nil
      Nil
      Nil
      Nil
      Nil         | Nil
      Nil
      Nil
      Nil
      Nil    | Nil
      $1,362
      Nil
      Nil
      Nil

Notes:

(1)





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42



"SAR"
or "stock appreciation right" means a right granted by the Company, as
compensation for services rendered, to receive a payment of cash or an issue or
transfer of securities based wholly or in part on changes in the trading price
of publicly traded securities of the Company.  No SARs have been issued by
the Company.

(2)

"LTIP"
or "long term incentive plan" means any plan that provides compensation
intended to serve as incentive for performance to occur over a period longer
than one financial year, but does not include option or stock appreciation right
plans or plans for compensation through restricted shares or restricted share
units.

(3)

Of
these options, 175,000 are exercisable at a price of $0.50 each until April 15,
2008 and 50,000 are exercisable at a price of $0.70 each until May 12, 2008.

(4)

Of
these options, 75,000 are exercisable at a price of $0.50 each until April 15,
2008 and 50,000 are exercisable at a price of $0.70 each until May 12, 2008.

(5)

Mr.
Young was appointed the Company's President and CEO on April 15, 2003 and
resigned such offices on February 1, 2005 but remains a Director of the Company.
Daniel MacInnis became the President and CEO of the Company on February 1, 2005.

Dan
MacInnis currently receives $10,900 per month for services rendered in his
capacity as the President of the Company.

George
Young received US$6,000 per month for services rendered in his capacity as the
President of the Companyto December 31, 2004.

Pension
Plans

We
do not provide pension, retirement or similar benefits for directors, senior
management or employees.

Board
Practices

The
current directors were elected to their positions at the annual meeting of
shareholders held on June 15, 2005.  Each of the directors continues to
serve until the next meeting of shareholders unless his office is vacated
earlier in accordance with the Articles of the Company or the provisions of the Business
Corporations Act(British Columbia).  Our directors are appointed
annually at the annual general meeting of shareholders.  Our officers are
appointed by the board and serve at the board's pleasure. We have not entered
into service contracts with any of our directors.  We have not formed a
compensation committee.  The Audit Committee, comprised of David Pearce,
Eric Carlson and R. Michael Jones, meets once per quarter. The audit committee
also meets periodically with management and the independent auditors to review
financial reporting and control matters. It is responsible for reviewing with
the independent auditor all financial statements of the Company to be submitted
to an annual general meeting of our shareholders, prior to their consideration
by the Board of Directors.

Employees

As
of May 31, 2005, we had a total of one (1) full-time and one (1) part-time
employees/contract employees/consultants located in the Vancouver office. None
of the employees are unionized.



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43

Share
Ownership

|Name
      and Title                                                        | Share
      Ownership(1) | %
      Share Ownership
|--------------------------------------------------------------------------- | ------------------------ | -----------------------
|Daniel
      T. MacInnisDirector, President and Chief Executive Officer     | 270,000                  | 0.97%                  
|George
      S. YoungDirector, former President and Chief Executive Officer | 650,000                  | 2.32%                  
|David
      G.S. PearceDirector, Secretary and Audit Committee Member       | 687,200                  | 2.46%                  
|Eric
      H. CarlsonDirector and Audit Committee Member                    | 976,800                  | 3.49%                  
|R.
      Michael JonesDirector and Audit Committee Member                   | 411,502                  | 1.47%                  
|Frank
      HallamChief Financial Officer                                   | 175,000                  | 0.63%                  
|All
      Directors and Senior Management as a group                        | 3,170,502                | 11.33%                 

Notes:(1)

As
of May 31, 2005, including options described in the table below.



Stock
Options

At
the Company's annual general meeting held on March 31, 2003, shareholders
adopted the Company's 2003 Stock Option Plan (the "Stock Option Plan").
 The effective date of the Stock Option Plan is February 24, 2003, being
the date the Board approved the Stock Option Plan, and it will terminate
February 24, 2013. The following is a summary of the Stock Option Plan.

The
maximum number of Common Shares to be reserved for issuance under the Stock
Option Plan will not exceed 10% of the number of Common Shares of the Company
issued and outstanding on the applicable date of grant. The Stock Option Plan
will be administered by a stock option committee (the "Committee") of the
Company's Board consisting of not less than two of its members. The Stock
Option Plan provides that options may be granted to any employee, officer,
director or consultant of the Company or a subsidiary of the Company. The
options issued pursuant to the Stock Option Plan will be exercisable at a price
not less than the market value of the Company's Common Shares at the time the
option is granted. Options under the Stock Option Plan will be granted for a
term not to exceed five years from the date of their grant, provided that if the
Company is then a "Tier 1" company listed on the TSX Venture Exchange, the
term of the option will be not more than 10 years. Options granted under the
Stock Option Plan will be subject to such vesting schedule as the Committee may
determine.  In the event that an option is to be terminated prior to expiry
of its term due to certain corporate events, all options then outstanding shall
become immediately exercisable for 10 days after notice thereof, notwithstanding
the original vesting schedule. Options will also be non-assignable and
non-transferable, provided that they will be exercisable by an optionee's
legal heirs, personal representatives or guardians for up to six months
following the death or termination of an optionee due to disability, or up to
six months following the death of an employee if the employee dies within 6
months of termination due to disability.  All such options will continue to
vest in accordance with their original vesting schedule.

The
following options of the Company are presently outstanding:

|Name                | Position with the
      Company                       | Number of Common
      Shares under Option | Exercise Price          | Expiry Date                          
|------------------- | ----------------------------------------------------- | ------------------------------------------ | ----------------------- | -------------------------------------
|Daniel T.  MacInnis | Director, President and
      Chief Executive Officer | 250,000                                    | $1.06                   | Feb 1/10                             
|George S. Young     | Director                                              | 75,000
      175,00050,000300,000          | $1.06
      $0.50 $0.70 | Jan 21/10
      April 22/08 May 12/08
|David G.S. Pearce   | Director, Secretary and
      Audit Committee Member  | 75,000
      75,00050,000200,000           | $1.06
      $0.50 $0.70 | Jan 12/10
      April 22/08 May 12/08
|Eric H. Carlson     | Director and Audit
      Committee Member             | 75,000
      75,00050,000200,000           | $1.06
      $0.50 $0.70 | Jan 12/10
      April 22/08 May 12/08
|R. Michael Jones    | Director                                              | 100,000
      175,00050,000325,000         | $1.06
      $0.50 $0.70 | Jan 21/10
      April 22/08 May 12/08
|Grace To            | Consultant                                            | 75,000
      75,00050,000125,000           | $1.06
      $0.50 $0.70 | Jan 12/10
      April 22/08 May 12/08
|Frank Hallam        | Chief Financial Officer                               | 100,00075,000175,000                       | $1.06
      $0.70       | Jan 12/10
      May 12/08            
|Marshall House      | Consultant                                            | 30,00030,00060,000                         | $1.06
      $0.70       | Jan 12/10
      May 12/08            



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44

|John Foulkes    | Consultant | 15,000  | $1.06 | Jan 12/10
|--------------- | ---------- | ------- | ----- | ---------
|Carrie Cojocari | Consultant | 15,000  | $1.06 | Jan 12/10
|Peter Megaw     | Consultant | 50,000  | $1.06 | Jan 12/10
|Gordon Neal     | Consultant | 100,000 | $1.06 | Jan 12/10

ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major
Shareholders

The
following table sets forth, as at May 31, 2005, certain information with respect
to the beneficial ownership of our common shares by each shareholder known by us
to be the beneficial owner of more than 5% of our outstanding common shares
including the executive officers and directors. Unless otherwise indicated by
footnote, we believe that the beneficial owners of the common shares listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such common shares, subject to community property
laws where applicable. Beneficial ownership is determined in accordance with the
rules of the United States Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. The shareholders
below have identical voting rights to the other shareholders.

|Title of Class | Identity of Holder                | Date         | Number of
       Common Shares | Percentage of
      Beneficially Owned
|-------------- | --------------------------------- | ------------ | ------------------------------ | --------------------------------------
|Common Shares  | The Prudent Bear Fund,
      Inc. | May 31, 2005 | 2,000,000                      | 6.7%                                  

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45

United
States Shareholders

As
of May 31, 2005 we had 16 registered shareholders with addresses in the United
States representing 8.92% of the then issued and outstanding shares. In
addition, residents of the United States may beneficially own common shares
registered in the names of non-residents of the United States.

Related
Party Transactions

None
of our directors or senior officers, and no associates or affiliates of any of
them is or has been materially indebted to us or our subsidiaries at any time.
None of our experts or counsel was employed on a contingent basis or owns any
shares, which is material to such person.

George
Young received 250,000 common shares of the Company and R. Michael Jones
received 50,000 common shares of the Company as finders fees in connection with
the Company's acquisition of Lagartos, which shares are also held in escrow
under an agreement dated April 8, 2003. These shares are released from escrow as
to 10% on April 21, 2003 and 15% each six months thereafter so that all such
shares will be released by April 21, 2006.  The Company priced these shares
at $0.50 per share.

Included
in accounts payable at December 31, 2004 is $16,244 payable in respect of
management services and expense reimbursement provided to Platinum Group Metals
Ltd., a public company of which R. Michael Jones is an officer, director,
employee and shareholder, and Frank Hallam is a director.

For
the year ended December 31, 2004, George Young, the Company's former
President, received $93,870 in compensation for legal and management services,
R. Michael Jones received Nil for consulting services, and Frank Hallam received
Nil for consulting services.

Interests
of Experts and Counsel

Not
Applicable.



ITEM
8. FINANCIAL INFORMATION

Financial
Statements

Our
audited consolidated financial statements which comprises our consolidated
balance sheets as at December 31, 2004 and 2003 and the consolidated statements
of operations, of shareholders' equity and of cash flows for each of the years
in the three year period ended December 31, 2004 and the notes to those
statements and the report of independent registered chartered accountants
thereon, are included in this Form 20-F.

Significant
Changes

There
have been no significant changes since December 31, 2004.

ITEM
9. THE OFFER AND LISTING

Markets
and Price History

Our
common shares have been listed and posted for trading on the TSX Venture
Exchange (symbol:  MAG) since April 19, 2000.  Since then, the
high-low stock range has been between $0.04 and $2.45.  The closing price
of our common shares on May 31, 2005 was $0.85.

The
annual high-low ranges for our common shares on the Exchange since 2001 are set
out below, as well as the quarterly high-low range for the last two financial
years.

|Year        | High  | Low  
|----------- | ----- | -----
|2004        | $2.45 | $0.54
|2003        | $2.65 | $0.48
|2002        | $0.17 | $0.04
|2001        | $0.35 | $0.05
|2000        | $0.70 | $0.20
|2005        | High  | Low  
|1st Quarter | $1.10 | $0.88
|2004        | High  | Low  
|1st Quarter | $2.45 | $1.95
|2nd Quarter | $2.19 | $1.15
|3rd Quarter | $1.40 | $0.54
|4th Quarter | $1.32 | $0.95
|2003        | High  | Low  
|1st Quarter | (1)   | (1)  
|2nd Quarter | $0.77 | $0.48
|3rd Quarter | $1.75 | $0.70
|4th Quarter | $2.65 | $1.39

(1)

The
shares of the Company were halted from trading from August 2002 until April 2003
pending the

completion
of a Qualifying Transaction.



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46



The
monthly high-low ranges for our common shares on the Exchange since November
2004 is set out below.

|Month    | High  | Low  
|-------- | ----- | -----
|May      | $1.05 | $0.73
|April    | $1.29 | $0.84
|March    | $1.09 | $0.88
|February | $1.07 | $0.90
|January  | $1.10 | $1.0 
|December | $1.16 | $0.95



At
May 31, 2005, we had 27,974,443 common shares issued and outstanding and held by
32 owners of record.

The
Company has not applied for listing on any U.S. stock exchange.

ITEM
10. ADDITIONAL INFORMATION

Share
capital

Not Applicable.

Memorandum
and Articles of Association

Our
Memorandum and Articles of Incorporation were filed with the Ministry of Finance
and Corporate Relations, Registrar of Companies in the Province of British
Columbia, Canada on April 21, 1999 under the name 583882 B.C. Ltd. with the
Certificate of Incorporation No. 583882.  We were incorporated to conduct
all lawful business pursuant to the laws of British Columbia and our Certificate
of Incorporation and Articles do not describe a business object or purpose.

The
Articles may be amended by a special resolution of the shareholders approved by
not less than 75% of the votes cast and by filing thereafter with Registrar of
Companies in the Province of British Columbia. At the Company's annual meeting
of shareholders held on June 15, 2005, the Company obtained the approval of its
shareholders to new articles (the "New Articles") for the Company. The new
Articles will become effective upon certain filings being made by the Company
with the Registrar of Companies in the Province of British Columbia, expected to
occur within 60 days of filing this Annual Report. Once effective, further
revisions to the New Articles may be made by a resolution of the shareholders
approved by not less than 66 2/3% of the votes cast and such Articles will be
maintained at the registered office of the Company.

As
at May 31, 2005 our authorized and issued capital is as follows:

Authorized:

1,000,000,000
common shares without par value



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47

Issued:

27,974,443
common shares, of which 540,005 are held in escrow

At
the Company's annual meeting of shareholders held on June 15, 2005, the
Company obtained the approval of its shareholders to increase its share capital
to an unlimited number of Common Shares without par value and an unlimited
number of preferred shares without par value. This alteration of capital will
become effective upon certain filings being made by the Company with the
Registrar of Companies in the Province of British Columbia, expected to occur
within 60 days of filing this Annual Report.

Common
Shares

All
issued and outstanding Common Shares are fully paid and non-assessable.
 Each holder of record of Common Shares is entitled to one vote for each
Common Share so held on all matters requiring a vote of shareholders, including
the election of directors.  The holders of Common Shares will be entitled
to dividends on a pro-rata basis, if, as and when declared by the board of
directors.  There are no preferences, conversion rights, pre-emptive
rights, subscription rights, or restrictions on transfers attached to the Common
Shares.  In the event of our liquidation, dissolution, or winding up, the
holders of Common Shares are entitled to participate in our assets available for
distribution after satisfaction of the claims of creditors. Provisions as to the
creation, modification, amendment or variation of such rights or such provisions
are contained in the Business Corporations Act (British Columbia) and the
memorandum and articles of the Company do not contain any additional provisions
which are more stringent than those contained in the Business Corporations
Act (British Columbia). Generally, such variations require a special
resolution of the shareholders approved by not less than 75% of the votes cast
and by filing thereafter with Registrar of Companies in the Province of British
Columbia. Once the New Articles become effective, expected to occur within 60
days of the filing of this Annual Report, such variations will require a
resolution of the shareholders approved by not less than 50% of the votes cast.

The
Business Corporations Act (British Columbia) does not impose any
limitations on the rights to own securities of the Company.

There
are no provisions in the Company's articles, charter or by-laws that would
have an effect of delaying, deferring or preventing a change in control of the
Company and that would operate only with respect to a merger, acquisition or
corporate restructuring involving the Company or any of its subsidiaries.

There
are no bylaw provisions governing the ownership threshold above which
shareholder ownership must be disclosed. However, the Securities Act(British
Columbia) requires such disclosure by a shareholder holding more than 10% of the
issued voting securities of the Company.

Powers
and Duties of Directors

The
directors shall manage or supervise the management of our affairs and business
and shall have authority to exercise all such powers that are not required to be
exercised by our shareholders in a general meeting.

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48

Questions
to be determined at a directors meeting shall be determined by a majority vote.
 The Chairman has no additional power for voting, and directors are not
required to hold our shares.

A
director's term of office expires immediately prior to the next annual general
meeting.  In general, a director who is, in any way, directly interested in
an existing or proposed contract or transaction with us, whereby a duty or
interest might be created to conflict with his duty or interest as a director,
shall declare the nature and extent of his interest in such contract or
transaction or the conflict or potential conflict with his duty and interest as
a director.  Generally, such director shall not vote in respect of any such
contract or transaction and if he shall do so, his vote shall not be counted,
but he shall be counted in the quorum present at the meeting at which such vote
is taken.  However, notwithstanding the foregoing, directors shall have the
right to vote on determining the remuneration of the directors.

