MAG
      SILVER CORP.
              (An
      exploration stage company)
              Annual
      Management Discussion & Analysis
              For
      the period ended
              December
      31, 2007Dated:
      March 14, 2008


















A
copy of this report will be provided to any shareholder who requests
it.




















VANCOUVER
      OFFICE
                    Suite
      328
                    550
      Burrard Street
                    Vancouver,
      BC V6C 2B5
                  604
      630 1399 phone
                    866
      630 1399 toll free
                    604
      484 4710 fax
                  
                  
                  TSX:
      MAG
                    AMEX:
      MVG
                    www.magsilver.com
                    info@magsilver.com
 
 MAG
SILVER CORP.
 (An
exploration stage company)
  Annual
Management Discussion & Analysis
 For
the period ended December 31, 2007


MAG
Silver Corp. is a company focused on the acquisition, exploration and
development of district scale projects located in the Mexican Silver
Belt.  We are based in Vancouver, British Columbia,
Canada.  Our common shares trade on the Toronto Stock Exchange under
the symbol MAG and on the American Stock Exchange under the symbol
MVG.  The Company is a “reporting” company in the Provinces of British
Columbia, Alberta and Ontario.




This
management discussion and analysis (“MD&A”) of MAG Silver Corp. (the
“Company) focuses on the financial condition and results of operations of the
Company for the twelve months ended December 31, 2007 and 2006 and is prepared
as of March 14, 2008 and should be read in conjunction with the audited,
consolidated financial statements and the related notes thereto, which have been
prepared in accordance with Canadian generally accepted accounting
principles.  All dollar amounts referred to in this discussion and
analysis are expressed in Canadian dollars except where indicated
otherwise.





Except
for historical information contained in this MD&A, the following disclosures
are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 or are future oriented financial information and
as such are based on an assumed set of economic conditions and courses of
action.  These may include estimates of future production levels,
expectations regarding mine production and development programs and capital
costs, expected trends in mineral prices and statements that describe future
plans, objectives or goals.  There is significant risk that actual
results will vary, perhaps materially, from results projected depending on such
factors as discussed under “Risks and Uncertainties” in this Annual MD&A and
other risk factors listed from time-to-time in the Company’s Annual Information
Form.  Additional information about the Company and its business
activities is available on SEDAR at www.sedar.com.





FINANCIAL
      HIGHLIGHTS FOR 2007




·
            On
      November 27, 2007 the Company closed a bought deal private placement for
      3.0 million common shares of the Company at a price of $15.50 per share
      for gross proceeds of $46.5
million.





·
            During
      2007 the Juanicipio Joint Venture completed two additional land purchases
      totaling USD$5,077,939 now holding uninterrupted coverage of 4.5
      kilometres of the strike projection of the Valdecañas Vein from east to
      west and covering a 2.5 kilometre westerly strike projection of the
      Juanicipio Vein.





·
            The
      company successfully upgraded its market exposure by listing on the
      American Stock Exchange (AMEX) under the symbol MVG and with its
      graduation to the Toronto Stock exchange (TSX) under the symbol
      MAG.





·
            In
      February 2007 the Company closed private placements for 2.76 million units
      for gross proceeds of $20 million.  Each unit consisted of one
      common share and one-half common share purchase warrant, with each whole
      warrant exercisable for one common share at a price of $10.00 for a period
      of 12 months expiring in February 2008.  All warrants were
      redeemed for gross proceeds of $13.8
million.





SELECTED
      ANNUAL INFORMATION AND FINANCIAL
PERFORMANCE




The
following table summarizes selected financial data for the Company’s three most
recently completed financial years.  The information set forth below
should be read in conjunction with the consolidated audited financial statements
and related notes thereto.


Year
      ended
              Dec.
      31, 2007
            
            
            Year
      ended
              Dec.
      31, 2006
            
            
            Year
      ended
              Dec.
      31, 2005Revenues(1)
            
            $
            915,604
            
            
            $
            208,593
            
            
            $
            80,432Net
      Loss(2)
            
            $
            (8,149,258
            )
            
            $
            (3,866,567
            )
            
            $
            (1,810,838
            )Net
      Loss per Share
            
            $
            (0.19
            )
            
            $
            (0.10
            )
            
            $
            (0.06
            )Total
      Assets
            
            $
            85,061,932
            (3)
            
            $
            18,930,558
            (3)
            
            $
            18,075,406Long
      Term Debt
            
            Nil
            
            
            Nil
            
            
            NilDividends
            
            Nil
            
            
            Nil
            
            
            Nil





Explanatory
Notes


(1)The
Company’s only source of revenue during the years ending December 31, 2005 to
2007 was interest revenue from GIC’s held by the Company.  The amount
of interest revenue earned correlates directly to the amount of cash on hand
during the year referenced.





(2)The
Company’s net loss has been increasing during the years ending December 31, 2005
to 2007 due to several factors. The largest factor is stock compensation expense
which totalled $5,256,566 in 2007, $2,341,159 in 2006 and $611,353 in
2005.   If one removes the effect of stock compensation expense
from the recorded annual net loss the amounts become $2,892,692; $1,525,408 and
$1,199,485 respectively.  The general year-on-year increase in
this modified loss value is then explained by the growth in the Company and its
activities as described in “Discussion of Operations and Financial Condition”
below.





(3)Total
assets have been increasing year-on-year primarily as a result of the Company’s
cash balance and continued investment in mineral properties funded by completion
of several private placement equity financings.  At the end of 2007,
the Company held $60,147,307 in cash and cash equivalents compared to $3,506,930
at December 31, 2006 and $7,560,193 at December 31, 2005.





The
Company’s revenues are higher for 2007 compared to 2006 due to interest earned
on larger cash balances.  The Company raised approximately $69.5
million in 2007 resulting in gross interest income of $915,604 being earned on
cash balances.  The net loss for 2007 is higher than in the prior year
due to increased general and administrative costs supporting higher levels of
exploration and drilling activity on the Company’s properties located in Mexico
(see additional information under Exploration Programs below), the cost of legal
and filing fees related to the Company’s listing on the Toronto Stock Exchange
and the American Stock Exchange during the year and stock compensation
expense.  Stock compensation expense is a non-cash charge which has
increased year-on-year primarily due to the appreciation in the Company’s share
price.





The
Company has not declared nor paid dividends on its common shares.  The
Company has no intention of paying dividends on its common shares in the near
future, as it anticipates that all available funds will be invested to finance
the growth of its business.





RESULTS
      OF OPERATIONS




At
December 31, 2007 the Company had cash and cash equivalents on hand of
$60,147,307 versus $3,506,930 for the year ended December 31, 2006 due to
financings completed during 2007.  On November 27, 2007 the Company
closed a bought deal private placement of 3.0 million common shares of the
Company at a price of $15.50 per share for gross proceeds of $46.5
million.  The Company completed a series of private placements in February
2007 for units consisting of 2,760,000 common shares and 1,380,000 warrants for
gross proceeds of $20,010,000.  The Company also issued shares for
cash pursuant to warrant and stock option exercises during the
period.  In aggregate the Company issued a total of 9,025,586 common
shares during the year (2006 – 1,651,919 not including 85,043 shares issued to
acquire mineral rights) for cash proceeds of $67,671,698 (2006 -
$2,417,326).





After
deducting interest earned for the current year of $915,604 (2006 - $208,593),
the operating loss for 2007 was $8,149,258 (2006 – $3,866,567).





The
current year loss includes $5,256,566 as a non-cash charge for Stock
compensation expense (2006 - $2,341,159). During 2007 the Company granted
835,000 stock options, (2006 – 1,130,000 stock options) to employees and
consultants.  See Note 7(c) to the Company’s December 31, 2007 audited
financial statements for more details.  If one removes the stock
compensation expense of $5,256,566 in 2007 and $2,341,159 in 2006 the net loss
for each year would be $2,892,692 and $1,525,408 respectively.





Stock
compensation expense is one of the largest of the Company’s administration
expenses.  The fair value of all stock-based compensation for the
Company is estimated using the Black-Scholes option valuation model and are
recorded in operations or capitalized against properties over their vesting
periods.  This option pricing model uses various data inputs such as:
if dividends are paid, a weighted average volatility of the Company’s shares
price, an annual risk free, interest rate, an expected life of the option, as
well as the market price of the Company’s shares.





As the
Company’s share price has increased from the $1 range in January 2005 to the $14
to $15 range in December 2007 the calculated fair value of options granted at
various times during the years has also increased.





General
and administrative expenses for the 2007 amounted to $9,064,862 (2006 -
$4,075,160).  The increase compared to 2006 is due to the Company
conducting more exploration activity and as a result of corporate growth
resulting in generally higher expenses (see “Exploration Programs and
Expenditures” below).





Increases
occurred in audit and accounting fees ($319,896 in 2007 versus $211,168 in
2006), filing and transfer agent fees ($405,844 in 2007 versus $48,782 in 2006)
and legal fees ($232,980 for 2007 versus $89,810 in 2006) as a result of the
Company’s graduation during the year to the TSX, its listing on the American
Stock Exchange and as a result of equity financing activity during February 2007
and November 2007.  Audit and accounting as well as legal expenses
also reflect the Company’s annual United States Securities and Exchange
Commission (“SEC”) Registration Form 20F and other normal financial reporting
functions.  In 2007 the Company was required to comply with
Sarbanes-Oxley legislation in the USA resulting in additional costs for the
review, assessment and documentation of the Company’s internal and disclosure
controls as well as costs relating to an independent review and assessment of
the Company’s findings.  Telephone, office and travel expenses
aggregating $633,402 for the year were all comparable with the same in 2006 at
$578,048.





Management
and consulting fees increased from $485,993 from 2006 to $778,228 in the current
period.  The increase is due primarily to the addition of a new
corporate secretary ($74,591) in the year, the addition of a new directors, the
introduction of non-executive director’s fees ($138,895) in the year, the
payment of performance related bonuses to two senior executives ($90,000 in the
year) and general market related increase in compensation
rates.  Shareholder relations expense increased to $354,075 during
2007 (2006 - $288,687) as the Company worked to increase its profile, widening
its exposure once listed on the American Stock Exchange, and satisfy requests
for investor information and meetings.  Telephone, office and travel
expenses aggregating $633,402 for 2007 were slightly higher than 2006 at
$578,048 as management attended several trade shows and were required in Mexico
more often.





Other
smaller expense items account for the balance of general and administrative
costs for the period. The Company occupies office space and receives
administrative services on a contract basis.





After the
completion of the work programs the results indicated that there was limited
exploration potential remaining. Targets were interpreted to be deep and
impractical to investigate further.During 2007 the Company
wrote off property acquisition costs and deferred exploration costs related to
the Adargas property in the amount of $750,277 (Nil for 2006).





EXPLORATION
PROGRAMS AND EXPENDITURES





During
2007 the Company incurred $931,891 in property acquisition costs, comprised of
$931,891 in cash or accrued payables and $Nil in shares issued, (2006 - $646,029
($441,598 in cash and $204,431 in shares,)) on properties where the Company
holds 100% interest.  Exploration expenditures for 2007 on these
properties amounted to $5,987,128 (2006 - $3,896,504).





The
Company has a 44% interest on the Juanicipio Property located in the Fresnillo
District, Zacatecas State, Mexico which is operated under a joint venture
agreement. In 2007 the Company invested over $6 million in this investment while
recovering approximately $2.5 million.





The
Company’s 100% held exploration properties are (i) the Batopilas (Don Fippi)
Property located in the western Sierra Madres of Chihuahua State, Mexico; (ii)
the Lagartos Property Package located in the Fresnillo Silver Trend surrounding
the Fresnillo and Zacatecas Silver Districts located in Zacatecas State, Mexico;
(iii) the Guigui Property located in central Chihuahua State, Mexico; (iv) the
Cinco de Mayo Property located in north-central Chihuahua State, Mexico; (v) the
Sierra de Ramirez Property located in Durango State, Zacatecas, Mexico; and (vi)
the Sello Property located in Zacatecas State, Mexico. The following discussion
is an update to disclosure in documentation filed with regulatory agencies and
available for viewing under MAG’s profile on the SEDAR website at www.sedar.com.





At the
Juanicipio Joint Venture, MAG Silver and Industrias Peñoles in late 2005 made a
significant discovery of a new high grade silver/gold vein (Valdecañas Vein)
within the boundaries of the world class Fresnillo Silver
District.  Over the past two years, work has continued to expand this
discovery and the Valdecañas Vein has emerged as a major high grade silver vein
with few global comparisons.





The
roughly 8,000 hectare Juanicipio Property is located in Zacatecas State, Mexico
just outside the mining town of Fresnillo. The Fresnillo mine area has been in
continuous silver production since the 1500’s and today is host to the worlds’
largest producing silver mine operated by Industrias Peñoles S.A DE C.V.
(Peñoles). The Peñoles/MAG Juanicipio Joint Venture lies 5 kilometres west from
the principal production head-frame of the Fresnillo Mine and 1.5 kilometres
west from the Saucito Vein, currently undergoing preproduction
development.





This is
the most important project in the company’s portfolio of
properties.  The Juanicipio property is host to a new discovery of a
high grade gold silver vein.  The Valdecañas Vein was discovered in
December of 2005 and is undergoing a significant drill campaign to delineate its
full potential.  To date the vein is averaging almost 5.8 metres wide
true width, has a down dip length in excess of 400 metres and has been traced
for 1,500 metres along strike.  The average grade of 14 holes (out of
17) that are within the high grade silver / gold zone is 1,292 grams per tonne
silver (g/t), 2.50 g/t gold and 8.4 % combined lead and zinc.





The
property and its potential were first recognized by a consultant working on
behalf of a client in the late 1990’s.   Subsequently the company
was presented with an opportunity to acquire the Juanicipio
Property.  In  a series of business transactions involving
shares and cash between July 18th, 2002
and July 16th 2003
the company through its 100% owned Mexican subsidiary, Minera Los Lagartos S.A.
de C.V. (Lagartos) acquired a 100% interest in the Juanicipio Property from
local private Mexican interests.





A series
of nine (9) drill holes were drilled by the company between April 2003 and
December 2004.  Significant intercepts of silver and gold were
encountered in this early stage drill program. During this period of drilling
the company was approached by Peñoles, a major Mexican mining company, who
expressed an interest in a joint venture arrangement for the Juanicipio
property.





Through a
formal agreement dated July 1, 2005 with Peñoles, the Company granted to Peñoles
an option to earn a 56% interest in the Juanicipio Property in consideration for
Peñoles to conduct staged exploration expenditures totalling US$5,000,000 over 4
years.





Peñoles
through the efforts of their exploration program, made a significant epithermal
vein discovery called the Valdecañas Vein, carrying high grade values of silver,
gold, lead and zinc.





By May of
2007 Peñoles had made their expenditure commitment to earn a 56% interest in the
Juanicipio Property and in December of 2007 the company and Peñoles incorporated
a joint venture company, Minera Juanicipio S.A. DE C.V. (Minera Juanicipio)
to operate the joint venture. Juanicipio is held 44% by the company through its
100% owned Mexican subsidiary Lagartos and Peñoles holds a 56% interest in
Juanicipio.  Peñoles is the operator of the project and both parties
fund ongoing and future programs as to their pro rated interest.





After the
initial discovery in December of 2005, Peñoles initiated a follow up program in
October 2006 on the Valdecañas discovery by announcing an eighteen hole, fifteen
thousand metre definition drill program. Peñoles drilled 10,758 metres in 2006
and proposed an additional 28,000 metres utilizing a minimum of 4 drills going
into the 2007 program. The definition drill program is designed to delineate the
Valdecañas Vein over a 1.5 kilometre section of potential strike length, along
200 metre sections and at 100 metre separation up and down dip. This program was
ongoing at the end 2007, with almost 13,500 metres of drilling completed for the
year ending December 31, 2007.





By the
end of 2007 a vein of approximately 1,500 metres long averaging 5.8 metres wide
and having a dip length of almost 450 metres was outlined by a series of 20
holes that have intersected the vein.  The program to fully delineate
the vein is still in progress.





Drilling
in mid to late 2007 on sections I and G confirms that the high grade
mineralization in the Valdecañas Vein continues to the west. In addition the
results indicate the presence of a post-mineral fault between Sections I and
G.  The fault appears to move the vein closer to the northern property
boundary but more drilling is required to determine the
vein's orientation farther west and north. The vein still remains open
to the east (trending onto Peñoles held property), to the west and down
dip.





The
drilling to date clearly demonstrates that Valdecañas is an epithermal vein
typical of the Fresnillo District. However, the Valdecañas and the Juanicipio
Veins (discovered by MAG in 2003), contain significantly higher gold grades (2-4
g/t gold) than the average veins (0.5 g/t gold) in the principal production
parts of the district (Averages : 1,292 g/t silver, 2.50 g/t gold and 8.4 %
combined lead and zinc.)





The
Valdecañas Vein has undergone multiple mineralizing events as evidenced by
various stages of brecciation and quartz sealing. The vein exhibits the
characteristic metal zoning of the principal veins at Fresnillo, observed as a
change from silver and gold rich zones at the top to increased base metals in
the deeper intersections. Notably, the gold rich mineralization cuts across the
silver rich zones, which in turn cut earlier base-metal dominant stage
indicating complex multi-stage mineralization combining stages seen separately
in other parts of the district.   Overall, the precious metals
rich zone has an interval of 350 metres in vertical height, which is typical of
major producing veins in the district although it lies slightly lower in
elevation than the comparable precious metals zones being mined elsewhere in the
district. Within ten to twenty metres of the vein, the wall rocks are
progressively pervasively silicified and cut by quartz veinlets carrying
pyrite-sphalerite-galena sulphide minerals. Alteration in the
volcanic/sedimentary host rock farther away from the vein is characterized by
weak pyritization, moderate clay alteration, and calcite
veining.   Peñoles continues to operate the drill program
directed at delineating the extent of the Valdecañas Vein.





The joint
venture also purchased more land covering the Juanicipio Project.  The
new land purchase is located to the west of the Valdecañas Vein discovery and
ties directly to the west of the land purchased last year. Combined with last
year’s purchase the joint venture now has uninterrupted coverage of 4.5
kilometres of the strike projection of the Valdecañas Vein from east to west.
Late in 2007 the joint venture also elected to purchase over 2.5 kilometres of
surface rights along the strike projection of the Juanicipio
Vein.  This purchase underscores the importance the joint venture
places on the Juanicipio vein.





These
land purchases have become assets of a new company, named Minera Juanicipio,
established to own and operate the Juanicipio Joint Venture. The process to
formalize and register this company was finalized on Friday, December 21, 2007.
MAG and Peñoles will be joint owners of this company with MAG having a direct
44% interest and Peñoles having a direct 56% interest.





To
capitalize Minera Juanicipio the Company invested 63.40 million pesos ($6.025
million) into Minera Juanicipio while Peñoles invested 80.69 million pesos
($7.668 million). MAG then received a payout from Minera Juanicipio of 26.41
million pesos ($2.510 million) against its contribution of the Juanicipio
mineral rights while Peñoles received 70.28 million pesos against its
contribution of surface rights and the Company’s 44% share of exploration costs
incurred by Peñoles in the period subsequent to completion of their
earn-in.





For the
coming year, 28,000 metres of drilling are proposed on the Juanicipio property
at a cost of US$1,320,000 (the Company’s share). An additional $78,750 has been
earmarked for geology and $25,000 for miscellaneous expenditures.





Drilling
will continue to be directed to the delineation of the Valdecañas
Vein.  Work will begin to test the Juanicipio Vein located 1.0
kilometre to the south of Valdecañas. Exploration will also focus on new areas
in the search for other deeply buried veins on the Juanicipio
property.





There
will be a minimum of 4 drills operating initially on sections G, Q, O, U and
I.  There are plans to address drilling at VP-2 (see below), a deep
hole GE (down dip of GD) and review potential in area of JU-03-08 with the view
to drilling.





Metallurgical
sampling and testing is ongoing and results are expected in early
2008.





Drilling
at Valdecañas shows that the vein extends off the property to the east and is
nearing the northern boundary as well.  It is possible (not confirmed)
that the full extent of the vein (1,500 metres) on the Juanicipio property has
been identified. The down dip portion would remain on joint venture property for
another 200-350 metres in a westerly direction. The strike of the vein is in
question due to lack of drilling in the western fault block. However, there is
still room to add significant ounces down dip to the west and east.





