**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
  **FORM
        10-Q**
  ( *Mark
        One* )
 
 x    **QUARTERLY
        REPORT PURSUANT TO SECTION 13 OR 15(d)**
 **OF
        THE
        SECURITIES EXCHANGE ACT OF 1934**
 
 For
        the
        quarterly period ended March 31, 2006
 
  ̈      **TRANSITION
        REPORT PURSUANT TO
        SECTION 13 OR 15(d)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
 
 For
        the
        transition period from  to
        __________
 Commission
        file Number **000-22731**
 
 **MINERA
        ANDES INC.**
 ( *Exact
        name of registrant as specified in its charter* )
 
 **ALBERTA,
        CANADA**
 ( *State
        or other jurisdiction of incorporation or organization* )
 
 **NONE**
 ( *I.R.S.
        Employer Identification No.* )
 
 **111
        E. MAGNESIUM ROAD, SUITE A, SPOKANE, WA 99208**
 ( *Address
        of principal executive offices* )
 
 **(509)
        921-7322**
 ( *Registrant’s
        telephone number* )
 
 Indicate
        by checkmark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 Yes x  No   ̈
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 Large
        accelerated filer  ̈    Accelerated
        filer   ̈     Non-accelerated
        filer x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).             Yes  ̈  No  x
 
 Shares
        outstanding as of May 15, 2006: 148,905,595 shares of common stock, with
        no par
        value
 
 
 
  **TABLE
                    OF CONTENTS****PART
                    I - FINANCIAL INFORMATION**
                **Page**Item
                    1
                Consolidated
                    Financial Statements (Unaudited)Consolidated
                    Balance Sheets ................................................
                3Consolidated
                    Statements of Operations andAccumulated
                    Deficit ...........................................................
                4Consolidated
                    Statements of Mineral Properties andDeferred
                    Exploration Costs ...................................................
                5Consolidated
                    Statements of Cash Flows ....................................
                6Notes
                    to Consolidated Financial Statements ................................
                8Item
                    2
                Management’s
                    Discussion and Analysis ofFinancial
                    Condition and Results of Operations .............................
                22Item
                    3
                Quantitative
                    and Qualitative Disclosures About Market Risk ............
                28Item
                    4
                Controls
                    and Procedures .......................................................
                29**PART
                    II - OTHER INFORMATION**Item
                    1
                A
                    Risk Factors ....................................................................
                30Item
                    2
                Unregistered
                    Sales of Equity Securities......................................
                40Item
                    4
                Submission
                    of Matters to a Vote of Security Holders .....................
                41Item
                    6
                Exhibits
                    ...........................................................................
                41**SIGNATURES**......................................................................................
                42


-
          2
          -


**MINERA
      ANDES INC.**


**“An
      Exploration Stage Corporation”**


**CONSOLIDATED
      BALANCE SHEETS**


**(U.S.
      Dollars - Unaudited)**




**March
                31,**
              **2006**
            
            **December
                31,**
              **2005****ASSETS**Current:Cash
                and cash equivalents
            
            $
            3,554,601
            
            $
            3,314,559Receivables
                and
                prepaid expenses
            
            
            113,160
            
            
            95,777Total
                current assets
            
            
            3,667,761
            
            
            3,410,336Mineral
                properties and deferred exploration costs (Note 3)
            
            
            5,062,337
            
            
            4,470,174Investment
                (Note 4)
            
            
            22,611,703
            
            
            17,505,938Equipment,
                net
            
            
            72,733
            
            
            66,378Total
                assets
            
            $
            31,414,534
            
            $
            25,452,826**LIABILITIES**Current:Accounts
                payable and accruals
            
            $
            651,945
            
            $
            259,806Bank
                loan interest payable
            
            
            29,111
            
            
            84,064Bank
                loan (Note 5)
            
            
            1,862,408
            
            
            3,628,635Total
                liabilities
            
            
            2,543,464
            
            
            3,972,505**SHAREHOLDERS’
                EQUITY**Preferred
                shares, no par value, unlimited number
              Authorized,
                none issued
            
            
            --
            
            
            --Common
                shares, no par value, unlimited number authorizedIssued
                March 31, 2006 - 130,094,892 shares (Note 2)
              Issued
                December 31, 2005 - 108,484,137 shares
            
            
            49,771,412
            
            
            41,679,110Contributed
                surplus
            
            
            2,778,334
            
            
            2,736,570Accumulated
                deficit
            
            
            (23,678,676
            )
            
            (22,935,359
            )Total
                shareholders’ equity
            
            
            28,871,070
            
            
            21,480,321Total
                liabilities and shareholders’ equity
            
            $
            31,414,534
            
            $
            25,452,826





Approved
                by the Board of Directors:/s/
                Allen V. Ambrose******
            /s/
                Bonnie L. KuhnAllen
                V. Ambrose, Director
            Bonnie
                L. Kuhn, Director




*The
      accompanying notes are an integral part of these consolidated financial
      statements.*


-
          3
          -


**MINERA
      ANDES INC.**


**“An
      Exploration Stage Corporation”**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT**


**(U.S.
      Dollars - Unaudited)**


**Period
                from****Three
                Months Ended**
            
            **July
                1, 1994****(inception)****March
                31,**
              **2006**
            
            **March
                31,**
              **2005**
            
            **through**
              **March
                31, 2006**Consulting
                fees
            
            
            125,336
            
            
            112,393
            
            
            
            
            
            2,687,312Depreciation
            
            
            2,101
            
            
            2,454
            
            
            
            
            
            89,991Equipment
                rental
            
            
            --
            
            
            --
            
            
            
            
            
            21,522Foreign
                exchange loss
            
            
            27,392
            
            
            16,430
            
            
            
            
            
            206,320Insurance
            
            
            15,230
            
            
            17,255
            
            
            
            
            
            407,114Legal,
                audit and accounting fees
            
            
            87,283
            
            
            36,792
            
            
            
            
            
            1,865,713Materials,
                supplies and maintenance
            
            
            --
            
            
            --
            
            
            
            
            
            49,260Office
                overhead and administration fees
            
            
            70,662
            
            
            46,417
            
            
            
            
            
            2,767,443Telephone
            
            
            6,504
            
            
            9,621
            
            
            
            
            
            459,427Transfer
                agent
            
            
            5,308
            
            
            947
            
            
            
            
            
            144,242Travel
            
            
            14,071
            
            
            22,656
            
            
            
            
            
            560,565Wages
                and benefits
            
            
            80,741
            
            
            52,013
            
            
            
            
            
            2,996,727Write-off
                of deferred exploration costs
            
            
            --
            
            
            --
            
            
            
            
            
            8,540,235Total
                expenses
            
            
            434,628
            
            
            316,978
            
            
            
            
            
            20,795,871Gain
                on sale of equipment
            
            
            --
            
            
            --
            
            
            
            
            
            (112,330
            )Gain
                on sale of property
            
            
            --
            
            
            --
            
            
            
            
            
            (898,241
            )Loss
                on investment (Note 4)
            
            
            150,000
            
            
            145,068
            
            
            
            
            
            1,924,746Interest
                income
            
            
            (16,779
            )
            
            (7,851
            )
            
            
            
            
            (615,887
            )Net
                loss for the period
            
            
            567,849
            
            
            454,195
            
            
            
            
            
            21,094,159Accumulated
                deficit, beginning of the period,
              as
                previously reported
            
            
            22,935,359
            
            
            19,180,452
            
            
            
            
            
            --Adjustment
                for change in accounting for stock-based compensation
            
            
            --
            
            
            --
            
            
            
            
            
            678,56922,935,359
            
            
            19,180,452
            
            
            
            
            
            678,569Adjustment
                on acquisition of royalty interest
            
            
            --
            
            
            --
            
            
            
            
            
            500,000Share
                issue costs
            
            
            175,467
            
            
            75,536
            
            
            
            
            
            1,388,732Deficiency
                on acquisition of subsidiary
            
            
            --
            
            
            --
            
            
            
            
            
            17,215Accumulated
                deficit, end of the period
            
            $
            23,678,676
            
            $
            19,710,183
            
            
            
            
            $
            23,678,676Basic
                and diluted net loss per common share
            
            $
            0.01
            
            $
            0.01Weighted
                average common shares outstanding
            
            
            114,833,841
            
            
            73,532,878





*The
      accompanying notes are an integral part of these consolidated financial
      statements.*


-
          4
          -


**MINERA
      ANDES INC.**


**“An
      Exploration Stage Corporation”**


**CONSOLIDATED
      STATEMENTS OF MINERAL PROPERTIES**


**AND
      DEFERRED EXPLORATION COSTS**


**(U.S.
      Dollars - Unaudited)**


**Period
                from****Three
                Months Ended**
            
            **July
                1, 1994****(inception)****March
                31,**
              **2006**
            
            **March
                31,**
              **2005**
            
            **through**
              **March
                31, 2006**Administration
                fees
            
            $
            --
            
            $
            --
            
            
            
            
            $
            392,837Assays
                and analytical
            
            
            14,040
            
            
            25,489
            
            
            
            
            
            1,171,081Construction
                and trenching
            
            
            36,265
            
            
            --
            
            
            
            
            
            570,548Consulting
                fees
            
            
            37,304
            
            
            47,151
            
            
            
            
            
            1,359,253Depreciation
            
            
            5,042
            
            
            6,253
            
            
            
            
            
            227,276Drilling
            
            
            144,929
            
            
            --
            
            
            
            
            
            1,734,322Equipment
                rental
            
            
            33,787
            
            
            766
            
            
            
            
            
            539,040Geology
            
            
            135,232
            
            
            105,039
            
            
            
            
            
            4,202,220Geophysics
            
            
            --
            
            
            39,033
            
            
            
            
            
            374,960Insurance
            
            
            1,177
            
            
            --
            
            
            
            
            
            258,589Legal
            
            
            25,069
            
            
            21,875
            
            
            
            
            
            855,541Maintenance
            
            
            2,555
            
            
            840
            
            
            
            
            
            190,509Materials
                and supplies
            
            
            26,168
            
            
            13,799
            
            
            
            
            
            543,107Project
                overhead
            
            
            28,291
            
            
            15,481
            
            
            
            
            
            467,826Property
                and mineral rights
            
            
            5,730
            
            
            11,646
            
            
            
            
            
            1,459,813Telephone
            
            
            7,767
            
            
            6,884
            
            
            
            
            
            142,686Travel
            
            
            55,023
            
            
            37,253
            
            
            