The
directors may from time to time on our behalf (a) borrow money in such manner
and amount from such sources and upon such terms and conditions as they think
fit; (b) issue bonds, debentures and other debt obligation; or (c) mortgage,
charge or give other security on the whole or any part of our property and
assets.

Shareholders

An
annual general meeting shall be held once in every calendar year and within 15
months of the last annual general meeting at such time and place as may be
determined by the directors.  A quorum at an annual general meeting and
special meeting shall be two members or two proxyholders representing members,
or a combination thereof, holding not less then one-twentieth of the issued and
outstanding shares entitled to be voted at the meeting.We believe there
is no limitation imposed by the laws of British Columbia or by the memorandum or
our other constituent documents on the right of a non-resident to hold or vote
the Common Shares.

Material
Contracts

We
have entered into the following material contracts:

1.

Sponsorship
and Agency Agreement among the Company, Raymond James Ltd. and Pacific
International Securities Inc. relating to the Company's public offering in
April 2003.

2.

Lagartos
Agreement dated August 8, 2002 among the Company, Cesar Augusto Porfirio Padilla
Lara, Dr. Peter Megaw and Dr. Carl Kuehn and stock purchase agreements dated
January 15, 2003 between the Company and each of Cesar Augusto Porfirio Padilla
Lara, Dr. Peter Megaw and Dr. Carl Kuehn. See Item 4. Information on the Company
- History and Development of the Company - The Qualifying Transaction.

3.

Juanicipio
Agreement dated July 18, 2002 as amended December 19, 2002 between Lagartos and
Sutti.  See Item 4. Information on the Company - Business Overview -
The Juanicipio Property.

4.

Don
Fippi Agreement dated November 18, 2002 as amended April 20, 2005 among the
Company, Lagartos and Bugambilias.  See Item 4. Information on the Company
- Business Overview - The Don Fippi Property.

5.

Guigui
Agreement dated November 18, 2002 as amended April 20, 2005 among the Company,
Lagartos and Coralillo.  See Item 4. Information on the Company -
Business Overview - The Guigui Property.



6.

Stock
Purchase Agreement dated May 29, 2003 with Strategic Investments Resources Ltd.
 See Item 4. Information on the Company - Business Overview - The
Juanicipio Property.

7.

Escrow
Agreement dated November 9, 1999 among certain shareholders and Pacific
Corporate Trust Company.  See Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions.

8.

Escrow
Agreement dated April 8, 2003 among certain shareholders and Pacific Corporate
Trust Company.  See Item 7. Major Shareholders and Related Party
Transactions - Related Party Transactions.

9.

Incentive
Stock Option Agreements dated November 9, 1999 between the Company and each of:
Dave Pearce, Eric H. Carlson, Robert C. Thornton.  See Item 6. Directors,
Senior Management and Employees - Stock Options.

10.

Stock
Options dated April 15, 2003, May 22, 2003 and July 9, 2003 with George Young,
R. Michael Jones, David Pearce, Eric Carlson, Gregory Dennie, Frank Hallam,
Grace To, Marshall House, John Foulkes and Carrie Cojocari. See Item 6.
Directors, Senior Management and Employees - Stock Options.

11.

Stock
Options dated January 12, 2005, January 21, 2005 and February 1, 2005 with Frank
Hallam, Eric Carlson, David Pearce, Dan MacInnis, Grace To, John Foulkes,
Marshall House, Carrie Cojocari, Lori Phillips, Peter Megaw, Gordon Neal, George
Young and R. Michael Jones.

12.

Indemnity
Agreements dated November 9, 1999 between the Company and each of: Dave Pearce,
Eric H. Carlson, James Speakman and Robert C. Thornton pursuant to which the
Company agrees to indemnify them against liability incurred while acting as a
director or officer of the Company.

13.

Indemnity
Agreements dated April 15, 2003 between the Company and each of George Young and
R. Michael Jones pursuant to which the Company agrees to indemnify them against
liability incurred while acting as a director or officer of the Company.

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49

14.

Sierra
de Ramirez Agreement dated December 14, 2003 among the Company, Lagartos and Rio
Tinto. See Item 4. Information on the Company - Business Overview - Recently
Acquired Properties.

15.

Adargas
Agreement dated February 26, 2004 among the Company, Lagartos and Cascabel. See
Item 4. Information on the Company - Business Overview - Recently Acquired
Properties.

16.

Cinco
de Mayo Agreement dated April 5, 2004 among the Company, Lagartos and Cascabel.
See Item 4. Information on the Company - Business Overview - Recently
Acquired Properties.

17.

Agreement
dated March 17, 2005 among the Company, Lagartos and Penoles. See Item 4.
Information on the Company - Business Overview - The Juanicipio Property.

Exchange
Controls

The
Company does not believe there are any decrees or regulations under the laws of
British Columbia or Canada applicable to it restricting the import or export of
capital or affecting the remittance of dividends or other payments to
non-resident holders of our Common Shares, other than for the withholding of
taxes. There are no restrictions under our Memorandum or Articles that limits
the right of non-resident owners to hold or vote our Common Shares or to receive
dividends thereon. We are organized under the laws of British Columbia. There is
uncertainty as to whether the Courts of British Columbia would (i) enforce
judgments of United States Courts obtained against us or our directors and
officers predicated upon the civil liability provisions of the federal
securities laws of the United States or (ii) entertain original actions brought
in British Columbia Courts against us or such persons predicated upon the
federal securities laws of the United States.

There
is no limitation imposed by the laws of Canada or our Memorandum or Articles on
the right of a non-resident to hold or vote the Common Shares, other than as
provided in the Investment Act(Canada)(the "Investment
Act").  The following discussion summarizes the principal features of the
Investment Act for a non-resident who proposes to acquire the Common Shares.

The
Investment Act generally prohibits implementation of a reviewable investment by
an individual, government or agency thereof, corporation, partnership, trust or
joint venture (each an "entity") that is not a "Canadian" as defined in
the Investment Act (a "non-Canadian"), unless after review, the Director
of.   Investments appointed by the minister responsible for the
Investment Act is satisfied that the investment is likely to be of net benefit
to Canada.  An investment in the Common Shares by a non-Canadian other than
a "WTO Investor" (as that term is defined by the Investment Act, and which
term includes entities which are nationals of or are controlled by nationals of
member states of the World Trade Organization) when we were not controlled by a
WTO Investor, would be reviewable under the Investment Act if it was an
investment to acquire our control and the value of our assets, as determined in
accordance with the regulations promulgated under the Investment Act, was
$5,000,000 or more, or if an order for review was made by the federal cabinet on
the grounds that the investment related to Canada's cultural heritage or
national identity, regardless of the value of our assets.  An investment in
the Common Shares by a WTO Investor, or by a non-Canadian when we were
controlled by a WTO Investor, would be reviewable under the Investment Act if it
was an investment to acquire our control and the value of our assets, as
determined in accordance with the regulations promulgated under the Investment
Act was not less than a specified amount, which for 2000 was any amount in
excess of $192 million.  A non-Canadian would acquire our control for the
purposes of the Investment Act if the non-Canadian acquired a majority of the
Common Shares.  The acquisition of one-third or more, but less than a
majority of the Common Shares would be presumed to be an acquisition of our
control unless it could be established that, on the acquisition, we were not
controlled in fact by the acquirer through the ownership of the Common Shares.

Certain
transactions relating to the Common Shares would be exempt from the Investment
Act, including: (a) an acquisition of the Common Shares by a person in the
ordinary course of that person's business as a trader or dealer in securities;
(b) an acquisition of our control in connection with the realization of security
granted for a loan or other financial assistance and not for a purpose related
to the provisions of the Investment Act; and (c) an acquisition of our control
by reason of an amalgamation, merger, consolidation or corporate reorganization
following which our ultimate direct or indirect control in fact, through the
ownership of the Common Shares, remained unchanged.

Currently
20% of our operations are in Canadian dollars.



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50

Canadian
Federal Income Tax Consequences

The
following is a summary of the material Canadian federal income tax
considerations, as of the date hereof, generally applicable to security holders
who deal at arm's length with us, who, for purposes of the Income Tax Act
(Canada) (the "Canadian Tax Act") and any applicable tax treaty or
convention, have not been and will not be resident or deemed to be resident in
Canada at any time while they have held our Common Shares, to whom such Common
Shares are capital property, and to whom such Common Shares are not "taxable
Canadian property" (as defined in the Canadian Tax Act).  This summary
does not apply to a non-resident insurer.

Generally,
our Common Shares will be considered to be capital property to a holder thereof
provided that the holder does not use such Common Shares in the course of
carrying on a business and has not acquired them in one or more transactions
considered to be an adventure in the nature of trade.  All security holders
should consult their own tax advisors as to whether, as a matter of fact, they
hold our Common Shares as capital property for the purposes of the Canadian Tax
Act.

This
discussion is based on the current provisions of the Canadian Tax Act and the
regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention (1980) (the "Tax Treaty") and current published
administrative practices of the Canada Customs and Revenue Agency.  This
discussion takes into account specific proposals to amend the Canadian Tax Act
and the regulations thereunder publicly announced by or on behalf of the
Minister of Finance (Canada) prior to the date hereof (the "Proposed
Amendments") and assumes that all such Proposed Amendments will be enacted
in their present form.  No assurances can be given that the Proposed
Amendments will be enacted in the form proposed, if at all.

Except
for the foregoing, this discussion does not take into account or anticipate any
changes in law, whether by legislative, administrative or judicial decision or
action, nor does it take into account provincial, territorial or foreign income
tax legislation or considerations, which may differ from the Canadian federal
income tax considerations described herein.

WHILE
INTENDED TO ADDRESS ALL MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS,
THIS SUMMARY IS OF A GENERAL NATURE ONLY.  THEREFORE, SECURITY HOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.

Generally,
our Common Shares will not be "taxable Canadian property" at a particular
time provided that such Common Shares are listed on a prescribed stock exchange,
the holder does not use or hold, and is not deemed to use or hold, our shares in
connection with carrying on a business in Canada and the holder, persons with
whom such holder does not deal at arm's length, or the holder and such
persons, has not owned (or had under option) 25% or more of the issued shares of
any class or series of our capital stock at any time within sixty months
preceding the particular time.

Generally,
a holder of our Common Shares that are not taxable Canadian property will not be
subject to tax under the Canadian Tax Act on the sale or other disposition of
shares.

Dividends
paid or deemed to be paid on our Common Shares are subject to non-resident
withholding tax under the Canadian Tax Act at the rate of 25%, although such
rate may be reduced under the provisions of an applicable income tax treaty or
convention.  For example, under the Tax Treaty, the rate is reduced to 5%
in respect of dividends paid to a company that is the beneficial owner thereof,
that is resident in the United States for purposes of the Tax Treaty and that
owns at least 10% of our voting stock.  In all other cases, the rate is
reduced to 15% in respect of dividends paid to the beneficial owner thereof that
is resident in the United States for purposes of the Tax Treaty.

Material
United States Federal Income Tax Consequences

The
following is a general discussion of the material United States Federal income
tax law for U.S. holders that hold such common shares as a capital asset, as
defined under United States Federal income tax law and is limited to discussion
of U.S. Holders that own less than 10% of the common stock.  This
discussion does not address all potentially relevant Federal income tax matters
and it does not address consequences peculiar to persons subject to special
provisions of Federal income tax law, such as those described below as excluded
from the definition of a U.S. Holder.  In addition, this discussion does
not cover any state, local or foreign tax consequences.

The
following discussion is based upon the sections of the Internal Revenue Code of
1986, as amended to the date hereof (the "Code"), Treasury Regulations,
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time.  In addition, this discussion does not
consider the potential effects, both adverse and beneficial, of any future
legislation which, if enacted, could be applied, possibly on a retroactive
basis, at any time.  The following discussion is for general information
only and it is not intended to be, nor should it be construed to be, legal or
tax advice to any holder or prospective holder of common shares of the Company
and no opinion or representation with respect to the United States Federal
income tax consequences to any such holder or prospective holder is made.
 Accordingly, holders and prospective holders of common shares of the
Company are urged to consult their own tax advisors about the Federal, state,
local, and foreign tax consequences of purchasing, owning and disposing of
common shares of the Company.



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51

U.S.
Holders

As
used herein, a "U.S. Holder" is a holder of common shares of the Company who
or which is a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for federal income tax purposes, a
corporation or partnership created or organized (or treated as created or
organized for federal income tax purposes) in the United States, including only
the States and District of Columbia, or under the law of the United States or
any State or Territory or any political subdivision thereof, or a trust or
estate the income of which is includable in its gross income for federal income
tax purposes without regard to its source, if, (i) a court within the United
States is able to exercise primary supervision over the administration of the
trust and (ii) one or more United States trustees have the authority to control
all substantial decisions of the trust.  For purposes of this discussion, a
U.S. Holder does not include persons subject to special provisions of Federal
income tax law, such as tax-exempt organizations, qualified retirement plans,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, broker-dealers and Holders who acquired their
stock through the exercise of employee stock options or otherwise as
compensation.

Distributions
on Common Shares of the Company

U.S.
Holders, who do not fall under any of the provisions contained within the "Other
Considerations for U.S. Holders" section, and receiving dividend distributions
(including constructive dividends) with respect to common shares of the Company
are required to include in gross income for United States Federal income tax
purposes the gross amount of such distributions to the extent that the Company
has current or accumulated earnings and profits, without reduction for any
Canadian income tax withheld from such distributions.  Such Canadian tax
withheld may be credited, subject to certain limitations, against the U.S.
Holder's United States Federal income tax liability or, alternatively, may be
deducted in computing the U.S. Holder's United States Federal taxable income
by those who itemize deductions.  (See more detailed discussion at "Foreign
Tax Credit" below).  To the extent that distributions exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S. Holder's adjusted basis in the Common Shares
and thereafter as gain from the sale or exchange of the Common Shares.
 Preferential tax rates for long-term capital gains are applicable to a
U.S. Holder which is an individual, estate or trust.  There are currently
no preferential tax rates for long-term capital gains for a U.S. Holder which is
a corporation.

Dividends
paid on the Common Shares of the Company will not generally be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations.  A U.S. Holder which is a corporation
may, under certain circumstances, be entitled to a 70% deduction of the United
States source portion of dividends received from the Company (unless the Company
qualifies as a "foreign personal holding company" or a "passive foreign
investment company", as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Company.
 Because the Company expects that it will be classified as a "passive
foreign investment company" as described below, this deduction will not be
available to a U.S. Holder which is a corporation.

Foreign
Tax Credit

A
U.S. Holder, who does not fall under any of the provisions contained within the
"Other Considerations for U.S. Holders" section, and who pays (or has
withheld from distributions) Canadian income tax with respect to the ownership
of common shares of the Company may be entitled, at the option of the U.S.
Holder, to either a deduction or a tax credit for such foreign tax paid or
withheld.  Generally, it will be more advantageous to claim a credit
because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's
income subject to tax.  This election is made on a year-by-year basis and
applies to all foreign taxes paid by (or withheld from) the U.S. Holder during
that year.  There are significant and complex limitations which apply to
the credit, among which is the general limitation that the credit cannot exceed
the proportionate shares of the U.S. Holder's United States income tax
liability that the U.S. Holder's foreign source taxable income bears to his or
its world-wide taxable income.  In the determination of the application of
this limitation, the various items of income and deduction must be classified
into foreign and domestic (U.S.) sources.  Complex rules govern this
classification process.  In addition, this limitation is calculated
separately with respect to specific classes of income such as "passive income",
"high withholding tax interest", "financial services income", "shipping
income", and certain other classifications of income.  Dividends
distributed by the Company will generally constitute foreign source "passive
income" or, in the case of U.S. Holders, "financial services income" for
these purposes. The availability of the foreign tax credit and the application
of the limitations on the credit are fact specific and holders and prospective
holders of common shares of the Company are urged to consult their own tax
advisors regarding their individual circumstances.