There is
a significant gap between section M and Section S (~600 metres) where there is a
paucity of drill information.  The drill program will be focused on
sections O, Q, S and U for most of the first half of the year. Drilling on
in-fill sections at 100 metres spacing may be necessary ahead of proposed plans
for a ramp to explore the vein from underground. These plans are still in the
incubation period at this time and have yet to be formally presented to the
Joint Venture for approval.  Planned expenditures for 2008 approximate
US $3,000,000 and are to be shared by the Company and Peñoles on a 44%/56%
basis.





Going
forward the most significant potential for MAG is the Juanicipio Vein (1,000
metres south of Valdecañas) and the wide open potential for other veins as it
emerges that a new vein field has been discovered.





A review
of past drilling by the Joint Venture in the context of the Valdecañas Vein
discovery has revived interest in Hole VP–02 drilled in 2006. This hole is
located on the Juanicipio property, 1,200 metres to the west of Valdecañas Vein
section G.  This hole reported a one metre section of 7.70 g/t
goldand 4.0 g/t
silver, 700 metres below surface.  The presence of strong gold values
in this intersection and its relative proximity to the Valdecañas Vein is
considered to be highly significant, and the exploration program will examine
this structure with drilling in the very near future.





On its
own account, the Company spent a total of $105,165 in exploration costs at
Juanicipio to the end of 2007 (2006 - $120,224).





The Batopilas (Don Fippi)
property covers 3,547 hectares and is located deep within the famous Copper
Canyon country of south western Chihuahua
State.  Mexico.  Batopilas is owned 100% by MAG and can be
described as a unique “native” silver district. High-grade native silver
outcrops in the Batopilas district were discovered around 1630 and production
records begin in 1632. The district produced almost 300 million ounces until the
Mexican Revolution in 1912 disrupted production from which the district never
recovered.  The Company’s control of 94% of this unique and high grade
district is the first consolidation of the district’s silver mines (over 70 in
total) and the first modern exploration program to be conducted in over 93
years.





The
Company over the past 4 years has generated the first modern detailed geological
and structural map of the district and is combining it with a number of modern
geophysical and geochemical exploration techniques to aid in exploration for new
high grade silver veins.





Mineralization
in the silver zones dominantly occurs in a volcanic 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 opt)
to extremely high-grade pods carrying up to 75% silver.  The Batopilas
Mining Company also produced a significant tonnage of “milling ore” grading 265
g/t (8.5 opt).  Oreshoots typically are 15 - 80 metres long, 0.5 - 4.6
metres wide (1 metre average) and up to 350 metres down
plunge.  Shoots are connected by up to 90 metres of barren calcite
veinlets, often only .1 - .3 mm wide.





There
have been 3 phases of drilling at Batopilas and each phase has added to the
formulation of the present exploration model.





In 2004,
MAG selected a limited area in the central part of the district for initial
exploration based on a combination of favourable 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 kilometre long PDT.  The area
is also accessible via one of the district’s few surface roads.





A
ten-hole 2,500 metre drill program was initiated in the fall of 2005 to test
preliminary drill targets and help refine the exploration methods MAG developed
to explore its land holdings at Batopilas.





MAG
announced in January, 2006 that significant high-grade silver mineralization had
been intersected in initial drilling at its 100% owned Batopilas Silver Project
in Chihuahua State, Mexico. Hole 02 intersected the Don Juan with 1.70 metres
(5.6 feet) of 2,358 g/t silver (75.8 opt).





Other
work in 2006/07 at Batopilas included: underground topographic surveys of the
old workings; a detailed 590 line kilometre airborne geophysical survey focusing
on delimiting structures over the entire 40 square kilometre land package
(initiated in late February 2007); a detailed stream sediment and ridge and spur
soil sampling program that focused on the signature multi-element suite defined
during the drill program; and a detailed geological re-mapping of the entire
project area.





The drill
rig was remobilized for the next phase of drilling in mid February 2007. A total
of 12 holes were drilled for an additional 3,025 metres.





This work
was successful in identifying a number of important exploration control vectors
at Batopilas that included a better understanding of the Lithological controls
of the native silver mineralization, the structural history and structural ore
host controls, the vein and structural geochemistry as well as the lateral and
vertical metal zoning characteristics of the vein mineralization.





It is
important to recognize how far we have come over the past 3 years, and how the
last year’s advances appear to have brought us to a better understanding of what
the ore controls are on the extremely high-grade mineralization commonly found
in this district. This ore system has proven to be much more complex than
originally thought (as is often the case in large systems), and the latest
programs demonstrate that prior geologic understanding of the district was
inadequate. However, our systematic approach is bearing fruit and we now have
what appears to be a workable geologic picture on which to base further
exploration throughout the district. Drilling in 2008 is designed to test this
new model.





The 2007
exploration program in the Batopilas Native Silver District has encountered high
grade silver in: a) drilling in the Roncesvalles – Todos Santos area, b)
drilling in the Las Animas area (The Cobriza Veins) and c) a series of drill
roads and trenches in the Las Animas Ridge area. A seven hole 2,907 metre drill
program that started in mid-February has been completed and crews have
demobilized from Batopilas for the rainy season.





Highlights
of the program include Hole BA07-15 at Todos Santos which intersected 1.0 metre
of 3,070 g/t silver (89.5 opt), 3.6% lead and 0.63% zinc. This intercept is
located on the east side of the Roncesvalles Fault Zone (RFZ) in the footwall of
the Todos Santos – San Roberto vein system. The intercept is interpreted to be a
parallel footwall vein or splay of the historically highly productive “Todos
Santos Vein” that was last worked around 1915. This intercept and last year’s
“Don Juan” intercept (1.7 metres of 2,357 g/t silver or 68.7 opt) are on
opposite sides of the major Roncesvalles Fault Zone and their relationship to
each other is under additional study.





Other
significant drilling highlights include two intercepts in the Las Animas Area of
1.0 metre of 156 g/t (4.54 opt) and 1.0 metre of 186 g/t (5.42 opt) silver
respectively in Holes BA07-17 and BA07-18.  Both represent about 200
metre down dip intersections from the veins and vein structures discovered by a
series of roads and trenches constructed this year to follow up on silt and soil
geochemical anomalies. The drill intercepts provide important information to
help in determining the strike and dip continuity of these mineralized
structures.





A
highlight from the trench and road program includes the discovery and exposure
of the Cobriza North vein structure. This vein is exposed in a 4.0 metre high
road-cut and is from 0.25 to 1.0 metres wide. Eleven samples totalling 281.54
kilograms (620 pounds) of bulk material were collected for analysis. Metallic
screen analysis has returned an average minimum grade for this bulk sample of
11,158 g/t silver (325.4 opt). This analysis does not include the 2,776 grams
(89.3 ounces) of native silver that was hand collected from this location as
well.





This
2,495 metre program of trench and road building, at Las Animas Ridge has also
discovered at least two mineralized structures; the northern extension of the
Cobriza (as described above) and a silver sulphide-bearing structure 225 metres
farther south east. This work has also uncovered entrances to several old 1850’s
era workings on Roads 1 and 3, as well as cutting numerous and previously
undocumented silver, lead and zinc mineralized structures.





A 1.0
metre,  828 g/t silver (24.1 opt) rock chip sample on Road One led to
the discovery of the extension of the Cobriza Structure, described as a native
Silver bearing, manganese-oxide rich zone. Another rock chip sample located 225
metres southeast on this same road returned one metre of 851 g/t silver (24.8
opt) and revealed a previously unknown structure containing acanthite, a high
silver sulphide.  This discovery was a follow-up of an 11.4 g/t silver
soil sample collected only 13.0 metres away.





The
results of this phase of work at Las Animas suggests that the mineralization may
represent one single north east-trending and northwest-dipping mineralized
structural zone with a strike length in excess of 500 metres.





The
district-scale exploration implications of the recent work program are
significant.  The airborne geophysics clearly reveals the overall
patterns of the quartz latite-Monzonite dike swarm and can be used to trace the
most favorable host stratigraphy and structures. This has quickly revealed
several large areas outside the initial exploration focus area with the same
combination of stratigraphy, structure and igneous dikes.  It is now
possible to quickly apply the field geochemical protocol of stream sediment,
ridge and spur soil sampling, and detailed follow-up examination to these areas
to generate multiple drill targets in a wide range of areas throughout the
district.





The
exploration target continues to be high grade silver in veins as native silver
and or acanthite. To test the new stratigraphic and structural model with a
series of diamond drill holes at La Escondida, Las Animas and Santo
Domingo.





A totally
revised district scale geologic map of the Batopilas land holdings has been
generated by the company. This study re-interprets the geology of the district
and has identified the lower part of the Batopilas Formation as the preferred
host for the most significant silver mineralization throughout the region. The
revised structural and stratigraphic model indicates that a large
intrusive-cored radial dike-vein system is centered under the south slope of
Cerro de Las Animas near the projected intersection of the Roncesvalles Fault
Zone and Pastrana Vein system.  This new understanding allows greatly
improved targeting of the highest potential structures in the preferentially
favourable Batopilas Formation host rocks.





The first
drill targets will be around the Escondido slide block to test the Company’s
deep vein hypothesis.  At least one of these holes will be targeted
deep to pursue novel mineralization styles in proximity to the inferred
intrusive center.  Subsequent targets will be tested in the Animas
Ridge road area and the northern projection of the Santo Domingo vein swarm. The
Company has located surface expressions of these structures with visible
mineralization (galena) nearly 500 metres north of the Santo Domingo adit. The
current plan is to establish 2 pads to allow us to drill across this set around
150 metres and 350 metres north of the northern limits of the historic
mining.





Some
drill roads were not completed at the end of the 2007 season. They will be
continued on Animas Ridge in 2008. The main emphasis will be to extend road #1
to the point of the ridge and then to extend road #2 to cut the next hard rib
where high silver geochemistry anomalies were found.  The Company is
also recommending a borehole Pulse EM test survey in late March or early April.
If this test yields positive results then this will leave time to respond to the
best PEM anomalies before to end of this drill program.





Work is
continuing. The Company spent a total of $3,344,413 in exploration costs at
Batopilas to the end of 2007 (2006 - $2,082,845).  Budgeted
exploration programs by the Company for 2008 approximate $955,800.





In the
Lagartos
land package area, the Company began their exploration for covered
Fresnillo-style epithermal veins with a compilation of regional geological data
along the Fresnillo Silver Trend, initially using air photo and satellite image
analysis and interpretation.  The Company staked the Lagartos
properties along the Fresnillo Silver Trend (FST), close to and surrounding the
Fresnillo and Zacatecas Silver mining districts. They all demonstrate strong
geological similarities to the main silver producing veins and districts along
the FST and will provide MAG with a prominent land position in this highly
prospective terrain. The Lagartos SE, Lagartos NW and the Juanicipio properties
now comprise three very large and separate claim groups lying along a southeast
to northwest mineralized silver trend centered on Fresnillo.  All
three properties lay along the “Fresnillo Silver Trend” a large regional
structural zone hosting the world class Guanajuato, Zacatecas, and Fresnillo
epithermal Silver-Gold vein districts.  All of the known deposits were
found in outcrop between 350 and 500 years ago, but MAG believes that
significant vein systems lie covered by the recent alluvial soils that mask over
60% of the trend. It has been shown that modern exploration technology is able
to locate mineralization beneath this cover.





The
success of the Valdecañas Vein discovery at Juanicipio has greatly enhanced the
understanding of the under explored FST and management believes that lessons
learned at Juanicipio will help the Company make additional discoveries in the
FST.





A drill
program at Lagartos NW was carried out in January of 2006, with a total of 13
drill holes completed for 7,365 metres drilled to December 31, 2006. Drilling
tested a variety of targets consisting of NSAMT, magnetic, biogeochemical,
structural and geological anomalies.  Though no major veins were
intersected valuable geological and structural information for exploration
programs going forward was obtained. Anomalous silver mineralization was
intersected in Hole 06-03 which returned 2.15 metres grading 40.1 g/t
silver.





The 750
square kilometre Lagartos SE land package is located 50 kilometres south east of
the Juanicipio property and surrounds the famous Zacatecas Mining District, one
of the oldest and most productive silver mining districts in the
world.  Reported past production from Zacatecas is almost one billion
ounces of silver. MAG initiated a 15 to 20 hole drill program in May 2007 at
Lagartos SE proximal to the Panuco silver vein swarm in the northern part of the
Zacatecas silver district.





In this
area MAG has identified a number of broad hydrothermal alteration and structural
zones, up to 4 kilometres long and ten’s of metres wide. Within the associated
alteration halo there are quartz veins containing iron oxides and sulphides of
zinc, lead and silver. In addition there are other veins and zones characterized
by iron rich carbonates, druzy quartz, iron oxides and sulphides of lead and
zinc.  These zones have retuned anomalous silver values ranging from
one half ounce up to 2.3 kilograms silver (67 ounces) in selected grab samples
from a number of old pit workings and low lying outcrop. These zones are also
characterized by a suite of highly anomalous metal values for arsenic, mercury
and antimony. These zones are thought to represent an upper level manifestation
of a deeper epithermal vein system very much like those found in the Zacatecas
and Fresnillo (Juanicipio) districts.  As at Juanicipio, these
prospective zones lie mostly buried under alluvial cover and as a result have
yet to be explored with modern exploration techniques and drilling
technologies.  The current program is designed to drill test to depth
on a number of these vein targets.





The phase
one exploration drill program was carried out at Lagartos SE in the Panuco Zone
at the north end of the historic Zacatecas Silver District.  The
objective of the program was to test at shallow depth, a number of vein and
structural targets traceable for strike lengths of 600 to 1,000 metres to
determine which of these targets offer the best opportunity to host significant
mineralization at depth.  To date MAG has completed 20 holes for 7,066
metres in this initial drilling program. Results indicative of a very high level
silver-gold epithermal vein environment were obtained in two of the structures
tested and follow-up work is in progress.





Nine
holes, were drilled along a 600 metre strike length of a strong northwest
trending 20 plus metre wide carbonate-quartz vein. All of the drilling tested
the vein at shallow depths of 150 metres or less. The best hole (LP-14-07)
intercepted 6.0 metres of 42.5 g/t silver and 0.34 g/t gold with strongly
anomalous arsenic and antimony values. Holes 6-12-13-15-16-17 also reported
anomalous silver values from 10 to 20 g/t silver with highly anomalous arsenic.
This silver-gold-arsenic combination is comparable to what is seen in the
highest portions of epithermal veins found in the Zacatecas District and
Juanicipio area of the Fresnillo district and warrants follow up drilling to
depth. This vein set was also intersected in hole LP-7 located almost 500 metres
further to the northwest indicating that this vein structure could be at least
1,100 metres in length.





Four
short holes successfully cut strongly oxidized siliceous breccias developed in
low angle structures within a mixed series of limestones and
volcanics.  Results from holes 10-11-19 yielded anomalous silver
values from 1 g/t to 10 g/t silver in the breccias.  A further twelve
holes to test down-dip targets in these low angle breccias zones is
complete.  Assay results are pending.





Four
holes (LP-01,-LP-02, LP-03, LP-04) tested an irregular carbonate-rich,
quartz-poor northwest trending vein and vein stock work. Results indicate that
these veins are not geochemically interesting and no further work is expected in
this area.





A strong
northwest trending airborne electromagnetic (AEM) anomaly was tested with holes
LP-7, 8 and 9. Several narrow massive pyrite bands without interesting metals
values were intersected in carbonaceous sediments, which may be the source of
the anomaly.  No further work is expected in this area; however the
northwest projection of this anomaly is still being evaluated in an area covered
by alluvium and corn fields because of regionally significant potential for
volcanogenic massive sulphide mineralization.





During
2007, MAG Silver acquired through cash option and purchase agreements almost 770
hectares of concessions covering some of the major historical producing vein
sets in the Zacatecas district.  In addition we were able to acquire
larger land positions in the district through staking of concessions totaling
13,628 hectares.  We continue to be one of the largest land owners in
the Fresnillo Silver Trend.





In
addition MAG contracted Aeroquest to conduct a 2,072 line kilometre airborne
electromagnetic and magnetic (AEM) survey over the Panuco North portion of
Lagartos SE that will cover the area of the proposed drill program. This survey
was completed in June and results have been compiled with geological and
geochemical surveys and data.





In 2008,
we will again turn our focus to the Lagartos NW portion of this large land
package. This is a core asset and is targeting extensions of the Fresnillo
district (or locating a new district) and the Juanicipio vein discoveries to the
west.  It is also host to Cerro Cacalote, an area where the SWIR /
ASTER image has identified a large area 35 kilometres from Juanicipio with
identical alteration derived reflectance signatures as those seen at
Valdecañas.  This has been confirmed on the ground and earlier drill
campaigns have identified that a large buried epithermal system is underlying
the area in and around Cerro Cacalote. Narrow intercepts of gold and silver and
longer intercepts of high arsenic, mercury, antimony and tin have also been
recorded.  The strategy here is to continue to build the knowledge
base using all of the information we have obtained from 3 years work on
Valdecañas.





It is
proposed to initiate a program with a drill campaign in the covered terrain to
the eastern side of Lagartos NW. A plan has been designed to drill a fence of
holes along the eastern boundary of this claim block across the projection of
the Valdecañas-San Carlos-Juanicipio Vein trend.  The program is
presently going through the surface access portion of the drill permitting
(ejidos and government) and this remains one of our top
priorities.   Once permitted, this will require a deep-capability
rig for 5-6 months to drill 5 to 6 drill holes to depths of 750 metres to 1,000
metres.





It is
also planned to fly a 2,000 line kilometre AEM survey to give us a better handle
on what is happening “under cover” in the eastern half of this very large land
package.





It is
planned to refocus and rethink our approach to the Zacatecas
District:  perhaps turning more towards the central axis of the known
system taking an aggressive approach to the linear projections of the major vein
swarms off the edges of the range to the east and to the west. Geophysics would
be an ideal tool in this area if uncontaminated access routes exist along the
flanks of the range. A fence drilling approach as proposed for Lagartos NW is
also a distinct possibility.  Permitting for this is likely to take
some time. Ground work in the meantime is continuing.





The
Company had spent a total of $4,341,001 in exploration costs at Lagartos to the
end of 2007 (2006 - $2,197,360).  Budgeted exploration programs by the
Company for 2008 approximate $1,877,800.





At Guigui,a 2005 drill program
followed up on the intersections of extensive alteration, structure and
mineralization encountered in the 2004 program (i.e. 131 ppm Ag over 8.30m or
4.2 opt Ag over 27 feet). The drill area is located about 1.2 kilometres south
of Grupo Mexico’s operating San Antonio Mine and about 650 metres south of their
nearest underground infrastructure. The target area is situated within the San
Antonio Graben, a prominent north-south structural feature that hosts and
controls the mineralization at the San Antonio Mine.





Hole 07
cut the highest grade silver mineralization intersected to date within Guigui at
1.40 metres of 242 g/t silver (7.8 ounces).  The best values were
associated with members of a felsite dike swarm that also produces
mineralization in Grupo Mexico’s San Antonio Mine at a location 1,800 metres
farther to the north along the same structure.





The
results from Hole 08 indicate that the dikes cut in Holes 06 and 07 are sourced
farther to the west within the Guigui property.  The Company also
drilled a single hole into the upper zones of the East Fault of the San Antonio
Graben (Hole 09) and cut four narrow felsite dikes with anomalous silver
values.





A
contract to fly an eight hundred line kilometre EM and Magnetic survey was
signed and the survey was completed by the end of December 2006. Preliminary
results are very encouraging and were integrated in early 2007 with the
substantial data base we have accumulated at Guigui. Further work will be
designed to follow up on this integration leading to a drill plan.





The
company is examining the property with the aim of identifying and proposing
another drilling program at Guigui in the later half 2008.  Ongoing
field work has allowed a better comparison of the field relations to the
airborne and previous ground geophysics.  This has allowed a better
integration and inversion of the data leading to definable drill
targets.  It is worth noting that in the south eastern area near the
San Antonio Graben we have identified a large magnetic anomaly (buried
intrusive?) that remains unexplained but is considered significant given its
location. Ground work is planned to finish up the mapping in the Middle Camp
area with a focus on the fluorite (collapse?) breccias particularly their
extent.