            
            
            1,375,714Wages
                and benefits
            
            
            33,785
            
            
            31,168
            
            
            
            
            
            1,460,993Costs
                incurred during the period
            
            
            592,163
            
            
            362,677
            
            
            
            
            
            17,326,314Balance,
                beginning of the period
            
            
            4,470,174
            
            
            2,827,655
            
            
            
            
            
            --Deferred
                costs, acquired
            
            
            --
            
            
            --
            
            
            
            
            
            576,139Deferred
                costs, contributed to MSC
            
            
            --
            
            
            --
            
            
            
            
            
            (2,320,980
            )Deferred
                costs written off
            
            
            --
            
            
            --
            
            
            
            
            
            (8,540,235
            )Mineral
                property option proceeds
            
            
            --
            
            
            --
            
            
            
            
            
            (1,978,901
            )Balance,
                end of the period
            
            $
            5,062,337
            
            $
            3,190,332
            
            
            
            
            $
            5,062,337





*The
      accompanying notes are an integral part of these consolidated financial
      statements* *.*


-
          5
          -


**MINERA
      ANDES INC.**


**“An
      Exploration Stage Corporation”**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(U.S.
      Dollars - Unaudited)**


**Period
                      from****Three
                      Months Ended**
                  
                  **July
                      1, 1994****(inception)****March
                      31,**
                    **2006**
                  
                  **March
                      31,**
                    **2005**
                  
                  **through**
                    **March
                      31, 2006**Operating
                      Activities:Net
                      loss for the period
                  
                  $
                  (567,849
                  )
                  $
                  (454,195
                  )
                  $
                  (21,094,159
                  )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Write-off
                      of
                      incorporation costs
                  
                  
                  --
                  
                  
                  --
                  
                  
                  665Write-off
                      of
                      deferred exploration costs
                  
                  
                  --
                  
                  
                  --
                  
                  
                  8,540,235Loss
                      on
                      investment
                  
                  
                  150,000
                  
                  
                  145,068
                  
                  
                  1,924,746Depreciation
                  
                  
                  2,101
                  
                  
                  2,454
                  
                  
                  89,991Stock
                      option compensation
                  
                  
                  41,764
                  
                  
                  9,244
                  
                  
                  1,489,765Gain
                      on
                      sale of equipment
                  
                  
                  --
                  
                  
                  --
                  
                  
                  (112,330
                  )Gain
                      on
                      sale of mineral properties
                  
                  
                  --
                  
                  
                  --
                  
                  
                  (898,241
                  )Change
                      in:Receivables
                      and
                      prepaid expenses
                  
                  
                  (17,383
                  )
                  
                  2,459
                  
                  
                  (113,160
                  )Accounts payable and accruals
                  
                  
                  20,221
                  
                  
                  (2,508
                  )
                  
                  280,027Cash
                      used in operating activities
                  
                  
                  (371,146
                  )
                  
                  (297,478
                  )
                  
                  (9,892,461
                  )Investing
                      Activities:Incorporation
                      costs
                  
                  
                  --
                  
                  
                  --
                  
                  
                  (665
                  )Purchase
                      of equipment
                  
                  
                  (13,498
                  )
                  
                  (441
                  )
                  
                  (319,110
                  )Proceeds
                      from sale of equipment
                  
                  
                  --
                  
                  
                  --
                  
                  
                  14,225Proceeds
                      from sale of property
                  
                  
                  --
                  
                  
                  --
                  
                  
                  898,241Mineral
                      properties and deferred exploration
                  
                  
                  (587,121
                  )
                  
                  (356,424
                  )
                  
                  (17,099,038
                  )Investment
                  
                  
                  (4,595,415
                  )
                  
                  (2,140,057
                  )
                  
                  (22,032,420
                  )Proceeds
                      from sale of subsidiaries
                  
                  
                  --
                  
                  
                  --
                  
                  
                  9,398Acquisition
                      of royalty interest
                  
                  
                  --
                  
                  
                  --
                  
                  
                  (500,000
                  )Mineral
                      property option proceeds
                  
                  
                  --
                  
                  
                  200,000
                  
                  
                  2,778,901Cash
                      used in investing activities
                  
                  
                  (5,196,034
                  )
                  
                  (2,296,922
                  )
                  
                  (36,250,468
                  )
  -
              6
              -
 **MINERA
          ANDES INC.**
 **“An
          Exploration Stage Corporation”**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(U.S.
          Dollars - Unaudited)**


**Period
                  from****Three
                  Months Ended**
              
              **July
                  1, 1994****(inception)****March
                  31,**
                **2006**
              
              **March
                  31,**
                **2005**
              
              **through**
                **March
                  31, 2006**Financing
                  ActivitiesShares
                  and subscriptions issued for cash, less issue costs
              
              
              7,916,835
              
              
              7,701,085
              
              47,807,143Bank
                  loan proceeds received
              
              
              --
              
              
              1,000,000
              
              4,000,000Repayment
                  of bank loan
              
              
              (2,000,000
              )
              
              --
              
              (2,000,000)Bank
                  loan interest payable
              
              
              (109,613
              )
              
              --
              
              (109,613)Cash
                  provided by financing activities
              
              
              5,807,222
              
              
              8,701,085
              
              49,697,530Increase
                  in cash and cash equivalents
              
              
              240,042
              
              
              6,106,685
              
              3,554,601Cash
                  and cash equivalents, beginning of period
              
              
              3,314,559
              
              
              1,726,820
              
              --Cash
                  and cash equivalents, end of period
              
              $
              3,554,601
              
              $
              7,833,505
              
              $
                  3,554,601Supplementary
                  disclosure of cash flow information:Interest
                  paid
              
              $
              90,687
              
              $
              7,337
              
              $
                  175,031Non-cash
                  investing and financing activities and other information:Stock
                  option compensation
              
              $
              41,764
              
              $
              9,244
              
              $
                  1,489,765Capitalized
                  interest (Note 5)
              
              $
              54,660
              
              $
              59,354
              
              $
                  233,068Capitalized
                  accreted interest expense (Note 5)
              
              $
              233,773
              
              $
              39,763
              
              $
                  472,408Depreciation
                  capitalized to mineral properties
              
              $
              5,042
              
              $
              6,253
              
              $
                  56,651Accrual for finance costs related to
                MSC
              
              $
              371,918
              
              $
              --
              
              $371,918Adjustment
                  for change in accounting for stock-based compensation
              
              $
              --
              
              $
              --
              
              $
                  678,569Deferred
                  costs, acquired
              
              $
              --
              
              $
              --
              
              $
                  576,139Deferred
                  costs, contributed to MSC
              
              $
              --
              
              $
              --
              
              $
                  2,320,980Shares
                  issued for acquisition
              
              $
              --
              
              $
              --
              
              $
                  575,537





*The
      accompanying notes are an integral part of these consolidated financial
      statements.*








-
            7
            -
 **MINERA
        ANDES INC.**
 **“An
        Exploration Stage Corporation”**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(U.S.
        Dollars-Unaudited)**
 
  **1.
        Accounting Policies, Financial Condition and Liquidity**
  The
        accompanying consolidated financial statements of Minera Andes Inc. for the
        three month periods ended March 31, 2006 and 2005 and for the cumulative
        period
        from inception (July 1, 1994) through March 31, 2006 have been prepared in
        accordance with accounting principles generally accepted in Canada which
        differ
        in certain respects from principles and practices generally accepted in the
        United States, as described in Note 10. Also, they are unaudited but, in
        the
        opinion of management, include all adjustments, consisting only of normal
        recurring items, necessary for a fair presentation. Interim results are not
        necessarily indicative of results which may be achieved in the future. The
        December 31, 2005 financial information has been derived from our audited
        consolidated financial statements.
 
 These
        consolidated financial statements should be read in conjunction with the
        audited
        consolidated financial statements and notes thereto for the year ended December
        31, 2005 included in our annual report on Form 10-KSB (“the 2005 10-KSB”) for
        the year ended December 31, 2005 on file with SEDAR at www.sedar.com and with
        the Securities and Exchange Commission. The accounting policies set forth
        in the
        audited annual consolidated financial statements are the same as the accounting
        policies utilized in the preparation of these consolidated financial statements,
        except as modified for appropriate interim presentation.
 
 The
        recoverability of amounts shown as mineral properties and deferred exploration
        costs is dependent upon the existence of economically recoverable reserves,
        the
        ability to obtain necessary financing to complete their development, and
        future
        profitable production or disposition thereof. The accompanying consolidated
        financial statements have been prepared using accounting principles generally
        accepted in Canada applicable to a going concern. The use of such principles
        may
        not be appropriate because, as of March 31, 2006, there was substantial doubt
        that we would be able to continue as a going concern.
 
 For
        the
        three months ended March 31, 2006, we had a loss of approximately $568,000
        and
        an accumulated deficit of approximately $23.7 million. In addition, due to
        the
        nature of the mining business, the acquisition, exploration and development
        of
        mineral properties requires significant expenditures prior to the commencement
        of production. To date, we have financed our activities through the sale
        of
        equity securities, joint venture arrangements and debt facilities. We expect
        to
        use similar financing techniques in the future and are actively pursuing
        such
        additional sources of financing.
 
 Although
        there is no assurance we will be successful in these actions, management
        believes they will be able to secure the necessary financing to enable us
        to
        continue as a going concern. Accordingly, these financial statements do not
        reflect adjustments to the carrying value of assets and liabilities, and
        the
        reported revenues and expenses and balance sheet classifications used that
        would
        be necessary if the going concern assumption were not appropriate. Such
        adjustments could be material.
 
 Although
        we have taken steps to verify title to mineral properties in which we have
        an
        interest, in accordance with industry standards for the current stage of
        exploration of such properties, these procedures do not guarantee title.
        Property title may be subject to unregistered prior agreements and noncompliance
        with regulatory requirements.