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52

Disposition
of Common Shares of the Company

A
U.S. Holder, who does not fall under any of the provisions contained within the
"Other Considerations for U.S. Holders" section, and will recognize gain or
loss upon the sale of common shares of the Company equal to the difference, if
any, between the amount of cash plus the fair market value of any property
received, and the Holder's tax basis in the common shares of the Company.
 This gain or loss will be capital gain or loss if the common shares are a
capital asset in the hands of the U.S. Holder unless the Company were to become
a controlled foreign corporation.  For the effect on the Company of
becoming a controlled corporation, see "Controlled Foreign Company Status"
below.  Any capital gain will be a short-term or long-term capital gain or
loss depending upon the holding period of the U.S. Holder.  Gains and
losses are netted and combined according to special rules in arriving at the
overall capital gain or loss for a particular tax year.  Deductions for net
capital losses are subject to significant limitations.  For U.S. Holders
which are individuals, any unused portion of such net capital loss may be
carried over to be used in later tax years until such net capital loss is
thereby exhausted.  For U.S. Holders which are corporations (other than
corporations subject to Subchapter S of the Code), an unused net capital loss
may be carried back three years from the loss year and carried forward five
years from the loss year to be offset against capital gains until such net
capital loss is thereby exhausted.

Other
Considerations for U.S. Holders

In
the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of Common Shares of the Company:

Foreign
Personal Holding Company

If
at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Company's outstanding shares is owned,
actually or constructively, by five or fewer individuals who are citizens or
residents of the United States and 60% (50% after the first year) or more of the
Company's gross income for such year was derived from certain passive sources
(e.g., from interest, dividends and certain rents), the Company would be treated
as a "foreign personal holding company." In that event, U.S. Holders that
hold Common Shares of the Company would be required to include in income for
such year their allocable portion of the Company's passive income which would
have been treated as a dividend had that passive income actually been
distributed.

Foreign
Investment Company

If
50% or more of the combined voting power or total value of the Company's
outstanding shares are held, actually or constructively, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(30) and 7701(a)(31)), and the Company is
found to be engaged primarily in the business of investing, reinvesting, or
trading in securities, commodities, or any interest therein, it is possible that
the Company might be treated as a "foreign investment company" as defined in
Section 1246 of the Code, causing all or part of any gain realized by a U.S.
Holder selling or exchanging Common Shares of the Company to be treated as
ordinary income rather than capital gains.



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53

Passive
Foreign Investment Company

As
a foreign corporation with U.S. shareholders, the corporation could be treated
as a passive foreign investment corporation ("PFIC").  Section 1297 of
the Code defines a PFIC as a corporation that is not formed in the United States
and, for any taxable year, either (i) 75% or more of its gross income is "passive
income," which includes but is not limited to interest, dividends and certain
rents and royalties or (ii) at least 50% of its assets held during the year
produce or are held for the production of passive income.  The 50% test is
based upon the value of the corporation's assets (or, the adjusted tax basis
of its assets, if the company is not publicly traded and is a controlled foreign
corporation or makes an election).  The Company believes that it has
been a PFIC for each fiscal year since its incorporation, and expects to be
characterized as a PFIC this fiscal year.

A
U.S. Holder who holds stock in a PFIC is subject to U.S. federal income taxation
of that foreign corporation under one of two alternative tax methods at the
election of each such U.S. Holder.

As
a PFIC, each U.S. Holder must determine under which of the alternative tax
methods it wishes to be taxed.  Under one method, a U.S. Holder who elects
in a timely manner to treat the Company as a Qualified Electing Fund ("QEF"),
as defined in the Code, (an "Electing U.S. Holder") will be subject, under
Section 1293 of the Code, to current federal income tax for any taxable year in
which the Company qualifies as a PFIC on his pro-rata share of the Company's (i)
"net capital gain" (the excess of net long-term capital gain over net
short-term capital loss), which will be taxed as long-term capital gain to the
Electing U.S. Holder and (ii) "ordinary earnings" (the excess of earnings
and profits over net capital gain), which will be taxed as ordinary income to
the Electing U.S. Holder, in each case, for the U.S. Holder's taxable year in
which (or with which) the Company taxable year ends, regardless of whether such
amounts are actually distributed.

A
QEF election also allows the Electing U.S. Holder to (i) generally treat any
gain realized on the disposition of his common shares (or deemed to be realized
on the pledge of his common shares) as capital gain; (ii) treat his share of the
Company's net capital gain, if any, as long-term capital gain instead of
ordinary income, and (iii) either avoid interest charges resulting from PFIC
status altogether (see discussion of interest charge below), or make an annual
election, subject to certain limitations, to defer payment of current taxes on
his share of the Company's annual realized net capital gain and ordinary
earnings subject, however, to an interest charge.  If the Electing U.S.
Holder is not a corporation, such an interest charge would be treated as
non-deductible "personal interest."

The
procedure a U.S. Holder must comply with in making a timely QEF election will
depend on whether the year of the election is the first year in the U.S. Holder's
holding period in which the Company is a PFIC.  If the U.S. Holder makes a
QEF election in such first year, (sometimes referred to as a "Pedigreed QEF
Election"), then the U.S. Holder may make the QEF election by simply filing
the appropriate documents at the time the U.S. Holder files its tax return for
such first year.  If, however, the Company qualified as a PFIC in a prior
year, then in addition to filing documents, the U.S. Holder may also elect to
recognize as an "excess distribution" (i) under the rules of Section 1291
(discussed below), any gain that he would otherwise recognize if the U.S. Holder
sold his stock on the application date or (ii) if the Company is a controlled
foreign corporation ("CFC"), the Holder's pro rata share of the
corporation's earnings and profits. (But see "Elimination of Overlap Between
Subpart F Rules and PFIC Provisions").  Either the deemed sale election
or the deemed dividend election will result in the U.S. Holder being deemed to
have made a timely QEF election.

With
respect to a situation in which a Pedigreed QEF election is made, if the Company
no longer qualifies as a PFIC in a subsequent year, normal Code rules and not
the PFIC rules will apply.

If
a U.S. Holder has not made a QEF Election at any time (a "Non-electing U.S.
Holder"), then special taxation rules under Section 1291 of the Code will
apply to (i) gains realized on the disposition (or deemed to be realized by
reason of a pledge) of his Common Shares and (ii) certain "excess
distributions", as specially defined, by the Company.

A
Non-electing U.S. Holder generally would be required to pro-rate all gains
realized on the disposition of his Common Shares and all excess distributions
over the entire holding period for the Common Shares.  All gains or excess
distributions allocated to prior years of the U.S. Holder (other than years
prior to the first taxable year of the Company during such U.S. Holder's
holding period and beginning after January 1, 1987

---



54



for
which it was a PFIC) would be taxed at the highest tax rate for each such prior
year applicable to ordinary income.  The Non-electing U.S. Holder also
would be liable for interest on the foregoing tax liability for each such prior
year calculated as if such liability had been due with respect to each such
prior year.  A Non-electing U.S. Holder that is not a corporation must
treat this interest charge as "personal interest" which, as discussed above,
is wholly non-deductible.  The balance of the gain or the excess
distribution will be treated as ordinary income in the year of the disposition
or distribution, and no interest charge will be incurred with respect to such
balance.

If
the Company is a PFIC for any taxable year during which a Non-electing U.S.
Holder holds Common Shares, then the Company will continue to be treated as a
PFIC with respect to such Common Shares, even if it is no longer by definition a
PFIC.  A Non-electing U.S. Holder may terminate this deemed PFIC status by
electing to recognize gain (which will be taxed under the rules discussed above
for Non-Electing U.S. Holders) as if such Common Shares had been sold on the
last day of the last taxable year for which it was a PFIC.

Under
Section 1291(f) of the Code, the Department of the Treasury has issued proposed
regulations that would treat as taxable certain transfers of PFIC stock by
Non-electing U.S. Holders that are generally not otherwise taxed, such as gifts,
exchanges pursuant to corporate reorganizations, and transfers at death.

If
a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it is
made after the first year during which the Company is a PFIC and the U.S. Holder
holds shares of the Company) (a "Non-Pedigreed Election"), the QEF rules
apply prospectively but do not apply to years prior to the year in which the QEF
first becomes effective.  U.S. Holders are urged to consult their tax
advisors regarding the specific consequences of making a Non-Pedigreed QEF
Election.

Certain
special, generally adverse, rules will apply with respect to the Common Shares
while the Company is a PFIC whether or not it is treated as a QEF.  For
example under Section 1298(b)(6) of the Code, a U.S. Holder who uses PFIC stock
as security for a loan (including a margin loan) will, except as may be provided
in regulations, be treated as having made a taxable disposition of such stock.

The
foregoing discussion is based on currently effective provisions of the Code,
existing and proposed regulations thereunder, and current administrative rulings
and court decisions, all of which are subject to change.  Any such change
could affect the validity of this discussion.  In addition, the
implementation of certain aspects of the PFIC rules requires the issuance of
regulations which in many instances have not been promulgated and which may have
retroactive effect.  There can be no assurance that any of these proposals
will be enacted or promulgated, and if so, the form they will take or the effect
that they may have on this discussion.  Accordingly, and due to the
complexity of the PFIC rules, U.S. Holders of the Company are strongly urged to
consult their own tax advisors concerning the impact of these rules on their
investment in the Company.

Mark-to-Market
Election for PFIC Stock

A
U.S. Holder of a PFIC may make a mark-to-market election with respect to the
stock of the PFIC if such stock is marketable as defined below.  This
provision is designed to provide a current inclusion provision for persons that
are Non-Electing Holders.  Under the election, any excess of the fair
market value of the PFIC stock at the close of the tax year over the Holder's
adjusted basis in the stock is included in the Holder's income.  The
Holder may deduct the lesser of any excess of the adjusted basis of the PFIC
stock over its fair market value at the close of the tax year, or the "unreversed
inclusions" with respect to the PFIC stock (the net mark-to-market gains on
the stock that the Holder included in income in prior tax years).

For
purposes of the election, PFIC stock is marketable if it is regularly traded on
(1) a national securities exchange that is registered with the SEC, (2) the
national market system established under Section 11A of the Securities Exchange
Act of 1934, or (3) an exchange or market that the IRS determines has rules
sufficient to ensure that the market price represents legitimate and sound fair
market value.

A
Holder's adjusted basis of PFIC stock is increased by the income recognized
under the mark-to-market election and decreased by the deductions allowed under
the election.  If a U.S. Holder owns PFIC stock indirectly through a
foreign entity, the basis adjustments apply to the basis of the PFIC stock in
the hands of the foreign entity for the purpose of applying the PFIC rules to
the tax treatment of the U.S. owner.  Similar basis adjustments are made to
the basis of the property through which the U.S. persons hold the PFIC stock.







---

55





Income
recognized under the mark-to-market election and gain on the sale of PFIC stock
with respect to which an election is made is treated as ordinary income.
 Deductions allowed under the election and loss on the sale of PFIC with
respect to which an election is made, to the extent that the amount of loss does
not exceed the net mark-to-market gains previously included, are treated as
ordinary losses.  The U.S. or foreign source of any income or losses is
determined as if the amount were a gain or loss from the sale of stock in the
PFIC.

If
PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S.
person that may make the mark-to-market election. Amounts includable in the CFC's
income under the election are treated as foreign personal holding company
income, and deductions are allocable to foreign personal holding company income.

The
rules of Code Section 1291 applicable to nonqualified funds generally do not
apply to a U.S. Holder for tax years for which a mark-to-market election is in
effect.  If Code Section 1291 is applied and a mark-to-market election was
in effect for any prior tax year, the U.S. Holder's holding period for the
PFIC stock is treated as beginning immediately after the last tax year of the
election.  However, if a taxpayer makes a mark-to-market election for PFIC
stock that is a nonqualified fund after the beginning of a taxpayer's holding
period for such stock, a coordination rule applies to ensure that the taxpayer
does not avoid the interest charge with respect to amounts attributable to
periods before the election.

Controlled
Foreign Company Status

If
more than 50% of the voting power of all classes of stock or the total value of
the stock of the Company is owned, directly or indirectly, by U.S. Holders, each
of whom own 10% or more of the total combined voting power of all classes of
stock of the Company, the Company would be treated as a "controlled foreign
corporation" or "CFC" under Subpart F of the Code.  This
classification would bring into effect many complex results including the
required inclusion by such 10% U.S. Holders in income of their pro rata shares
of "Subpart F income" (as defined by the Code) of the Company and the
Company's earnings invested in "U.S. property" (as defined by the Code).
 In addition, under Section 1248 of the Code, gain from the sale or
exchange of common shares of the Company by such a 10% U.S. Holder of Company at
any time during the five year period ending with the sale or exchange is treated
as ordinary dividend income to the extent of earnings and profits of the Company
attributable to the stock sold or exchanged.  Because of the complexity of
Subpart F, and because the Company may never be a CFC, a more detailed review of
these rules is beyond of the scope of this discussion.

Elimination
of Overlap between Subpart F Rules and PFIC Provisions

A
PFIC that is also a CFC will not be treated as a PFIC with respect to certain
10% U.S. Holders.  For the exception to apply, (i) the corporation must be
a CFC within the meaning of section 957(a) of the Code and (ii) the U.S. Holder
must be subject to the current inclusion rules of Subpart F with respect to such
corporation (i.e., the U.S. Holder is a "United States Shareholder," see "Controlled
Foreign Corporation," above).  The exception only applies to that portion
of a U.S. Holder's holding period beginning after December 31, 1997.  For
that portion of a United States Holder before January 1, 1998, the ordinary PFIC
and QEF rules continue to apply.

As
a result of this provision, if the Company were ever to become a CFC, U.S.
Holders who are currently taxed on their pro rata shares of Subpart F income of
a PFIC which is also a CFC will not be subject to the PFIC provisions with
respect to the same stock if they have previously made a Pedigreed QEF Election.
 The PFIC provisions will however continue to apply to PFIC/CFC U.S.
Holders for any periods in which they are not subject to Subpart F and to U.S.
Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects
to recognize gain on the PFIC shares held in the Company as if those shares had
been sold.

Dividend
and Paying Agents

Not Applicable.

Statement
by Experts

Not Applicable.





---

56





Documents on Display



Documents concerning the
Company which are referred to in this document may be inspected at the offices
of MAG Silver Corp., Suite 328, 550 Burrard Street, British Columbia, Canada
 V6C 2B5.



Subsidiary Information



A list of
subsidiaries of the Company is identified in Item 4 above and in note 9 of the
notes to the consolidated financial statements in Item 17.



ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not
applicable.

ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not
applicable.

PART
II

ITEM
13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES

Not
Applicable.

ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS
OF SECURITY HOLDERS AND USE OF PROCEEDS

Not
Applicable.

ITEM
15. CONTROLS AND PROCEDURES



Evaluation
of disclosure controls and procedures



As
of December 31, 2004, the Company, under the supervision and with the
participation of its management, including the Chief Executive Officer and Chief
Financial Officer, performed an evaluation of the effectiveness of the Company's
disclosure controls and procedures (as defined in U.S. Exchange Act Rule
13a-14(c)). The Company's management necessarily applied its judgment in
assessing such controls and procedures, which by their nature can provide only a
reasonable assurance regarding management's control objectives. Based on this
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that, as of such date, the Company's disclosure controls and
procedures were effective at the reasonable assurance level for gathering,
analyzing and disclosing the information the Company is required to disclose in
the reports it files under the Securities Exchange Act of 1934, within the time
periods specified in the SEC's rules and forms.

Changes
in internal control over financial reporting



There
has been no change in the Company's internal control over financial reporting
that occurred during the period covered by this report that has materially
affected, or is reasonably likely to materially affect, its internal control
over financial reporting.

ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT



The
Company's Board of Directors has determined that the Company has at least one
audit committee financial expert serving on its audit committee.  The
Company's audit committee financial expert as defined by Item 16A to Form 20-F
is Eric H. Carlson, a chartered accountant. Mr. Carlson is not an officer or
employee of the Company, and therefore is considered an independent member of
the committee.



---

57





ITEM
16B. CODE OF ETHICS



The Company
has adopted codes of ethics applicable to principal executive officer, principal
financial officer, and directors and officers. The codes are included as
exhibits to this Report.



ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The aggregate
fees for professional services rendered by the independent registered
accountants, Deloitte & Touche LLP, for the Company and for the years ending
December 31, 2004 and December 31, 2003 totaled $40,759 and $138,630,
respectively, as detailed in the following table.  All funds are in
Canadian dollars:



|                   | Year
      ended December 31, 2004 | Year
      ended December 31, 2003
|------------------ | ---------------------------------- | ----------------------------------
|Audit Fees         | $40,759                            | $131,930                          
|Audit Related Fees | $                                  | $-                                
|Tax Fees           | $                                  | $6,700                            
|All Other Fees     | $                                  | $-                                
|TOTAL              | $40,759                            | $138,630                          



The nature of
the services provided by Deloitte & Touche LLP under each of the categories
indicated in the table is described below.



Audit Fees



Audit fees
were for professional services rendered by Deloitte & Touche LLP for the
audit of the Company's annual financial statements and services provided in
connection with statutory and regulatory filings or engagements.



Audit-Related Fees



Audit-related
fees were for assurance and related services reasonably related to the
performance of the audit or review of the annual statements that are not
reported under "Audit Fees" above.



Tax Fees



Tax fees were
for tax compliance, tax advice and tax planning professional services.
 These services consisted of: tax compliance including the review of tax
returns, and tax planning and advisory services relating to common forms of
domestic and international taxation (i.e. income tax, capital tax, goods and
services tax, payroll tax and value added tax).



All Other Fees



Fees
disclosed in the table above under the item "all other fees" were incurred
for services other than the audit fees, audit-related fees and tax fees
described above.



PRE-APPROVAL
POLICIES AND PROCEDURES



It is within
the mandate of the Company's Audit Committee to approve all audit and
non-audit related fees. The Audit Committee has pre-approved specifically
identified audit and non-audit related services, including tax compliance and
review of tax returns, as submitted to the Audit Committee from time to time.
The Audit Committee is in the process of developing a pre-approval policy for
non-audit related services.





---

58





ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.



Not
applicable.





ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS



Not
applicable.

PART
III

ITEM
17. FINANCIAL STATEMENTS



The
following Financial Statements are filed as part of this Annual Report, together
with the Reports of the Independent Auditors:

(1)

Report
of Independent Registered Chartered Accountants

(2)

Consolidated
Balance Sheets as at December 31, 2004 and 2003

(3)

Consolidated
Statements of Operations for each of the years in the three year period ended
December 31, 2004 and for the cumulative period from April 21, 2000 to December
31, 2003

(4)

Consolidated
Statements of Shareholders' Equity for each of the years in the three year
period ended December 31, 2004 and for the cumulative period from April 21, 2000
to December 31, 2003

(5)

Consolidated
Statements of Cash Flows for each of the years in the three year period ended
December 31, 2004 and for the cumulative period from April 21, 2000 to December
31, 2003

(6)

Notes
to the Consolidated Financial Statements



---



















Independent
Auditors' Report



MAG
SILVER CORP.

(An
exploration stage company)





---















Independent
Auditors' Report



To
the Shareholders of
MAG Silver Corp.
(an exploration stage company)



We
have audited the consolidated balance sheets of MAG Silver Corp. (an exploration
stage company) as at December 31, 2004 and 2003 and the consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three year period ended December 31, 2004 and the cumulative period
from April 21, 1999 to December 31, 2004.  These financial statements
are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements based on our audits.



We
conducted our audits in accordance with Canadian generally accepted auditing
standards and the standards of the United States Public Company Accounting
Oversight Board.  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, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2004 and 2003 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 2004 and the cumulative
period from April 21, 1999 to December 31, 2004 in accordance with Canadian
generally accepted accounting principles.



The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting.  Accordingly we express no such
opinion.







Chartered
Accountants
Vancouver, British Columbia
February 18, 2005



Comment
by Independent Auditors on Canada - United States of America Reporting
Difference



In
the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph when the financial statements are affected
by conditions and events that cast substantial doubt on the Company's ability
to continue as a going concern, such as those described in Note 1 to the
financial statements.



Although
we conducted our audits in accordance with both Canadian generally accepted
auditing standards and auditing standards generally accepted in the United
States of America, our report to the Shareholders dated February 18, 2005 is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such conditions and events in the auditors' report when these are
adequately disclosed in the financial statements.



The
standards of the Public Company Accounting Oversight Board (United States)
require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have a material
effect on the comparability of the Company's financial statements, such as the
change described in Notes 2 (h) and 2 (k) to the financial statements.
 Our report to the shareholders dated February 18, 2005 is expressed in
accordance with Canadian reporting standards which do not require a reference to
such changes in accounting principles in the auditors' report when the change
is properly accounted for and adequately disclosed in the financial statements.







Chartered
Accountants
Vancouver, British Columbia
February 18, 2005









---







|MAG
      SILVER CORP.                                 
|-------------------------------------------------------
|(An
      exploration stage company)                   
|Consolidated
      Balance Sheets                      
|                                                       
|                                                       
|                                                       
|                                                       
|ASSETS                                                 
|                                                       
|CURRENT                                                
|Cash
      and cash equivalents                        
|Accounts
      receivable                              
|Interest
      receivable                              
|Prepaid
      expenses                                 
|TOTAL
      CURRENT ASSETS                             
|MINERAL
      RIGHT ACQUISITION COSTS (Note 7)         
|DEFERRED
      EXPLORATION COSTS (Note 7)              
|FIXED
      ASSETS AND LEASEHOLDS (Note 3)             
|TOTAL
      ASSETS                                     
|                                                       
|LIABILITIES                                            
|                                                       
|CURRENT                                                
|Accounts
      payable and accrued liabilities         
|TOTAL
      LIABILITIES                                
|                                                       
|SHAREHOLDERS'
      EQUITY                             
|                                                       
|Share
      capital (Note 4)                           
|Authorized
      - 1,000,000,000 common shares,        
|without
      par value                                
|Issued
      and outstanding at December 31, 2004      
|-
      25,829,538 common shares (December 31, 2003 -  
|23,093,995)                                            
|Common
      shares allotted - not issued (9,191 common
|shares)
      (Note 7 (d) and Note 11 (b))             
|Contributed
      surplus (Note 4 (b))                 
|Deficit                                                
|TOTAL
      SHAREHOLDERS' EQUITY                       
|TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY       



CONTINUING
OPERATIONS (Note 1)



ON
BEHALF OF THE BOARD



__"Dan
MacInnis"_____________________

_"Frank
Hallam"____________________

Director

Chief
Financial Officer









---







|MAG
      SILVER CORP.                     
|-------------------------------------------
|(An
      exploration stage company)       
|Consolidated
      Statements of Operations
|                                           
|                                           
|Cumulative                                 
|amount
      from                          
|April
      21,                            
|Year
      ended                           
|December
      31,                         
|2004                                       
|                                           
|EXPENSES                                   
|Accounting
      and audit                 
|Amortization                               
|Bank
      charges and interest            
|Filing
      and transfer agent fees       
|Foreign
      exchange                     
|Legal                                      
|Management
      and consulting fees       
|Shareholder
      relations                
|Telephone
      and office                 
|Travel                                     
|Write-off
      of advances                
|Write-off
      of computer software       
|                                           
|LOSS
      BEFORE THE FOLLOWING            
|INTEREST
      INCOME                      
|LOSS
      FOR THE PERIOD                  
|                                           
|BASIC
      AND DILUTED                    
|LOSS
      PER SHARE                       
|                                           
|WEIGHTED
      AVERAGE NUMBER              
|OF
      SHARES OUTSTANDING                









---







|MAG
      SILVER CORP.                               
|-----------------------------------------------------
|(An
      exploration stage company)                 
|Consolidated
      Statements of Shareholders' Equity
|                                                     
|                                                     



|                                         |                         |  |              |  |                  |  |             |  |             |  |               |  | Deficit      |  |           
|---------------------------------------- | ----------------------- |  | ------------ |  | ---------------- |  | ----------- |  | ----------- |  | ------------- |  | ------------ |  | ----------
|                                         |                         |  |              |  |                  |  |             |  |             |  |               |  | accumulated  |  |           
|                                         | Common shares           |  | Shares       |  | Special          |  |             |  | during the  |  | Total        
|                                         | without
      par value |  | allotted but |  | warrants         |  | Contributed |  | exploration |  | shareholders'
|                                         | Shares                  |  | Amount       |  | not
      issued |  | Shares      |  | Amount      |  | Surplus       |  | stage        |  | equity    
|                                         |                         |  |              |  |                  |  |             |  |             |  |               |  |              |  |           
|Issued
      for cash                    | 1,500,000               |  | $150,000     |  | $-               |  | -           |  | $-          |  | $-            |  | $-           |  | $150,000  
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (4,279)      |  | (4,279)   
|Balance,
      October 31, 1999          | 1,500,000               |  | 150,000      |  | -                |  | -           |  | -           |  | -             |  | (4,279)      |  | 145,721   
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (3,787)      |  | (3,787)   
|Balance,
      December 31, 1999         | 1,500,000               |  | 150,000      |  | -                |  | -           |  | -           |  | -             |  | (8,066)      |  | 141,934   
|Issued
      for cash                    | 1,500,000               |  | 240,222      |  | -                |  | -           |  | -           |  | -             |  | -            |  | 240,222   
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (5,641)      |  | (5,641)   
|Balance,
      December 31, 2000         | 3,000,000               |  | 390,222      |  | -                |  | -           |  | -           |  | -             |  | (13,707)     |  | 376,515   
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (279,639)    |  | (279,639) 
|Balance,
      December 31, 2001         | 3,000,000               |  | 390,222      |  | -                |  | -           |  | -           |  | -             |  | (293,346)    |  | 96,876    
|Issued
      for cash                    | -                       |  | 2,400,000    |  | 375,000          |  | -           |  | -           |  | 375,000      
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (122,631)    |  | (122,631) 
|Balance,
      December 31, 2002         | 3,000,000               |  | 390,222      |  | -                |  | 2,400,000   |  | 375,000     |  | -             |  | (415,977)    |  | 349,245   
|Issued
      for cash (Note 4 (a))       | 11,500,000              |  | 5,109,766    |  | -                |  | -           |  | -           |  | -             |  | -            |  | 5,109,766 
|Conversion
      of special warrants     | 2,400,000               |  | 375,000      |  | -                |  | (2,400,000) |  | (375,000)   |  | -             |  | -            |  | -         
|Agent's
      administration            
|shares
      (Note 4 (a))                | 10,000                  |  | 5,000        |  | -                |  | -           |  | -           |  | -             |  | -            |  | 5,000     
|Finders'
      fee shares (Note 9)       | 500,000                 |  | 250,000      |  | -                |  | -           |  | -           |  | -             |  | -            |  | 250,000   
|Issued
      to obtain mineral property 
|option
      rights                      | 200,000                 |  | 100,000      |  | -                |  | -           |  | -           |  | -             |  | -            |  | 100,000   
|Issued
      on acquisition of          
|Lexington
      (Note 9)                 | 200,000                 |  | 180,000      |  | -                |  | -           |  | -           |  | -             |  | -            |  | 180,000   
|Warrants
      exercised                 | 5,183,995               |  | 3,068,996    |  | -                |  | -           |  | -           |  | -             |  | -            |  | 3,068,996 
|Stock
      options exercised            | 100,000                 |  | 26,000       |  | -                |  | -           |  | -           |  | -             |  | -            |  | 26,000    
|Stock
      options granted to          
|consultants                              | -                       |  | -            |  | -                |  | -           |  | -           |  | 75,308        |  | -            |  | 75,308    
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (837,539)    |  | (837,539) 
|Balance,
      December 31, 2003         | 23,093,995              |  | 9,504,984    |  | -                |  | -           |  | -           |  | 75,308        |  | (1,253,516)  |  | 8,326,776 
|Cumulative
      effect of change in    
|accounting
      policy (Note 2 (h))     | -                       |  | -            |  | -                |  | -           |  | -           |  | 248,128       |  | (248,128)    |  | -         
|Issued
      to obtain mineral property 
|option
      rights                      | 1,358,793               |  | 1,578,752    |  | -                |  | -           |  | -           |  | -             |  | -            |  | 1,578,752 
|Warrants
      exercised                 | 1,236,750               |  | 480,562      |  | -                |  | -           |  | -           |  | -             |  | -            |  | 480,562   
|Stock
      options exercised            | 140,000                 |  | 50,800       |  | -                |  | -           |  | -           |  | -             |  | -            |  | 50,800    
|Shares
      allotted to acquire mineral
|property
      option rights             | -                       |  | -            |  | 9,467            |  | -           |  | -           |  | -             |  | -            |  | 9,467     
|Net
      loss                           | -                       |  | -            |  | -                |  | -           |  | -           |  | -             |  | (733,897)    |  | (733,897) 
|Balance,
      December 31, 2004         | 25,829,538              |  | $11,615,098  |  | $9,467           |  | -           |  | $-          |  | $323,436      |  | $(2,235,541) |  | $9,712,460









---







|MAG
      SILVER CORP.                                        
|--------------------------------------------------------------
|(An
      exploration stage company)                          
|Consolidated
      Statements of Cash Flows                   
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|                                                              
|OPERATING
      ACTIVITIES                                    
|Loss
      for the period                                     
|Items
      not involving cash:                               
|Write-off
      of computer software                          
|Write-off
      of investment                                 
|Amortization                                                  
|Non-cash
      compensation expense                           
|                                                              
|Changes
      in operating assets and liabilities             
|Accounts
      receivable                                     
|Interest
      receivable                                     
|Prepaid
      expenses                                        
|Accounts
      payable and accrued liabilities                
|                                                              
|                                                              
|INVESTING
      ACTIVITIES                                    
|Advances
      to Advance Disc Manufacturing Corporation      
|Purchase
      of equipment and leasehold improvements        
|Advances
      to Minera Los Lagartos, S.A. de C.V.           
|Acquisition
      of Minera Los Lagartos, S.A. de C.V.        
|(Note
      9)                                                
|Acquisition
      of Lexington Capital Group Inc. (Note 9)    
|Mineral
      rights                                          
|Deferred
      exploration costs                              
|                                                              
|                                                              
|FINANCING
      ACTIVITIES                                    
|Issue
      of share capital                                  
|Issue
      of special warrants                               
|Deferred
      financing costs                                
|                                                              
|(DECREASE)
      INCREASE IN CASH                             
|CASH
      AND EQUIVALENTS, BEGINNING OF PERIOD               
|CASH
      AND EQUIVALENTS, END OF PERIOD                     
|(Note
      2 (d))                                            
|                                                              
|Interest
      paid                                           
|                                                              
|Non-cash
      investing and financing activities:            
|Issue
      of shares in connection with acquisition of Minera
|Los
      Lagartos, S.A. de C.V. (Note 9)                     
|Issue
      of shares in exchange for mineral property        
|option
      rights                                           
|Issue
      of shares in connection with acquisition of       
|Lexington
      Capital Group Inc. (Note 9)                   











---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





1.

CONTINUING
OPERATIONS



The
Company was incorporated under the Company Act (British Columbia) on April 21,
1999 and its shares were listed on the TSX Venture Exchange on April 21, 2000.



The
Company is an exploration company conducting work on mineral properties it has
staked or acquired by way of option agreement principally in Mexico. The Company
has not yet determined whether the properties on which it is conducting
exploration contain any ore reserves that are economically recoverable. The
Company defers all acquisition, exploration and development costs related to the
properties on which it is conducting exploration. The recoverability of these
amounts is dependent upon the existence of economically recoverable reserves,
the ability of the Company to obtain the necessary financing to complete the
development of the interests, and future profitable production, or
alternatively, upon the Company's ability to dispose of its interests on a
profitable basis.



These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
assume that the Company will realize its assets and discharge its liabilities in
the normal course of business for the foreseeable future. The Company has
incurred losses from inception and does not currently have the financial
resources to sustain operations in the long-term. The Company's ability to
continue as a going concern is dependent upon its ability in the future to
achieve profitable operations and, in the meantime, to obtain the necessary
financing to meet its obligations and repay its liabilities when they become
due. External financing, predominantly by the issuance of equity to the public,
will be sought to finance the operations of the Company.