Drilling
the area east of the San Antonio Graben will be an obvious target and it is
expected to have a proposal for drilling by mid 2008.





The
Company spent a total of $1,450,400 in exploration costs at Guigui to the end of
2007 (2006 - $1,376,293).  Budgeted exploration programs by the
Company for 2008 approximate $65,100.





Cinco de
Mayo is a 5,000 hectare property located approximately 80 kilometres
north of the city of Chihuahua. The property occurs proximal to the highly
favorable western edge of the Chihuahua trough which hosts several large (all
greater than 25 million tonnes), operating mining districts including Naica,
Santa Eulalia and Bismarck. Major highways lead to the town of Benito Juarez,
from there dirt roads and tracks lead to the property.  Cinco de Mayo
is one of MAG’s three Carbonate Replacement Deposit (CRD) Style
targets.





Carbonate
Replacement Deposits (CRDs) have contributed 40% of Mexico’s historic silver
production, making them second only to epithermal veins in total ounces of
silver produced in Mexico. CRDs can be very large systems ranging from 25 to 100
million tons of high-grade silver/lead/zinc ores. Mexico’s CRDs occur along the
intersection of the Mexican Thrust Belt and the Tertiary age volcanic plateau of
the Sierra Madre Occidental, a zone where structurally prepared limestone host
rocks were invaded by metals-rich intrusive bodies.





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. There is virtually no outcrop at Cinco de Mayo
save for the prominent range-front jasperoid outcrops and a narrow limestone
ridge containing two small historic mines.





MAG began
preliminary regional geologic mapping and sampling at Cinco de Mayo in
mid-2004.





The work
program continued in early 2005 with MAG executing an orientation biogeochemical
survey that revealed strong linear zinc and copper anomalies along trend from
strongly anomalous structures exposed in limited outcrop.





A
contract to fly a four hundred and fifty line kilometre EM and Magnetic survey
was signed and the survey was completed by the end of December
2006.





The
results from the first 9 holes (3,975 metres) drilled at Cinco de Mayo in
2006/2007 were very noteworthy.  Six of the nine holes were drilled
over a strike length of 2.0 kilometres along a very prominent NW trending fault
zone that cuts strongly folded massive limestone and limestone-rich sedimentary
rocks.  Structurally controlled replacement style massive to
semi-massive sulphide mineralization occurring within broad mineralized and
altered zones was intercepted in all six of the holes. Mineralization is open in
all directions. At least trace mineralization was encountered in the remaining 3
holes.





Hole
            From
            To
            Interval
            Ag
            Ag
            Pb
            Znnumber
            m
            m
            m
            (g/t)
            (opt)
            %
            %Hole-01
            318.09
            324.20
            6.11
            22.5
            0.65
            1.4
            5.7including
            320.57
            321.84
            1.27
            4.6
            0.13
            1.6
            11.6Hole-01
            355.30
            357.18
            1.88
            190.9
            5.56
            4.3
            7.9Hole-02
            253.47
            253.89
            0.42
            130.0
            3.79
            0.5
            3.1Hole-05
            292.40
            292.70
            0.30
            124.0
            3.60
            6.7
            2.7Hole-06
            198.70
            199.00
            0.23
            463.0
            13.50
            17.5
            0.3Hole-07
            321.87
            326.17
            4.30
            82.0
            2.39
            3.0
            2.6Hole-08
            317.68
            324.18
            6.50
            27.4
            0.80
            1.2
            2.2Including
            319.80
            323.30
            3.51
            45.0
            1.31
            1.9
            3.1





In
combining the geological, geochemical, biogeochemical, geophysical data and
interpretations MAG developed a series of drill targets. Drilling in 2007 began
in August and was targeted on the newly discovered mineralization identified in
the first pass program completed in January of 2008.





The
Company has announced assay results from the 2007, 12 hole, 6,316 metre program
completed late last year on the Cinco de Mayo property.  The highlight
from this program of widely spaced holes was Hole 07-20 which intersected 6.8
metres (estimated true thickness) of galena and sphalerite-rich massive
sulphides grading 254 g/t (7.4 opt) silver, 6.4% lead and 7.0% zinc. This
includes a compositionally distinct interval, 2.12 metres thick, grading 512 g/t
(15.9 opt) silver, 12.15% lead and 13.10% zinc.





The first
two 50 metre step-outs from this intercept have been drilled and have also
intersected mineralization in the same relatively flat-lying structure. Hole
08-22, a 50 metre down-dip offset, hit 7.1 metres of multi-stage massive
sulphide breccia cut by calcite veins. Hole 08-23, a 50 metre offset to the
northwest, hit 0.85 metres of banded massive sulphides. Assays for both are
pending. All three intercepts lie at about 400 metres vertical depth and appear
to define a coherent massive sulphide manto ("blanket") developed within a
low-angle fault cutting strongly folded limestone. Textural evidence for
multiple mineralization stages is strong. Mineralization is open in all
directions, and two rigs are currently drilling systematic 50 metre offsets of
these holes to define the axis of maximum thickness of the manto and trace it
towards its source.





Hole
07-21, drilled nearly 1 kilometre to the southwest of Hole 07-20 (and started
before Hole 07-20 reached massive sulphides) tested the down-dip projection of
prominent exposures of shallow northeast-dipping gold and silver-bearing iron
rich jasperoid that is exposed for 4 kilometres along the front of the adjoining
range. At roughly 150 metres vertical depth, this hole intersected 15 metres of
altered limestone, which contained a 1.0 metre thick zone grading 684 g/t (20
opt) silver with minor base metals. Hole 07-14 drilled 1,300 metres to the
southeast from Hole 07-21 also tested the projection of the jasperoid zone and
reported 3.22 metres of 94 g/t (2.74 opt) silver and 0.23% lead and 1.03% zinc
in gossan.





The
intercepts in Holes 21 and 14 fall on the up-dip projection (over 1,000 metres)
of the sulphide manto intersected in Holes 20, 22 and 23, indicating that the
sulphides, silver-infused limestone of Hole 07-21, and jasperoid outcrops all
occur within the same low-angle fault zone. Notably, this alteration to
mineralization transition is similar to that seen in the distal fringes of
several important silver, lead and zinc rich massive sulphide districts of the
region (Carbonate Replacement Deposits). There are several other textural,
structural and mineralogical characteristics present to indicate we have a very
large CRD system present at Cinco de Mayo.





There is
virtually no outcrop at Cinco de Mayo save for the prominent range-front
jasperoid outcrops and a narrow limestone ridge containing two small historic
mines. Exploration is guided by MAG's CRD exploration model and an airborne
magnetic survey that revealed a number of prominent linear anomalies and
prominent magnetic lows that are being systematically drilled. The new
mineralization reported in this release lies along a very strong north
west-trending magnetic anomaly that runs over 3,000 metres through Hole 07-20 to
the southeast to previously reported sulphide-rich and hornfels intercepts.
Numerous geophysical targets lying along this trend to the northwest, and along
parallel and intersecting trends elsewhere in the district, remain to be
drilled.





Despite
the extensive alluvial cover and limited drilling, the Company has now cut
significant mineralization within a laterally traceable low-angle structural
host over more than 8 square kilometres. The drill program will continue to
systematically offset the manto style mineralization intersected in the widely
spread drilling while at the same time continue to drill test the array of
geophysical anomalies.





Drilling
in 2006 and 2007 intersected widespread silver/lead and zinc mineralization
along a major structure and hosted in limestones.  Two holes drilled
in the fall of 2007 intersected massive sulphide.  Drilling is to
continue to follow up on these significant intersections.





Given the
strong intercept in Hole 20, and its location along the strong NW-trending MAG
low-high anomaly, as well as the low-angle range bounding (thrust?) fault, it is
proposed to start with 50 metre drilling offsets of Hole 20.





It is
important to emphasize that the massive sulphide hit in Hole 20 is distal CRD mineralization
emplaced in a low-angle fault. If this interpretation is correct, and this
structure is the one intersected in Holes 2, 14, 19, and 21 then we are
beginning to see vectoring towards the east or northeast, or even northwest
within the fault.  The Company has a number of geophysical targets
selected that might tie in to this and they remain to be tested.





It is
recommended that borehole Pulse EM be used as a targeting tool for tracing
sulfide bearing zones at Cinco.  The timeframe would be to conduct the
PEM survey during the first couple weeks of March. A few lines for ground
gravity surveying will be tested as a method of locating the buried intrusive
source.  This will be depended on drill results.





MAG’s
2006 and 2007 drill program at Cinco de Mayo in northern Chihuahua State,
continues to confirm that a significant Carbonate Replacement silver, lead and
zinc system underlies the alluvium covering 75% of the Cinco de Mayo project
area. All of the mineralization intersected in drilling to date were initially
identified as buried (blind) geophysical and geochemical anomalies that were
consistent with our exploration model.





This
early stage property is held 100% by MAG and is one of six other district scale
projects operated by MAG.





The
Company spent a total of $2,775,679 in exploration costs at Cinco de Mayo to the
end of 2007 (2006 - $1,213,474).  Budgeted exploration programs by the
Company for 2008 approximate $2,339,700.





At Sierra de
Ramirez, located in Durango State, this 15,000 hectare property has
seen little modern exploration.  A historical producer of high grade
silver and base metals, this district is emerging for the Company as a large
scale CRD target.  Metal zoning studies have identified three
mineralized zones where work is presently underway to better define these zones
through mapping, geochemical sampling in tandem with structural and alteration
studies.Acquisition of
additional land is being considered before higher profile exploration work is
undertaken.  Discussions regarding possible land acquisition were
underway by year's end.





A
contract to fly an eleven hundred and twenty line kilometre EM and Magnetic
survey was signed and the survey was completed by mid February
2007.  In examining the results of the survey several features are
revealed that have enhanced the exploration potential of the
district.  To that end we have accelerated efforts to consolidate the
entire Sierra Ramirez District.





During
2007 the company was able to finally consolidate the entire district with the
completion of the “El Pavo” and “San Acacio” option agreements.





It is
clear from work done to date that the western “San Acacio” area which is marked
by the multiple parallel structures will be the obvious first place to drill
test.  There is limited value in detailed sampling of this area
because the old mines effectively give us prima-facie evidence of where the
high-grade pods blossomed out along the structures.  It does make
sense to look at the structural fabric in some detail to determine if there are
inflections or intersections that determine where these pods are.  The
detailed Ikonos images from the area should be able to be used to develop high
quality structural base maps for semi detailed mapping and drill hole
locations.





The old
mines were never operated below the oxide zone (200 metre) as evidenced by the
lack of sulphide found in the mine dumps.  The initial pass will treat
the various known mineralization zones as leakages from a deeper coherent
source, but its nature will depend greatly on the thickness of favorable host
rocks and where the intrusion center(s) lies. In addition it is important to
obtain a better understanding of the gross structural framework of the Sierra
Ramirez Range and the thickness of the favorable reactive carbonate
section.  This drill program will help in developing a better
understanding of this large silver/lead/zinc district.





There are
a number of coincident geophysical and topographic candidates for intrusion
centers, but as observed last summer the historic geologic mapping of these
intriguing low areas is lacking in detail.  It is proposed to begin an
early reconnaissance mapping program prior to mobilizing a drill.





Surface
access permission for drill permitting, as well as permitting in general, will
begin almost immediately.    The initial area for drilling
is likely to be in numerous places along the San Acacio trend and it is
logistically possible to build drill pads in the near future.  Road
access in the area is good along the trend so our environmental and cost impact
should be low.





Preparation
work will be carried out and drill targets will be located during the second
quarter. Drilling could begin in mid year and continue into the
fall.





Exploration
field programs are expected to commence in late 2007 and early 2008. The Company
spent a total of $434,628 in exploration costs at Sierra de Ramirez to the end
of 2007 (2006 - $149,130).  Budgeted exploration programs by the
Company for 2008 approximate $1,033,800.





TheSelloproperty is located approximately 110 kilometres north north-west of
Fresnillo and the Juanicipio Joint Venture where MAG Silver and Industrias
Peñoles are delineating a new high grade silver-gold vein
discovery.  The Sello property is just 45 kilometres north of the
historic San Martin and Sombrerete mining districts.





Although
outcrop on the Sello property is minimal, there is mineralized high grade quartz
vein material on the dumps of a collapsed prospecting shaft of undetermined
depth. Grab samples collected from the dump and from a vein exposed in the wall
of the shaft (Sample 16889) assayed as follows:





Sample
              Gold
              Gold
              Silver
              Silver
              Lead
              ZincDesignation
              ppm
              ppm
              ppm
              Ounces
              ppm
              ppmFire
      Assay
              Fire
      Assay / Gravity16887
              7.05
              7.47
              108
              3.1
              6,900
              1,30016888
              3.70
              3.22
              17.9
              0.5
              8,600
              3,32016889
              8.59
              9.19
              4.5
              0.1
              2,410
              1,530Sello
      “S”
              2.10
              n/a
              28
              0.8
              n/a
              n/aSello
      “Q”
              6.25
              n/a
              104
              3.0
              n/a
              n/a
  A limited
airborne geophysical survey (220 line kilometres) has identified a prominent
east north-east trending magnetic feature that is parallel with the vein exposed
in the shaft collar.





MAG has
mobilized a drill to the property and has started an initial 5 hole, 1,500 metre
drill program. Drilling will target on the shaft / dump area and the
geophysically interpreted structure. Assay results are awaited.





The 2,000
hectare Sello property has been acquired from two local individuals. MAG has the
right to earn an undivided 100% interest in the property through a series of
optional cash payments over time.





Terms of
the acquisition agreement for two of three claims require optional cash payments
totaling $US1,000,000 over three years including $US25,000 paid on signing. A
separate acquisition agreement for the remaining claim totals $US125,000 over
two years including $US25,000 paid on signing.





The
Company spent a total of $504,474 in exploration costs at the Sello property to
the end of 2007 (2006 - $Nil).  Budgeted exploration programs by the
Company for 2008 approximate $448,500.





During
2007 the Company terminated its option agreement on Adargas,
and consequently, costs of $750,277 were written-off at that time.





Other Properties–During
2007 the Company optioned some exploration concessions on mining claims for a
cost of US$139,041 (2006 – Nil) plus applicable value added tax.





The
Company has several other exploration properties.  At this point in
time the company is focused primarily on Epithermal Vein exploration along the
Fresnillo Silver Trend and on Carbonate Replacement Deposit exploration along
the western edge of the Chihuahua trough. The company is constantly looking for
other opportunities that could offer us the potential to meet our exploration
directives.





The
Company acquired and has identified a number of new project areas throughout our
targeted regions and will be directing these projects through the exploration
process in order to identify drill targets. None of the other projects are
advanced enough to be able to identify any resource or reserve
figures.  All are very early to early grassroots exploration stage
properties.  Budgeted exploration programs by the Company for 2008 on
other projects approximate $416,000.





All of
the costs incurred on property acquisition and exploration to date have been
deferred. A complete table of mineral property costs can be found in Note 6 of
the Company’s Financial Statements for the year ended December 31,
2007.





RISKS
AND UNCERTAINTIES




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.
            The Company has a lack of cash
      flow, which may affect its ability to continue as a going
      concern.




2.
            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.




3.
            The Company is dependent on its
      key personnel, some of whom 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 have 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 was
      formerly an arm’s length consultant to and is currently a director of and
      consultant to the Company and he is paid a fee for his consulting 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.




4.
            The Company does not pay
      dividends.Payment of dividends on the Company’s Common 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.




5.
            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 devotes 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 contains any
      provisions mandating 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.




Risk Factors Relating to
Title




6.
            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 or access 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 or access 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 may lose
      any interest it may have in the subject
  property.




7.
            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 or access 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 may lose any
      interest it may have in the subject
property.




8.
            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. 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




9.
            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 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.




10.
            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.




11.
            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
      Company’s ability to explore and exploit the property interests is subject
      to ongoing approval of local governments.  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.




12.
            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.




13.
            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 29 percent over a gross up basis
      (amount of the dividend times 1.4085), payable by the Mexican
      company.  Currently, there is no withholding tax on dividends
      paid by a Mexican company to a foreign
  shareholder.




14.
            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.




15.
            Currently,
      there are no reserves on any of the properties in which the Company has an
      interest.




Risk Factors Relating to
Mining Generally




16.
            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.




17.
            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.




18.
            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.




19.
            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




20.
            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.




21.
            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 #20 above will be
      raised through the issuance of additional equity which will result in
      dilution to the Company’s shareholders. The Company, from time to time, is
      required to issue Common Shares to earn its interests in properties. Such
      property share issuances will also result in dilution to the Company’s
      shareholders.




22.
            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.




23.
            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 options to acquire interests in
      properties in Mexico and in order to obtain ownership 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 certain aspects of its business
      as described in this Annual Report. The Company may not have sufficient
      funds to: (a) make the minimum expenditures to maintain its properties in
      good standing under Mexican law; and (b) make the minimum expenditures to
      earn its interest in such 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.




Miscellaneous Risk
Factors




24.
            The price of the Company’s
      Common 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 Common Shares of the
      Company will be subject to market trends generally, notwithstanding any
      potential success of the Company in creating sales and
      revenues.




25.
            There is an absence of a liquid
      trading market for the Company’s Common
      Shares.  Shareholders of the Company may be unable to
      sell significant quantities of Common Shares into the public trading
      markets without a significant reduction in the price of their Common
      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.




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 Common Shares. U.S. shareholders and prospective holders of
      the Company’s Common 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.





OUTSTANDING
SHARE DATA





Our
authorized capital consists of an unlimited number of common shares without par
value.  As at March 14, 2007, the following common shares, options and
share purchase warrants were outstanding:





Number
      of
            
            
            Exercise
            
            RemainingShares
            
            
            Price
      ($)
            
            Life
      (mos/years)Capital
      Stock
            
            
            48,545,566Stock
      Options
            
            
            3,635,830
            
            
            $
            0.50
      - $14.15
            
            6
      mos to 5 yearsWarrants
            
            nilFully
      Diluted
            
            
            52,181,396





SUMMARY
OF QUARTERLY RESULTS





The
following table sets forth selected quarterly financial information for each of
the last eight (8) quarters:





Quarter
      Ending
            
            Revenue(1)
            
            
            Net
      Loss(2)
            
            
            Net
      Loss per shareDecember
      31, 2007
            
            $
            387,939
            
            
            $
            (4,080,795
            )
            
            $
            (0.07
            )September
      30, 2007
            
            $
            211,108
            
            
            $
            (351,375
            )
            
            
            (0.01
            )June
      30, 2007
            
            $
            200,002
            
            
            $
            (2,181,524
            )
            
            $
            (0.05
            )March
      31, 2007
            
            $
            116,555
            
            
            $
            (2,252,342
            )
            
            $
            (0.06
            )December
      31, 2006
            
            
            44,407
            
            
            
            (818,389
            )
            
            
            (0.02
            )September
      30, 2006
            
            
            48,664
            
            
            
            (570,796
            )
            
            
            (0.015
            )June
      30, 2006
            
            
            70,804
            
            
            
            (1,485,493
            )
            
            
            (0.035
            )March
      31, 2006
            
            
            44,718
            
            
            
            (991,889
            )
            
            
            (0.03
            )December
      31, 2005
            
            
            16,409
            
            
            
            (483,824
            )
            
            
            (0.015
            )





Explanatory
Notes


(1)The
Company’s primary source of revenue during the quarters listed above was
interest revenue from GIC’s held by the Company.  The amount of
interest revenue earned correlates directly to the amount of cash on hand during
the year referenced.





At
December 31, 2007 the Company had cash and cash equivalents on hand of
$60,147,307 versus $3,506,930 for the year ended December 31, 2006 due to
financings completed during 2007.  On November 27, 2007 the Company
closed a bought deal private placement for 3.0 million common shares of the
Company at a price of $15.50 per share for gross proceeds of $46.5
million.  The Company completed a series of private placements in February
2007 for units consisting of 2,760,000 common shares and 1,380,000 warrants for
gross proceeds of $20,010,000.  The Company also issued shares for
cash pursuant to warrant and stock option exercises during the
period.  In aggregate the Company issued a total of 9,025,586 common
shares during the year (2006 – 1,651,919) for cash proceeds of $67,671,698 (2006
- $2,417,326).  The receipt and investment of these funds in 2007
resulted in higher interest revenues then previously experienced in 2006 or
2005.