-
          8
          -


**2.
      Changes to Share Capital**


**Number**
              **of
                Shares**
            
            **Amount**Balance,
                January 1, 2006
            
            
            108,484,137
            
            $
            41,679,110Issued
                for cash on exercise of stock options
            
            
            470,000
            
            
            205,103Issued
                for cash on exercise of warrants
            
            
            6,929,592
            
            
            3,488,955Issued
                for cash on exercise of broker warrants
            
            
            1,054,474
            
            
            632,244Issued
                for cash (private placement Cdn$0.35 each)
            
            
            13,156,689
            
            
            3,766,000Balance,
                March 31, 2006
            
            
            130,094,892
            
            $
            49,771,412





On
        March
        8, 2006, we completed the second private placement with Mr. Robert McEwen
        and
        sold 13,156,689 units at a price of Cdn$0.35 per unit for gross proceeds
        of
        Cdn$4,604,841 (US$3,970,718). Each unit consists of one common share and
        one-half of one common share purchase warrant. One whole common share purchase
        warrant entitles the holder to purchase one additional common share at an
        exercise price of Cdn$0.55 per share at any time prior to the earlier of:
        a) the
        date which is the 15th trading day after receiving notice from Minera Andes
        that
        the weighted average price of the common shares on the TSX Venture Exchange
        has
        been equal to or greater than Cdn$1.00 for a period of 20 consecutive trading
        days commencing 120 days after the date of issuance of the warrants, and
        b)
        March 8, 2008.
 
 The
        agents received a cash commission of 5% of the gross proceeds of the financing,
        Cdn$237,411 (US$204,718), and 322,339 broker warrants, equal to 2.45% of
        the
        aggregate number of units sold. Each broker warrant upon exercise will entitle
        the holder to acquire one common share at an exercise price of Cdn$0.55 per
        common share at any time prior to the earlier of: a) the date which is the
        15th
        trading day after receiving notice from Minera Andes that the weighted average
        price of the common shares on the TSX Venture Exchange has been equal to
        or
        greater than Cdn$1.00 for a period of 20 consecutive trading days commencing
        120
        days after the date of issuance of the warrants, and b) March 8,
        2008.
 
 Subsequent
        to March 31, 2006, we issued 140,000 common shares for the exercise of stock
        options, 17,862,873 common shares for the exercise of warrants and 188,830
        common shares for the exercise of broker warrants for total gross proceeds
        of
        $8,988,363. Refer to Note 11 for additional details for 14,285,714 of the
        common
        shares issued for the exercise of warrants subsequent to March 31,
        2006.
 
 **3.
        Mineral Properties and Deferred Exploration Costs**
  At
        March
        31, 2006, we, through our subsidiaries, hold interests in approximately 439,804
        acres (177,986 hectares) of mineral rights and mining lands in three Argentine
        provinces. Under its present acquisition and exploration programs, we are
        continually acquiring additional mineral property interests and exploring
        and
        evaluating our properties. If, after evaluation, a property does not meet
        our
        requirements, then the property and deferred exploration costs are written
        off
        to operations. Mineral property costs and deferred exploration costs, net
        of
        mineral property option proceeds, are as follows:
  -
              9
              -


**2006
                COSTS BY PROPERTY****Description**
            
            **San
                Juan Cateos**
            
            **Santa
                Cruz Cateos**
            
            **Chubut
                Cateos**
            
            **General
                Exploration**
            
            **Total**Balance,
                beginning of period
            
            $
            1,149,286
            
            $
            3,099,502
            
            $
            221,386
            
            $
            --
            
            $
            4,470,174Assays
                and analytical
            
            
            786
            
            
            9,144
            
            
            1,363
            
            
            2,747
            
            
            14,040Construction
                and trenching
            
            
            36,265
            
            
            --
            
            
            --
            
            
            --
            
            
            36,265Consulting
                fees
            
            
            1,158
            
            
            5,186
            
            
            4,226
            
            
            26,734
            
            
            37,304Depreciation
            
            
            --
            
            
            --
            
            
            --
            
            
            5,042
            
            
            5,042Drilling
            
            
            144,929
            
            
            --
            
            
            --
            
            
            --
            
            
            144,929Equipment
                Rental
            
            
            33,787
            
            
            --
            
            
            --
            
            
            --
            
            
            33,787Geology
            
            
            95,194
            
            
            16,419
            
            
            2,163
            
            
            21,456
            
            
            135,232Insurance
            
            
            --
            
            
            --
            
            
            --
            
            
            1,177
            
            
            1,177Legal
            
            
            --
            
            
            --
            
            
            --
            
            
            25,069
            
            
            25,069Maintenance
            
            
            1,846
            
            
            84
            
            
            --
            
            
            625
            
            
            2,555Materials
                and supplies
            
            
            21,102
            
            
            822
            
            
            2,366
            
            
            1,877
            
            
            26,168Project
                overhead
            
            
            5,324
            
            
            331
            
            
            1,732
            
            
            20,903
            
            
            28,291Property
                and mineral rights
            
            
            4,413
            
            
            1,208
            
            
            109
            
            
            --
            
            
            5,730Telephone
            
            
            3,205
            
            
            1,279
            
            
            19
            
            
            3,264
            
            
            7,767Travel
            
            
            35,935
            
            
            3,971
            
            
            204
            
            
            14,913
            
            
            55,023Wages
                and benefits
            
            
            7,321
            
            
            2,253
            
            
            --
            
            
            24,211
            
            
            33,785Overhead
                allocation
            
            
            126,721
            
            
            18,122
            
            
            3,176
            
            
            (148,019
            )
            
            --**Balance,
                end of period**
            
            **$**
            **1,667,272**
            
            **$**
            **3,158,321**
            
            **$**
            **236,744**
            
            **$**
            **--**
            
            **$**
            **5,062,337**




The
        San
        Juan Province project comprises five properties totaling 24,318 hectares
        (“ha”)
        (2005 - 24,318 ha) in southwestern San Juan province. At present, these lands
        are not subject to a royalty; however, the government of San Juan has not
        waived
        its rights to retain up to a 3% "mouth of mine" royalty from production.
        Land
        holding costs for 2006 are estimated at $1,616.
 
 We
        currently control 15 (2005 - 15) cateos and 40 (2005 - 40) manifestations
        of
        discovery totaling 102,789 (2005 - 102,789) ha in the Santa Cruz province.
        Land
        holding costs for 2006 are estimated at $3,819. We have been actively exploring
        in the region since 1997. The properties have been acquired on the basis
        of
        geologic and geochemical reconnaissance. Expenditures in 2006 relate to land
        acquisition and reconnaissance geologic surveys on the acquired properties.
        Geologic evaluation of these targets is ongoing.
  We
        hold
        13 (2005 - 13) manifestations of discovery in the Precordilleran region of
        Chubut, totaling 10,380 (2005 - 10,380) ha. Land holding costs for 2006 are
        estimated at $1,300.
  **4.
        Investment (San José Project)**
 
 The
        investment in Minera Santa Cruz S.A. (“MSC”) is comprised of the
        following:


**2006**Investment
                in MSC, January 1, 2006
            
            $
            17,505,938Plus:Deferred
                costs
                incurred
            
            
            796,765Advances
                during
                the period
            
            
            4,459,000Loss
                from equity investment
            
            
            (150,000
            )Investment
                in MSC, March 31, 2006
            
            $
            22,611,703




-
          10
          -


The
        San
        José project is owned by Minera Santa Cruz S.A., an Argentine corporation owned
        by Minera Andes Inc. (49%) and Mauricio Hoschschild & Cia. Ltda. (“MHC”)
        (51%). Our obligation will be 49% of the exploration costs related to the
        San
        José project, to maintain our interest in MSC.
 
 Deferred
        costs of $796,765 include, among other things, engineering consulting costs,
        legal fees, and interest and finance costs related to our investment in
        MSC.
 
 Subsequent
        to March 31, 2006, we made further payments of $1,470,000 to fund our 49%
        interest in the San José project.
 
 **5.
        Bank Loan**
 
 In
        December 2004, we secured a two-year loan facility of up to $4 million from
        Macquarie Bank Limited (“Macquarie”). All amounts advanced are due in December
        2006. This facility was provided in two tranches to fund our 49% portion
        of the
        costs of completing a bankable feasibility study and related development
        work
        for the San José/Huevos Verdes gold/silver project in Argentina.
 
 The
        commercial terms of the loan include a facility fee of 1.5% of the principal
        amount of each tranche at the time of the advance and interest of LIBOR plus
        2%
        per year, currently totaling approximately 6.5% per year. In addition, as
        further explained below, we issued share purchase warrants for each tranche.
        The
        warrants exercise price was calculated at a 20 percent premium to the volume
        weighted average of our common stock determined from the ten business days
        prior
        to acceptance of the loan facility. Each warrant was exercisable for two
        years.
        The loan is collateralized by our interest in Minera Andes S.A., our 49%
        interest in MSC, and personal property.
 
 We
        received $1,000,000 of the first tranche in December 2004 and the remaining
        $1,000,000 of the first tranche in February 2005. In connection with the
        first
        tranche, we issued share purchase warrants to acquire 2,738,700 of our common
        stock at an exercise price of Cdn $0.91 per share. The fair value of the
        warrants was calculated using the Black-Scholes option pricing model with
        the
        following assumptions: dividend yield - Nil; risk free interest rate - 3.53%;
        expected volatility of 62% and an expected life of 24 months. The difference
        between the allocated fair value and the face value of the debt of $346,200
        was
        initially recorded as a debt discount with a corresponding entry to contributed
        surplus.
 
 In
        July
        2005, we received the second tranche of $2,000,000. For the second tranche,
        we
        issued share purchase warrants to acquire 3,987,742 of our common shares
        at an
        exercise price of Cdn$0.62 per share. The fair value of the warrants was
        calculated using the Black-Scholes option pricing model with the following
        assumptions: dividend yield - Nil; risk free interest rate - 3.99%; expected
        volatility of 55.8% and an expected life of 24 months. The difference between
        the allocated fair value and the face value of the debt of $263,800 was
        initially recorded as a debt discount with a corresponding entry to contributed
        capital.
 
 In
        March
        2006, Macquarie exercised its warrants from the second tranche to acquire
        3,987,742 of our common shares at an exercise price of Cdn $0.62 per share
        for
        proceeds of Cdn$2,472,400 (US$ 2,060,333). We used part of the proceeds to
        repay
        principal and interest outstanding in the amount of $2,000,000 and $18,926,
        respectively, related to the second tranche.
 
 The
        debt
        discount is being accreted and capitalized to our investment in MSC (Note
        4)
        over the term of the debt using the effective interest rate method. For the
        three month period ended March 31, 2006, $233,773 of debt discount was
        accreted.
  