Although
the Company has taken steps to verify title to the properties on which it is
conducting exploration and in which it has an interest, in accordance with
industry standards for the current stage of exploration of such properties,
these procedures do not guarantee the Company's title. Property title may be
subject to unregistered prior agreements and non-compliance with regulatory
requirements.





2.

SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES



These
financial statements have been prepared in accordance with Canadian generally
accepted accounting principles ("Canadian GAAP") and include the following
significant policies outlined below. These policies conform, in all material
respects, with accounting principles generally accepted in the United States of
America ("US GAAP"), except as described in Note 12.



(a)

Principles
of consolidation



On
January 15, 2003, the Company completed its acquisition of Minera Los Lagartos,
SA de CV and on July 16, 2003, its acquisition of Lexington Capital Corp. (Note
9 (b)). The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated on consolidation.







---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





2.

SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



(b)

Use
of estimates



The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenditures during the reported period.
Actual results may differ from those estimated.



(c)

Financial
instruments



The
carrying values of cash and cash equivalents, accounts receivable, interest
receivable and accounts payable and accrued liabilities reflected in the balance
sheet approximate their respective fair values.



Price
risk is the risk that the value of the Company's financial instruments will
vary from fluctuations in foreign exchange rates and the degree of volatility of
these rates.  Certain of the Company's accounts receivable and accounts
payable and accrued liabilities are denominated in Mexican pesos.  The
Company does not use any derivative instruments to reduce its exposure to
fluctuations in foreign exchange rates.



(d)

Cash
and cash equivalents



Cash
and cash equivalents consist of cash and short-term money market instruments
which are readily convertible to cash and have original maturities of 90 days or
less.



Details
of cash and cash equivalents are as follows:



|2004                      |                            | 2003 |                    | 2002
|------------------------- | -------------------------- | ---- | ------------------ | ----
|                          |                            |      |                    |     
|Cash                      | $            
      66,360 |      | $   
      495,822 |     
|Short-term
      deposits | 1,800,000                  |      | 4,300,000          |     
|                          | $       
      1,866,360   |      | $ 
      4,795,822 |     



(e)

Mineral
rights and deferred exploration costs



The
Company is in the exploration stage with respect to its mining activity and
accordingly follows the practice of capitalizing all costs relating to the
acquisition, exploration and development of the interests and crediting all
revenues received against the cost of the related interests. At such time as
commercial production commences, these costs will be charged to operations on a
units-of-production method based on proven and probable reserves. The aggregate
costs related to abandoned interests are charged to operations at the time of
any abandonment.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





2.

SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



(e)

Mineral
rights and deferred exploration costs (continued)



Mineral
rights include costs to acquire options to acquire interests in unproven mineral
properties.



Deferred
exploration costs include direct exploration costs incurred by the Company in
its effort to determine the existence of economically mineable ore including the
cost of feasibility studies.



Management
reviews the carrying value of mineral rights and deferred exploration costs at
least quarterly for evidence of impairment. This review is generally made with
reference to the timing of exploration work, work programs proposed, exploration
results achieved by the Company and by others in the related area of interest,
and an assessment of the likely results to be achieved from performance of
further exploration. When the results of this review indicate that a condition
of impairment exists, the Company estimates the net recoverable amount of the
deferred exploration costs and related mining rights by reference to the
potential for success of further exploration activity and/or the likely proceeds
to be received from sale or assignment of the rights. When the carrying values
of mining rights or deferred exploration costs are estimated to exceed their net
recoverable amounts, a provision is made for the decline in the value.



The
Company is in the process of exploring mineral properties and has not yet
determined whether they contain ore reserves that are economically recoverable.
Accordingly, the recoverability of these capitalized costs is dependent upon the
existence of economically recoverable reserves, the ability of the Company to
obtain the necessary financing to complete exploration and development and,
ultimately, upon future profitable production.



(f)

Fixed
assets and leaseholds



Fixed
assets are recorded at cost and are amortized on the declining balance basis at
the following annual rates:



Computer
equipment

30%

Computer
software

30%

Office
furniture and equipment

20%



The
leasehold is depreciated on a straight-line basis to amortize the costs over the
three year term.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





2.

SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



(g)

Income
taxes



Future
income taxes relate to the expected future tax consequences of differences
between the carrying amount of balance sheet items and their corresponding tax
values.  Future tax assets, if any, are recognized only to the extent that,
in the opinion of management, it is more likely than not that the future income
tax assets will be realized.  Future income tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment or substantive enactment.



(h)

Stock-based
compensation





Effective
January 1, 2004, the Company adopted the amended recommendations of the
CICA Handbook Section 3870, Stock-based Compensation and Other Stock-based
Payments.  Under the amended standards of this Section, the fair value
of all stock-based awards granted are estimated using the Black-Scholes model
and are recorded in operations over their vesting periods.  The
compensation cost related to stock options granted after January 1, 2004 is
recorded in operations.



Previously,
the Company provided note disclosure of pro forma net earnings and pro forma
earnings per share as if the fair value based method had been used to account
for share purchase options granted to employees, directors and officers after
January 1, 2002.  The amended recommendations have been applied
retroactively from January 1, 2002 without restatement of prior periods.
 As a result, as of January 1, 2004, the deficit was increased by
$248,128, and contributed surplus was increased by $248,128.



The
total compensation expense recognized in the statement of operations for share
purchase options granted in 2004 amount to $Nil.  Had the same basis been
applied to share purchase options granted in 2003 and 2002, net earnings would
have been as follows:

|2003                                             |                        | 2002
|------------------------------------------------ | ---------------------- | ----
|                                                 |                        |     
|Net
      loss                                   | $   
      837,539     |     
|Additional
      compensation expense            | 248,128                |     
|Pro
      forma net loss                         | $
      1,085,667      |     
|                                                 |                        |     
|Pro
      forma basic and diluted loss per share | $        
      (0.07) |     

For
the year ended December 31, 2003, stock-based compensation expense was
determined using an option pricing model assuming no dividends are to be paid, a
weighted average volatility of the Company's share price of 63%, an annual
risk free interest rate of 3.76% and expected lives of five years.



No
stock options were issued in the years ended December 31, 2004 and 2002.







---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





2.

SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



(i)

Foreign
exchange translation



The
accounts of the Company's foreign operations are considered to be integrated
with the operations of the Company and are translated into Canadian dollars as
follows:



-
monetary assets and liabilities at the rate prevailing at the balance sheet date.



-
non-monetary
assets and liabilities at historical rates.



-
income
and expenses at the average rate in effect during the year.



The
resulting translation adjustment is included as a component of foreign exchange
(gain) loss on the statement of operations.



(j)

Earnings
(loss) per common share



Basic
earnings per share calculations are based on the weighted average number of
common shares outstanding, after excluding the shares held in escrow for which
the conditions for their release were not satisfied until April 15, 2003 (Note 4
(d)).



The
Company uses the treasury stock method for the calculation of diluted earnings
per share. Diluted earnings per share are computed using the weighted average
number of common and common equivalent shares outstanding during the year.
Common equivalent shares consist of the incremental common shares upon the
assumed exercise of stock options and warrants, but are excluded from the
computation if their effect is anti-dilutive.



(k)

Asset
retirement obligations



Effective
January 1, 2004, the Company adopted CICA Handbook Section 3110, "Asset
Retirement Obligations."  Under this new standard, the present value of
future mine closure obligations is determined when the obligation is incurred
and recorded as a liability with a corresponding increase in the carrying value
of the related mining assets.  The carrying value is amortized over the
life of the related mining asset on a units-of-production basis commencing with
initial commercialization of the asset.  The liability is accreted to the
actual liability on settlement through charges each period in the statement of
operations.



The
retroactive adoption of this new standard had no material effect on the
financial position or results of operations of the Company.











---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





3.

FIXED
ASSETS AND LEASEHOLDS



|                             | December
      31, |  | December
      31,
|---------------------------- | ------------------ |  | ------------------
|                             | 2004               |  | 2003              
|                             |                    |  | Accumulated       
|                             | Cost               |  | Depreciation      
|Computer
      equipment    
|and
      software           | $    15,015        |  | $    4,317        
|Field
      equipment        | 24,812             |  | 7,857             
|Leasehold
      improvements | 15,000             |  | 1,250             
|                             | $    54,827        |  | $  13,424         





4.

SHARE
CAPITAL



(a)

Issued
and outstanding



On
April 15, 2003, the Company raised gross proceeds of $5,750,000 from the sale of
11,500,000 units at a price of $0.50 per unit. Each unit consists of one common
share and one-half of one share purchase warrant, with each whole warrant
entitling the holder to purchase one share at a price of $0.75 per share for a
period of two years from the closing. The Agents were granted warrants to
purchase up to 1,150,000 shares of the Company at the same price in partial
payment of services rendered in connection with the financing. The commission
paid to the Agents was $460,000, equal to 8% of the gross proceeds of the
Offering, they were also issued 10,000 shares of the Company (the "Administration
Shares") as an administration fee in relation to the Offering, valued at
$5,000. Corporate finance fees, legal fees and related disbursements totalled
$175,234, of which $7,500 was incurred to December 31, 2002. The net proceeds to
the Company from the financing were $5,109,766.



The
prospectus issued in respect of the financing also qualified 2,400,000 common
shares and non-transferable share purchase warrants to purchase up to 1,950,000
common shares of the Company issuable upon the exercise of special warrants
issued by the Company in September and December, 2002, which shares and warrants
have now been issued (Note 5). The prospectus also qualified 500,000
finders' fee shares issued in relation to the property acquisitions, of which
200,000 common shares have been issued and 300,000 have been issued in escrow.
These shares are to be released from escrow as follows:  10% on completion
of the Company's Qualifying Transaction, which took place on April 15, 2003,
and the balance to be released in equal tranches of 15% every six months, for a
three year period.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





4.

SHARE
CAPITAL (Continued)



(b)

Stock
options



The
Company has entered into Incentive Stock Option Agreements ("Agreements")
with directors, officers and employees.



At
the date the Agreements are entered into, the exercise price of each option is
set at the fair value of the common shares at the date of grant. The following
table summarizes the Company's options:





Weighted
      
      
      
      WeightedYear
        ended
      
      Average
      
      Year
        ended
      
      AverageDecember
        31,
      
      Exercise
      
      December
        31,
      
      Exercise2004
      
      Price
      
      2003
      
      PriceBalance
        outstanding,beginning
        of year
      1,170,000
      
      $
             0.52
      
      280,000
      
      $
             0.20Activity
        during the yearOptions
        granted
      -
      
      -
      
      990,000
      
      0.58Options
        exercised
      (140,000)
      
      0.36
      
      (100,000)
      
      0.26Balance
        outstanding,end
        of year
      1,030,000
      
      $
             0.54
      
      1,170,000
      
      $
             0.52






The
following table summarizes options outstanding and exercisable at December 31,
2004:







Options
        Outstanding and ExercisableRange
        of Exercise Prices
      
      Number
        Outstanding and Exercisable at December 31, 2004
      
      Weighted
        Average Remaining Contractual Life (Years)
      
      Weighted
        Average Exercise Price$
                   0.20
      
      100,000
      
      0.30
      
      $
                  0.200.50
      
      575,000
      
      3.28
      
      0.500.70
      
      355,000
      
      3.36
      
      0.701,030,000
      
      3.15
      
      $
                  0.54










During
the current year no stock options have been granted. During the year ending
December 31, 2003 the Company granted 775,000 stock options to employees and
215,000 stock options to consultants. The Company has recorded $Nil (2003 -
$75,308) of compensation expense relating to stock options granted to
consultants in the year ended December 31, 2004.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





4.

SHARE
CAPITAL (Continued)



(c)

Share
purchase warrants









Weighted-Number
      
      Averageof
        Warrants
      
      Exercise
        PriceBalance
        at December 31, 2002
      -
      
      $
                       -Issued
        on conversion of Special Warrants
      1,500,000
      
      0.20Issued
        on conversion of Special Warrants
      450,000
      
      0.40Issued
        in connection with issuance of commonshares
      5,750,000
      
      0.75Issued
        to agents in connection with issuanceof
        common shares
      1,150,000
      
      0.50Exercised
        and converted to common shares
      (5,183,995)
      
      0.59Balance
        at December 31, 2003
      3,666,005
      
      0.63Exercised
        and converted to common shares
      (1,236,750)
      
      0.39Balance
        at December 31, 2004
      2,429,255
      
      $
                    0.75










(d)

Shares
held in escrow



As
a result of the completion and approval of the Company's unit offering on
April 15, 2003, 1,500,000 of the Company's common shares previously held in
escrow are to be released as to one-third on each of April 15, 2004 (released), 2005 and 2006.











---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





5.

SPECIAL
WARRANTS



During
the year ended December 31, 2002, the Company:



(i)

issued
1,500,000 special warrants for $0.10 per special warrant, which were convertible
into one common share and one common share purchase warrant until April 3, 2003.
Each common share purchase warrant was exercisable into one common share of the
Company at $0.20 per share until September 9, 2004.  All of these warrants
were exercised prior to expiring; and



(ii)

issued
900,000 special warrants for $0.25 per special warrant, which were convertible
into one common share and one-half of one common share purchase warrant until
April 3, 2003. Each whole common share purchase warrant is exercisable into
one common share of the Company at $0.40 per share until December 20, 2004.
 All of these warrants were exercised prior to expiring.



In
2003, each of the special warrants were converted into one common share and one
share purchase warrant, with exercise terms as described above.





6.

INCOME
TAXES



The
provision for income taxes reported differs from the amounts computed by
applying the cumulative Canadian federal and provincial income tax rates to the
pre-tax loss due to the following:





2004
      
      2003
      
      2002Statutory
        tax rate
      35.60%
      
      37.60%
      
      39.60%Recovery
        of income taxes computed atstandard
        rates
      $
           261,267
      
      $
           314,915
      
      $
             48,561Non-taxable
        portion of capital loss
      -
      
      -
      
      (700)Non-deductible
        expenses
      (4,116)
      
      (28,316)
      
      -Lower
        effective tax rate on loss inforeign
        jurisdictions
      (1,973)
      
      (1,603)
      
      -Future
        tax benefits not recognized inthe
        period that the loss arose
      (255,178)
      
      (284,996)
      
      (47,861)$
                   -
      
      $
                   -
      
      $
                   -








---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





6.

INCOME
TAXES (Continued)



The
approximate tax effect of each type of temporary difference that gives rise to
the Company's future income tax assets are as follows:

|2004                                 |                     | 2003
|------------------------------------ | ------------------- | ----
|                                     |                     |     
|Operating
      loss carryforwards   | $  
      625,025   |     
|Capital
      losses carried forward | 44,100              |     
|Less
      valuation allowance       | (669,125)           |     
|                                     | $          
      - |     



At
December 31, 2004, the Company has non-capital loss carry-forwards of
$1,740,000, expiring between 2006 and 2011, available for tax purposes and
capital loss carryforwards of $252,000 which are available only to offset future
capital gains for tax purposes and may be carried forward indefinitely.





7.

MINERAL
RIGHTS AND DEFERRED EXPLORATION COSTS



|                                 | Year
      ended December 31, 2004
|-------------------------------- | ----------------------------------
|                                 |                                   
|                                 | Juanicipio                        
|Acquisition
      costs         
|of
      mineral rights         
|Balance,
      beginning of year | $894,379                          
|Incurred
      during year       | 18,278                            
|Balance,
      end of year       | $912,657                          
|                                 |                                   
|Deferred
      exploration costs
|Camp
      costs                 | $48,262                           
|Drilling                         | 274,172                           
|Geochemical                      | 2,243                             
|Geological                       | 195,829                           
|Maps,
      fees and licenses    | 51,530                            
|Travel                           | 24,907                            
|Transport
      and shipping     | 216                               
|Site
      administration        | 33,118                            
|                                 | 630,277                           
|Balance,
      beginning of year | 1,145,332                         
|Balance,
      end of year       | $1,775,609                        









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





7.