(2)Net
losses by quarter are often materially affected by the timing and recognition of
large non-cash expenses or write-offs.  For example, the quarter ended
June 30, 2007 includes a non-cash charge for stock based compensation in the
amount of $1,017,521 and a mineral property write-off in the amount of
$750,277.  The Quarter ended March 31, 2007 includes a non-cash charge
for stock based compensation in the amount of $627,627.  The June 30,
2006 quarter includes a non-cash charge for stock based compensation in the
amount of $1,092,079 while the March 31, 2006 quarter includes a non-cash charge
for stock based compensation in the amount of $1,730,034.   When
adjusting these non-cash charges the results for the quarters listed show a more
consistent trend, with a general growth expenses over time that is consistent
with the Company’s increased exploration and corporate activities over the past
two years as described above at “Discussion of Operations and Financial
Condition”.





Fourth
quarter net loss was $4,080,795 compared to $818,389 for the same quarter last
year.  If one removed the stock compensation expense, a non-cash item,
of $2,509,011 (2006 - $386,861) the resulting loss would be $1,571,784 and
$431,528 respectively.  Some of the reasons for this increase in 2007
fourth quarter net loss were due to added year end audit costs ($60,000) as the
Company now must comply with Sarbanes-Oxely legislation in the USA which
includes a review of the Company’s internal and disclosure controls over
financial reporting and the cost for independent expert consultants to help
assess and document the Company’s internal and disclosure
controls..  The Company must also certify now under Multi Lateral
Instrument 52-109 in Canada.  Filing and transfer agent fees also
increased by approximately $269,000 due to the Company’s listing on the TSX and
AMEX.  Foreign exchange loss increased by approximately $244,000 due
to currency swings between the Canadian dollar and the US dollar and between the
Canadian dollar and the Mexican pesos.  Travel expenses also increased
as Company executives and directors made several trips to Mexico to finalize the
formation of Minera Juanicipio as well as conduct regular Company
business.





FOURTH
QUARTER




The
definition drill program designed to delineate the Valdecañas Vein continued
throughout 2007 and has identified the vein over a 1.5 kilometre section of
potential strike length, along 200 metre sections and at 100 metre separation up
and down dip. This program was ongoing at the end 2007, with almost 13,500
metres of drilling completed for the year ending December 31, 2007.





Drilling
in mid to late 2007 on sections I and G confirms that the high grade
mineralization in the Valdecañas Vein continues to the west. In addition the
results indicate the presence of a post-mineral fault between Sections I and
G.  The fault appears to move the vein closer to the northern property
boundary but more drilling is required to determine the
vein's orientation farther west and north. The vein still remains open
to the east (trending onto Peñoles held property), to the west and down
dip.





By the
end of 2007, a vein of approximately 1,500 metres long averaging 5.8 metres wide
and having a dip length of almost 450 metres was outlined by a series of 20
holes that have intersected the vein.  The program to fully delineate
the vein is still in progress.





A new
company, named Minera Juanicipio S.A. DE C.V., was established to own and
operate the Juanicipio Joint Venture. The process to formalize and register this
company was finalized on Friday December 21, 2007. MAG and Peñoles will be joint
owners of this company with MAG having a direct 44% interest and Peñoles having
a direct 56% interest.





The phase
one exploration drill program was carried out at Lagartos SE in the Panuco Zone
at the north end of the historic Zacatecas Silver District.  The
objective of the program was to test at shallow depth, a number of vein and
structural targets traceable for strike lengths of 600 to 1,000 metres to
determine which of these targets offer the best opportunity to host significant
mineralization at depth.  To the end of 2007, MAG had completed 20
holes for 7,066 metres in this initial drilling program. Results indicative of a
very high level silver-gold epithermal vein environment were obtained in two of
the structures tested and follow-up work is in progress.





Nine
holes, were drilled along a 600 metre strike length of a strong northwest
trending 20 plus metre wide carbonate-quartz vein. All of the drilling tested
the vein at shallow depths of 150 metres or less. The best hole (LP-14-07)
intercepted 6.0 metres of 42.5 g/t silver and 0.34 g/t gold with strongly
anomalous arsenic and antimony values. Other holes also reported anomalous
silver values from 10 to 20 g/t silver with highly anomalous
arsenic.





During
2007, the Company acquired through cash option and purchase agreements almost
770 hectares of concessions covering some of the major historical producing vein
sets in the Zacatecas district.  In addition we were able to acquire
larger land positions in the district through staking of concessions totaling
13,628 hectares.  We continue to be one of the largest land owners in
the Fresnillo Silver Trend.





The
results from the first 9 holes (3,975 metres) drilled at Cinco de Mayo in 2006
/2007 were very noteworthy.Six of the nine holes were drilled over a strike length of 2.0 km along a
very prominent NW trending fault zone that cuts strongly folded massive
limestone and limestone-rich sedimentary rocks.  Structurally
controlled replacement style massive to semi-massive sulphide mineralization
occurring within broad mineralized and altered zones was intercepted in all six
of the holes. Mineralization is open in all directions. At least trace
mineralization was encountered in the remaining 3 holes.





Drilling
in mid to late 2007 was targeted on newly discovered mineralization identified
in the first pass program completed in January of 2007.





The
Company has announced assay results from the 2007, 12 hole, 6,316 metre program
completed late last year on the Cinco de Mayo property.  The highlight
from this program of widely spaced holes was Hole 07-20 which intersected 6.8
metres (estimated true thickness) of galena and sphalerite-rich massive
sulphides grading 254 g/t (7.4 opt) silver, 6.4% lead and 7.0% zinc. This
includes a compositionally distinct interval, 2.12 metres thick, grading 512 g/t
(15.9 opt) silver, 12.15% lead and 13.10% zinc.





The first
two 50 metre step-outs from this intercept have been drilled and have also
intersected mineralization in the same relatively flat-lying structure. Hole
08-22, a 50 metre down-dip offset, hit 7.1 metres of multi-stage massive
sulphide breccia cut by calcite veins. Hole 08-23, a 50 metre offset to the
northwest, hit 0.85 metres of banded massive sulphides. Assays for both are
pending. All three intercepts lie at about 400 metres vertical depth and appear
to define a coherent massive sulphide manto ("blanket") developed within a
low-angle fault cutting strongly folded limestone. Textural evidence for
multiple mineralization stages is strong. Mineralization is open in all
directions.





Despite
the extensive alluvial cover and limited drilling, the Company has now cut
significant mineralization within a laterally traceable low-angle structural
host over more than 8 square kilometres. The drill program will continue to
systematically offset the manto style mineralization intersected in the widely
spread drilling while at the same time continue to drill test the array of
geophysical anomalies.





LIQUIDITY
AND CAPITAL RESOURCES




At March
14, 2008 the Company had 48,545,566 issued and outstanding common
shares.  At December 31, 2007 the Company had 46,954,196 common shares
issued and outstanding.  The Company issued a total of 9,025,586 (2006
– 1,736,962) common shares during 2007. Of these 9,025,586 shares (2006 –
1,651,919) were issued for cash proceeds of $69,454,032 (2006 - $2,219,382). In
2007 there were no shares (2006 – 85,043 shares for $204,431) issued for mineral
properties.  Cash proceeds are to be spent on mineral property
acquisitions, exploration and development as well as for general working capital
purposes. The Company’s primary source of capital has been from the sale of
equity. At December 31, 2007 the Company had cash and cash equivalents on hand
of $60,147,307 compared to cash and cash equivalents of $3,506,930 at December
31, 2006. The primary use of cash during the period was for acquisition and
exploration expenditures and investment in the Juanicipio Joint Venture, being
approximately $10,200,649 (2006 - $4,437,059), management and consulting fees of
$778,228 (2006 - $485,993) and other general and administrative expenses of
$2,266,634 (2006 - $1,248,008). The Company had $60,380,130 in working capital
as at December 31, 2007 compared to $3,585,789 at December 31,
2006.





Current
liabilities of the Company at December 31, 2007 amounted to $637,180 (2006 -
$350,368) mostly being attributable to accrued exploration
expenses.





On
November 27, 2007 the Company closed a bought deal private placement 3.0 million
common shares of the Company at a price of $15.50 per share for gross proceeds
of $46.5 million.





The
Company currently has sufficient working capital to maintain all of its
properties for the 24 months, in management’s opinion; the Company is able to
meet its ongoing current obligations as they become due. Based on exploration
results the Company will select certain properties to complete purchase
arrangements on.The Company expects to
raise equity capital as it is needed.  However, there is no assurance
that additional funding will be available to the Company and it may again become
dependent upon the efforts and resources of its directors and officers for
future working capital. Management refers the reader to the contents of the
audited financial statements for the year ended December 31, 2007.





In the
normal course of business the Company enters into transactions for the purchase
of supplies and services denominated in Mexican Pesos. The Company also has cash
and certain liabilities denominated in United States dollars. As a result, the
Company is subject to foreign exchange risk from fluctuations in foreign
exchange rates.





The
following Table discloses the contractual obligations of the Company for
optional mineral property acquisition payments, optional exploration work and
committed lease obligations for office rent and equipment:




Tabular Disclosure of Contractual
Obligations




(Property
expenditures in U.S. dollars, as per agreement)




Option
      Payments and Exploration Expenditures
            
            Total
            
            
            Less
      than
              1
      year
            
            
            1-3
      Years
            
            
            3-5
      Years
            
            More
      than
              5
      yearsSierra
      Ramirez Property (1)
            
            $
            5,822,500
            
            
            $
            252,500
            
            
            $
            1,525,000
            
            
            $
            4,045,000
            
            NilCinco
      de Mayo Property (2)
            
            $
            600,000
            
            
            $
            250,000
            
            
            $
            350,000
            
            
            Nil
            
            NilSello
      Property
            
            $
            1,012,500
            
            
            $
            187,500
            
            
            $
            825,000
            
            
            Nil
            
            NilOther
      Properties
            
            $
            100,000
            
            
            $
            100,000
            
            
            Nil
            
            
            Nil
            
            NilTotal
      (US $)
            
            $
            7,535,000
            
            
            $
            790,000
            
            
            $
            2,700,000
            
            
            $
            4,045,000
            
            Nil




(1)Of the
final payment in the amount of US$650,000 due December 14, 2010, up to
US$500,000 may be paid in Common Shares of the Company.  The Company
has optioned other surface rights surrounding its current block in
2007.




(2)
Comprised of US$600,000 in option payments. Half of each of the remaining option
payments may be paid in Common Shares at a deemed price per share equal to the
average trading price of MAG’s Common Shares for 30 calendar days prior to the
date of the payment.




Other
Items




The
Company is unaware of any undisclosed liabilities or legal actions against the
Company and the Company has no legal actions or cause against any third party at
this time. The Company is unaware of any condition of default under any debt,
regulatory, exchange related or other contractual obligations.





ADDITIONAL
DISCLOSURE





Trend
Information




Other
than the obligations under the Company's property option agreements set out in
“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 March 31,
2010. The scale and scope of the Juanicipio Joint Venture could change this
timeline as exploration progresses. It is unlikely that the Company will
generate sufficient operating cash flow to meet these ongoing obligations in the
foreseeable future. Accordingly the Company will likely need to raise additional
capital by issuance of equity in the future.  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 writing 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 mineral properties 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 has no off-balance sheet arrangements.





Related
Party Transactions





For 2007,
the Company’s president received $204,128in compensation for
management services (2006 - $139,500).





For 2007,
a company controlled by an officer of the Company received $163,840in compensation for
consulting services (2006 - $113,520).





The
Company paid non-executive directors fees of $138,895to five non-executive
directors during 2007 (2006 - $Nil).





The
Company is party to a Field Services Agreement, whereby it has contracted
exploration services in Mexico with MINERA CASCABEL S.A. de C.V. (“Cascabel”)
and IMDEX Inc. (“Imdex”).  As of January 2006, these companies have a
common director with the Company.  For 2007, the Company accrued or
paid Cascabel and IMDEX consulting, administration and travel fees totaling
$134,720 (2006 - $141,154) and exploration costs totaling $1,312,826 (2006 -
$1,049,611) under the Field Services Agreement.





During
the year ended December 31, 2003, the Company entered into an office
services agreement with Platinum Group Metals Ltd. (“PTM”), a company with a
common director and common officer. During 2007, the Company accrued or paid PTM
$136,374under the
common service agreement (2006 - $138,081).





During
the year ended December 31, 2004, the Company entered into an office lease
agreement with Anthem Works Ltd. (“Anthem”), a company with a common
director.  During 2007, the Company accrued or paid Anthem $79,312,
under the office lease agreement (2006 - $62,333).





These
transactions are 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.





Shareholder
Relations’ Expenses





Shareholder
relations expense during 2007 totaled $354,075 (2006 - $288,687). Since 2003 the
Company has managed its shareholder relations as an internal function. In
September 2005, Contact Financial was contracted at a rate of $6,000 per month
to provide distribution of the Company’s information. Between June 15, 2007 and
October 15, 2007 this fee was reduced to $500 per month. On October 15, 2007 the
Company did not renew its contract with Contact Financial. The Company attends
seminars and conferences related to its business and from time to time to visit
brokers, market analysts and investors who request information about the
Company’s business. Since December 2006, Mr. Tony Mahalski of LM Associates in
London, U.K., has been engaged for a fee of GBP 1,000 per month for the purpose
of general business development and the raising of the Company’s profile in
Europe.





Travel
and Promotion Expenses





Travel
and promotion expenses for 2007 amounted to $243,422 (2006 - $212,168). These
activities relate to corporate business development, the supervision of ongoing
exploration operations, new property investigations and meetings with potential
joint venture partners and institutional and sophisticated
investors.





Property
Acquisition Expenses





Property
acquisition expenditures during the year totaled $931,891 (2006 - $646,029) in
cash and accrued payables.





During
the year ended December 31, 2006, the Company and Minera Rio Tinto, S.A. DE C.V.
amended terms of the Sierra de Ramirez option agreement. Under the amended
terms, the Company issued Minera Rio Tinto, S.A. DE C.V. 20,000 common shares of
the Company on October 6, 2006 and will make scheduled cash payments totaling
US$1,300,000 (US$100,000 paid) to December 14, 2010, with a final payment of
US$650,000 of which up to US$500,000 may be paid in the common shares of the
Company.  Under the amended terms all exploration work commitments
were also eliminated. During the year ended December 31, 2007, the Company
entered into four separate option agreements to acquire 100% interest in certain
mining concessions all of which are internal to the Sierra Ramirez property. The
Company is obligated to make scheduled cash payments totalling US$4,938,125 (of
which US$228,125 has been paid) to January 21, 2012. To December 31, 2007 the
Company has incurred a total of $800,736 (2006 - $527,645) in acquisition costs
on the property.





During
the year ended December 31, 2006, the Company and an individual entered into a
“letter of intent” agreement to acquire the Sello Property. The Company paid
$28,143 on signing the letter of intent, and doing due diligence to complete a
deal for the property. During the current period the Company entered into a
letter of intent agreement to acquire a 100% interest in the El Oro claims
located in Zacatecas State. The Company paid $28,562 on signing the letter of
intent.  This claim will become part of the Sello
Property.  To December 31, 2007 the Company has incurred a total of
$105,852 (2006 - Nil) in acquisition costs on the property.





During
the year ended December 31, 2007 the Company acquired more exploration
concession on mining claims on the Fresnillo trend to the northwest and
southeast of the Juanicipio property. These exploration concessions enables the
Company to explore the mining claim covered by the concession to December 2009,
subject to the Company paying any applicable annual tax or other regulatory
charges. To December 31, 2007 the Company has incurred a total of $523,597 (2006
- $124,344) in acquisition costs on these claims.





The sum
of all payments required to maintain all of the Company’s mineral rights are
less than its currently available working capital. The Company evaluates its
property interests on an ongoing basis and intends to abandon properties that
fail to remain prospective. The Company is confident that it will be able to
meet its earn-in obligations on those properties which management considers
being of merit.





CRITICAL
ACCOUNTING POLICIES




The
Company’s accounting policies are set out in Note 2 of its Consolidated
Financial Statements for the year ended December 31, 2007.





The
preparation of financial statements in conformity with Canadian GAAP requires
Management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and expenditures
during the reporting period.  Management has identified (i) mineral
property acquisition and exploration deferred costs (ii) provision for
reclamation and closure, (iii) future income tax provision and (iv) stock based
compensation as the main estimates for the following
discussion.  Please refer to Note 2 of the Company’s consolidated
financial statements for a description of all of the significant accounting
policies.







Under
Canadian GAAP, the Company deferred all costs relating to the acquisition and
exploration of its mineral properties. Any revenues received from such
properties are credited against the costs of the property. 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. The Company regularly reviews the carrying values of its properties to
assess their recoverability and when the carrying value of a property exceeds
the estimated net recoverable amount, provision is made for impairment in
value.




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 estimate of the amount of impairment to the value of
any mineral property. 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 before determining
whether or not impairment in value has occurred.





Reclamation
and closure costs have been estimated based on the Company’s interpretation of
current regulatory requirements, however changes in regulatory requirements and
new information may result in revisions to estimates.  The Company
recognizes the fair value of liabilities for reclamation and closure costs in
the period in which they are incurred.  A corresponding increase to
the carrying amount of the related assets is generally recorded and depreciated
over the life of the asset.





The
future income tax provision is based on the liability method.  Future
taxes arise from the recognition of the tax consequences of temporary
differences by applying enacted or substantively enacted tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of certain assets and liabilities.  The Company records
a valuation allowance against any portion of those future income tax assets that
it believes will, more likely than not, fail to be realized.





For its
2004 fiscal year, The Company adopted CICA Handbook Section 3870 – Stock-Based
Compensation and other Stock-Based Payments, which requires the fair value
method of accounting for stock options.  Under this method, The
Company is required to recognize a charge to the income statement based on an
option-pricing model based on the following assumption –no dividends were paid,
a weighted average volatility of the Company’s share price of 81.5 per cent, a
weighted average annual risk free rate of 4.27 percent and an expected life of 3
years.  The resulting weighted average option related to an expense
for stock options in the year ending December 31, 2007 of $5,256,566 (2006 -
$2,341,159).





Effective
January 1, 2007, the Company adopted CICA Handbook Section 1530, Comprehensive Income, CICA
Handbook Section 3861, Financial Instrument Presentation
and Disclosureand CICA Handbook Section 3855, Financial Instruments – Recognition and
Measurement, CICA Handbook Section 3865, Hedges, and CICA Handbook
Section 3251, Equity.
 These new Handbook Sections provide comprehensive requirements for the
recognition and measurement of financial instruments, transaction costs incurred
on financial instruments, as well as standards on when and how hedge accounting
may be applied.  CICA Handbook Section 1530 also introduces a new component
of equity referred to as comprehensive income. Comprehensive income includes
changes in shareholders’ equity during a period arising from non-owner sources
and, for the Company, other comprehensive income includes currency translation
adjustments on its net investment in self sustaining foreign operations. The new
standards also require all derivatives to be recorded on the balance sheet at
fair value and establish new accounting requirements for hedges. The Company has
adopted these standards prospectively effective January 1, 2007. The adoption of
these new standards had no material effect on the financial position or opening
account balances on January 1, 2007.





In
accordance with these new standards, the Company now classifies all financial
instruments as either held-to-maturity, available-for-sale, held-for-trading,
loans and receivables, or other financial liabilities.  Financial assets
held to maturity, loans and receivables and financial liabilities other than
those held for trading, are measured at amortized cost.  Available-for-sale
instruments are measured at fair value with unrealized gains and losses
recognized in other comprehensive income.  Instruments classified as held
for trading are measured at fair value with unrealized gains and losses
recognized in the statement of operations. Transaction costs are expensed as
incurred.