 -
          11
          -
 
 The bank
      loan and debt discount are summarized as follows:


Face
                Amount
            
            Discount
            
            Carrying
              ValueBank
                loan, initial and second tranche, being the balance at January 1,
                2006
            
            $
            4,000,000
            
            $
            371,365
            
            $
            3,628,635Accretion
                of debt discount
            
            
            --
            
            
            (233,773
            )
            
            233,773Repayment
                of second tranche
            
            
            (2,000,000
            )
            
            --
            
            
            (2,000,000
            )Bank
                loan, initial tranche, being the balance at March 31, 2006
            
            $
            2,000,000
            
            $
            137,592
            
            $
            1,862,408




As
        at
        March 31, 2006, interest expense incurred of $54,660 (March 31, 2005 -$23,015),
        and accreted interest expense related to the debt discount of $233,773 were
        capitalized to the Investment in MSC (Note 4).
 
 **6.
        Stock Options**
 
 A
        summary
        of the status of the Company’s stock option plan as of March 31, 2006
        is:


**Options**
            
            **Weighted
                Average**
              **Exercise
                Price (Cdn)**Outstanding
                at January 1, 2006
            
            
            6,745,000
            
            $
            0.54Exercised
            
            
            (470,000
            )
            $
            0.50Outstanding
                at March 31, 2006
            
            
            6,275,000
            
            $
            0.54Exercisable
                at March 31, 2006
            
            
            6,218,750
            
            $
            0.54





At
      March
      31, 2006, there were options held by directors, officers, employees and
      consultants of the Company for the purchase of common shares as
      follows:





**Number
                  of Shares**
              **Exercise
                  Price**
              **Expiry
                  Date**575,000
              Cdn$0.40
              June
                  27, 20071,370,000
              Cdn$0.59
              December
                  5, 2008100,000
              Cdn$0.50
              March
                  29, 20091,325,000
              Cdn$0.55
              September
                  10, 200950,000
              Cdn$0.61
              December
                  14, 20092,300,000
              Cdn$0.60
              December
                  28, 2010555,000
              Cdn$0.31
              March
                  21, 20136,275,000





-
            12
            -




**2006**
            
            **2005**Dividend
                yield (%)
            -
            
            -Expected
                volatility (%)
            85
            
            85Risk-free
                interest rates (%)
            4.32
            
            3.40Expected
                lives (years)
            4.75
            
            5.0




We
        recorded $41,764, and $9,244 of stock option compensation, related to the
        vesting of certain non-employee stock options, during the three months ended
        March 31, 2006 and 2005, respectively.
 
 **7.
        Warrants**





******Warrants**
            
            **Weighted
                Average**
              **Exercise
                Price (Cdn)**Outstanding
                and exercisable, January 1, 2006
            
            
            36,505,798
            
            $
            0.61Purchase
                warrants
            
            
            6,578,344
            
            $
            0.55Brokers’
                warrants
            
            
            322,339
            
            $
            0.55Exercised
            
            
            (7,984,066
            )
            $
            0.58Outstanding
                and exercisable, March 31, 2006
            
            
            35,422,415
            
            $
            0.59





At
      March
      31, 2006, there were warrants outstanding and exercisable as
      follows:




**Number
                  of Warrants**
              **Exercise
                  Price**
              **Expiry
                  Date**2,738,700
              Cdn$0.91
              December
                  14, 2006218,158
              Cdn$0.70
              March
                  22, 20071,002,343
              Cdn$0.55
              November
                  25, 20077,707,370
              Cdn$0.55
              December
                  20, 2007377,661
              Cdn$0.55
              December
                  20, 20076,578,344
              Cdn$0.55
              March
                  8, 2008322,339
              Cdn$0.55
              March
                  8, 20087,613,275
              Cdn$0.50
              November
                  13, 20088,864,225
              Cdn$0.70
              March
                  22, 201035,422,415




**8.**  **Agreements,
      Commitments and Contingencies**


**a.**
              Mineral
                  rights in Argentina are owned by the federal government and administered
                  by the provinces. The provinces can levy a maximum 3% "mouth of
                  mine"
                  (gross proceeds) royalty. The provinces of Mendoza and Neuquén have waived
                  their right to a royalty. The provinces of Río Negro, San Juan, Santa
                  Clara and Chubut have not yet established a policy regarding the
                  royalty.
 
 **b.**
              We
                  rent office space in Spokane, Washington for $2,122 per month with
                  a
                  commitment through November 2006.
  **c.**
              We
                  rent office space in Vancouver, British Columbia, Canada for Cdn$900
                  per
                  month, without a commitment.
 
 **d.**
              We
                  rent office space in Argentina for $345 per month with a commitment
                  through August 2006.
 
 **e.**
              We
                  rent a storage space in Argentina for $276 per month with a commitment
                  through December 2006.
 
 **f.**
              On
                  December 2, 2003, we signed an agreement that obligated us to pay
                  N.A.
                  Degerstrom (“Degerstrom”) a royalty of $250,000 if any of the current
                  properties, other than the properties comprising the San José project,
                  meet certain conditions such as bankable feasibility or commercial
                  production prior to December 2,
                  2013.
 
 **g.**
              During
                  2005, MSC signed agreements with third party providers relating
                  to the
                  development of the San José/Huevos
                  Verdes project. Our 49% portion of these commitments is approximately
                  $975,000. These commitments are expected to be completed by March
                  31,
                  2007.
 
 **h.**
              In
                  March 2005, MSC discovered an alleged employee fraud committed
                  by the
                  former purchasing manager during the period June 2004 through March
                  2005.
                  Respective to our 49% interest, the fraud amounted to approximately
                  $57,000 in 2004 and $78,000 in 2005. MSC will vigorously pursue
                  full
                  recovery but the final amount recoverable is not certain at this
                  time.
                  Canadian accounting standards require a high level of certainty
                  in
                  recording a recovery on the balance sheet that is contingent on
                  future
                  events, as a result the full amount of the fraud for each year
                  respectively, has been written off against our investment in MSC
                  and is
                  included in our loss from equity investment (Note 4). Funds recovered
                  in
                  the future related to the fraud will be recorded if and when they
                  are
                  received.


-
            13
            -


**9.
      Related Party Transactions**




During
      the three-month period ended March 31, 2006 we incurred legal fees to a firm
      in
      which a director and officer is an associate totaling $15,637 (three-month
      period ended March 31, 2005 - $10,185). This transaction was in the normal
      course of operations was measured at the exchange amount, which is the amount
      of
      consideration established and agreed to by the related
      parties.




**10.
      Differences between Canadian and United States Generally Accepted Accounting
      Principles**




As
      discussed in Note 1, these financial statements are prepared in accordance
      with
      Canadian generally accepted accounting principles (“GAAP”). Differences between
      Canadian and United States generally accepted accounting principles (“U.S.
      GAAP”) as they apply to these financial statements are summarized as
      follows:




**Compensation
      Expense Associated with Release of Shares from
      Escrow**




Under
      U.S. GAAP, stock compensation expense is recorded as shares held in escrow
      become eligible for release based upon the number of shares eligible for release
      and the market value of the shares at that time. Under Canadian GAAP, no value
      is attributed to such shares released and no compensation expense is recorded.
      Shares become eligible for release from escrow based on deferred exploration
      expenditure in accordance with the Escrow Agreement and with the consent of
      the
      TSX Venture Exchange. During the three months ended March 31, 2006, the year
      ended December 31, 2005 and for the period from July 1, 1994 (inception) through
      March 31, 2006, we would have recorded compensation expense of $nil, $nil and
      $6,324,914 respectively, under U.S. GAAP.




**Mineral
      Properties and Deferred Exploration Costs**




The
      U.S.
      Securities and Exchange Commission staff has taken the position that a U.S.
      registrant without proven and probable economic reserves, in most cases, could
      not support the recovery of the carrying value of deferred exploration costs.
      Our investment in MSC has proven and probable reserves but MSC did not receive
      government approval of the Environmental Impact Assessment (EIA) until the
      first
      quarter of 2006. Therefore, we have presented the effect of expensing all
      deferred exploration costs through December 31, 2005 as a reconciling item
      between U.S. and Canadian GAAP and have capitalized all deferred exploration
      costs related to MSC made subsequent to December 31, 2005 allowable under US
      GAAP totaling $4,502,746 for the three months ended March 31, 2006.




As
      our
      investment in MSC through December 31, 2005 was effectively an investment in
      a
      property without proven and probable reserves, all investment in MSC through
      December 31, 2005 has been expensed for U.S. GAAP purposes. Beginning on January
      1, 2006, it is considered to be an investment in a property with proven and
      probable reserves and it is therefore capitalized.




Subsequent
      to December 31, 2005, deferred exploration costs allowed under US GAAP related
      to MSC are not a reconciling item as they are capitalized for both U.S. and
      Canadian GAAP.




-
          14
          -


**Stock
      Based Compensation**




Beginning
      January 1, 2006, the Company adopted the Statement of Financial Accounting
      Standards No. 123R, "Accounting for Stock-based Compensation" (“SFAS 123R”)
      which essentially conforms the accounting treatment under U.S. GAAP to the
      accounting treatment under Canadian GAAP for stock option grants, but some
      differences may remain. For the three months ended March 31, 2006, the Company
      expensed $41,764 under Canadian GAAP and U.S. GAAP, representing the
      amortization of a portion of the fair value of stock options granted to
      employees.




The
      Company accounts for stock-based compensation in accordance with the SFAS 123R.
      SFAS 123R received approval in January 2005 and requires the recognition of
      the
      fair values of the stock options granted as compensation expense over the
      vesting period. Prior to this, as permitted by SFAS 123, the Company did not
      adopt the provisions in respect of the fair value based method of accounting
      for
      all of the employee stock-based transactions and, instead, included the required
      pro forma disclosure as if this method had been applied for options granted.
      Beginning January 1, 2006, the Company adopted the recommendations of SFAS
      123R,
      and has applied the recommendations of this standard using the modified
      prospective method. Under this application, the Company is required to record
      compensation expense for all awards granted after the date of adoption and
      for
      the unvested portion of previously granted awards that remain outstanding at
      the
      date of adoption. Accordingly, no prior periods were restated or cumulative
      adjustments recorded upon the adoption of this standard




Had
      the
      Company applied the new standard using the modified retrospective method, which
      permits restatement using amounts previously disclosed under the pro forma
      provisions of SFAS 123, compensation related to stock options would have
      impacted the pro forma amounts. Since we did not grant any options to employees
      for the three months ended March 31, 2005, the new US requirements has not
      created differences between Canadian and U.S. GAAP with respect to shareholders’
equity at March 31, 2005 nor the net loss for the three months ended March
      31,
      2005.