MINERAL
RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)



(a)

Juanicipio
Property



The
Company, through its subsidiary, Minera Los Lagartos, S.A. de C.V. ("Lagartos"),
holds a 100% interest in an exploration concession on the Juanicipio property,
located in the Fresnillo District, Zacatecas, Mexico. This exploration
concession enables Lagartos to explore the mining claim covered by the
concession for the period to August 8, 2005.



Previously,
as a condition to acquiring the concession, Lagartos was obligated to make
payments totalling US$2,500,000 over a period of four years.



As
a result of the Company's acquisition of Lexington Capital Group Inc. (Note 9
(b)), this obligation, as well as any future royalty payments, were removed.



(b)

Don
Fippi Property



Lagartos
has entered into an agreement which gives it the right to explore and acquire a
100% interest in mining concessions located in the Batapilas, Chihuahua district
of Mexico. Under the terms of the agreement, Lagartos is obligated to:



i)

make
scheduled payments totalling US$550,000 plus applicable value added tax (of
which US$100,000 has been paid) by April 21, 2007;



ii)

incur
exploration expenditures totalling US$4,000,000 by April 21, 2008; and



iii)

issue
an aggregate of 2,100,000 common shares of the Company, of which 662,796 common
shares have been issued to December 31, 2004.  Subsequent to year end
the Company issued 13,382 additional common shares in connection with this
agreement.



(c)

Guigui
Property



Lagartos
has entered into an agreement which gives it the right to explore and acquire a
100% interest in mining concessions located in the Santa Eulalia, Chihuahua
district of Mexico. Under the terms of the agreement, Lagartos is obligated to:



i)

make
scheduled payments totalling US$550,000 plus applicable value added tax (of
which US$100,000 has been paid) by April 21, 2007;



ii)

incur
exploration expenditures totalling US$2,500,000 by April 21, 2007; and



iii)

issue
an aggregate of 2,100,000 common shares of the Company, of which 745,997 common
shares have been issued to December 31, 2004.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





7.

MINERAL
RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)



(d)

Sierra
Ramirez Property



Lagartos
has entered into an agreement which gives it the right to explore and acquire a
100% interest in mining concessions located in the Sierra Ramirez district in
Durango, Mexico. Under the terms of the agreement, Lagartos is obligated to:



i)

make
scheduled payments totalling US$1,505,000 plus applicable value added tax (of
which US$105,000 has been paid) by July 26, 2009;



ii)

incur
exploration expenditures totalling US$750,000 by July 26, 2009; and



iii)

issue
a finder's fee of 25,000 common shares of the Company, of which the Company
has, subsequent to year end, issued 9,191 common shares as per the agreement
approved by the TSX Venture exchange.



(e)

Lagartos
Property



Lagartos
has acquired an exploration concession on mining claims on the Fresnillo trend
to the northwest and southeast of the Juanicipio property. This exploration
concession enables Lagartos to explore the mining claim covered by the
concession to December 2009.



(f)

Adargas
Property



Lagartos
has entered into an agreement, which gives it the right to explore and acquire a
100% interest in the Adargas property (the "Adargas Property"), subject to a
2.5% net smelter returns royalty. Under the terms of the agreement, Lagartos is
obligated to:



i)

make
scheduled payments totalling US$1,000,000 plus applicable value added tax (of
which US$25,000 has been paid) by July 26, 2009;



ii)

issue
75,000 common shares of the Company, (all have been issued); and



iii)

incur
exploration expenditures totalling US$1,000,000 by July 26, 2009.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





7.

MINERAL
RIGHTS AND DEFERRED EXPLORATION COSTS (Continued)



(g)

Cinco
de Mayo Property



Lagartos
has entered into an agreement which gives it the right to explore and acquire a
100% interest in the Cinco de Mayo property (the "Cinco de Mayo Property"),
subject to a 2.5% net smelter returns royalty. Under the terms of the agreement,
Lagartos is obligated to:



i)

make
scheduled payments totalling US$1,000,000 plus applicable value added tax (of
which US$25,000 has been paid) by July 26, 2009;



ii)

issue
75,000 common shares of the Company, (all have been issued); and



iii)

incur
exploration expenditures totalling US$1,000,000 by July 26, 2009.





8.

RELATED
PARTY TRANSACTIONS



For
the year ended December 31, 2004 the Company's president received $93,870 in
compensation for legal and management services (2003 - $97,325).



During
the year ended December 31, 2003, the Company borrowed $150,000 on a short-term
loan from a shareholder of the Company. The loan has been fully repaid, as well
as $12,500 related to interest.



During
2003, the Company entered into an office rental and services agreement with
Platinum Group Metals Ltd. ("PTM"), a company with a common director and
common officer. During the year ended December 31, 2004 the Company accrued or
paid PTM $147,437 under the common service agreement (2003 - $89,131).



These
transactions were incurred in the normal course of business and are measured at
the exchange amount which is the consideration established and agreed to by the
noted parties.











---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





9.

ACQUISITIONS



(a)

Minera
Los Lagartos, S.A. de C.V. ("Lagartos")



The
Company announced on November 25, 2002 that it was proceeding with the
acquisition of a 99% interest in the issued and outstanding common shares of
Lagartos. This acquisition was completed by the Company on January 15, 2003. The
remaining 1% of Lagartos is held, in trust for the Company, by a director and
officer of the Company. Upon acquisition by the Company, Lagartos held the
interests in the Juanicipio concessions and the options to acquire interests in
the Don Fippi and Guigui concessions.



The
total purchase price of Lagartos and its allocation to the fair value of net
assets acquired is as follows:



|Cash
      advanced to Lagartos in respect of option on Juanicipio property
|---------------------------------------------------------------------------
|(US$50,000)
      paid in 2002                                             
|Cash
      paid for the 100% interest in the common shares of Lagartos     
|(US$5,000)                                                                 
|Finders*
      fee shares                                                  
|Advances
      to Lagartos prior to acquisition                            
|                                                                           
|                                                                           
|The
      fair value of net assets acquired                                
|Mineral
      rights                                                       



The
Company issued 500,000 common shares with a fair value of $0.50 per share in
connection with the completion of the transaction as a finders' fee to two
officers and a company with directors and officers in common.



The
acquisition of Lagartos has been accounted for using the purchase method and the
results of operations of Lagartos have been included in the Company's results
of operations from January 15, 2003.



There
were no other significant assets or liabilities acquired in this transaction. As
such, the total of the acquisition of Lagartos has been allocated to acquired
mineral rights being the right or the underlying right to explore a mining
property.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





9.

ACQUISITIONS
(Continued)



(b)

Lexington
Capital Group Inc. ("Lexington")



On
July 16, 2003, the Company completed the acquisition of Lexington whose main
asset is its indirect interest in the Juanicipio I claim that encompasses the
Company's Juanicipio Project near Fresnillo, Zacatecas, Mexico. Under the
terms of the agreement, MAG paid the vendor US$250,000 (Cdn$350,000) and 200,000
common shares of the Company. This acquisition reduced future required option
payments and work commitments described in Note 7 (a). This also eliminated a
net smelter return royalty obligation.



The
acquisition is accounted for using the purchase method. An allocation of the
purchase price is as follows:



|Cash                        | $350,000
|--------------------------- | --------
|200,000
      common shares | 180,000 
|                            |         



Fair
value of net assets acquired:



|Cash                             | $4,219  
|-------------------------------- | --------
|Working
      capital deficiency | (13,196)
|Mineral
      property interests | 538,977 
|                                 |         





10.

CONTINGENCIES
AND COMMITMENTS



The
Company's minimum payments under its office lease agreement which were entered
into during the year ended December 31, 2004, is as follows:



|2005 | $62,333
|---- | -------
|2006 | 62,333 
|2007 | 46,750 
|     |        













---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





11.

SUBSEQUENT
EVENTS



Subsequent
to December 31, 2004, the Company:



(a)

issued
13,382 common shares at $1.03 to the optioner of the Don Fippi property to
fulfill its obligation to December 31, 2004, in regards to the option agreement;



(b)

issued
9,191 common shares at $1.03 as a finders fee to the finder of the Sierra
Ramirez property as per the agreement approved by the TSX Venture exchange;



(c)

issued
a total of  35,000 common shares at $0.75 per share on the exercise of
warrants; and



(d)

granted
970,000 stock options at a price of $1.06 to directors, officers, employees and
consultants in two different grants.





12.

DIFFERENCES
BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES



These
consolidated financial statements have been prepared in accordance with Canadian
GAAP, which differs in certain respects from US GAAP.  The material
differences between Canadian and US GAAP affecting the Company's financial
statements are summarized as follows:



Consolidated
Balance Sheets





|                                                       |             | December
      31,
|------------------------------------------------------ | ----------- | ------------------
|2004                                                   |             | 2003              
|                                                       |             |                   
|Total
      assets under Canadian GAAP                 | $9,774,297  |                   
|Deferred
      exploration costs (a)                   | (4,034,164) |                   
|Amortization
      of mineral rights (a)               | -           |                   
|Total
      assets under US GAAP                       | $5,740,133  |                   
|                                                       |             |                   
|Total
      liabilities under Canadian and US GAAP     | $61,837     |                   
|                                                       |             |                   
|Shareholders'
      equity under Canadian GAAP         | 9,712,460   |                   
|Deferred
      exploration costs (a)                   | (4,034,164) |                   
|Amortization
      of mineral rights (a)               | -           |                   
|Shareholders'
      equity under US GAAP               | 5,678,296   |                   
|Total
      liabilities and shareholders' equity under
|US
      GAAP                                          | $5,740,133  |                   











---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





12.

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



Consolidated
Statement of Operations and Deficit







|Cumulative                                  
|--------------------------------------------
|amount
      from                           
|April
      21,                             
|Year
      ended                            
|December 31,                                
|2004                                        
|                                            
|                                            
|Net
      loss under Canadian GAAP          
|Deferred
      exploration costs (a)        
|Amortization
      of mineral rights (a)    
|Compensation
      expense (b)              
|Net
      loss under US GAAP                
|                                            
|Basic
      and diluted loss per share under
|US
      GAAP                               



Consolidated
Statement of Cash Flows

|Cumulative                              
|----------------------------------------
|amount
      from                       
|April
      21,                         
|Year
      ended                        
|December 31,                            
|2004                                    
|Operating
      activities              
|Operating
      activities under        
|Canadian
      GAAP                     
|Deferred
      exploration costs (a)    
|Operating
      activities under US GAAP
|                                        
|Investing
      activities              
|Investing
      activities under        
|Canadian
      GAAP                     
|Deferred
      exploration costs (a)    
|Investing
      activities under US GAAP
|                                        
|Financing
      activity                
|Financing
      activity under          
|Canadian
      and US GAAP              









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





12.

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



(a)

Exploration
expenditures and costs of acquired mineral rights



Canadian
GAAP allows exploration costs and costs of acquiring mineral rights to be
capitalized during the search for a commercially mineable body of ore.
 Under US GAAP, exploration expenditures can only be deferred subsequent to
the establishment of economically exploitable reserves.  For US GAAP
purposes the Company therefore expensed its exploration expenditures.



Previously,
under US GAAP, the costs of acquisition of mineral property rights were
generally classified as intangible assets and were amortized over their useful
life which in the case of a mineral right on a property without proven and
probable reserves, is the lesser of the period to expiry of the right and the
estimated period required to develop or further explore the mineral assets.
 Under Canadian GAAP, costs of acquiring mineral rights may be considered
as tangible property.  As a result, for US GAAP purposes, the Company had
previously amortized the cost of the mining rights acquired in the Lagartos and
Lexington transactions on a straight line basis over the period that further
exploration was expected to occur on the properties which varied from 15 months
to 31 months.  Under US GAAP the Financial Accounting Standards Board has
recently concluded that mineral rights have the characteristics of tangible
assets and issued EITF 04-02, Whether Mineral Rights are Tangible or
Intangible Assets.  The effect of this new standard is that mineral
rights would no longer be required to be amortized to the extent they are
considered tangible assets until such date as they are commercially exploited.
 The Company adopted this standard effective January 1, 2004 on a
prospective basis and is therefore no longer amortizing the cost of acquiring
mineral property rights.



(b)

Accounting
for stock-based compensation



Under
Canadian GAAP, the Company's shares issued with escrow restrictions are
recorded at their issue price and are not revalued upon their release from
escrow.  Under U.S. GAAP, escrow shares which are released upon the Company
meeting certain performance criteria are considered to be contingently issuable.
 Under US GAAP, the Company would record compensation expense of $Nil (2003
- $600,000) for the shares, which are held in escrow and are to be released as
to one-third each year following the completion of the qualifying transaction,
which occurred on April 15, 2003, based on the fair value of the shares on the
date of satisfaction of the conditions for their release.



For
US GAAP purposes the Company accounts for stock based compensation to employees
and directors under Accounting Principles Board Opinion No 25, Accounting for
Stock Issued to Employees, ("APB No. 25"), using the intrinsic value
based method whereby compensation costs is recorded for the excess, if any, of
the quoted market price of the Company's shares at the date granted over the
exercise price.  As at December 31, 2004, no compensation cost has been
recorded for any period under this method.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





12.

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



(b)

Accounting
for stock-based compensation (continued)



Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, requires the use of the fair value based method of
accounting for stock options.  Under this method, compensation cost is
measured at the grant date based on the fair value of the options granted and is
recognized over the vesting period.  SFAS No. 123 does, however, allow the
Company to continue to measure the compensation cost in accordance with APB No.
25.  The Company has therefore adopted the disclosure-only provisions of
SFAS No. 123.



The
following pro forma financial information presents the net loss and the loss per
share had the Company adopted SFAS 123 for all stock options issued to
directors, officers and employees.





Cumulativeamount
        fromApril
        21,Year
        ended
      
      Year
        ended
      
      Year
        ended
      
      1999 toDecember
        31,
      
      December
        31,
      
      December
        31,
      
      December
        31,2004
      
      2003
      
      2002
      
      2004Net loss for the
        period underUS
        GAAP
      
      $
            (2,710,519)
      
      $
          (4,058,279)
      
      $
             (160,433)
      
      $
          (7,255,734)Stock based
        compensationcosts
      
      -
      
      (248,128)
      
      (6,126)
      
      (264,000)Pro forma net loss
      
      $
            (2,710,519)
      
      $
          (4,306,407)
      
      $
             (166,559)
      
      $
          (7,519,734)Pro forma basic and
        dilutedloss
        per share
      
      $
                     (0.11)
      
      $
                   (0.30)
      
      $
                   (0.11)








The
additional amounts for pro forma stock-based compensation have been determined
using an option pricing model assuming no dividends are to be paid, vesting
occurring on the date of the grant, a weighted average volatility of the Company's
share price of 63% an annual risk free interest rate of 3.76% and expected lives
of five years.



(c)

Accounting
for derivative instruments and hedging activities



In
June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which standardizes the accounting for
derivative instruments.  SFAS No. 133 is effective for all fiscal quarters
of all fiscal years beginning after June 15, 1999.  The Company does not
engage in hedging activities or invest in derivative instruments.
 Therefore, adoption of SFAS No. 133 has no significant financial impact.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





12.

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



(d)

Recent
accounting pronouncements



In
April 2003, SFAS No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, was issued.  In general, this
statement amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contract, and for hedging
activities under SFAS No. 133.  This statement is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003.  The Company adopted this standard on
July 1, 2003. Adoption of this standard did not have a material impact on
the Company's financial position or disclosure.



In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities.  SFAS
No. 150 requires certain financial instruments that were accounted for as equity
under previous guidance to now be accounted for as liability.  SFAS No. 150
applies to mandatorily redeemable stock and certain financial instruments that
require or may require settlement by transferring cash or other assets.  SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003.  The Company has not issued any
financial instruments that fall under the scope of SFAS No. 150 and does not
expect that the adoption of this statement will have a material impact on the
Company's financial position or results of operations.



In
January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51.  FIN No. 46 requires certain
variable interest entities to be consolidated by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties.  FIN No. 46 is effective for all new variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN No. 46 must be applied for the first interim or annual period beginning
after June 15, 2003.  It is not expected that the adoption of FIN No. 46
will have a material effect on the Company's financial position or results of
operations.









---

MAG SILVER CORP.