Upon
adoption of these new standards, the Company has designated its cash and cash
equivalents as held-for-trading, which are measured at fair value.
 Accounts receivable and other are classified as loans and receivables,
which are measured at amortized cost.  Restricted certificates of deposit
are classified as held-to-maturity, and are measured at amortized cost.
 Accounts payable and accrued liabilities, property and mining taxes
payable, convertible debentures, notes payable, and accrued site closure costs
are classified as other liabilities, which are measured at amortized
cost.”





CORPORATE
GOVERNANCE




The
Company maintains a set of disclosure controls and procedures designed to ensure
that information required to be disclosed in filings made pursuant to
Multilateral Instrument 52-109 is recorded, processed, summarized and reported
in the manner specified by the relevant securities laws applicable to the
Company.  The consolidated Company operates in both Canada and Mexico
and work is ongoing to improve and modernize these controls and to ensure that
they remain consistently applied in both jurisdictions.  The Chief
Executive Officer and the Chief Financial Officer have evaluated the Company’s
disclosure control procedures as of December 31, 2007 through inquiry, review,
and testing, as well as by drawing upon their own relevant
experience.  The Company retained an independent third party
specialist in 2006 and 2007 to assist in the assessment of its disclosure
control procedures.  The Chief Executive Officer and the Chief
Financial Officer have concluded that the Company’s disclosure control
procedures are effective.  Management is also developing and
implementing a plan to address disclosure controls and procedures on a forward
looking basis as the Company continues to grow.





The
Company also maintains a system of internal controls over financial reporting,
as defined by Multilateral Instrument 52-109, Certification of Disclosure in Issuers’ Annual and
Interim Filings in order to provide reasonable assurance that assets are
safeguarded and financial information is accurate and reliable and in accordance
with Canadian GAAP.  The Company retained an independent third party
specialist in 2006 and 2007 to assist in the assessment of its internal
control procedures.  The Board of Directors approves the financial
statements and ensures that management discharges its financial
responsibilities. The Board’s review is accomplished principally through the
audit committee, which is composed of independent non-executive directors. The
audit committee meets periodically with management and auditors to review
financial reporting and control matters. The Board of Directors has also
appointed a compensation committee composed of non-executive directors whose
recommendations are followed with regard to executive compensation. From time to
time the board may also form special sub-committees, which must investigate and
report to the Board on specific topics.





There
have been no changes in internal control over financial reporting during the
year ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





Other
Information





Additional
information relating to the Company, including the Company’s Annual Information
Form for the year ended December 31, 2007, may be found on SEDAR at
www.sedar.com.





SUBSEQUENT
EVENTS




Subsequent
to December 31, 2007:





(a)
            The
      Company issued 246,000common shares
      between $0.70 and $3.00on the exercise of
      stock options, and 1,137,000 common shares at $10.00 on the exercise of
      warrants for proceeds of
$11,733,640;





(b)
            The
      Company granted 284,500 stock options at $12.91 for a period of five years
      expiring on February 12, 2013.









MAG
      SILVER CORP.
                (An
      exploration stage company)
                Consolidated
      Financial Statements
                For
      the year ended
                December
      31, 2007Dated:
      March 14, 2008
 
 
 
 
 
 
 
 
 
 
 A copy of
this report will be provided to any shareholder who requests it.
         VANCOUVER
      OFFICE
                      Suite
      328
                      550
      Burrard Street
                      Vancouver,
      BC V6C 2B5
                    604
      630 1399 phone
                      866
      630 1399 toll free
                      604
      484 4710 fax
                    
                    
                    TSX:MAG
                      AMEX:MVG
                      www.magsilver.com
                      info@magsilver.com
  Management’s
responsibility for the Financial Statements
 
 The
preparation and presentation of the accompanying consolidated financial
statements, Management’s Discussion and Analysis (“MD&A”) and all financial
information in the Annual Report are the responsibility of management and have
been approved by the Board of Directors.
 
 The
consolidated financial statements have been prepared in accordance with Canadian
generally accepted accounting principles. Financial statements, by nature are
not precise since they include certain amounts based upon estimates and
judgments. When alternative methods exist, management has chosen those it deems
to be the most appropriate in the circumstances. The financial information
presented elsewhere in the Annual Report is consistent with that in the
consolidated financial statements.
 
 Management,
under the supervision of and the participation of the Chief Executive Officer
and the Chief Financial Officer, have a process in place to evaluate disclosure
controls and procedures and internal control over financial reporting as
required by Canadian and U.S. securities regulations. We, as Chief Executive
Officer and Chief Financial Officer, will certify our annual filings with the
CSA and SEC as required in Canada by Multilateral Instrument 52-109 and in the
United States as required by the Securities Exchange Act of 1934.
 
 The board
of Directors is responsible for ensuring that management fulfills its
responsibilities for financial reporting and is ultimately responsible for
reviewing and approving the consolidated financial statements. The Board carries
out this responsibility principally through its Audit Committee which is
independent from management.
 
 The Audit
Committee is appointed by the Board of Directors and reviews the consolidated
financial statements and MD&A; considers the report of the external
auditors; assesses the adequacy of our internal controls, including management’s
assessment described below; examines and approves the fees and expenses for the
audit services; and recommends the independent auditors to the Board for the
appointment by the shareholders. The independent auditors have full and free
access to the Audit Committee and meet with it to discuss their audit work, our
internal control over financial reporting and financial reporting matters. The
Audit Committee reports its findings to the Board for consideration when
approving the consolidated financial statements for issuance to the shareholders
and management’s assessment of the internal control over financial
reporting.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting.
 
 Management
has assessed the effectiveness of our internal control over financial reporting
as of December 31, 2007 using criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of December 31,
2007.
 
 
 “Daniel
MacInnis”                                                                               “Frank
Hallam”
 Daniel
MacInnis                                                                                     Frank
Hallam
 Chief
Executive
Officer                                                                          Chief
Financial Officer
 
 March 12,
2008
 
  
  Report
of Independent Registered Chartered Accountants
 
 
 To the
Board of Directors and Shareholders of
 MAG
Silver Corp.
 (An
exploration stage company)
 
 We have
audited the accompanying consolidated balance sheets of MAG Silver Corp. and
subsidiaries (an exploration stage company) (the “Company”) as at December 31,
2007 and 2006, and the related consolidated statements of loss and comprehensive
loss, shareholders’ equity and cash flows for each of the three years in the
period ended December 31, 2007 and the cumulative period from incorporation
April 21, 1999 to December 31, 2007.  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 Public Company Accounting Oversight Board
(United States).  These standards require that we plan and perform the
audit to obtain reasonable assurance about 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 MAG Silver Corp. and subsidiaries as at
December 31, 2007 and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2007 and
the cumulative period from incorporation April 21, 1999 to December 31,
2007 in accordance with Canadian generally accepted accounting
principles.
 
 We have
also audited, in accordance with the standards of the Public Accounting
Oversight Board (United States), the Company’s internal control over financial
reporting as of December 31, 2007, based on the criteria established in
Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 12, 2008 expressed an unqualified
opinion on the Company’s internal control over financial reporting.
 
 “Deloitte
& Touche LLP”
 
 Independent
Registered Chartered Accountants
 Vancouver,
Canada
 March 12,
2008
  
  Comments
by Independent Registered Chartered Accountants on Canada - United States
of America Reporting Differences
 
 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
changes described in Note 2 to the consolidated financial
statements.  In addition, the standards of the Public Company
Accounting Oversight Board (United States) require the addition of an
explanatory paragraph when the financial statements are affected by conditions
and events that raise substantial doubt on the Company's ability to continue as
a going concern, such as those described in Note 1 to the consolidated financial
statements. Although we conducted our audits in accordance with both Canadian
generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), our report to the Board of Directors
and Shareholders dated March 12, 2008 is expressed in accordance with Canadian
reporting standards which do not require a reference to such changes in
accounting principles or permit a reference to such conditions and events in the
auditors’ report when these matters are properly accounted for and adequately
disclosed in the financial statements.
 
 
 “Deloitte
& Touche LLP”
 
 Independent
Registered Chartered Accountants
 Vancouver,
Canada
 March 12,
2008
  
  Report
of Independent Registered Chartered Accountants
 
 To the
Board of Directors and Shareholders of
 MAG
Silver Corp.
 (An
exploration stage company)
 
 We have
audited the internal control over financial reporting of MAG Silver Corp. and
subsidiaries (an exploration stage company) (the “Company”) as of December 31,
2007, based on the criteria established in Internal Control – Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Report of Management on Internal Controls over
Financial Reporting.  Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our
audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects.  Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances.  We
believe that our audit provides a reasonable basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
 
 Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 In our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
 
 We have
also audited, in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended
December 31, 2007 and the cumulative period from incorporation April 21,
1999 to December 31, 2007 of the Company and our report dated March 12,
2008 expressed an unqualified opinion on those financial statements and included
a separate report titled Comments by Independent Registered Chartered
Accountants on Canada-United States of America Reporting Differences referring
to changes in accounting principles, and conditions and events that raise
substantial doubt on the Company’s ability to continue as a going
concern.
 
 
 “Deloitte
& Touche LLP”
 
 Independent
Registered Chartered Accountants
 Vancouver,
Canada
 March 12,
2008
  
  Consolidated
      Balance Sheets(expressed
      in Canadian dollars)
                  
                  December
      312007
                  
                  
                  2006ASSETSCURRENTCash
      and cash equivalents
                  
                  $
                  60,147,307
                  
                  
                  $
                  3,506,930Accounts
      receivable (Note 3)
                  
                  
                  647,027
                  
                  
                  
                  273,035Interest
      receivable
                  
                  
                  173,308
                  
                  
                  
                  115,227Prepaid
      expenses
                  
                  
                  49,668
                  
                  
                  
                  40,965TOTAL
      CURRENT ASSETS
                  
                  
                  61,017,310
                  
                  
                  
                  3,936,157EQUIPMENT
      AND LEASEHOLDS (Note 4)
                  
                  
                  22,116
                  
                  
                  
                  31,332INVESTMENT
      IN JUANICIPIO JV (Note 5)
                  
                  
                  5,948,361
                  
                  
                  
                  3,044,509MINERAL
      RIGHTS (Note 6)
                  
                  
                  5,084,509
                  
                  
                  
                  4,584,679DEFERRED
      EXPLORATION COSTS (Note 6)
                  
                  
                  12,989,636
                  
                  
                  
                  7,333,881TOTAL
      ASSETS
                  
                  $
                  85,061,932
                  
                  
                  $
                  18,930,558LIABILITIESCURRENTAccounts
      payable and accrued liabilities
                  
                  $
                  637,180
                  
                  
                  $
                  350,368TOTAL
      LIABILITIES
                  
                  
                  637,180
                  
                  
                  
                  350,368SHAREHOLDERS'
      EQUITYShare
      capital (Note 7)Authorized
      - unlimited common shares,without
      par valueIssued
      and outstanding at Dec. 31, 2007Issued
      and outstanding at 2007 - 46,954,196common
      shares (2006 - 37,928,610)
                  
                  
                  91,105,640
                  
                  
                  
                  23,433,942Common
      share purchase warrants
                  
                  
                  2,218,444
                  
                  
                  
                  -Contributed
      surplus
                  
                  
                  7,879,650
                  
                  
                  
                  3,059,194Accumulated
      other comprehensive income
                  
                  
                  (716,778
                  )
                  
                  
                  -Deficit
                  
                  
                  (16,062,204
                  )
                  
                  
                  (7,912,946
                  )TOTAL
      SHAREHOLDERS' EQUITY
                  
                  
                  84,424,752
                  
                  
                  
                  18,580,190TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                  
                  $
                  85,061,932
                  
                  
                  $
                  18,930,558CONTINUING
      OPERATIONS (Note 1)ON
      BEHALF OF THE BOARD"Dan
      MacInnis"Dan
      MacInnis, Director"R.
      Michael Jones"R.
      Michael Jones, Director
  See
accompanying notes to the consolidated financial
statements.
  MAG
      SILVER CORP.(An
      exploration stage company)Consolidated
      Statements of Loss and Comprehensive Loss(expressed
      in Canadian dollars)Cumulativeamount
      fromApril
      21,Year
      ended
              
              
              Year
      ended
              
              
              Year
      ended
              
              
              1999
      toDecember
      31,
              
              
              December
      31,
              
              
              December
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2005
              
              
              2007EXPENSESAccounting
      and audit
              
              $
              319,896
              
              
              $
              211,168
              
              
              $
              127,959
              
              
              $
              977,146Amortization
              
              
              13,909
              
              
              
              16,820
              
              
              
              18,357
              
              
              
              62,510Bank
      charges and interest
              
              
              2,466
              
              
              
              2,214
              
              
              
              1,827
              
              
              
              25,813Filing
      and transfer agent fees
              
              
              405,844
              
              
              
              48,782
              
              
              
              42,254
              
              
              
              633,212Foreign
      exchange (gain) loss
              
              
              260,598
              
              
              
              12,479
              
              
              
              (29,506
              )
              
              
              337,407Legal
              
              
              232,980
              
              
              
              89,810
              
              
              
              167,005
              
              
              
              754,940Management
      and consulting fees
              
              
              778,228
              
              
              
              485,993
              
              
              
              415,117
              
              
              
              2,036,694Mineral
      property costs written off
              
              
              763,434
              
              
              
              -
              
              
              
              -
              
              
              
              763,434Property
      investigation expense
              
              
              43,464
              
              
              
              -
              
              
              
              4,851
              
              
              
              48,315Shareholder
      relations
              
              
              354,075
              
              
              
              288,687
              
              
              
              109,803
              
              
              
              895,201Stock
      compensation expense
              
              
              5,256,566
              
              
              
              2,341,159
              
              
              
              611,353
              
              
              
              8,532,514Telephone
      and office
              
              
              389,980
              
              
              
              365,880
              
              
              
              252,257
              
              
              
              1,303,462Travel
              
              
              243,422
              
              
              
              212,168
              
              
              
              169,993
              
              
              
              809,154Other
      write-offs
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              255,0939,064,862
              
              
              
              4,075,160
              
              
              
              1,891,270
              
              
              
              17,434,895LOSS
      BEFORE THE FOLLOWING
              
              
              (9,064,862
              )
              
              
              (4,075,160
              )
              
              
              (1,891,270
              )
              
              
              (17,434,895
              )INTEREST
      INCOME
              
              
              915,604
              
              
              
              208,593
              
              
              
              80,432
              
              
              
              1,372,691NET
      LOSS FOR THE PERIOD
              
              $
              (8,149,258
              )
              
              $
              (3,866,567
              )
              
              $
              (1,810,838
              )
              
              $
              (16,062,204
              )OTHER
      COMPREHENSIVE LOSSCURRENCY
      TRANSLATION ADJUSTMENT
              
              
              (716,778
              )
              
              
              -
              
              
              
              -
              
              
              
              (716,778
              )COMPREHENSIVE
      LOSS FOR THE PERIOD
              
              $
              (8,866,036
              )
              
              $
              (3,866,567
              )
              
              $
              (1,810,838
              )
              
              $
              (16,778,982
              )BASIC
      AND DILUTEDLOSS
      PER SHARE
              
              $
              (0.19
              )
              
              $
              (0.10
              )
              
              $
              (0.06
              )WEIGHTED
      AVERAGE NUMBEROF
      SHARES OUTSTANDING
              
              
              42,411,815
              
              
              
              37,055,631
              
              
              
              28,353,901
 
 See
accompanying notes to the consolidated financial statements.
 
 
 
 MAG
      SILVER CORP.(An
      exploration stage company)Consolidated
      Statements of Shareholders' Equity(expressed
      in Canadian dollars)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              DeficitAccumulated
              
              
              accumulatedCommon
      shares
              
              
              Common
      share
              
              
              
              
              
              other
              
              
              during
      the
              
              
              Total
              
              
              Totalwithout
      par value
              
              
              purchase
      warrants
              
              
              Contributed
              
              
              comprehensive
              
              
              exploration
              
              
              Deficit
              
              
              shareholders'Shares
              
              
              Amount
              
              
              Number
              
              
              Amount
              
              
              Surplus
              
              
              income
      ("AOCI")
              
              
              stage
              
              
              and
      "AOCI"
              
              
              equityBalance,
                December
      31, 2004
              25,829,538
              
              
              
              11,632,368
              
              
              
              -
              
              
              
              -
              
              
              
              306,166
              
              
              
              
              
              
              (2,235,541
              )
              
              
              
              
              
              9,712,460Issued
      for cash
              
              
              7,201,176
              
              
              
              6,771,672
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              -
              
              
              
              
              
              
              6,771,672Issued
      to obtain mineral propertyoption
      rights
              
              
              1,654,679
              
              
              
              1,337,289
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              -
              
              
              
              
              
              
              1,327,822Warrants
      exercised
              
              
              1,400,755
              
              
              
              1,046,566
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              -
              
              
              
              
              
              
              1,046,566Stock
      options exercised
              105,500
              
              
              
              24,290
              
              
              
              -
              
              
              
              -
              
              
              
              (1,540
              )
              
              
              
              
              
              -
              
              
              
              
              
              
              22,750Stock
      options granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              611,353
              
              
              
              
              
              
              -
              
              
              
              
              
              
              611,353Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              (1,810,838
              )
              
              
              
              
              
              (1,810,838
              )Balance,
                December
      31, 2005
              36,191,648
              
              
              
              20,812,185
              
              
              
              -
              
              
              
              -
              
              
              
              915,979
              
              
              
              -
              
              
              
              (4,046,379
              )
              
              
              -
              
              
              
              17,681,785Issued
      for cash (Note 7 (a))
              245,716
              
              
              
              577,433
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              577,433Issued
      to obtain mineral propertyoption
      rights
              
              
              85,043
              
              
              
              204,431
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              204,431Warrants
      exercised
              
              
              944,503
              
              
              
              1,275,079
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,275,079Stock
      options exercised
              461,700
              
              
              
              564,814
              
              
              
              -
              
              
              
              -
              
              
              
              (197,944
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              366,870Stock
      options granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,341,159
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,341,159Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,866,567
              )
              
              
              -
              
              
              
              (3,866,567
              )Balance,
                December
      31, 2006
              37,928,610
              
              
              
              23,433,942
              
              
              
              -
              
              
              
              -
              
              
              
              3,059,194
              
              
              
              -
              
              
              
              (7,912,946
              )
              
              
              (7,912,946
              )
              
              
              18,580,190Issued
      for cash (Note 7 (a))
              5,760,000
              
              
              
              59,955,443
              
              
              
              1,380,000
              
              
              
              2,692,571
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              62,648,014Warrants
      exercised
              
              
              2,883,486
              
              
              
              6,468,783
              
              
              
              (243,000
              )
              
              
              (474,127
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,994,656Stock
      options exercised
              382,100
              
              
              
              1,247,472
              
              
              
              -
              
              
              
              -
              
              
              
              (436,110
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              811,362Stock
      options granted
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,256,566
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,256,566Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (716,778
              )
              
              
              -
              
              
              
              (716,778
              )
              
              
              (716,778
              )Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8,149,258
              )
              
              
              (8,149,258
              )
              
              
              (8,149,258
              )Balance,
      December 31, 2007
              46,954,196
              
              
              $
              91,105,640
              
              
              
              1,137,000
              
              
              $
              2,218,444
              
              
              $
              7,879,650
              
              
              $
              (716,778
              )
              
              $
              (16,062,204
              )
              
              $
              (16,778,982
              )
              
              $
              84,424,752




See
accompanying notes to the consolidated financial statements.