The
      net
      income under US GAAP for the three months ended March 31, 2005 has been
      restated. Beginning January 1, 2006, the Company adopted the recommendations
      of
      SFAS 123R, and has applied the recommendations of this standard using the
      modified prospective method. Previously the Company, under US GAAP, continued
      to
      follow Accounting Principle Board Opinion No. 25 “Accounting for stock issued to
      employees” and related interpretations to account for stock options issued to
      employees, options issued with an exercise price denominated in a currency
      other
      then its functional currency are not considered fixed and variable accounting
      is
      required in accordance with Emerging Issues Task Force (“EITF”) 00-23 Issue 31.
      Under variable accounting, the intrinsic value of the options issued to
      employees is remeasured on each balance sheet date, with the adjustment charged
      to the Statement of Operations. The effect of remeasurement was to decrease
      (increase) the stock compensation expense by $277,333 for the three months
      ended
      March 31, 2005. Upon adoption of SFAS 123R variable accounting is no longer
      required and no adjustment is required for the three months ended March 31,
      2006.




-
            15
            -


The
        impact of this US GAAP restatement, which has no impact on the Canadian GAAP
        financial statements, is as follows:
 **Previously
                        reported**
                    
                    **As
                        restated**Net
                        loss under US GAAP, March 31, 2005
                    
                    $
                    (2,624,775
                    )
                    $
                    (2,902,108
                    )Loss
                        per share
                    
                    $
                    (0.04
                    )
                    $
                    (0.04
                    )
 **Warrants**
 Under
          Canadian GAAP, no value was assigned to the warrants granted to the agents
          in
          connection with the private placement of 13,156,689 (2005 - 35,595,190)
          units
          which were issued in March 2006, March 2005 and December 2005. Under US
          GAAP,
          the warrants were valued on the closing date of the private placements,
          respectively, using the Black-Scholes option pricing model with the following
          weighted average assumptions:


**Agent
                Warrants****2006**
            
            **2005**Number
                of Warrants
            
            
            322,339
            
            
            1,650,293Risk-free
                rate
            
            
            4.72
            %
            
            4.33
            %Dividend
                yield
            
            
            Nil
            %
            
            Nil
            %Volatility
                factor of the expected market price of the Company’s common
                shares
            
            
            75
            %
            
            59
            %Weighted
                average expected life of the warrants (months)
            
            
            24
            
            
            24Value
                of warrants
            
            $
            212,867
            
            $
            198,273





The
        value
        of the agent warrants was charged as commission against share capital as
        share
        issuance costs per our accounting policy; thus there is no effect on
        shareholder’s equity.


**Bank
        Loan**
 Under
        Canadian GAAP, the corresponding entry to record the debt discount of $346,200
        related to the first tranche warrants and $263,800 related to the second
        tranche
        warrants granted to Macquarie Bank in connection with a credit facility (Note
        5)
        was charged to contributed surplus. Under US GAAP, as the Company is required
        to
        maintain its listed company status as part of the loan covenant, in accordance
        with Emerging Issues Task Force (“EITF”) 00-19, the fair value of the warrants
        was recorded as a liability. Subsequent to the initial measurement, the discount
        is remeasured on each balance sheet date or upon exercise of the warrants,
        based
        on the fair value of the warrants with the adjustment charged to the Statement
        of Operations and Accumulated Deficit. The effect of remeasurement was to
        increase the fair value of the liabilities by $2,050,496 (2005 - $704,892)
        which
        was debited to the Statement of Operations. On March 2, 2006, Macquarie
        exercised all of the second tranche warrants. The discount on these warrants
        was
        remeasured and included in the adjustment above. The fair value of the liability
        associated with the second tranche warrants as at March 2, 2006 was $1,451,623.
        Upon exercise of the warrants, the associated liability was transferred to
        shareholders’ equity. These GAAP differences related to warrants would result in
        total liabilities under US GAAP purposes to be increased by $2,051,357 (December
        31, 2005 - $1,686,257) from liabilities under Canadian GAAP to $4,594,821,
        as at
        March 31, 2006 (December 31, 2005 - $5,658,762). Under US GAAP, the fair
        value
        of the warrants is recognized on the Consolidated Balance Sheet as deferred
        financing costs and is amortized on a straight line basis over the term of
        the
        debt. This would result in total assets under US GAAP purposes to be $8,380,832,
        as at March 31, 2006 (December 31, 2005 - $3,848,079).
   -
              16
              -
 The
        fair
        value of the first tranche warrants, as at March 31, 2006, was calculated
        to be
        $1,913,765 using the Black-Scholes option pricing model with the following
        assumptions: dividend yield - Nil; risk free interest rate - 3.53%; expected
        volatility of 64.25% and an expected life of 9 months. The fair value of
        the
        second tranche warrants, as at March 2, 2006, was calculated to be $1,451,623
        using the Black-Scholes option pricing model with the following assumptions:
        dividend yield - Nil; risk free interest rate - 3.53%; expected volatility
        of
        57.34% and an expected life of 17 months. Upon exercise of the warrants,
        the
        fair value was transferred to shareholders’ equity.
 
 **Impact
        on Consolidated Financial Statements**
 The
        impact of the above on the interim consolidated financial statements is as
        follows:


**March
                31, 2006**
            
            **December
                31, 2005**Shareholders’
                equity, end of period, per CanadianGAAP
            
            $
            28,871,070
            
            $
            21,480,321Adjustment
                for mineral properties and deferredexploration
                costs
            
            
            (5,062,337
            )
            
            (4,470,174
            )Adjustment
                for mineral property and deferredexploration
                cost portion of investment [adjust for costs through 12/31/05
                only]
            
            
            (18,108,957
            )
            
            (17,505,938
            )Loss
                on revaluation of liability for warrants subject to registration
                rights
            
            
            (2,755,388
            )
            
            (704,892
            )Adjustment
                arising upon exercise of warrants subject to registration rights
            
            
            1,451,623
            
            
            -Adjustment
                for the debt discount
            
            
            (610,000
            )
            
            (610,000
            )Shareholders’
                equity (Capital Deficit), end of period, per US GAAP
            
            $
            3,786,
                011
            
            $
            (1,810,683
            )





**Three
                          Months Ended****March
                          31,**
                        **2006**
                      
                      **March
                          31,**
                        **2005**
                      
                      **Period
                          from**
                        **July
                          1, 1994**
                        **(inception)**
                        **through**
                        **March
                          31, 2006**(restated)*Net
                          loss for the period, per Canadian GAAP
                      
                      $
                      (567,849
                      )
                      $
                      (454,195
                      )
                      $
                      (21,094,159
                      )Adjustment
                          for acquisition of Scotia
                      
                      
                      --
                      
                      
                      --
                      
                      
                      (248,590
                      )Adjustment
                          for compensation expense
                      
                      
                      --
                      
                      
                      --
                      
                      
                      (5,453,160
                      )Loss
                          on revaluation of liability for warrants subject to registration
                          rights
                      
                      
                      (2,050,
                          469
                      )
                      
                      42,527
                      
                      
                      (2,755,388
                      )Adjustment
                          for deferred exploration costs, net
                      
                      
                      (592,163
                      )
                      
                      (362,677
                      )
                      
                      (5,062,337
                      )Adjustment
                          for investment
                      
                      
                      (603,019
                      )
                      
                      (1,850,430
                      )
                      
                      (18,108,957
                      )Adjustment
                          for variable intrinsic value
                      
                      
                      -
                      
                      
                      (277,333
                      )
                      
                      (304,925
                      )Net
                          loss for the period, per U.S. GAAP
                      
                      $
                      (3,813,527
                      )
                      $
                      (2,902,108
                      )
                      $
                      (53,027,516
                      )Basic
                          and diluted net loss per common share, per U.S. GAAP
                      
                      $
                      (0.03
                      )
                      $
                      (0.04
                      )


*
      See
      note (c) above


-
            17
            -




**March
                31, 2006**
            
            **Dec.
                31,**
              **2005**Total
                liabilities, per Canadian GAAP
            
            $
            2,543,464
            
            $
            3,972,505Adjustment
                for the debt discount
            
            
            610,000
            
            
            610,000Adjustment
                for amortization of debt discount
            
            
            (472,408
            )
            
            (238,635
            )Adjustment
                to recognize warrant liability
            
            
            610,000
            
            
            610,000Loss
                on revaluation of liability for warrants subject to registration
                rights
            
            
            2,755,388
            
            
            704,892Adjustment
                arising upon exercise of warrants subject to registration rights
            
            
            (1,451,623
            )
            
            -Total
                liabilities, per US GAAP
            
            $
            4,594,821
            
            $
            5,658,762





**March
                  31, 2006**
              
              **Dec.
                  31, 2005**Total
                  asset, per Canadian GAAP
              
              $
              31,414,534
              
              $
              25,452,826Adjustment
                  for mineral properties and deferredexploration
                  costs
              
              
              (5,062,337
              )
              
              (4,470,174
              )Adjustment
                  for mineral property and deferred exploration cost portion of
                  investment
              
              
              (18,108,957
              )
              (17,505,938)Adjustment
                  for deferred financing costs
              
              
              610,000
              
              610,000Amortization
                  of deferred financing costs
              
              
              (472,408
              )
              (238,635)Total
                  assets, per US GAAP
              
              $
              8,380,832
              
              $                 
                  3,848,079




**March
                  31,**
                **2006**
              
              **March
                  . 31,**
                **2005**
              
              **Period
                  from**
                **July
                  1, 1994**
                **(inception)**
                **through**
                **March
                  31,**
                **2006**Cash
                  flows used in operating activities under Canadian GAAP
              
              $
              (371,146
              )
              
              (297,478
              )
              $
              (9,892,461
              )Adjustment
                  related to investment
              
              
              (603,019
              )
              
              (2,140,057
              )
              
              (18,040,024
              )Adjustment
                  related to mineral properties
              
              
              (587,121
              )
              
              (356,424
              )
              
              (17,099,039
              )Cash
                  flows used in operating activities under US GAAP
              
              $
              (1,561,286
              )
              
              (2,793,959
              )
              $
              (45,031,524
              )Cash
                  flows used in investing activities under Canadian GAAP
              
              $
              (5,196,034
              )
              
              (2,296,922
              )
              $
              (36,250,468
              )Adjustment
                  related to investment
              
              
              603,019
              
              
              2,140,057
              
              
              17,437,005Adjustment
                  related to mineral properties
              
              
              587,121
              
              
              356,424
              
              
              17,099,039Cash
                  flows used in investing activities under US GAAP
              
              $
              (4,005,894
              )
              
              199,559
              
              $
              (1,111,405
              )






*New
      U.S. Accounting Pronouncements*




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 123R, “Share-Based Payment”, which requires companies to expense
      the fair value of employee stock options and other forms of stock-based
      compensation. This requirement represents a significant change because
      share-based stock option awards, a predominate form of stock compensation for
      us, were not recognized as compensation expense under APB 25. Statement 123R
      requires the cost of the award, as determined on the date of grant at fair
      value, to be recognized over the period during which an employee is required
      to
      provide service in exchange for the award, usually the vesting period. The
      grant-date fair value of the award will be estimated using an option-pricing
      model. The Company adopted the statement using the modified-prospective method
      on January 1, 2006. The Company currently discloses the effect of expensing
      stock options under a fair value approach using the Black-Scholes pricing model
      in Note 7 to these Condensed Consolidated Financial Statements.