(An
exploration stage company)

Year
ended December 31, 2004, 2003 and 2002 and cumulative
   from April 21, 1999 to December 31, 2004





12.

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



(d)

Recent
accounting pronouncements (continued)



In
March 2004, the Emerging Issues Task Force issued EITF 04-2, Whether Mineral
Rights are Tangible or Intangible Assets ("EITF 04-2").  The Task
Force reached a consensus that mineral rights are tangible assets.  In
 April 2004, the FASB issued proposed FASB Staff Positions ("FSPs") FAS
141-1 and FAS 142-1, Interaction of FASB Statements No. 141, Business
Combinations ("SFAS 141"), and No. 142, Goodwill and Other Intangible
Assets ("SFAS 142") , and EITF Issue No. 04-2, Whether Mineral Rights
are Tangible or Intangible Assets.  The proposed FSPs amend SFAS 141
and 142 to conform them to the Task Force consensus.  The FSPs are
effective for the first reporting period beginning after April 29, 2004.
 The Company does not anticipate that the adoption of EITF 04-2 and FSPs
141-1 and 142-1 will have a material impact on the Company's results of
operations, financial position or disclosures.



In
March 2004, the EITF issued EITF 04-3, Mining Assets:  Impairment and
Business Combinations.  EITF 04-3 requires mining companies to consider
cash flows related to the economic value of mining assets (including mineral
properties and rights) beyond those assets' proven and probable reserves, as
well as anticipated market price fluctuations, when assigning value in a
business combination in accordance with SFAS 141 and when testing the mining
assets for impairment in accordance with SFAS 144.  The consensus is
effective for fiscal periods beginning after March 31, 2004.















---







ITEM
18. FINANCIAL STATEMENTS

The
Company has elected to provide financial statements pursuant to Item 17.
Financial Statements.

ITEM
19. EXHIBITS



The
following Exhibits are filed with this Annual Report:

|Exhibit Reference
      # | Name                                                                                                                                                                                                                                                                                                                   
|------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1 (a)                     | *Memorandum                                                                                                                                                                                                                                                                                                            
|1 (b)                     | *Articles                                                                                                                                                                                                                                                                                                              
|4 (a)                     | *Sponsorship and Agency
      Agreement among the Company, Raymond James Ltd. and Pacific International
      Securities Inc.                                                                                                                                                                                          
|4 (b)                     | *Lagartos Agreement
      dated August 8, 2002 among the Company, Cesar Augusto Porfirio Padilla
      Lara, Dr. Peter Megaw and Dr. Carl Kuehn and stock purchase agreement
      dated January 15, 2003 between the Company and each of Cesar Augusto
      Porfirio Padilla Lara, Dr. Peter Megaw and Dr. Carl Kuehn
|4 (c)                     | *Juanicipio Agreement
      dated July 18, 2002 as amended December 19, 2002 between Lagartos and
      Sutti                                                                                                                                                                                                          
|4 (d)                     | *Don Fippi Agreement
      dated November 18, 2002 among the Company, Lagartos and Bugambilias                                                                                                                                                                                                                         
|4 (e)                     | *Guigui Agreement dated
      November 18, 2002 among the Company, Lagartos and Coralillo                                                                                                                                                                                                                              
|4 (f)                     | *Stock Purchase
      Agreement dated May 29, 2003 with Strategic Investments Resources Ltd.                                                                                                                                                                                                                           
|4 (g)                     | *Escrow Agreement dated
      November 9, 1999 among certain shareholders and Pacific Corporate Trust
      Company                                                                                                                                                                                                    
|4 (h)                     | *Escrow Agreement dated
      April 8, 2003 among certain shareholders and Pacific Corporate Trust
      Company                                                                                                                                                                                                       
|4 (i)                     | *Incentive Stock Option
      Agreements dated November 9, 1999 between the Company and each of:
       Dave Pearce, Eric H. Carlson, James Speakman and Robert C. Thornton                                                                                                                                            
|4 (j)                     | *Stock Options dated
      April 15, 2003, May 22, 2003 and July 9, 2003 with George Young, R.
      Michael Jones, David Pearce, Eric Carlson, Gregory Dennie, Frank Hallam,
      Grace To, Marshall House, John Foulkes and Carrie Cojocari                                                                         
|4 (k)                     | *Indemnity Agreements
      dated November 9, 1999 between the Company and each of Dave Pearce, Eric
      H. Carlson, James Speakman and Robert C. Thornton                                                                                                                                                           
|4 (l)                     | *Indemnity Agreements
      dated April 15, 2003 between the Company and each of George Young and R.
      Michael Jones                                                                                                                                                                                               
|4 (m)                     | ***Sierra de Ramirez
      Agreement dated December 14, 2003 among the Company, Lagartos and Rio
      Tinto                                                                                                                                                                                                           
|4(n)                      | ***Adargas Agreement
      dated February 26, 2004 among the Company, Lagartos and Cascabel                                                                                                                                                                                                                            
|4(o)                      | ***Cinco de Mayo
      Agreement dated April 5, 2004 among the Company, Lagartos and Cascabel                                                                                                                                                                                                                          
|4(p)                      | Agreement dated March
      17, 2005 among the Company, Lagartos and Penoles                                                                                                                                                                                                                                           
|4(q)                      | ***Stock Option Plan                                                                                                                                                                                                                                                                                                   
|8                         | *List of Subsidiaries                                                                                                                                                                                                                                                                                                  
|11 (a)                    | ****Code of Ethics for
      Chief Executive Officer                                                                                                                                                                                                                                                                   







---







|11(b)  | ****Code of ethics for
      Chief Financial Officer                                                                                                                                                                                                                           
|------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|11(c)  | ****Code of Ethics for
      Directors and Officers                                                                                                                                                                                                                            
|12 (a) | *The Geology and
      Exploration Potential of the Juanicipio Property, Fresnillo District,
      Zacatecas, Mexico dated November 19, 2002 prepared for the Company by
      Clancy J. Wendt, P.G., of Pincock, Allen and Holt, of Lakewood, Colorado                        
|12 (b) | *The Geology and
      Exploration Potential of the Don Fippi Property, Batopilas District,
      Chihuahua, Mexico dated November 19, 2002 prepared for the Company by
      Clancy J. Wendt, P.G., of Pincock, Allen and Holt, of Lakewood, Colorado                         
|12 (c) | *The Geology and
      Exploration Potential of the Guigui Silver, Lead, Zinc Project, Santa
      Eulalia District, Chihuahua, Mexico dated November 19, 2002 prepared for
      the Company by Clancy J. Wendt, P.G., of Pincock, Allen and Holt, of
      Lakewood, Colorado
|12.1   | Certification of Daniel
      T. MacInnis, Chief Executive Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                            
|12.2   | Certification of Frank
      Hallam, Chief Financial Officer, pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                                  
|13.1   | Certification of Daniel
      T. MacInnis, Chief Executive Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                            
|13.2   | Certification of Frank
      Hallam, Chief Financial Officer, pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002                                                                                                                                                  
|15     | Audit Committee Charter                                                                                                                                                                                                                                                        

*Indicates an exhibit incorporated by reference from the Registration
Statement on Form 20-F previously submitted by the Company on October 23, 2003.

**Indicates an exhibit incorporated by reference from the Registration
Statement on Form 20-F previously submitted by the Company on February 12, 2004.

***Indicates an exhibit incorporated by reference from the Registration
Statement on Form 20-F previously submitted by the Company on April 29, 2004.

****Indicates an exhibit incorporated by reference from the Registration
Statement on Form 20-F previously submitted by the Company on June 30, 2004.









---





SIGNATURES



The
Registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.





Dated:

December
15, 2005



MAG Silver
Corp.,

a British
Columbia Company



"Daniel
T. MacInnis"



Daniel
T. MacInnis

President
and Director







---

EXHIBIT
12.1



SECTION
302 CERTIFICATION



I,
Daniel T. MacInnis, certify that:



1.
I have reviewed this annual report on Form 20-F of MAG Silver Corp.;



2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;



3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for,
the periods presented in this report;



4.
The company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:



(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;



(c)
Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and



(d)
Disclosed in this report any change in the company's internal control over
financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting; and



5.
The company's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):



(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company's ability to record, process, summarize and
report financial information; and



---



(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the company's internal control over financial
reporting.



Date:
June 30, 2005

"Daniel
T. MacInnis"



Daniel
T. MacInnis



Chief
Executive Officer





---

EXHIBIT
12.1



SECTION
302 CERTIFICATION



I,
Frank R. Hallam, certify that:



1.
I have reviewed this annual report on Form 20-F of MAG Silver Corp.;



2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;



3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the company as of, and for,
the periods presented in this report;



4.
The company's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:



(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;



(c)
Evaluated the effectiveness of the company's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and



(d)
Disclosed in this report any change in the company's internal control over
financial reporting that occurred during the period covered by the annual report
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting; and



5.
The company's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):



(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the company's ability to record, process, summarize and
report financial information; and



---



(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the company's internal control over financial
reporting.



Date:
June 30th, 2005

"Frank
R. Hallam"



Frank
R. Hallam



Chief
Financial Officer





---

EXHIBIT
13.1



SECTION
906 CERTIFICATION



In
connection with the annual report of MAG Silver Corp. (the "Company") on
Form 20-F for the fiscal year ending December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Frank R. Hallam, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:



1.
 The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and



2.
 The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.





---/s/
Frank R. Hallam



Name:
Frank R. Hallam

Title:
Chief Financial Officer

June
30, 2005





A signed original of this
written statement required by Rule 13a-14(b) of the Securities Exchange Act of
1934 and 18 U.S.C. Section 1350 has been provided to the Registrant and will be
retained by the Registrant and furnished to the Securities and Exchange
Commission or its staff upon request.



This certification
accompanies the Form 20-F to which it relates, is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference
into any filing of the Registrant under the Securities Act of 1933 or the
Securities Exchange Act of 1934 (whether made before or after the date of the
Form 20-F), irrespective of any general incorporation language contained in such
filing.





---

EXHIBIT
13.1



SECTION
906 CERTIFICATION



In
connection with the annual report of MAG Silver Corp. (the "Company") on
Form 20-F for the fiscal year ending December 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Daniel T. MacInnis, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of my knowledge:



1.
 The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and



2.
 The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.





----/s/
Daniel T. MacInnis



Name:
Daniel T. MacInnis

Title:
Chief Executive Officer

June
30, 2005





A signed original of this
written statement required by Rule 13a-14(b) of the Securities Exchange Act of
1934 and 18 U.S.C. Section 1350 has been provided to the Registrant and will be
retained by the Registrant and furnished to the Securities and Exchange
Commission or its staff upon request.



This certification
accompanies the Form 20-F to which it relates, is not deemed filed with the
Securities and Exchange Commission and is not to be incorporated by reference
into any filing of the Registrant under the Securities Act of 1933 or the
Securities Exchange Act of 1934 (whether made before or after the date of the
Form 20-F), irrespective of any general incorporation language contained in such
filing.





---

Exhibit
4(p)



LETTER
OF INTENT





November
__, 2004.







INDUSTRIAS
PENOLES, S.A. DE C.V.

Moliere
222 Torre de Oficinas Floor 4

Col.
Los Morales Secc. Palmas

11540
Mexico, D.F.





Atn:
Ing. Jaime Lomelin Guillen:





MAG
SILVER CORPORATION, hereinafter "MAG", and MINERA LOS LAGARTOS, S.A. DE
C.V., hereinafter "LAGARTOS" agree with INDUSTRIAS PENOLES, S.A. DE C.V.,
hereinafter "PENOLES", to formalize the agreements that are indicated as
follows:



1)

"MAG"
and "LAGARTOS" grant to "PENOLES" or to any of its subsidiaries, the
right to explore the mining lot named JUANICIPIO I, title No. 218942, covered by
the exploration mining concession located at Zacatecas, Zac., provided that
PENOLES carries out the investment in the terms set forth below, entering into
an exploration and promise of assignment of rights agreement regarding the
mining concession that covers "THE LOT", hereinafter "THE AGREEMENT":



1.1.

During
the first year, as of the execution of "THE AGREEMENT", the amount of USD
$750,000.00 (SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS, LAWFUL CURRENCY IN THE
UNITED STATES OF AMERICA).

1.2.

During
the second year, as of the date of execution of "THE AGREEMENT", the amount
of USD $1,000,000.00 (ONE MILLION DOLLARS, LAWFUL CURRENCY IN THE UNITED STATES
OF AMERICA).

1.3.

During
the third year, as of the execution of "THE AGREEMENT", the amount of USD
$1,250,000.00 (ONE MILLION TWO HUNDRED AND FIFTY THOUSAND DOLLARS, LAWFUL
CURRENCY IN THE UNITED STATES OF AMERICA).

1.4.

During
the fourth year, as of the execution of "THE AGREEMENT", the amount of USD
$2,000,000.00 (TWO MILLION DOLLARS LAWFUL CURRENCY IN THE UNITED STATES OF
AMERICA).



"PENOLES"
obliges itself to invest a minimum amount of USD $750,000.00 (SEVEN HUNDRED AND
FIFTY THOUSAND



---

DOLLARS
LAWFUL CURRENCY IN THE UNITED STATES OF AMERICA), as indicated in section 1.1)
and the rest of the investment shall be optional for "PENOLES", depending on
the results obtained from the exploration. Within such investment, a diamond
perforation within "THE LOT" of 3,000 meters must be included.



The
investment referred to in this section is with the intention of obtaining a
quality of pre-feasibility study that complies with the common requirements and
rules of the mining industry.



The
investment referred to in this section will include all the necessary
exploration costs in "THE LOT", including but not limited to: perforation,
personnel, trenching, road building, purchase or lease of surface ground,
sampling, test work, geochemical and geological sampling, geophysical work,
metallurgy work, and sample testing of "THE LOT" and the analysis and
planning of the results of such works, among others.



2)

"PENOLES"
obliges itself as of the execution of "THE AGREEMENT", to comply with each
and all of the obligations established in the Mining Law and its Regulations, in
order to maintain in full force the rights derived from the mining concession
covering "THE LOT". With respect to the payment of the surface governmental
duties, such duties shall be paid directly by "LAGARTOS", and "PENOLES"
shall reimburse them. Such reimbursement shall be included within the investment
referred to in section 1) above.



At
the execution of "THE AGREEMENT", a Technical Committee will be formed,
composed by five members, three of which shall be appointed by "PENOLES",
and two shall be appointed by "MAG" and/or "LAGARTOS". "Such Technical
Committee shall determine on the convenience of carrying out or not certain
exploration works, the exploration program design and who will carry them out.



3)

In
case that "PENOLES", after having carried out the established minimum
investment of USD $750,000.00 (SEVEN HUNDRED AND FIFTY THOUSAND DOLLARS, LAWFUL
CURRENCY IN THE UNITED STATES OF AMERICA), does not wishes to continue with the
terms agreed in "THE AGREEMENT", may terminate it by delivering, with ten
calendar days in advance, the correspondent notice to "LAGARTOS" which is
the holder of "THE LOT" and "LAGARTOS" will not have the obligation to
reimburse "PENOLES" any amount for the investment made by it.



4)

"MAG"
and "LAGARTOS" will have access to all the information obtained by "PENOLES",
in connection with the results obtained in the exploration of "THE LOT".