MAG
      SILVER CORP.(An
      exploration stage company)Consolidated
      Statements of Cash Flows(expressed
      in Canadian dollars)Cumulativeamount
      fromApril
      21,Year
      ended
              
              
              Year
      ended
              
              
              Year
      ended
              
              
              1999
      toDecember
      31,
              
              
              December
      31,
              
              
              December
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2005
              
              
              2007OPERATING
      ACTIVITIESNet
      loss for the period
              
              $
              (8,149,258
              )
              
              $
              (3,866,567
              )
              
              $
              (1,810,838
              )
              
              
              (15,814,076
              )Items
      not involving cash:Other
      write-offs
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              255,093Amortization
              
              
              13,909
              
              
              
              16,820
              
              
              
              18,357
              
              
              
              62,510Mineral
      property costs written off
              
              
              763,434
              
              
              
              -
              
              
              
              -
              
              
              
              763,434Non-cash
      stock compensation expense
              
              
              5,256,566
              
              
              
              2,341,159
              
              
              
              611,353
              
              
              
              8,284,386Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              (373,992
              )
              
              
              (167,963
              )
              
              
              418,077
              
              
              
              (647,026
              )Interest
      receivable
              
              
              (58,081
              )
              
              
              (88,815
              )
              
              
              (4,218
              )
              
              
              (173,308
              )Prepaid
      expenses
              
              
              (8,703
              )
              
              
              (18,729
              )
              
              
              (9,387
              )
              
              
              (49,669
              )Accounts
      payable and accrued liabilities
              
              
              (52,188
              )
              
              
              (43,253
              )
              
              
              329,412
              
              
              
              298,180(2,608,313
              )
              
              
              (1,827,348
              )
              
              
              (447,244
              )
              
              
              (7,020,476
              )INVESTING
      ACTIVITIESPurchase
      of equipment and leasehold improvements
              
              
              (4,693
              )
              
              
              (8,238
              )
              
              
              (16,868
              )
              
              
              (87,299
              )Advances
      to Minera Los Lagartos, S.A. de C.V.
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (113,139
              )Acquisition
      of Minera Los Lagartos, S.A. de C.V.
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (357,500
              )Investment
      in Juanicipio JV
              
              
              (3,620,630
              )
              
              
              (98,957
              )
              
              
              (257,287
              )
              
              
              (6,581,806
              )Mineral
      rights
              
              
              (832,891
              )
              
              
              (441,598
              )
              
              
              (246,935
              )
              
              
              (1,346,635
              )Deferred
      exploration costs
              
              
              (5,747,128
              )
              
              
              (3,896,504
              )
              
              
              (1,178,821
              )
              
              
              (13,114,166
              )Other
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (252,420
              )(10,205,342
              )
              
              
              (4,445,297
              )
              
              
              (1,699,911
              )
              
              
              (21,852,965
              )FINANCING
      ACTIVITIESIssue
      of share capital
              
              
              69,454,032
              
              
              
              2,219,382
              
              
              
              7,840,988
              
              
              
              88,645,748Issue
      of special warrants
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              375,00069,454,032
              
              
              
              2,219,382
              
              
              
              7,840,988
              
              
              
              89,020,748INCREASE
      (DECREASE) IN CASH
              
              
              56,640,377
              
              
              
              (4,053,263
              )
              
              
              5,693,833
              
              
              
              60,147,307CASH
      AND EQUIVALENTS, BEGINNING OF PERIOD
              
              
              3,506,930
              
              
              
              7,560,193
              
              
              
              1,866,360
              
              
              
              -CASH
      AND EQUIVALENTS, END OF PERIOD(Note
      2 (e))
              
              $
              60,147,307
              
              
              $
              3,506,930
              
              
              $
              7,560,193
              
              
              $
              60,147,307Interest
      paid
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              12,500Non-cash
      investing and financing activities:Issue
      of shares in connection with acquisitions
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              430,000Issue
      of shares in exchange for mineral propertyoption
      rights
              
              $
              -
              
              
              $
              204,431
              
              
              $
              1,337,289
              
              
              $
              3,220,472




See
accompanying notes to the consolidated financial statements.


MAG
SILVER CORP.
 (An
exploration stage company)
 Notes
to the Consolidated Financial Statements
 For
the years ended December 31, 2007, 2006 and 2005
 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 working on mineral properties it has staked or
acquired by way of option agreement principally in Mexico. The Company has not
yet determined whether these mineral properties contain any economically
recoverable ore reserves. 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 any revenue
generating operations. 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 to these consolidated
financial statements.
 
 (a)           Principles
of consolidation
 
 The
financial statements of entities which are controlled by the Company through
voting equity interests, referred to as subsidiaries, are consolidated. Variable
interest entities (“VIEs”), which include, but are not limited to, special
purpose entities, trusts, partnerships, and other legal structures, as defined
by the Accounting Standards Board in Accounting Guideline (“AcG”) 15, Consolidation of Variable Interest
Entities (“AcG 15”), are entities in which equity investors do not
have the characteristics of a “controlling financial interest” or there is not
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support.  VIEs are subject to
consolidation by the primary beneficiary who will absorb the majority of the
entities’ expected
losses and/or expected residual returns.  The Company does not believe
that it has any VIEs subject to consolidation. All significant intercompany
balances and transactions have been eliminated upon
consolidation.  The principal subsidiary at December 31, 2007 is
Minera Los Lagartos, S.A. de C.V. (“Lagartos”) which holds several properties in
Mexico.
 
 Investments
where the Company has the ability to exercise significant influence, generally
where the Company has a 20% to 50% equity interest, are accounted for using the
equity method. Under this method, the Company’s share of the investee’s earnings
or losses is included in operations and its investments therein are adjusted by
a like amount. Dividends received from these investments are credited to the
investment accounts.
 
 The
Company’s 44% interest in the Juanicipio Joint Venture (Note 5) is recorded
using the equity method.
 
 (b)           Measurement
uncertainty
 
 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.
Significant estimates used in preparation of these financial statements include
estimates of the net realizable value of mineral properties and deferred
exploration costs, asset retirement obligations, stock based compensation,
income tax provisions and contingencies. Actual results may differ from those
estimated.
 
 (c)           Asset
retirement obligations
 
 The
Company records the present value of asset retirement obligations including
reclamation costs when the obligation is incurred and it is 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.
 
 (d)           Financial
instruments
 
 The
carrying values of cash and cash equivalents, accounts receivable, interest
receivable, accounts payable, and accrued liabilities reported 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
because of fluctuations in foreign exchange rates and the degree of volatility
of these rates.  Certain of the Company’s accounts receivable,
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.
 
 (e)         Cash
and cash equivalents
 
 Cash and
cash equivalents consist of cash and short-term money market instruments which
are readily convertible into cash and have original maturities of 90 days or
less.  The Company holds no asset backed commercial
paper.
 
 Details
of cash and cash equivalents are as follows:
  Dec.
      31, 2007
              
              
              Dec.
      31, 2006Cash
              
              $
              912,205
              
              
              $
              406,930Short-term
      deposits
              
              
              59,235,102
              
              
              
              3,100,000$
              60,147,307
              
              
              $
              3,506,930
  (f)           Mineral
rights and deferred exploration costs
 
 The
Company is in the exploration stage with respect to its activities and
accordingly follows the practice of capitalizing all costs relating to the
acquisition, exploration and development of its mining rights 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 carrying
values related to abandoned interests are charged to operations at the time of
any abandonment.
 
 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 value.
 
 (g)           Equipment
and leaseholds
 
 Equipment
and leaseholds are recorded at cost and are amortized at the following annual
rates:
 
 Computer
equipment and
software                               30%
declining balance
 Field
equipment                                                                30%
declining balance
 Leasehold
improvements                                                2
years straight line
 
 (h)           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 substantive enactment.
 
 (i)
              Translation of foreign
      currencies
 
 The
      Company’s functional currency is the Canadian dollar. For integrated
      foreign operations, monetary assets and liabilities are translated at year
      end exchange rates and other assets and liabilities are translated at
      historical rates. Revenues, expenses and cash flows are translated at
      average exchange rates. Gains and losses on translation of monetary assets
      and monetary liabilities are charged to
  operations.
 
 The
      accounts of self-sustaining foreign operations are translated at year end
      exchange rates, and revenues and expenses are translated at average
      exchange rates. Differences arising from these foreign currency
      translations are recorded in accumulated other comprehensive income as a
      cumulative translation adjustment until they are realized by a reduction
      in the investment.
 
 (j)           Stock-based
compensation
 
 The fair
value of all stock-based compensation and other stock-based payments are
estimated using the Black-Scholes option valuation model and are recorded in
operations over their vesting periods.
 
 The total
compensation expense recognized in the statement of operations for share
purchase options granted during the year ended December 31, 2007 amount to
$5,256,566 (2006 - $2,341,159). Please refer to Note 7 (c) for a
summary of stock options granted in the current year and the related valuation
assumptions.
  (k)           Earnings
(loss) per common share
 
 Basic
earnings (loss) per share calculations are based on the weighted average number
of common shares outstanding.
 
 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.
 
 Potentially
dilutive securities totalling 4,942,700 for the year ended December 31,
2007 (3,805,700 and 1,137,000 shares arising from outstanding and exercisable
stock options and share purchase warrants, respectively) and 5,993,287 shares
for the year ended December 31, 2006 (3,352,800 and 2,640,487 shares arising
from outstanding exercisable stock options and share purchase warrants,
respectively) were not included as their effect would be
anti-dilutive.
 
 (l)           Comprehensive
Income
 
 Effective
January 1, 2007, the Company adopted CICA Handbook Section 1530, Comprehensive Income, CICA
Handbook Section 3861, Financial Instrument Presentation
and Disclosureand CICA Handbook Section 3855, Financial Instruments – Recognition and
Measurement, CICA Handbook Section 3865, Hedges, and CICA Handbook
Section 3251, Equity.
 These new Handbook Sections provide comprehensive requirements for the
recognition and measurement of financial instruments, transaction costs incurred
on financial instruments, as well as standards on when and how hedge accounting
may be applied.  CICA Handbook Section 1530 also introduces a new component
of equity referred to as comprehensive income. Comprehensive income includes
changes in shareholders’ equity during a period arising from non-owner sources
and, for the Company, other comprehensive income includes currency translation
adjustments on its net investment in self sustaining foreign operations. The new
standards also require all derivatives to be recorded on the balance sheet at
fair value and establish new accounting requirements for hedges. The Company has
adopted these standards prospectively effective January 1, 2007. The adoption of
these new standards had no material effect on the financial position or opening
account balances on January 1, 2007.
 
 In
accordance with these new standards, the Company now classifies all financial
instruments as either held-to-maturity, available-for-sale, held-for-trading,
loans and receivables, or other financial liabilities.  Financial assets
held to maturity, loans and receivables and financial liabilities other than
those held for trading, are measured at amortized cost.  Available-for-sale
instruments are measured at fair value with unrealized gains and losses
recognized in other comprehensive income.  Instruments classified as held
for trading are measured at fair value with unrealized gains and losses
recognized in the statement of operations.  Transaction costs are expensed
as incurred.
  Upon
adoption of these new standards, the Company has designated its cash and cash
equivalents as held-for-trading, which are measured at fair value.
 Accounts receivable and other are classified as loans and receivables,
which are measured at amortized cost.  Restricted certificates of deposit
are classified as held-to-maturity, and are measured at amortized cost.
 Accounts payable and accrued liabilities, property and mining taxes
payable, convertible debentures, notes payable, and accrued site closure costs
are classified as other liabilities, which are measured at amortized
cost.
 
 The
impact of adoption of these new standards on the results of operations for the
year ended December 31, 2007 and financial position as at that date was the
reporting of a currency translation loss of $716,778 recognized on December 31,
2007 as an item of other comprehensive loss for the year and the inclusion of
that balance in accumulated other comprehensive loss within a separate component
of shareholders’ equity.
 
 (m)           Comparative
figures
 
 Certain
of the prior years’ comparative figures have been reclassified to conform with
the classifications used in 2007.
 
 (n)
              Recent Accounting
      Pronouncements
 
 (i)
              Financial
      Instrument Disclosure
 
 In March 2007, the CICA issued Section
3862 Financial Instruments –
Disclosures and Section 3863 Financial Instruments –
Presentation, which together comprise a complete set of disclosure and
presentation requirements that revise and enhance current disclosure
requirements for financial instruments. Section 3862 requires disclosure of
additional detail by financial asset and liability categories. Section 3863
establishes standards for presentation of financial instruments and
non-financial derivatives. It deals with the classification of financial
instruments, from the perspective of the issuer, between liabilities and equity,
the classification of related interest, dividends, losses and gains, and the
circumstances in which financial assets and financial liabilities are
offset.
 
 The
Company will implement these disclosures in the first quarter of
2008.
 
 (ii)
              Capital
      Disclosures
 
 In
December 2006, the CICA issued Section 1535 of the CICA Handbook, “Capital
Disclosures” which applies to fiscal years beginning on or after October 1,
2007. This Section establishes standards for disclosing information about an
entity’s capital and how it is managed. The Company will implement these
disclosures in the first quarter of 2008.
 
 (iii)
              Inventories
 
 In June
2007, the CICA issued Section 3031 Inventories which provides
more guidance on the measurement and disclosure requirements for inventories.
Specifically the new pronouncement requires inventories to be measure at the
lower of cost or net realizable value, and provides guidance on the
determination of cost and its subsequent recognition as an expense, including
any write-down to net realizable value. The new pronouncement is effective in
the first quarter of 2008, and the new standard is not expected to have a
material impact on the Company’s results of operations.
 
 (iv)
              Goodwill
      and Intangible Assets
 
 In
February 2008, the CICA issued Section 3064, Goodwill and Intangible
Assets, replacing Section 3062, Goodwill and Other Intangible
Assets and Section 3450, Research and Development
Costs. The new pronouncement establishes standards for the recognition,
measurement, presentation, and disclosure of goodwill subsequent to its initial
recognition and of intangible assets by profit-oriented enterprises. Standards
concerning goodwill are unchanged from the standards included in the previous
Section 3062. This Section is effective in the first quarter of 2009, and the
Company is currently evaluating the impact of the adoption of this new Section
on its consolidated financial statements.
 
 (v)
              Convergence
      with International Financial Reporting
Standards
 
 In
January 2006, the CICA Accounting Standards Board (“AcSB”) adopted a strategic
plan for the direction of accounting standards in Canada and the expected
convergence with International Financial Reporting Standards (“IFRS”) by the end
of 2011. On February 13, 2008 the Canadian Accounting Standards Board confirmed
2011 as the official changeover date for publicly listed Canadian companies to
start using International Financial Reporting Standards (IFRS). The transition
will affect interim and annual financial statements relating to years beginning
on or after January 1, 2011. The impact of the transition to IFRS on the
Company's consolidated financial statements has not yet been
determined.
 
 
 3.           ACCOUNTS
RECEIVABLE
   Dec.
      31, 2007
                
                
                Dec.
      31, 2006Goods
      and services tax recoverable
                
                $
                50,314
                
                
                $
                19,949Mexican
      value added tax ("IVA") recoverable
                
                
                596,713
                
                
                
                251,919Other
                
                
                -
                
                
                
                1,167$
                647,027
                
                
                $
                273,035
  4. EQUIPMENT
AND LEASEHOLDS
 
  December
      31,
                
                
                
                
                
                December
      31,2007
                
                
                2006Accumulated
                
                
                Net
      book
                
                
                Net
      bookCost
                
                
                depreciation
                
                
                value
                
                
                valueComputer
      equipmentand
      software
                
                $
                33,755
                
                
                $
                21,152
                
                
                $
                12,603
                
                
                $
                14,377Field
      equipment
                
                
                35,191
                
                
                
                25,678
                
                
                
                9,513
                
                
                
                13,205Leasehold
      improvements
                
                
                15,680
                
                
                
                15,680
                
                
                
                -
                
                
                
                3,750$
                84,626
                
                
                $
                62,510
                
                
                $
                22,116
                
                
                $
                31,332
  5.           INVESTMENT
IN JUANICIPIO JOINT VENTURE (THE “JJV”)
 
 Pursuant
to an original option agreement dated July 18, 2002 and subsequent corporate
acquisitions the Company acquired a 100% interest in the Juanicipio Property in
exchange for total consideration of $919,458. Of this amount, $656,125 was paid
in cash and 366,667 common shares of the Company were issued at a value of
$263,333.
 
 Pursuant
to a letter of intent dated March 17, 2005 and a formal agreement effective July
1, 2005 (the “Agreement”) with Industrias Peñoles, S.A. DE C.V. (“Peñoles”), the
Company 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
conducting US $5,000,000 of exploration on the property over four years and
Peñoles purchasing US $1,000,000 of Common Shares of the Company in two tranches
for US$500,000 each.
 
 In mid
2007 Peñoles met all of the earn-in requirements of the Agreement.  In
December 2007 the Company and Peñoles created an operating company named Minera
Juanicipio, S.A. DE C.V. (“Minera Juanicipio”) for the purpose of holding and
operating the Juanicipio Property.  Minera Juanicipio is held as to
56% by Peñoles and 44% by the Company.  In December 2007 all mineral
rights and surface rights relating to the Juanicipio project held by the Company
and Peñoles respectively were ceded into Minera Juanicipio.  Minera
Juanicipio is currently operated according to the terms and conditions of the
original 2005 Agreement.  All costs relating to the project and Minera
Juanicipio will be shared by the Company and Peñoles pro-rata based on their
ownership interests in Minera Juanicipio.
 
 To
capitalize Minera Juanicipio the Company invested 63.40 million pesos ($6.025
million) into Minera Juanicipio while Peñoles invested 80.69 million pesos
($7.668 million). MAG then received a payout from Minera Juanicipio of 26.41
million pesos ($2.510 million) against its contribution of the Juanicipio
mineral rights while Peñoles received 70.28 million pesos against its
contribution of surface rights and the Company’s 44% share of exploration costs
incurred by Peñoles in the period subsequent to completion of their
earn-in.
 
 The
Company has recorded its investment in the JJV using the equity basis of
accounting. The cost of the investment includes the carrying value of the
deferred exploration and mineral and surface rights costs incurred by the
Company on the Juanicipio Property and contributed to the JJV plus the required
net cash investment to establish its 44% interest.
  Effective
December 31, 2007 the Company concluded that the functional currency of the JJV
was the Mexican peso as expenditures in the JJV were principally being incurred
in pesos and funded by advances from the venturers which were denominated in
pesos. The Company considers the JJV to be self sustaining and translates its
net investment in JJV using the current rate method with translation gains and
losses recorded in other comprehensive loss which is a component of
shareholders’ equity, until there is a realized reduction in the net
investment.
 