In
      May
      2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS 154”), which replaces APB Opinion No. 20, “Accounting Changes” (“APB
      20”), and FASB Statement No. 3, “Reporting Accounting Changes in Interim
      Financial Statements.” SFAS 154 applies to all voluntary changes in accounting
      principle and modifies the requirements for accounting for and reporting a
      change in accounting principle. SFAS 154 requires retrospective application
      to
      prior periods’ financial statements of a voluntary change in accounting
      principle unless it is impracticable. SFAS 154 requires that a change in method
      of depreciation, amortization or depletion for long-lived, non-financial assets
      be accounted for as a change in accounting estimate that is affected by a change
      in accounting principle. APB 20 previously required that such a change be
      reported as a change in accounting principle. The adoption of SFAS 154 did
      not
      have a material impact on the financial statements of the Company.


-
            18
            -


In
      May
      2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a
      replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. This Statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. The statement requires retrospective application
      to prior periods’ financial statements of changes in accounting principle,
      unless it is impracticable to determine either the period-specific effects
      or
      the cumulative effect of the change. When it is impracticable to determine
      the
      period-specific effects of an accounting change on one or more individual prior
      periods presented, this statement requires that the new accounting principle
      be
      applied to the balances of assets and liabilities as of the beginning of the
      earliest period for which retrospective application is practicable and that
      a
      corresponding adjustment be made to the opening balance of retained earnings
      (or
      other appropriate components of equity or net assets in the statement of
      financial position) for that period rather than being reported in an income
      statement.




When
      it
      is impracticable to determine the cumulative effect of applying a change in
      accounting principle to all prior periods, this statement requires that the
      new
      accounting principle be applied as if it were adopted prospectively from the
      earliest date practicable. The adoption of revised SFAS No. 154 is not expected
      to have a material effect on our consolidated


financial
      statements.




In
      March
      2005, FASB issued Interpretation No. 47, “Accounting for Conditional Asset
      Retirement Obligations—an interpretation of FASB Statement No. 143.” This
      Interpretation clarifies that the term conditional asset retirement obligation
      as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations,
      refers to a legal obligation to perform an asset retirement activity in which
      the timing and (or) method of settlement are conditional on a future event
      that
      may or may not be within the control of the entity. The obligation to perform
      the asset retirement activity is unconditional even though uncertainty exists
      about the timing and (or) method of settlement. Thus, the timing and (or) method
      of settlement may be conditional on a future event. Accordingly, an entity
      is
      required to recognize a liability for the fair value of a conditional asset
      retirement obligation if the fair value of the liability can be reasonably
      estimated. The fair value of a liability for the conditional asset retirement
      obligation should be recognized when incurred—generally upon acquisition,
      construction, or development and (or) through the normal operation of the asset.
      Uncertainty about the timing and (or) method of settlement of a conditional
      asset retirement obligation should be factored into the measurement of the
      liability when sufficient information exists. Statement 143 acknowledges that
      in
      some cases, sufficient information may not be available to reasonably estimate
      the fair value of an asset retirement obligation. This Interpretation also
      clarifies when an entity would have sufficient information to reasonably
      estimate the fair value of an asset retirement obligation **.** The
      adoption of revised FIN 47 is not expected to have a material effect on our
      consolidated financial statements.




In
      December 2004, FASB issued SFAS No. 153 to amend Opinion 29 by eliminating
      the
      exception for non-monetary exchanges of similar productive assets and replaces
      it with general exception for exchanges of non-monetary assets that do not
      have
      commercial substance. A non-monetary exchange is defined to have commercial
      substance if the future cash flows of the entity are expected to change
      significantly as a result of the exchange. SFAS No. 153 is effective for
      non-monetary asset exchanges occurring in fiscal periods beginning after June
      15, 2005. Earlier application is permitted for non-monetary asset exchanges
      occurring in fiscal periods beginning after December 16, 2004. The adoption
      of
      revised SFAS No. 153 is not expected to have a material effect on our
      consolidated financial statements




In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments - an Amendment of FASB Statements No. 133 and 140". Among
      other things, the SFAS No. 155 permits the election of fair value remeasurement
      for certain hybrid financial instruments that would otherwise require
      bifurcation under Statement 133, Accounting for Derivative Instruments and
      Hedging Activities. These hybrid financial instruments would include both assets
      and liabilities. SFAS No. 155 is effective for fiscal years beginning after
      September 15, 2006.


-
            19
            -


In
      September 2005, the FASB ratified the consensus reached by the EITF on Issue
      05-7, Accounting for Modifications to Conversion Options Embedded in Debt
      Instruments and Related Issues ("EITF 05-7"). According to EITF Issue 96-19,
      "Debtor's Accounting for a Modification or Exchange of Debt Instruments," an
      exchange of debt instruments having substantially different terms (or a
      substantial modification of the terms of existing debt) is deemed tantamount
      to
      a debt extinguishment. In EITF 05-7, the Task Force provides the following
      additional guidance in the application of EITF 96-19:




In
      determining whether a substantial modification has been made to a convertible
      debt instrument (and thus whether an extinguishment has occurred), the change
      in
      fair value of the related embedded conversion option should be included in
      the
      EITF96-19 analysis, with such change calculated as the difference between the
      fair values of the option immediately before and after the modification. The
      modification of a convertible debt instrument should affect subsequent
      recognition of interest expense with respect to changes in the fair value of
      the
      embedded conversion option. A new beneficial conversion feature should not
      be
      recognized nor should an existing one be reassessed upon modification to a
      convertible debt instrument (i.e., the only value associated with the
      modification of the embedded conversion option to be accounted for should be
      the
      change in its fair value). The foregoing consensus is effective for future
      modifications of debt instruments beginning in the first interim or annual
      reporting period commencing after December 15, 2005, with early application
      permitted.




**11.
      Subsequent Event**




As
      included in the share capital activity which occurred subsequent to March 31,
      2006, referred to in Note 2, in May 2006, Mr. Robert McEwen completed the early
      exercise of all the common share purchase warrants he held in the company.
      As a
      result, a total of 14,285,714 common shares were issued resulting in gross
      proceeds of Cdn$7,857,143 to Minera Andes. In addition, Mr. McEwen has reported
      that he purchased 1.2 million shares in the market at Cdn$1.10 per share, during
      March. Following his initial investment in Minera Andes four months ago, Mr.
      McEwen has increased his holdings to 30% of the company and is our largest
      shareholder.




In
      consideration for the early exercise of all his common share purchase warrants,
      Minera Andes issued to Mr. McEwen 2 million new common share purchase warrants.
      Each new warrant will entitle McEwen to purchase one common share at an exercise
      price of Cdn$1.80 per share for a term of 12 months expiring on May 5, 2007.
      The
      broker assisting in the transaction received a fee of Cdn$50,000. The warrants
      will be subject to a hold period expiring on September 6, 2006 (4 months and
      1
      day).




Minera
      Andes has received a total of approximately $13.3 million from the exercise
      of
      warrants and options, including Mr. McEwen’s warrants, since the beginning of
      the year. As a result, Minera Andes has determined not to proceed with a
      previously announced bridge financing for US$5 million. Consequently, Minera
      Andes will not issue the approximately 6.1 million two-year share purchase
      warrants (exercisable at Cdn$0.93 each) that were to have been issued in
      connection with this debt financing.




-
          20
          -


**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




The
      following discussion should be read in conjunction with Minera Andes’ audited
      consolidated financial statements and notes thereto for the year ended December
      31, 2005 and the unaudited consolidated interim financial statements and notes
      thereto for the period ended March 31, 2006, which have been prepared in
      accordance with generally accepted accounting principles (“GAAP”) in Canada.
      These statements along with additional information relating to Minera Andes
      are
      available on SEDAR at www.sedar.com .
      Financial condition and results of operations are not necessarily indicative
      of
      what may be expected in future years.




All
      amounts in this discussion are in US Dollars unless otherwise
      indicated.




**Note
      Regarding Forward-Looking Statements**




The
      information in this report includes “forward-looking” statements within the
      meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
      Securities Exchange Act of 1934 (“1934 Act”), and is subject to the safe harbor
      created by those sections. Factors that could cause results to differ materially
      from those projected include, but are not limited to, results of current
      exploration activities, the market price of precious and base metals, the
      availability of joint venture partners or sources of financing, and other risk
      factors detailed in Part II, Item 1A, and in our other Securities and Exchange
      Commission filings.




**Overview**




Minera
      Andes was incorporated in Alberta in July 1994 and went public in November
      1995
      through an amalgamation with Scotia Prime Minerals, Incorporated, also an
      Alberta Corporation. We are a reporting issuer in Alberta, British Columbia,
      Ontario and Nova Scotia and trade our common shares on the TSX Venture Exchange
      under the symbol MAI. We are also a Form 10-K (Form 10-KSB for years prior
      to
      2006) filer in the U.S. and trade on the NASD OTCBB under the symbol
      MNEAF.




The
      principal business of Minera Andes is the exploration and development of mineral
      properties, located primarily in the Republic of Argentina, consisting of
      mineral rights and applications for mineral rights, covering approximately
      439,804 acres (177,986 hectares) in three provinces in Argentina. We carry
      out
      our business by acquiring, exploring and evaluating mineral properties through
      our ongoing exploration program. Following exploration, we either seek to enter
      joint ventures to further develop these properties or dispose of them if the
      properties do not meet our requirements. Our properties are all early stage
      exploration properties, except for the San José property, which is an
      advanced-stage exploration/development project.