5)

After
the investment established in section 1) above has been complied with, a Sociedad
Anonima de Capital Variable (the NEW COMAPANY) will be



---

incorporated,
and its by-laws will be defined by the parties and will be attached to "THE
AGREEMENT", being the 56% of the capital stock subscribed and paid by "PENOLES"
or any of its subsidiaries, and the remaining 44% subscribed and paid by "MAG"
or "LAGARTOS" or any of their subsidiaries. The by-laws of the NEW COMPANY
will set forth that certain kind of resolutions shall require the affirmative
vote of at least 60% of its shareholders, when addressing the
following matters: i) entering into any loan, lease, purchase or sale
agreement regarding any fixed asset of the NEW COMPANY which exceeds from
USD $500,000.00 (FIVE HUNDRED THOUSAND DOLLARS, LAWFUL CURRENCY IN THE UNITED
STATES OF AMERICA);ii) The sale or pledge of any assets of the
NEW COMPANY in order to guarantee any own or third party obligations; iii) The
authorization of any expense or investment not included in the approved budget
that exceeds the 10% of the NEW COMPANY's total assets, except for those
temporary transactions that may be approved by the Shareholders Meeting; iv) The
acquisition of assets by Shareholders, by any legal mean, that may result in the
control of the NEW COMPANY or of any subsidiary or affiliate; v) Any
modification to the attendance or voting quorum requisites established by the
By-laws; vi) Approval of exploration budgets; vii) For those
resolutions that result in amendments to the Corporate By-laws or in the merger
or transformation of the NEW COMPANY, the vote of 75% of the capital stock shall
be required. Likewise "LAGARTOS" will assign to such NEW COMPANY, the rights
and obligations with respect to the mining concession that covers "THE LOT"
at the time of its incorporation or within fifteen calendar days after the
incorporation of the NEW COMPANY. The parties agree that the price of such
assignment of rights and obligations will be the amount of USD $1,000.00 (ONE
THOUSAND DOLLARS, LEGAL CURRENCY IN THE UNITED STATES OF AMERICA) plus the
corresponding Value Added Tax.



6)

Since
the incorporation of the NEW COMPANY and in order to continue with the
exploration and/or exploitation project, "THE PARTIES" will invest the
necessary amounts for such, in a pro-rata basis of their shares participation,
in the understanding that the participation of the party that does not
contribute shall be diluted proportionally, in the understanding that no
dilution will take place if the corresponding investments are not previously
approved by the Shareholders Meeting of the NEW COMPANY and in the
understanding that the dilution process mentioned herein shall be calculated on
a basis of an assumed capital stock of USD $9,000,000.00 (NINE MILLION DOLLARS,
LAWFUL CURRENCY OF THE UNITED STATES OF AMERICA) and the result will be
reflected in the real capital stock percentages of the NEW COMPANY. The total
amount to be annually invested shall not be less than USD $1,000,000.00 (ONE
MILLION DOLLARS, LAWFUL CURRENCY IN THE UNITED STATES OF AMERICA) to aloud a
dilution.



7)

"THE
PARTIES" agree to enter into a Shareholders Agreement in which all the terms
agreed in the foregoing letter of intent and everything related to the NEW
COMPANY will be regulated.





---

8)

"PENOLES";
obliges itself, as consideration for the right to explore "THE LOT", to
purchase shares issued by "MAG", in an amount equal to USD$500,000.00 (FIVE
HUNDRED THOUSAND DOLLARS, LEGAL CURRENCY IN THE UNITED STATES OF AMERICA), appraised
atthe average closing price for the 10 (ten) trading days prior to the
purchase, within the 30 (THIRTY) business days following the date of execution
of this letter of intent, binding "MAG" itself to inform "PENOLES" the
terms in which "MAG's" shares are regulated, if they are listed, and, as
the case may be, the regulations that apply to them.



9)

"PENOLES"
obliges itself to acquire additional shares issued by "MAG", in the amount
of US$500,000.00 (FIVE HUNDRED THOUSAND DOLLARS, LEGAL CURRENCY IN THE UNITED
STATES OF AMERICA), provided that, once "THE AGREEMENT" is executed, it
wishes to continue with the investment referred to in section 1) above; in other
words, once the first year as of the execution of "THE AGREEMENT" has
concluded, and within a 30 (THIRTY) business days term following the
abovementioned first anniversary, taking into account the closing average
selling price of 10 (ten) trading days prior to such purchase.



10)

"THE
PARTIES" oblige themselves to treat as confidential any oral or written
information to which they have access or is acknowledged by them as a result of
the foregoing letter. Likewise, they oblige themselves not to reveal, disclose
or transmit it, to keep it in secret and not reproduce, copy or duplicate it
without the previous express and written consent of any of the parties, and to
adopt the necessary measures in order to keep the confidentiality of such
information.



It
shall be understood as confidential information: all such information in
writing, graphic or contained in documents, electromagnetic media, optical
discs, microfilms or other similar instruments, including but not limited to,
the technical, engineering, administrative, financial and business information,
reports, plans, projections, industrial secrets (all industrial or commercial
application information kept by any of "THE PARTIES" as confidential which
represents to any of "THE PARTIES" the obtaining or maintaining of a
competitive or economic advantage from third parties in the performance of
economical activities), formulas, technologies, data and any other information
owned by any of "THE PARTIES", results obtained from the agreements set
forth in this letter, investigations, as well as the analysis of working
documents, compilations, comparisons, studies or other documents containing or
reflecting such information.



It
shall not be considered as confidential information: (i) the information that is
of public knowledge; (ii) the information that one of "THE PARTIES" has to
give in compliance with a court or competent authority order; and (iii) such
information that any of "THE PARTIES" consent to be communicated to third
parties or that becomes publicly known.



"THE
PARTIES" oblige themselves to inform to the affected party about any
circumstance that may affect the confidentiality of the information, in order
that such party may take the measures it considers appropriate.



---



"THE
PARTIES" recognize that breaching what is mentioned in the above paragraphs
constitutes an offense in terms of the applicable Mexican Law, being obliged to
pay to the affected party the damages and loss profits that such breaching
causes, immediately and without a court resolution.



"THE
PARTIES" recognize and accept that breaching the provisions set forth in this
clause shall be a cause for the rescission of this letter, without any
responsibility for the innocent party.



Notwithstanding
the abovementioned, "THE PARTIES" agree that any of them may issue any kind
of public announcements, provided that the text of any public announcement or
statement, including press releases which either of "THE PARTIES" intends to
make, becomes available to the other party prior to its publication, being
necessary the approval of the other party, which may not be refused
without a justified cause and shall be granted within a 15
(fifteen) business days term starting from the date in which the
proposed communication's text is received.



11)

In
the event of a claim, controversy or dispute in connection with, resulting form,
or related with, the validity, interpretation, construction, infringement or
execution of this letter of intent, the parties shall make their best efforts in
order to solve, as soon as possible, in a friendly and good faith manner, such
controversy, and if they fail in doing so within the thirty calendar days
following the date in which the claim, controversy or dispute has raised, such
claim, controversy or dispute shall be solved by arbitration.



The
arbitration shall be solved in accordance with the Conciliation and Arbitration
Rules of the International Chamber of Commerce of Paris, by an arbitral
committee composed by three arbitrators appointed in accordance with such rules.
The arbitration shall be carried out in Mexico City, Federal District, and in
the arbitral acts shall be used the Spanish language, and the applicable
provisions of the Commerce Code, the Federal Civil Code, the Mining Law and its
Regulations, the General Law on Commercial Companies and/or any other applicable
legal statute shall be used. The arbitral award shall be given in writing and
shall be properly motivated. The arbitral decision will bind the parties and
will be final and conclusive.



12)

If
during the term in which this letter of intention is in force, any event
preventing "THE PARTIES" from carrying out the purpose of this
letter takes place, such as strikes, work stops, mutinies, revolutions, riots,
earthquakes, fires, third party acts, intervention or confiscation of the
properties by any legitimate or actual authority, or by any other cause
beyond the domain or control of "THE PARTIES", they
agree that the effects of this letter shall be suspended only for the affected
acts, and will restart on the date in which such event is over, and the term
established in section 14) below will be extended for a term equal to the
duration of the interruption.  In any case, the parties oblige themselves
to make the reasonable efforts in order to reduce the interruption or to resolve
the problems.



---



The
affected party shall give a notice to the other party within a 5 (five) calendar
days term staring from the date in which the force majeure event takes place.
 If no notice is given within the specified term, the notification shall be
effective from the date the notice is given.



Once
all the suspension causes are over, the affected party shall give a notice to
the other party in order to resume the obligations subject matter of this
letter.



If
the suspension cause is not overcome within a 30 (thirty) business days term,
the parties will agree in such regard.



13)

In
the event any of "THE PARTIES" breaches its obligations pursuant to this
letter, the affected party, before requesting the rescission of the contract,
shall notify the other party in writing, clearly stating or mentioning the
circumstances of the beach or failure, being obliged the other party, within a 30
(thirty) business days term starting from the date in which it receives
the notice, to cure the breach, comply with the obligation or to prove that no
breach has occurred.



14)

This
letter will be in force for 4 (four) months, starting from the
date in which you sign it in consent and, meanwhile, "THE AGREEMENT" and the
SHAREHOLDERS AGREEMENT will also be executed.



If
this letter of intent is acceptable for you, please be so kind to sign it, and
send one counterpart of this letter of intent back to my attention in order to
prepare "THE AGREEMENT" and the SHAREHOLDERS AGREEMENT.





|Sincerely.                                                                                    | I
      agree.                                              
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------
|MAG
      SILVER CORPORATION
      
      MINERA
      LOS LAGARTOS,
      S.A.
      DE C.V. | INDUSTRIAS
      PENOLES, S.A. DE C.V.                      
|George
      S. Young
      President
      and Executive Director                            | Mr.
      Jaime Lomelin Guillen
      General
      Director





---

Exhibit
15

[auditcom001.jpg]



AUDIT
COMMITTEE CHARTER OF MAG SILVER CORPORATION

The
following is the text of the current Charter for the Audit Committee as adopted
by the Board. Such Charter may be amended by the Board in the future in light of
evolving corporate governance standards.

Overall
Purpose / Objectives

The
Audit Committee will assist the board of directors (the "Board") in
fulfilling its responsibilities.  The Audit Committee will review the
financial reporting process, the system of internal control and management of
financial risks, the audit process, and the Company's process for monitoring
compliance with laws and regulations and its own code of business conduct.
 In performing its duties, the committee will maintain effective working
relationships with the Board of Directors, management, and the external auditors
and monitor the independence of those auditors. To perform his or her role
effectively, each committee member will obtain an understanding of the
responsibilities of committee membership as well as the Company's business,
operations and risks.

Authority

The
Board authorizes the audit committee, within the scope of its responsibilities,
to seek any information it requires from any employee and from external parties,
to obtain outside legal or professional advice and to ensure the attendance of
Company officers at meetings as appropriate.

Organization

Membership

The
Audit Committee will be comprised of at least three members, a majority of which
are not officers or employees of the Company, at least one of whom will have
accounting or related financial management expertise

The
chairman of the Audit Committee will be nominated by the committee from time to
time.

A
quorum for any meeting will be two members.

The
secretary of the Audit Committee will be the Secretary of the Company, or other
such person as may be nominated by the Chairman of, and approved by, the Audit
Committee.

Attendance
at Meetings

The
Audit Committee may invite such other persons (e.g. the President or Chief
Financial Officer) to its meetings, as it deems appropriate.

Meetings
shall be held not less than four times a year. Special meetings shall be
convened as required.  External auditors may convene a meeting of the Audit
Committee if they consider that it is necessary.

The
proceedings of all meetings will be minuted.



-
1 -



---

MAG
Silver Corporation

Audit
Committee Charter







Roles
and Responsibilities

The
Audit Committee will:

-

Gain
an understanding of whether internal control recommendations made by external
auditors have been implemented by management.

-

Gain
an understanding of the current areas of greatest financial risk and whether
management is managing these effectively.

-

Review
significant accounting and reporting issues, including recent professional and
regulatory pronouncements, and understand their impact on the financial
statements.

-

Review
any legal matters which could significantly impact the financial statements as
reported on by the Company's counsel and meet with outside independent counsel
whenever deemed appropriate.

-

Review
the annual and quarterly financial statements, including Management's
Discussion and Analysis with respect thereto, and all annual and interim
earnings press releases, prior to public dissemination, including any
certification, report, opinion or review rendered by the external auditors and
determine whether they are complete and consistent with the information known to
committee members; determine that the auditors are satisfied that the financial
statements have been prepared in accordance with generally accepted accounting
principles.

-

Pay
particular attention to complex and/or unusual transactions such as those
involving derivative instruments and consider the adequacy of disclosure
thereof.

-

Focus
on judgmental areas, for example those involving valuation of assets and
liabilities and other commitments and contingencies.

-

Review
audit issues related to the Company's material associated and affiliated
companies that may have a significant impact on the Company's equity
investment.

-

Meet
with management and the external auditors to review the annual financial
statements and the results of the audit.

-

Evaluate
the fairness of the interim financial statements and related disclosures
including the associated Management's Discussion and Analysis, and obtain
explanations from management on whether:

(a)

actual
financial results for the interim period varied significantly from budgeted or
projected results;

(b)

generally
accepted accounting principles have been consistently applied;

(c)

there
are any actual or proposed changes in accounting or financial reporting
practices; or

(d)

there
are any significant or unusual events or transactions which require disclosure
and, if so, consider the adequacy of that disclosure.

-

Review
the external auditors' proposed audit scope and approach and ensure no
unjustifiable restriction or limitations have been placed on the scope.



-
2 -



---

MAG
Silver Corporation

Audit
Committee Charter







-

Review
the performance of the external auditors and approve in advance provision of
services other than auditing. Consider the independence of the external
auditors, including reviewing the range of services provided in the context of
all consulting services bought by the company. The Board authorizes the Chairman
of the Audit Committee to approve any non-audit or additional audit work which
the Chairman deems as necessary and to notify the other members of the Audit
Committee of such non-audit or additional work.

-

Make
recommendations to the Board regarding the reappointment of the external
auditors and the compensation to be paid to the external auditor.

-

Review
any significant disagreement among management and the external auditors in
connection with the preparation of the financial statements.

-

Review
and approve the Company's hiring policies regarding partners, employers and
former partners and employees of the present and former external auditors of the
Company.

-

Establish
a procedure for:

(a)

the
confidential, anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters; and

(b)

the
receipt, retention and treatment of complaints received by the Corporation
regarding accounting, internal accounting controls, or auditing matters.

-

Meet
separately with the external auditors to discuss any matters that the committee
or auditors believe should be discussed privately in the absence of management.

-

Endeavour
to cause the receipt and discussion on a timely basis of any significant
findings and recommendations made by the external auditors.

-

Ensure
that the Board is aware of matters which may significantly impact the financial
condition or affairs of the business.

-

Perform
other functions as requested by the full Board.

-

If
necessary, institute special investigations and, if appropriate, hire special
counsel or experts to assist, and set the compensation to be paid to such
special counsel or other experts.

-

Review
and recommend updates to the charter; receive approval of changes from the
Board.

-

With
regard to the Company's internal control procedures, the Audit Committee is
responsible to:

(a)

review
the appropriateness and effectiveness of the Company's policies and business
practices which impact on the financial integrity of the Company, including
those related to internal auditing, insurance, accounting, information services
and systems and financial controls, management reporting and risk management;
and

(b)

review
compliance under the Company's business conduct and ethics policies and to
periodically review these policies and recommend to the Board changes which the
Audit Committee may deem appropriate; and

(c)

review
any unresolved issues between management and the external auditors that could
affect the financial reporting or internal controls of the Company; and



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MAG
Silver Corporation

Audit
Committee Charter







(d)

periodically
review the Company's financial and auditing procedures and the extent to which
recommendations made by the internal audit staff or by the external auditors
have been implemented.



Audit
Committee Oversight

At
no time since the commencement of the Company's most recently completed
financial year was a recommendation of the Audit Committee to nominate or
compensate an external auditor not adopted by the Board.

Reliance
on Certain Exemptions

At
no time since the commencement of the Company's most recently completed
financial year has the Company relied on the exemption in Section 2.4 of
MI 52-110 (De Minimis Non-audit Services), or an exemption from
MI 52-110, in whole or in part, granted under Part 8 of MI 52-110.

Pre-Approval
Policies and Procedures

The
Audit Committee is authorized by the Board to review the performance of the
Company's external auditors and approve in advance provision of services other
than auditing and to consider the independence of the external auditors,
including reviewing the range of services provided in the context of all
consulting services bought by the Company. The Chairman of the Audit Committee
is authorized to approve any non-audit services or additional work which the
Chairman deems as necessary and is required to notify the other members of the
Audit Committee of such non-audit or additional work.

Exemption

The
Company is relying upon the exemption in section 6.1 of the MI 52-110 - Audit
Committees.





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