 A
continuity of the Company’s 44% interest in JJV is detailed as
follows:
 
 2007
              
              
              2006Camp
      costs
              
              $
              13,108
              
              
              $
              9,087Geochemical
              
              
              -
              
              
              
              238Geological
              
              
              66,190
              
              
              
              79,538Geophysical
              
              
              10,905
              
              
              
              -Gov't
      fees and licenses
              
              
              8,764
              
              
              
              9,547Travel
              
              
              3,906
              
              
              
              13,725Site
      administration
              
              
              2,292
              
              
              
              8,089Cash
      contributions to the JJV
              
              
              6,025,018
              
              
              
              -6,130,183
              
              
              
              120,224Balance,
      beginning of year
              
              
              3,044,509
              
              
              
              2,945,552$
              9,174,692
              
              
              $
              3,065,776Recoveries
              
              
              (2,509,553
              )
              
              
              (21,267
              )Translation
      adjustment
              
              
              (716,778
              )
              
              
              -Balance,
      end of year
              
              $
              5,948,361
              
              
              $
              3,044,509
 At
December 31, 2007 the assets of Minera Juanicipio consisted of cash in the
amount of 5.54 million pesos ($526,474), IVA receivables in the amount of 18.48
million pesos ($1.76 million) and mineral and surface rights at a deemed value
of 123.12 million pesos ($11.7 million).  Payables to Peñoles for
exploration work amounted to 3.05 million pesos ($290,000) while shareholders
equity was 144.09 million pesos ($13.69 million).  As Minera
Juanicipio was created just before year end there were no results from
operations to report.
  6.        MINERAL
RIGHTS AND DEFERRED EXPLORATION COSTS
  Year
      ended December 31, 2007(Batopilas)Don
      Fippi
                
                
                Guigui
                
                
                Lagartos
      NW
                
                
                Lagartos
      SE
                
                
                Sierra
      deRamirez
                
                
                Adargas
                
                
                Cinco
      deMayo
                
                
                Sello
                
                
                Other
                
                
                TotalAcquisition
      costs ofmineral
      rightsBal.,
      beginning of year
                
                $
                1,422,672
                
                
                $
                1,571,172
                
                
                $
                50,032
                
                
                $
                -
                
                
                $
                527,645
                
                
                $
                432,061
                
                
                $
                428,610
                
                
                $
                28,143
                
                
                $
                124,344
                
                
                $
                4,584,679Incurred
      during year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                273,091
                
                
                
                -
                
                
                
                181,838
                
                
                
                77,709
                
                
                
                399,253
                
                
                
                931,891Less
      amounts written off
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (432,061
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (432,061
                )Balance,
      end of year
                
                $
                1,422,672
                
                
                $
                1,571,172
                
                
                $
                50,032
                
                
                $
                -
                
                
                $
                800,736
                
                
                $
                -
                
                
                $
                610,448
                
                
                $
                105,852
                
                
                $
                523,597
                
                
                $
                5,084,509Deferred
      exploration costsCamp
      costs
                
                $
                126,424
                
                
                $
                439
                
                
                $
                1,596
                
                
                $
                65,246
                
                
                $
                2,814
                
                
                $
                -
                
                
                $
                76,692
                
                
                $
                14,942
                
                
                $
                9,112
                
                
                $
                297,265Drilling
                
                
                477,758
                
                
                
                -
                
                
                
                -
                
                
                
                1,367,777
                
                
                
                -
                
                
                
                -
                
                
                
                1,048,855
                
                
                
                385,505
                
                
                
                -
                
                
                
                3,279,895Geochemical
                
                
                54,735
                
                
                
                -
                
                
                
                299
                
                
                
                51,220
                
                
                
                -
                
                
                
                -
                
                
                
                54,195
                
                
                
                8,316
                
                
                
                -
                
                
                
                168,765Geological
                
                
                398,558
                
                
                
                8,469
                
                
                
                7,517
                
                
                
                169,436
                
                
                
                31,323
                
                
                
                -
                
                
                
                229,781
                
                
                
                47,994
                
                
                
                43,852
                
                
                
                936,930Geophysical
                
                
                117,382
                
                
                
                50,890
                
                
                
                36,666
                
                
                
                206,199
                
                
                
                205,468
                
                
                
                875
                
                
                
                56,175
                
                
                
                36,606
                
                
                
                -
                
                
                
                710,261Gov't
      fees and licenses
                
                
                6,495
                
                
                
                12,320
                
                
                
                73,381
                
                
                
                128,604
                
                
                
                35,500
                
                
                
                882
                
                
                
                58,327
                
                
                
                3,105
                
                
                
                96,767
                
                
                
                415,381Site
      administration
                
                
                27,449
                
                
                
                1,136
                
                
                
                831
                
                
                
                18,085
                
                
                
                658
                
                
                
                -
                
                
                
                14,897
                
                
                
                2,842
                
                
                
                1,061
                
                
                
                66,959Travel
                
                
                51,445
                
                
                
                226
                
                
                
                563
                
                
                
                13,110
                
                
                
                9,735
                
                
                
                -
                
                
                
                23,283
                
                
                
                5,164
                
                
                
                1,406
                
                
                
                104,932Transport
      and shipping
                
                
                1,322
                
                
                
                627
                
                
                
                -
                
                
                
                3,110
                
                
                
                -
                
                
                
                1,681
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                6,7401,261,568
                
                
                
                74,107
                
                
                
                120,853
                
                
                
                2,022,787
                
                
                
                285,498
                
                
                
                3,438
                
                
                
                1,562,205
                
                
                
                504,474
                
                
                
                152,198
                
                
                
                5,987,128Bal.,
      beginning of year
                
                
                2,082,845
                
                
                
                1,376,293
                
                
                
                -
                
                
                
                2,197,361
                
                
                
                149,130
                
                
                
                314,778
                
                
                
                1,213,474
                
                
                
                -
                
                
                
                -
                
                
                
                7,333,881Less
      amounts written off
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (318,216
                )
                
                
                -
                
                
                
                -
                
                
                
                (13,157
                )
                
                
                (331,373
                )Balance,
      end of year
                
                $
                3,344,413
                
                
                $
                1,450,400
                
                
                $
                120,853
                
                
                $
                4,220,148
                
                
                $
                434,628
                
                
                $
                -
                
                
                $
                2,775,679
                
                
                $
                504,474
                
                
                $
                139,041
                
                
                $
                12,989,636
   Year
      ended December 31, 2006(Batopilas)Don
      Fippi
                
                
                Guigui
                
                
                Lagartos
      NW
                
                
                Lagartos
      SE
                
                
                Sierra
      deRamirez
                
                
                Adargas
                
                
                Cinco
      deMayo
                
                
                Sello
                
                
                Other
                
                
                TotalAcquisition
      costsof
      mineral rightsBal.,
      beginning of year
                
                $
                1,422,672
                
                
                $
                1,571,172
                
                
                $
                39,629
                
                
                $
                -
                
                
                $
                329,854
                
                
                $
                289,387
                
                
                $
                285,936
                
                
                $
                -
                
                
                $
                -
                
                
                $
                3,938,650Incurred
      during year
                
                
                -
                
                
                
                -
                
                
                
                10,403
                
                
                
                -
                
                
                
                197,791
                
                
                
                142,674
                
                
                
                142,674
                
                
                
                28,143
                
                
                
                124,344
                
                
                
                646,029Balance,
      end of year
                
                $
                1,422,672
                
                
                $
                1,571,172
                
                
                $
                50,032
                
                
                $
                -
                
                
                $
                527,645
                
                
                $
                432,061
                
                
                $
                428,610
                
                
                $
                28,143
                
                
                $
                124,344
                
                
                $
                4,584,679Deferred
      exploration costsCamp
      costs
                
                $
                110,259
                
                
                $
                608
                
                
                $
                62,576
                
                
                $
                380
                
                
                $
                3,117
                
                
                $
                -
                
                
                $
                53,276
                
                
                $
                -
                
                
                $
                -
                
                
                $
                230,216Drilling
                
                
                280,584
                
                
                
                -
                
                
                
                1,103,093
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                659,666
                
                
                
                -
                
                
                
                -
                
                
                
                2,043,343Geochemical
                
                
                28,674
                
                
                
                -
                
                
                
                56,070
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                57,520
                
                
                
                -
                
                
                
                -
                
                
                
                142,264Geological
                
                
                326,220
                
                
                
                13,110
                
                
                
                224,710
                
                
                
                2,864
                
                
                
                29,970
                
                
                
                1,455
                
                
                
                160,039
                
                
                
                -
                
                
                
                -
                
                
                
                758,368Geophysical
                
                
                6,442
                
                
                
                81,314
                
                
                
                64,480
                
                
                
                -
                
                
                
                721
                
                
                
                -
                
                
                
                89,561
                
                
                
                -
                
                
                
                -
                
                
                
                242,518Gov't
      fees and licenses
                
                
                23,950
                
                
                
                8,689
                
                
                
                263,204
                
                
                
                92
                
                
                
                17,273
                
                
                
                1,173
                
                
                
                34,967
                
                
                
                -
                
                
                
                -
                
                
                
                349,347Travel
                
                
                34,052
                
                
                
                410
                
                
                
                6,013
                
                
                
                308
                
                
                
                838
                
                
                
                986
                
                
                
                10,413
                
                
                
                -
                
                
                
                -
                
                
                
                53,020Transport
      and shipping
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Site
      administration
                
                
                31,775
                
                
                
                6,967
                
                
                
                14,380
                
                
                
                -
                
                
                
                8,675
                
                
                
                3,385
                
                
                
                12,245
                
                
                
                -
                
                
                
                -
                
                
                
                77,427841,956
                
                
                
                111,099
                
                
                
                1,794,525
                
                
                
                3,643
                
                
                
                60,594
                
                
                
                6,999
                
                
                
                1,077,687
                
                
                
                -
                
                
                
                -
                
                
                
                3,896,504Bal.,
      beginning of year
                
                
                1,240,889
                
                
                
                1,265,194
                
                
                
                399,192
                
                
                
                -
                
                
                
                88,536
                
                
                
                307,779
                
                
                
                135,787
                
                
                
                -
                
                
                
                -
                
                
                
                3,437,377Balance,
      end of year
                
                $
                2,082,845
                
                
                $
                1,376,293
                
                
                $
                2,193,717
                
                
                $
                3,643
                
                
                $
                149,130
                
                
                $
                314,778
                
                
                $
                1,213,474
                
                
                $
                -
                
                
                $
                -
                
                
                $
                7,333,881
 (a)           Don
Fippi Property
 
 The
Company has a 100% interest in the Don Fippi mining concessions located in the
Batopilas, Chihuahua district of Mexico, subject to a royalty of 4.5% of the Net
Smelter returns obtained from the property. To December 31, 2007 the Company has
incurred $3,344,413 in exploration costs on the property.
 
 (b)           Guigui
Property
 
 The
Company has a 100% interest in mining concessions located in the Santa Eulalia
(Guigui), Chihuahua district of Mexico, subject to a royalty of 2.5% of the Net
Smelter returns obtained from the property. To December 31, 2007 the Company has
incurred $1,450,400 in exploration costs on the property.
 
 (c)           Lagartos
Properties
 
 The
Company has acquired an exploration concession on mining claims (Lagartos) on
the Fresnillo trend to the northwest and southeast of the Juanicipio property.
This exploration concession enables the Company to explore the mining claim
covered by the concession to December 2009, subject to the Company paying any
applicable annual tax or other regulatory charges. To December 31, 2007 the
Company has incurred $120,853 in exploration costs on the Lagartos NW property
and $4,220,148 in exploration costs on the Lagartos SE property.
 
 (d)           Sierra
Ramirez Property
 
 On
December 14, 2003 the Company entered into an option agreement to acquire a 100%
interest in certain mining concessions located in the Sierra Ramirez district in
Durango, Mexico. Under the terms of the option agreement, the Company was
obligated to:
 
 (i)
              make
      scheduled payments totalling US$1,505,000 plus applicable value added tax
      by December 14, 2008;
 
 (ii)
              incur
      exploration expenditures totalling US$250,000 by July 26, 2009;
      and
 
 (iii)
              issue
      a finder’s fee of 25,000 common shares of the Company (all are
      issued).
 
 During
the year ended December 31, 2006, the Company and Minera Rio Tinto, S.A. DE C.V.
amended terms of the above referenced option agreement. Under the amended terms,
the Company will issue Minera Rio Tinto, S.A. DE C.V. 20,000 common shares of
the Company (issued) and make scheduled cash payments totalling US$1,300,000 (of
which US$200,000 has been paid or accrued) to December 14, 2010, with a final
payment of US$650,000 of which up to US$500,000 may be paid in the common shares
of the Company. Under the amended terms all exploration work commitments were
also eliminated. To December 31, 2007 the Company has incurred $434,628 in
exploration costs on the property.
   During
the year ended December 31, 2007, the Company entered into four separate option
agreements to acquire 100% interest in certain mining concessions all of which
are internal to the Sierra Ramirez property. The Company is obligated to make
scheduled cash payments totalling US$4,938,125 (of which US$228,125 has been
paid) to January 21, 2012.
 
 (e)           Adargas
Property
 
 On
February 14, 2004 the Company entered into an option agreement to 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, as later amended, the
Company was obligated to make scheduled cash and share payments and incur
certain exploration expenditures. To June 30, 2007  the Company paid
US$125,000 in cash, issued 165,670 common shares at a value of $266,630 and
completed approximately US$260,000 in exploration costs. During the period ended
June 30, 2007 the Company terminated its option agreement, and consequently,
total deferred acquisition and exploration costs of $750,277 were
written-off.
 
 (f)           Cinco
de Mayo Property
 
 On
February 26, 2004 the Company entered into an option agreement 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. Under the terms of the agreement, as
later amended, the Company was obligated to make scheduled cash and share
payments together worth US$1,000,000 (US$400,000 in cash and share payments
made) and incur certain exploration expenditures totalling US$1,000,000 by July
26, 2009 (incurred). To December 31, 2007 the Company paid US$300,000 in cash,
issued 165,670 common shares at a value of $266,630 and completed approximately
$2,775,679 in exploration costs.
 
 (g)
              Sello  Property
 
 On
December 8, 2006 the Company entered into a letter of intent agreement to
acquire a 100% interest in the Sello and Sello Uno claims located in Zacatecas
State, by making scheduled option payments totalling US$1,000,000 plus
applicable value added tax over a three year period (of which US$50,000 has been
paid to December 31, 2007). During the current year the Company entered into a
letter of intent agreement to acquire a 100% interest in the El Oro claims
located in Zacatecas State, by making scheduled option payments totalling
US$125,000 plus applicable value added tax over one year (of which US$50,000 has
been paid to December 31, 2007).
 
 (h)           Other Properties
 
 During
the years ending December 31, 2007 and December 31, 2006 the Company optioned
other exploration concessions on several mining claims. To December 31, 2007 the
Company has paid $523,597 in acquisition costs. The Company has a US$100,000
option payment remaining on December 8, 2008.
  7.           SHARE
CAPITAL
 
 (a)           Issued
and outstanding
 
 At
December 31, 2007 there were 46,954,196 shares outstanding.
 
 During
the year ended December 31, 2007 2,883,486 share purchase warrants were
exercised for proceeds of $5,994,656 and 382,100 stock options were exercised
for cash proceeds of $811,362.
 
 On
November 27, 2007 the Company closed a brokered private placement for 3,000,000
common shares of the Company at a price of $15.50 per share for gross proceeds
of $46,500,000. The Company paid a 5.0% commission to the underwriters on this
placement. Legal, syndicate, and filing costs totaled an additional
$208,484.
 
 On
February 14, 2007 the Company closed a brokered private placement for 2,550,000
units at $7.25 a unit for gross proceeds of $18,487,500. Each unit was comprised
of one common share and one-half of one common share purchase warrant, with each
whole warrant exercisable for one common share at a price of $10.00 until
February 14, 2008. $15,999,799 of the gross proceeds was assigned to the common
shares included in the units and $2,487,701 to the warrants. The Company paid
6.0% cash commission to the underwriters on this placement. Legal, syndicate,
and filing costs totaled an additional $127,902.
 
 On
February 14, 2007 the Company closed a non-brokered private placement for
195,000 units, while a further 15,000 units were closed February 15, 2007 for a
total of 210,000 at $7.25 a unit for gross proceeds of $1,522,500. Each unit is
comprised of one common share and one-half of one common share purchase warrant,
with each whole warrant exercisable for one common share at a price of $10.00
until February 14, and 15, 2008.  $1,317,630 of the gross proceeds was
assigned to the common shares included in the units and $204,870 to the
warrants. The Company paid a 6.0% finder’s fee on this placement comprised of
$91,350 in cash.
 
 During
the year ended December 31, 2006 the Company issued 85,043 common shares in
connection with the acquisition of mineral properties at a fair value of
$204,431. During 2006 944,503 share purchase warrants were exercised for
proceeds of $1,275,079 and 461,700 stock options were exercised for cash
proceeds of $366,870.
 
 On March
2, 2006 the Company closed a private placement by Peñoles which consisted of
245,716 common shares of MAG Silver Corp. at $2.35. This equates to an
investment of $577,433 (US$500,000). See Note 5.
 
 (b)           Shareholder
rights plan
 
 On August
3, 2007, the Company adopted a Shareholder Rights Plan designed to protect the
interests of common shareholders from an inadequate or unfair takeover, but not
affect a takeover proposal which the Board of Directors believes is fair to all
shareholders. Under the Shareholder Rights Plan all shareholders of record on
August 3, 2007 received one Right for each share of common stock they owned.
These Rights trade in tandem with the common stock until and unless they are
triggered. Should a person or group acquire more than 20% of the common stock
the Rights would become exercisable for every shareholder except the acquirer
that triggered the exercise. The Rights, if triggered, would give the other
shareholders the ability to purchase additional stock at a substantial discount.
The shareholder rights plan will continue in force up to the end of the
Company’s third annual meeting of shareholders, and can be redeemed by the
Company for $0.0001 per Right.
 
 (c)           Stock
options
 
 The
Company has entered into Incentive Stock Option Agreements (“Agreements”) with
directors, officers and employees. The maximum number of stock options which may
be granted is limited to 10% of the issued and outstanding shares.
 
 At the
date the Agreements are entered into, the exercise price of each option is set
no lower than the fair value of the common shares at the date of
grant.  The following table summarizes the Company’s
options:
  Year
      ended
                  
                  
                  Weighted
                  
                  
                  Year
      ended
                  
                  
                  Weighted
                  
                  
                  Year
      ended
                  
                  
                  WeightedDec.
      31,
                  
                  
                  average
                  
                  
                  Dec.
      31,
                  
                  
                  average
                  
                  
                  Dec.
      31,
                  
                  
                  average2007
                  
                  
                  exercise
                  
                  
                  2006
                  
                  
                  exercise
                  
                  
                  2005
                  
                  
                  exerciseprice
                  
                  
                  
                  
                  
                  price
                  
                  
                  
                  
                  
                  priceBalance
      outstanding,beginning
      of year
                  
                  
                  3,352,800
                  
                  
                  $
                  2.31
                  
                  
                  
                  2,154,500
                  
                  
                  $
                  0.84
                  
                  
                  
                  1,030,000
                  
                  
                  $
                  0.54Activity
      during the yearOptions
      granted
                  
                  
                  835,000
                  
                  
                  
                  11.93
                  
                  
                  
                  1,670,000
                  
                  
                  
                  3.81
                  
                  
                  
                  1,240,000
                  
                  
                  
                  1.03Options
      cancelled
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10,000
                  )
                  
                  
                  4.04
                  
                  
                  
                  (10,000
                  )
                  
                  
                  1.06Options
      exercised
                  
                  
                  (382,100
                  )
                  
                  
                  2.12
                  
                  
                  
                  (461,700
                  )
                  
                  
                  0.79
                  
                  
                  
                  (105,500
                  )
                  
                  
                  0.22Balance
      outstanding,end
      of year
                  
                  
                  3,805,700
                  
                  
                  $
                  4.44
                  
                  
                  
                  3,352,800
                  
                  
                  $
                  2.31
                  
                  
                  
                  2,154,500
                  
                  
                  $
                  0.84
 The
following table summarizes options outstanding at December 31,
2007:
  Number
                
                
                Weighted
      average
                
                
                Weightedoutstanding
      at
                
                
                remaining
                
                
                averageExercise
                
                
                Dec.
      31,
                
                
                contractual
      life
                
                
                exerciseprice
                
                
                2007
                
                
                (years)
                
                
                price$
                0.50
                
                
                
                298,500
                
                
                
                0.29
                
                
                $
                0.500.70
                
                
                
                210,000
                
                
                
                0.36
                
                
                
                0.700.75
                
                
                
                18,000
                
                
                
                2.60
                
                
                
                0.751.00
                
                
                
                60,000
                
                
                
                2.92
                
                
                
                1.001.06
                
                
                
                820,000
                
                
                
                2.05
                
                
                
                1.061.14
                
                
                
                28,500
                
                
                
                2.76
                
                
                
                1.143.00
                
                
                
                650,000
                
                
                
                3.10
                
                
                
                3.003.56
                
                
                
                15,000
                
                
                
                3.22
                
                
                
                3.564.04
                
                
                
                170,700
                
                
                
                3.25
                
                
                
                4.042.00
                
                
                
                50,000
                
                
                
                3.46
                
                
                
                2.002.46
                
                
                
                145,000
                
                
                
                3.56
                
                
                
                2.463.12
                
                
                
                25,000
                
                
                
                3.67
                
                
                
                3.125.36
                
                
                
                535,000
                
                
                
                3.95
                
                
                
                5.367.56
                
                
                
                35,000
                
                
                
                4.07
                
                
                
                7.568.80
                
                
                
                200,000
                
                
                
                4.15
                
                
                
                8.809.40
                
                
                
                45,000
                
                
                
                4.25
                
                
                
                9.4014.70
                
                
                
                50,000
                
                
                
                4.59
                
                
                
                14.7013.75
                
                
                
                25,000
                
                
                
                4.77
                
                
                
                13.7514.15
                
                
                
                425,000
                
                
                
                4.79
                
                
                
                14.153,805,700
                
                
                
                2.94
                
                
                $
                4.44
 At
December 31, 2007 a total of 3,718,200 of the outstanding share options were
exercisable, having a weighted average remaining contractual life of 2.91 years
and a weighted average exercise price of $4.24.
 