Through
      our subsidiaries and joint ventures we own a 49% equity interest in Minera
      Santa
      Cruz (MSC), which owns the San José gold/silver property in Southern Argentina,
      and a 100% interest in over 10 mineral properties in Argentina. MSC made a
      formal decision through its board of directors to place the San José project
      into production in March 2006.




After
      receiving a positive feasibility study supporting development of a mine on
      the
      San José property in October of 2005, MSC submitted an Environmental Impact
      Assessment (EIA) study to seek permitting approvals to build a mine from the
      province of Santa Cruz. MSC then formalized the decision to proceed to place
      the
      project into production. In March of 2006, we received the approval of the
      EIA
      and are proceeding to build the mine to place the San José project into
      production by the first quarter of 2007. We anticipate financing completion
      of
      the San José project with a banking credit facility. A letter of intent for the
      credit facility is currently in place and the bank’s due diligence and the final
      agreement are in the process of being finalized.




On
      other
      properties, we commenced drilling at the Los Azules porphyry copper project
      in
      the San Juan province, central Argentina in February 2006. A total of 36 holes,
      totaling approximately 9,000 meters, are planned for the current campaign.
      Eleven holes were drilled by May 2006 and the remaining holes will be drilled
      after the austral winter in the fourth quarter of 2006. The holes will be
      drilled to a depth of 250 meters. This drilling will test a known area of
      leachable (chalcocite) copper mineralization currently defined by 8 previous
      drill holes. In addition, the area is defined by a deep penetrating IP
      chargeability anomaly and, on its eastern flank, a magnetic low recognized
      in
      both airborne and ground surveys. The area to be drilled covers approximately
      2,500 by 750 meters. Holes will be drilled at a grid spacing of 200 meters
      east-west and 400 meters north-south.


-
            21
            -


In
      May
      2006, we also commenced drilling at our Cerro Mojón gold/silver project in Santa
      Cruz province, Argentina. The drill plan calls for a total of 2,250 meters
      of
      drilling in 12 holes varying in depth between 100 and 300 meters




Within
      our mineral exploration land in Argentina our focus is primarily on gold, silver
      and copper mineralized targets. In addition, several new exploration properties
      have been acquired through the filing of mineral applications. These properties
      reveal numerous similarities to Minera Andes’ San José property in northern
      Santa Cruz province. Two properties, Cerro Mojón and San Agustin, contain
      several mineralized structures with favorable geologic indicators and silver
      values up to 10 ounces per ton. Other prospects contain structures with
      sinter-like quartz veining.




**Plan
      of Operations**




At
      quarter end, we had working capital of approximately $1.1 million. Subsequent
      to
      March 31, 2006, we received approximately $9 million from the exercise of
      warrants and options.




We
      have
      budgeted and plan to spend approximately $3.6 million for our mineral property
      and exploration activities, other than the San José project, and for other
      general and administrative expenses through 2006, with work being conducted
      on
      several properties including an ongoing reconnaissance program designed to
      make
      new acquisitions. In addition, the 2006 budget for the exploration, development
      and construction to place the San José project into production by the first
      quarter of 2007 is approximately $59 million, of which we will fund $6.5 million
      and the balance will be funded by our partners, MHC, and a project financing
      facility. The San José project is owned by MSC, an Argentine corporation owned
      by Minera Andes Inc. (49%) and MHC (51%) the operator of the project. In October
      of 2005, a positive feasibility was delivered and MSC secured a letter of intent
      for a non-recourse debt financing to complete construction of the project.
      If
      this financing is completed we may not be required to spend additional equity
      funds on the project, however, the financing of the project is uncertain at
      this
      time. To maintain our 49% interest in MSC we may need to raise additional funds
      in 2006. If we cannot match MHC pro rata, we expect to have our interest in
      the
      San José project diluted in accordance with the joint venture agreement. Failure
      by either party to contribute to work programs will result in simple dilution
      of
      that party’s interest in the project. If additional funds are raised during 2006
      through the exercise of warrants or options, a further equity financing, debt
      financing, the sale of property interests, or joint venture financing,
      additional exploration would be planned and carried out on our properties.
      If we
      were to develop a property or a group of properties beyond the exploration
      stage, substantial additional financing would be necessary. Such financing
      would
      likely be in the form of equity, debt, or a combination of equity and debt.
      There is no assurance that such financing, if necessary, would be available
      to
      us on favorable terms.




**Results
      of Operations**




**First
      quarter 2006 compared with first quarter 200**




We
      had a
      net loss of approximately $568,000 for the first quarter of 2006, compared
      to a
      net loss of $454,000 for the first quarter of 2005 due to loss on investment.
      Total mineral property and deferred exploration costs were approximately
      $592,000 during the first quarter of 2006, compared with approximately $363,000
      spent in the first quarter of 2005. The costs are associated with ongoing
      reconnaissance exploration programs, new property acquisitions, evaluation
      of
      existing properties, and exploration at our Los Azules project.


-
            22
            -


Administrative
      expenditures for the quarter ended March 31, 2006 included $125,336 in
      consulting fees. The costs are associated with our investor relations program
      and stock compensation expense for consultants. Legal, audit and accounting
      activities were $87,283 for the quarter ended March 31, 2006 compared to $36,792
      in the same period last year. Travel for the quarter ended March 31, 2006 was
      $14,071 compared with $22,656 in the same period in 2005. Foreign exchange
      loss
      was $27,392 for the quarter ended March 31, 2006 compared with a loss of $16,430
      in the same period in 2005.




In
      the
      first quarter of 2006, we completed the second private placement with Mr. McEwen
      and sold 13,156,689 units at a price of Cdn$0.35 per unit for gross proceeds
      of
      Cdn$4,604,841 (US$3,970,703). Each unit consists of one common share and
      one-half of one common share purchase warrant. One whole common share purchase
      warrant entitles the holder to purchase one additional common share at an
      exercise price of Cdn$0.55 per share at any time prior to the earlier of: a)
      the
      date which is the 15th trading day after receiving notice from Minera Andes
      that
      the weighted average price of the common shares on the TSX Venture Exchange
      has
      been equal to or greater than Cdn$1.00 for a period of 20 consecutive trading
      days commencing 120 days after the date of issuance of the warrants, and b)
      March 8, 2008.




The
      agents received a cash commission of 5% of the gross proceeds of the financing
      and 322,339 broker warrants, equal to 2.45% of the aggregate number of units
      sold. Each broker warrant upon exercise will entitle the holder to acquire
      one
      common share at an exercise price of Cdn$0.55 per common share at any time
      prior
      to the earlier of: a) the date which is the 15th trading day after receiving
      notice from Minera Andes that the weighted average price of the common shares
      on
      the TSX Venture Exchange has been equal to or greater than Cdn$1.00 for a period
      of 20 consecutive trading days commencing 120 days after the date of issuance
      of
      the warrants, and b) March 8, 2008.




We
      intend
      to use the proceeds from the offering to fund our investment in MSC and for
      general corporate purposes.




**Liquidity
      and Capital Resources**




Due
      to
      the nature of the mining industry, the acquisition, exploration and development
      of mineral properties requires significant expenditures prior to the
      commencement of production. To date, we have financed our activities through
      the
      sale of equity securities, joint venture arrangements and debt facilities.
      We
      expect to use similar financing techniques in the future. However, there can
      be
      no assurance that we will be successful with such financings. See “Plan of
      Operations”.




At
      March
      31, 2006 we had cash and cash equivalents of approximately $3.6 million compared
      to approximately $7.8 million at March 31, 2005. Working capital at March 31,
      2006 was approximately $1.1 million. Subsequent to the quarter end, we received
      approximately $9 million from the exercise of warrants and options. These funds,
      together with funds from joint ventures on the San José project, are sufficient,
      as estimated by management, to cover our budgeted expenditures for mineral
      property and exploration activities on our properties in Argentina and general
      and administrative expenses through the end of 2006. Our operating activities
      used approximately $371,000 in the first quarter of 2006 compared with using
      approximately $297,000 in the first quarter of 2005. Administrative expenditures
      for the period included approximately $125,000 in consulting fees (a decrease
      of
      $13,000 over the same period last year); approximately $14,000 in travel;
      approximately $71,000 in office overhead and approximately $7,000 in telephone
      expenditures. These costs are due to our investor relations and public relations
      program.




Investing
      activities used approximately $5.2 million, due to funding our 49% interest
      in
      the San Jose project, less property option proceeds received, and expenditures
      related to mineral properties and deferred exploration in the first quarter
      of
      2006 compared with approximately $2.3 million used in the first quarter of
      2005.


-
            23
            -


Financing
      activities provided approximately $5.8 million, as a result of a private
      placement, exercise of warrants, broker warrants and options, and repayment
      of
      bank loan in the first quarter of 2006 compared with approximately $8.7 million
      provided in the first quarter of 2005. Cash and cash equivalents increased
      in
      the first quarter by approximately $240,000 in 2006 compared with an increase
      of
      approximately $6.1 million in the same period in 2005.




The
      recoverability of amounts shown as mineral properties and deferred exploration
      costs is dependent upon the existence of economically recoverable reserves,
      our
      ability to obtain necessary financing to complete their development, and future
      profitable production or disposition thereof. The accompanying consolidated
      financial statements have been prepared using accounting principles generally
      accepted in Canada applicable to a going concern. The use of such principles
      may
      not be appropriate because, as of March 31, 2006, there was significant doubt
      that we would be able to continue as a going concern. (See Auditor’s Comment in
      the December 31, 2005 Audit Report and Note 1 in the December 31, 2005 Financial
      Statements).




For
      the
      three months ended March 31, 2006, we had a loss of approximately $568,000
      and
      an accumulated deficit of approximately $23.7 million. In addition, due to
      the
      nature of the mining business, the acquisition, exploration and development
      of
      mineral properties requires significant expenditures prior to the commencement
      of production. To date, we have financed our activities through the sale of
      equity securities, debt facilities and joint venture arrangements. We expect
      to
      use similar financing techniques in the future and is actively pursuing such
      additional sources of financing.




Although
      there is no assurance that we will be successful in these actions, management
      believes that they will be able to secure the necessary financing to enable
      it
      to continue as a going concern. Accordingly, these financial statements do
      not
      reflect adjustments to the carrying value of assets and liabilities, the
      reported revenues and expenses and balance sheet classifications used that
      would
      be necessary if the going concern assumption were not appropriate. Such
      adjustments could be material.