 During
the year ended December 31, 2007 the Company granted 835,000 stock options,
(December 31, 2006 – 1,670,000 and later cancelled 10,000 of these). The Company
has recorded $5,256,566 (2006 - $2,341,159) of compensation expense relating to
stock options vested to employees and consultants in the year ended December 31,
2007.
 
 For the
year ended December 31, 2007, 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 81.5%, an annual risk free
interest rate of 4.27% and expected lives of three years.
 
 For the
year ended December 31, 2006, 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 86%, an annual risk free
interest rate of 4.04% and expected lives of three years.
  (d)           Share
purchase warrants
  WeightedaverageNumber
                
                
                exerciseof
      warrants
                
                
                priceBalance
      at December 31, 2004
                
                
                2,429,254
                
                
                
                0.75Issued
      in connection with issuance of commonshares
                
                
                3,584,990
                
                
                
                1.35Exercised
      and converted into common shares
                
                
                (1,400,755
                )
                
                
                0.75Expired
                
                
                (1,028,500
                )
                
                
                0.75Balance
      at December 31, 2005
                
                
                3,584,989
                
                
                
                1.35Exercised
      and converted into common shares
                
                
                (944,503
                )
                
                
                1.35Balance
      at December 31, 2006
                
                
                2,640,486
                
                
                
                1.35Issued
      in connection with issuance of commonshares
                
                
                1,380,000
                
                
                
                10.00Exercised
      and converted into common shares
                
                
                (2,883,486
                )
                
                
                2.08Balance
      at December 31, 2007
                
                
                1,137,000
                
                
                $
                10.00
  Subsequent to the end of the
period all 1,137,000 warrants were exercised by February 15, 2008.
 
 8.
              INCOME
      TAXES
 
 The
provision for income taxes reported differs from the amounts computed by
applying statutory Canadian federal and provincial tax rates to the loss before
tax provision due to the following:
  2007
                
                
                2006
                
                
                2005Statutory
      tax rates
                
                
                34.12
                %
                
                
                34.12
                %
                
                
                34.87
                %Recovery
      of income taxes computed at statutory rates
                
                $
                2,771,112
                
                
                $
                1,319,273
                
                
                $
                631,439Non-deductible
      expenses
                
                
                (1,780,305
                )
                
                
                (804,815
                )
                
                
                (215,930
                )Lower
      effective tax rate on loss in foreign jurisdictions
                
                
                (48,648
                )
                
                
                (7,443
                )
                
                
                (6,363
                )Change
      in valuation allowance
                
                
                (1,601,926
                )
                
                
                (397,481
                )
                
                
                92,952Other
                
                
                659,767
                
                
                
                (109,534
                )
                
                
                (502,098
                )Future
      income tax recovery
                
                $
                -
                
                
                $
                -
                
                
                $
                -
 The approximate tax
effect of each type of temporary difference that gives rise to the Company’s
future income tax assets at December 31, 2007 and 2006 are as
follows:
  2007
              
              
              2006Canadian
      operating loss carryforwards
              
              $
              2,025,892
              
              
              $
              1,442,594Mexican
      operating loss carryforwards
              
              
              3,278,237
              
              
              
              2,632,441Canadian
      capital losses carried forward
              
              
              39,125
              
              
              
              39,125Share
      issuance costs and other
              
              
              928,651
              
              
              
              131,638Total
      future income tax assets
              
              
              6,271,905
              
              
              
              4,245,798Less
      valuation allowance
              
              
              (3,130,055
              )
              
              
              (1,528,129
              )Net
      future income tax assets
              
              
              3,141,850
              
              
              
              2,717,669Future
      income tax liabilityExcess
      of book value of mineral rights and deferredexploration
      costs over tax values
              
              
              (3,141,850
              )
              
              
              (2,717,669
              )Net
      future income tax assets
              
              $
              -
              
              
              $
              -
 
 At
December 31, 2007, the Company has non-capital loss carryforwards aggregating
$7,385,000, that expire over the period between 2008 and 2027, available to
offset future taxable income and capital loss carryforwards of $252,000 which
are available only to offset future capital gains for Canadian tax purposes and
may be carried forward indefinitely.
 
 At
December 31, 2007, the Company has tax loss carryforwards in Mexico aggregating
$11,708,000, that expire between 2011 and 2017, available to offset future
taxable income.
 
 9.           SEGMENTED
INFORMATION
 
 The
Company operates in one segment being the exploration of mineral properties in
Mexico. Substantially all of the Company’s long term assets are located in
Mexico and the Company’s executive and head office is located in
Canada.
 
 10.           RELATED
PARTY TRANSACTIONS
 
 For the
year ended December 31, 2007 the Company’s president received $204,128 in
compensation for management services (2006 - $139,500; 2005 -
$149,900).
 
 For the
year ended December 31, 2007 a private company controlled by an officer of the
Company received $163,840 in compensation for consulting services (2006 -
$113,520; 2005 - $125,950).
 
 The
Company paid non-executive directors fees of $138,895 during the year ended
December 31, 2007 (2006 - $Nil; 2005 - $Nil).
 
 The
Company is party to a Field Services Agreement, whereby it has contracted
exploration services in Mexico with MINERA CASCABEL S.A. DE C.V. (“Cascabel”)
and IMDEX Inc. (“Imdex”).  As of January 2006, these companies have a
common director with the Company.  During the year ended December 31,
2007 the Company accrued or paid Cascabel and IMDEX consulting, administration
and travel fees totaling $134,720 (2006 - $141,154) and exploration costs
totaling $1,312,826 (2006 - $1,049,611) under the Field Services
Agreement.
 
 
 10.           RELATED
PARTY TRANSACTIONS (Continued)
 
 During
the year ended December 31, 2003, the Company entered into an office
services agreement with Platinum Group Metals Ltd., a company with a common
director and common officer. During the year ended December 31, 2007 the Company
accrued or paid Platinum Group Metals Ltd. $136,374 under the common service
agreement (2006 - $138,081; 2005 - $133,329).
 
 During
the year ended December 31, 2007, the Company entered into a new office
lease agreement with Anthem Works Ltd. (“Anthem”), a company with a common
director.  During the year ended December 31, 2007 the Company accrued
or paid Anthem $79,312 under the office lease agreement (2006 - $62,333; 2005 -
$62,333).
 
 These
transactions were incurred in the normal course of business and are measured at
the exchange amount which was the consideration established and agreed to by the
noted parties.
 
 11.           CONTINGENCIES
AND COMMITMENTS
 
 The
Company’s minimum payments under its office lease agreement which was entered
into during the year ended December 31, 2007, are as follows:
 
 2008
                
                
                78,0262009
                
                
                58,519$
                136,545
 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 and from practices
prescribed by the United States Securities and Exchange Commission
(“SEC”).
 
 Consolidated
Balance Sheets
 
 The
significant measurement differences between Canadian GAAP and U.S. GAAP with
respect to the Company’s consolidated balance sheets as at December 31, 2007 and
2006 are as follows:
  As
      at December 31
                
                2007
                
                
                2006Total
      assets under Canadian GAAP
                
                
                85,059,854
                
                
                
                18,930,558Adjustment
      to exploration expenditures ( a )
                
                
                (12,989,636
                )
                
                
                (7,333,881
                )Cumulative
      adjustment to mineral and surface rights ( b )
                
                
                (601,000
                )
                
                
                (601,000
                )Adjustment
      to investment in JVV ( c )
                
                
                (1,459,380
                )
                
                
                (2,125,051
                )Total
      assets under US GAAP
                
                
                70,009,838
                
                
                
                8,870,626Total
      liabilities under Canadian and US GAAP
                
                
                607,509
                
                
                
                350,368Shareholders'
      equity under Canadian GAAP
                
                
                84,452,345
                
                
                
                18,580,190Cumulative
      mineral properties adjustment ( a )
                
                
                (12,989,636
                )
                
                
                (7,333,881
                )Cumulative
      adjustment to mineral and surface rights ( b )
                
                
                (601,000
                )
                
                
                (601,000
                )Cumulative
      share of loss in significantly influencedinvestment
      (c )
                
                
                (1,751,179
                )
                
                
                (2,125,051
                )Cumulative
      adjustment to accumulated othercomprehensive
      income (c )
                
                
                291,799Shareholders'
      equity under US GAAP
                
                
                69,402,329
                
                
                
                8,520,258Total
      liabilities and shareholders' equity underUS
      GAAP
                
                
                70,009,838
                
                
                
                8,870,626
 Consolidated
Statement of Loss and Comprehensive Loss
  Cumulativeamount
      fromApril
      21,1999
      toDecember
      31,Years
      ended December 31
                
                2007
                
                
                2006
                
                
                2005
                
                
                2007Net
      loss under Canadian GAAP
                
                
                (8,121,665
                )
                
                
                (3,866,567
                )
                
                
                (1,810,838
                )
                
                
                (15,786,483
                )Deferred
      exploration costs (a)
                
                
                (5,655,755
                )
                
                
                (3,896,404
                )
                
                
                (1,429,307
                )
                
                
                (12,989,636
                )Amortization
      of mineral rights (a)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (601,000
                )Equity
      in significantly influencedinvestment
      (c)
                
                
                373,873
                
                
                
                (99,057
                )
                
                
                (250,486
                )
                
                
                (1,751,178
                )Compensation
      expense (d)
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (600,000
                )Stock-based
      compensation foremployees
      and directors (d)
                
                
                -
                
                
                
                -
                
                
                
                482,659
                
                
                
                482,659Net
      loss under US GAAP
                
                
                (13,403,547
                )
                
                
                (7,862,028
                )
                
                
                (3,007,972
                )
                
                
                (31,245,638
                )Other
      comprehensive income underCanadian
      GAAP
                
                
                (716,778
                )
                
                
                -
                
                
                
                -
                
                
                
                (716,778
                )Adjustment
      to other comprehensiveLoss
      under US GAAP (c)
                
                
                291,799
                
                
                
                -
                
                
                
                -
                
                
                
                291,799Comprehensive
      loss under US GAAP
                
                
                (13,828,526
                )
                
                
                (7,862,028
                )
                
                
                (3,007,972
                )
                
                
                (31,670,617
                )Basic
      and diluted loss per share underUS
      GAAP
                
                $
                (0.32
                )
                
                $
                (0.21
                )
                
                $
                (0.10
                )
 Consolidated
Statement of Cash Flows
 
 Cumulativeamount
      fromApril
      21,1999
      toDecember
      31,Years
      ended December 31
              
              2007
              
              
              2006
              
              
              2005
              
              
              2007Operating
      activitiesOperating
      activities underCanadian
      GAAP
              
              $
              (2,608,313
              )
              
              $
              (1,827,348
              )
              
              $
              (447,244
              )
              
              $
              (7,020,476
              )Reclassification
      of deferred explorationcosts
      (a)
              
              
              (5,747,128
              )
              
              
              (3,896,504
              )
              
              
              (1,178,821
              )
              
              
              (12,989,636
              )Operating
      activities under US GAAP
              
              $
              (8,355,441
              )
              
              $
              (5,723,852
              )
              
              $
              (1,626,065
              )
              
              $
              (20,010,112
              )Investing
      activitiesInvesting
      activities underCanadian
      GAAP
              
              $
              (10,205,342
              )
              
              $
              (4,445,297
              )
              
              $
              (1,699,911
              )
              
              $
              (21,852,965
              )Reclassification
      of deferredexploration
      costs (a)
              
              
              5,747,128
              
              
              
              3,896,504
              
              
              
              1,178,821
              
              
              
              12,989,636Investing
      activities under US GAAP
              
              $
              (4,458,214
              )
              
              $
              (548,793
              )
              
              $
              (521,090
              )
              
              $
              (8,863,329
              )Financing
      activityFinancing
      activity underCanadian
      and US GAAP
              
              $
              69,454,032
              
              
              $
              2,219,382
              
              
              $
              7,840,988
              
              
              $
              89,020,748
 
 (a)            Exploration
expenditures
 
 Canadian
GAAP allows exploration costs 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.
 
 (b)           Mineral
and surface rights acquisition costs
 
 Previously,
under US GAAP, the cost 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, was 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 are
generally considered as tangible property.  As a result, for US GAAP
purposes, the Company had previously amortized the cost of the mining rights
acquired in prior years 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.  In 2004 the Financial Accounting Standards Board in the
U.S. 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 are no longer 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.
 
 (c)           Equity
in significantly influenced investment
 
 Under
Canadian GAAP, the investment in the Juanicipio Joint Venture is accounted for
under the equity method for which there is no material difference from US GAAP,
except that the underlying results of operations are adjusted to conform with US
GAAP prior to the calculation of the Company’s share of equity income
(loss).  The significant conforming adjustment to the operating
results relates to the accounting for mineral exploration expenditures. The
adjustment to earnings for US GAAP purposes also impacts the cumulative
translation adjustment recorded in accumulated other comprehensive
income.
 
 (d)           Accounting
for stock-based compensation
 
 On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), “Share-Based Payment” (SFAS 123 (R)), which requires the
recognition of compensation expense for all share-based payment awards. SFAS 123
(R) requires the Company to measure the cost of services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award. The cost of such award will be recognized over the period during which
services are provided in exchange for the award, generally the vesting period.
The Company adopted SFAS 123 (R) using the modified prospective transition
method. Under this method, compensation expense recognition provisions are
applicable to new awards and to any awards modified, repurchased or cancelled
after the adoption date. Additionally, for any unvested awards outstanding at
the adoption date, compensation cost is recognized over the
remaining
 service
period. Forfeitures are estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Prior periods are not restated for comparative purposes.
 
 Prior to
the adoption of SFAS 123 (R), the Company recognized stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 (APB 25) “Accounting for Stock Issued to Employees” and applied
the disclosure provisions of SFAS 123, “Accounting for Stock-Based Compensation”
as if the Company had applied the fair value method to measuring stock- based
compensation expense.
  e)           Uncertain
tax positions
 
 Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes (“FIN 48”). FIN 48 prescribes a recognition and
measurement model for tax positions taken or expected to be taken in a tax
return, and provides guidance on the de-recognition, classification, interest
and penalties, accounting in interim periods, disclosure, and transition. The
adoption of FIN 48 had no impact on the Company’s consolidated financial
statements prepared under U.S. GAAP.
 
 
 f)           Recent
U.S. Accounting Pronouncements
  i)
              SFAS
      No. 157 - Fair Value Measurements (“SFAS
157”)
  In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements”, which
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years, and is applicable to the Company
beginning in the first quarter of 2008. Earlier application is encouraged,
provided that the reporting entity has not yet issued financial statements for
that fiscal year or an interim period within that fiscal year. Prospective
application is required for the Company. The Company is currently evaluating the
impact of FAS 157.
  ii)
              SFAS
      No. 159 - The Fair Value Option for Financial Assets and Financial
      Liabilities (“SFAS 159”)
  SFAS No.
159 permits entities to choose to measure many financial instruments and certain
other items at fair value and applies to all entities, including not-for-profit
organizations. Most of the provisions of SFAS 159 apply only to entities that
elect the fair value option. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007. Management is analyzing the requirements of
this new standard and believes that its adoption will not have any significant
impact on the Company's financial statements.
   iii)
              SFAS
      No. 141 R, Business Combinations (“SFAS
141R”)
  In
November 2007, the FASB issued SFAS 141R which establishes principles and
requirements for how the acquirer of a business recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
and any non-controlling interest in the acquiree. SFAS 141R also provides
guidance for recognizing and measuring the goodwill acquired in the business
combination and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. SFAS 141R is effective for fiscal years beginning on or
after December 15, 2008. Management is currently evaluating the requirements of
FAS No. 141R and has not yet determined the impact on its financial
statements.
  iv)
              SFAS
      No. 160, Noncontrolling Interests in Consolidated Financial Statements
      (“SFAS 160”)
   In
November 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51. SFAS 160 will
change the accounting and reporting for minority interests, which will be
recharacterized as noncontrolling interests and classified as a component of
equity. SFAS 160 are effective for fiscal years beginning on or after December
15, 2008. SFAS 160 requires retroactive adoption of the presentation and
disclosure requirements for existing minority interests. All other requirements
of SFAS 160 will be applied prospectively. Management is currently evaluating
the requirements of FAS No. 160 and has not yet determined the impact on its
financial statements.
  Consolidated
schedule of share capital since inception
 
 Number
                
                
                Price
                
                
                AmountFor
      cash
                
                
                1,500,000
                
                
                $
                0.10
                
                
                $
                150,000Balance,
      December 31, 1999
                
                
                1,500,000
                
                
                
                
                
                
                
                150,000For
      cash
                
                
                1,500,000
                
                
                
                0.16
                
                
                
                240,222Balance,
      December 31, 2000, 2001, 2002
                
                
                3,000,000
                
                
                
                
                
                
                
                390,222For
      cash
                
                
                11,500,000
                
                
                
                0.50
                
                
                
                5,109,766Conversion
      of special warrants
                
                
                2,400,000
                
                
                
                0.16
                
                
                
                375,000Agent's
      administration
                
                
                10,000
                
                
                
                0.50
                
                
                
                5,000For
      finders' fee
                
                
                500,000
                
                
                
                0.50
                
                
                
                250,000For
      mineral property
                
                
                200,000
                
                
                
                0.50
                
                
                
                100,000Issuance
      to acquire Lexington
                
                
                200,000
                
                
                
                0.90
                
                
                
                180,000For
      cash on exercise of warrants
                
                
                5,183,995
                
                
                
                0.20
      - 0.75
                
                
                
                3,068,996For
      cash on exercise of stock options
                
                
                100,000
                
                
                
                0.20
      - 0.50
                
                
                
                26,000Balance,
      December 31, 2003
                
                
                23,093,995
                
                
                
                
                
                
                
                9,504,984For
      mineral property
                
                
                1,358,793
                
                
                
                0.62
      - 2.00
                
                
                
                1,578,752For
      cash on exercise of warrants
                
                
                1,236,750
                
                
                
                0.20
      - 0.75
                
                
                
                480,562For
      cash on exercise of stock options
                
                
                140,000
                
                
                
                0.20
      - 0.77
                
                
                
                68,070Balance,
      December 31, 2004
                
                
                25,829,538
                
                
                
                
                
                
                
                11,632,368For
      cash
                
                
                7,201,176
                
                
                
                0.94
                
                
                
                6,771,672For
      mineral property
                
                
                1,654,679
                
                
                
                0.70
      - 0.95
                
                
                
                1,337,289For
      cash on exercise of warrants
                
                
                1,400,755
                
                
                
                0.50
      - 0.75
                
                
                
                1,046,566For
      cash on exercise of stock options
                
                
                105,500
                
                
                
                0.20
      - 0.50
                
                
                
                24,290Balance,
      December 31, 2005
                
                
                36,191,648
                
                
                
                
                
                
                
                20,812,185For
      cash pursuant to private placement
                
                
                245,716
                
                
                
                2.35
                
                
                
                577,433For
      mineral property
                
                
                85,043
                
                
                
                2.25
      - 2.75
                
                
                
                204,431For
      cash on exercise of warrants
                
                
                944,503
                
                
                
                1.35
                
                
                
                1,275,079For
      cash on exercise of stock options
                
                
                461,700
                
                
                
                0.50
      - 4.04
                
                
                
                564,814Balance,
      December 31, 2006
                
                
                37,928,610
                
                
                
                
                
                
                
                23,433,942For
      cash pursuant to private placement
                
                
                5,760,000
                
                
                
                7.25
      - 15.50
                
                
                
                59,955,443For
      cash on exercise of warrants
                
                
                2,883,486
                
                
                
                1.35
      - 10.00
                
                
                
                6,468,783For
      cash on exercise of stock options
                
                
                382,100
                
                
                
                0.50
      - 9.40
                
                
                
                1,247,472Balance,
      December 31, 2007
                
                
                46,954,196
                
                
                
                
                
                
                $
                91,105,640
  13.           SUBSEQUENT
EVENTS
 
 Subsequent
to December 31, 2007:
 
 (a)
              The
      Company issued 246,000 common shares between $0.70 and $3.00 on the
      exercise of stock options, and 1,137,000 common shares at $10.00 on the
      exercise of warrants for proceeds of
  $11,733,640;
 
 (b)
              The
      Company granted 284,500 stock options at $12.91 for a period of five years
      expiring on February 12,
2013.