**Critical
      Accounting Policies**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make a wide variety of estimates
      and assumptions that affect (i) the reported amounts of assets and liabilities
      and disclosure of contingent assets and liabilities as of the date of the
      financial statements, and (ii) the reported amounts of revenues and expenses
      during the reporting periods covered by the financial statements. Our management
      routinely makes judgments and estimates about the effect of matters that are
      inherently uncertain. As the number of variables and assumptions affecting
      the
      future resolution of the uncertainties increases, these judgments become even
      more subjective and complex. The most significant accounting policies that
      are
      most important to the portrayal of our current financial condition and results
      of operations relate to mineralization and deferred development costs.




Mineral
      properties consist of exploration and mining concessions, options and contracts.
      Acquisition and leasehold costs and exploration costs are capitalized and
      deferred until such time as the property is put into production or the
      properties are disposed of either through sale or abandonment. If put into
      production, the costs of acquisition and exploration will be depreciated over
      the life of the property, based on estimated economic reserves. Proceeds
      received from the sale of any interest in a property will first be credited
      against the carrying value of the property, with any excess included in
      operations for the period.




We
      review
      the carrying value of our investment in MSC and in other mineral properties
      on a
      regular basis. This review includes, but is not limited to, the timing of
      exploration and/or development work, work programs proposed, the exploration
      results achieved by Minera Andes and others, sales and/or joint venture value,
      current market price of minerals, ability to finance ongoing development and,
      in
      the case of producing properties, the estimated future operating results and
      net
      cash flows. When the carrying value of a property is estimated to exceed its
      net
      recoverable amount, provision is made for the decline in value. If a property
      is
      abandoned, the property and deferred exploration costs will be written off
      to
      operations -
            24
            -


**Recent
      U.S. Accounting Pronouncements**




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement No. 123R, “Share-Based Payment”, which requires companies to expense
      the fair value of employee stock options and other forms of stock-based
      compensation. This requirement represents a significant change because
      share-based stock option awards, a predominate form of stock compensation for
      us, were not recognized as compensation expense under APB 25. Statement 123R
      requires the cost of the award, as determined on the date of grant at fair
      value, to be recognized over the period during which an employee is required
      to
      provide service in exchange for the award, usually the vesting period. The
      grant-date fair value of the award will be estimated using an option-pricing
      model. The Company adopted the statement using the modified-prospective method
      on January 1, 2006. The Company currently discloses the effect of expensing
      stock options under a fair value approach using the Black-Scholes pricing model
      in Note 7 to these Condensed Consolidated Financial Statements.




In
      May
      2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
(“SFAS 154”), which replaces APB Opinion No. 20, “Accounting Changes” (“APB
      20”), and FASB Statement No. 3, “Reporting Accounting Changes in Interim
      Financial Statements.” SFAS 154 applies to all voluntary changes in accounting
      principle and modifies the requirements for accounting for and reporting a
      change in accounting principle. SFAS 154 requires retrospective application
      to
      prior periods’ financial statements of a voluntary change in accounting
      principle unless it is impracticable. SFAS 154 requires that a change in method
      of depreciation, amortization or depletion for long-lived, non-financial assets
      be accounted for as a change in accounting estimate that is affected by a change
      in accounting principle. APB 20 previously required that such a change be
      reported as a change in accounting principle. The adoption of SFAS 154 did
      not
      have a material impact on the financial statements of the Company.




In
      May
      2005, FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a
      replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. This Statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. The statement requires retrospective application
      to prior periods’ financial statements of changes in accounting principle,
      unless it is impracticable to determine either the period-specific effects
      or
      the cumulative effect of the change. When it is impracticable to determine
      the
      period-specific effects of an accounting change on one or more individual prior
      periods presented, this statement requires that the new accounting principle
      be
      applied to the balances of assets and liabilities as of the beginning of the
      earliest period for which retrospective application is practicable and that
      a
      corresponding adjustment be made to the opening balance of retained earnings
      (or
      other appropriate components of equity or net assets in the statement of
      financial position) for that period rather than being reported in an income
      statement.




When
      it
      is impracticable to determine the cumulative effect of applying a change in
      accounting principle to all prior periods, this statement requires that the
      new
      accounting principle be applied as if it were adopted prospectively from the
      earliest date practicable. The adoption of revised SFAS No. 154 is not expected
      to have a material effect on our consolidated financial statements.




In
      March
      2005, FASB issued Interpretation No. 47, “Accounting for Conditional Asset
      Retirement Obligations—an interpretation of FASB Statement No. 143.” This
      Interpretation clarifies that the term conditional asset retirement obligation
      as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations,
      refers to a legal obligation to perform an asset retirement activity in which
      the timing and (or) method of settlement are conditional on a future event
      that
      may or may not be within the control of the entity. The obligation to perform
      the asset retirement activity is unconditional even though uncertainty exists
      about the timing and (or) method of settlement. Thus, the timing and (or) method
      of settlement may be conditional on a future event. Accordingly, an entity
      is
      required to recognize a liability for the fair value of a conditional asset
      retirement obligation if the fair value of the liability can be reasonably
      estimated. The fair value of a liability for the conditional asset retirement
      obligation should be recognized when incurred—generally upon acquisition,
      construction, or development and (or) through the normal operation of the asset.
      Uncertainty about the timing and (or) method of settlement of a conditional
      asset retirement obligation should be factored into the measurement of the
      liability when sufficient information exists. Statement 143 acknowledges that
      in
      some cases, sufficient information may not be available to reasonably estimate
      the fair value of an asset retirement obligation. This Interpretation also
      clarifies when an entity would have sufficient information to reasonably
      estimate the fair value of an asset retirement obligation **.** The
      adoption of revised FIN 47 is not expected to have a material effect on our
      consolidated financial statements.


-
            25
            -


In
      December 2004, FASB issued SFAS No. 153 to amend Opinion 29 by eliminating
      the
      exception for non-monetary exchanges of similar productive assets and replaces
      it with general exception for exchanges of non-monetary assets that do not
      have
      commercial substance. A non-monetary exchange is defined to have commercial
      substance if the future cash flows of the entity are expected to change
      significantly as a result of the exchange. The
      adoption of revised SFAS No. 153 is not expected to have a material effect
      on
      our consolidated financial statements




In
      December 2004, FASB issued (“SFAS”) No. 123R (revised 2004), “Share-Based
      Payment.” SFAS No. 123(R) requires the Company to measure all employee
      stock-based compensation awards using a fair value method and record such
      expense in its consolidated financial statements. In addition, SFAS No. 123(R)
      requires additional accounting related to the income tax effects and additional
      disclosure regarding the cash flow effects resulting from share-based payment
      arrangements. For public entities that do not file as a small business issuer,
      SFAS No. 123(R) is effective for the first annual reporting period beginning
      after December 15, 2005.




**Subsequent
      events**




Subsequent
      to March 31, 2006, we issued 140,000 common shares for the exercise of stock
      options, 17,862,873 common shares for the exercise of warrants and 188,830
      common shares for the exercise of broker warrants for total gross proceeds
      of
      $8,988,363.




Included
      in the warrants exercised, in May 2006, Mr. Robert McEwen completed the early
      exercise of all the common share purchase warrants he held in the company.
      As a
      result, a total of 14,285,714 common shares were issued resulting in gross
      proceeds of Cdn$7,857,143 to Minera Andes. In addition, Mr. McEwen has reported
      that he purchased 1.2 million shares in the market at Cdn$1.10 per share, during
      March.




Following
      his initial investment in Minera Andes four months ago, Mr. McEwen has increased
      his holdings to 30% of the company and is our largest shareholder. This
      represents a total investment of approximately Cdn$19 million in Minera Andes.
      Mr. McEwen’s previous investments in Minera Andes consisted of Cdn$10 million in
      two private placements completed in December of 2005 and March of 2006. The
      details of the private placements and warrant terms were previously disclosed
      in
      our press releases dated December 21, 2005 and March 13, 2006. The common shares
      issued to Mr. McEwen on exercise of his warrants are subject to a hold period
      expiring with respect to 7,707,370 common shares on April 21, 2006 and with
      respect to 6,578,344 common shares on July 9, 2006.




In
      consideration for the early exercise of all his common share purchase warrants,
      Minera Andes issued to Mr. McEwen 2 million new common share purchase warrants.
      Each new warrant will entitle Mr. McEwen to purchase one common share at an
      exercise price of Cdn$1.80 per share for a term of 12 months expiring on May
      5,
      2007. The broker assisting in the transaction received a fee of Cdn$50,000.
      The
      warrants will be subject to a hold period expiring on September 6, 2006 (4
      months and 1 day).




Minera
      Andes has received a total of approximately $13.3 million from the exercise
      of
      warrants and options, including Mr. McEwen’s warrants, since the beginning of
      the year. As a result, Minera Andes has determined not to proceed with a
      previously announced bridge financing for US$5 million. Consequently, Minera
      Andes will not issue the approximately 6.1 million two-year share purchase
      warrants (exercisable at Cdn$0.93 each) that were to have been issued in
      connection with this debt financing.


-
            26
            -


**Item
      3. Quantitative and Qualitative Disclosures About Market Risk**




Our
      exposure to market risk includes, but is not limited to, the following risks:
      changes in interest rates on our debt, changes in foreign currency exchange
      rates, commodity price fluctuations and equity price risk.




**Interest
      Rate Risk**




At
      March
      31, 2006 we had $2.0 million of variable rate debt which carries an interest
      rate of LIBOR plus 2%. We estimate that a 1% increase in the interest rate
      on
      the variable rate debt would result in a $20,000 change in annual interest
      expense. We have not entered into any agreements to hedge against unfavorable
      changes in interest rates, but may in the future actively manage our exposure
      to
      interest rate risk.




**Foreign
      Currency Exchange Rate Risk**




While
      our
      major operating units transact most of their business in US dollars, many
      expenses, purchases of labor, operating supplies and capital assets are
      denominated in Canadian dollars or Argentinean pesos. As a result, currency
      exchange fluctuations may impact the costs incurred at our operations. The
      appreciation of non-US dollar currencies against the US dollar increases costs
      and the cost of capital assets in US dollar terms at our properties located
      outside the US, which can adversely impact our net income and cash flows.
      Conversely, a depreciation of non-US dollar currencies usually decreases
      production costs and capital asset purchases in US dollar terms.




The
      value
      of cash and cash equivalent investments denominated in foreign currencies also
      fluctuates with changes in currency exchange rates. Appreciation of non-US
      dollar currencies results in a foreign currency gain on such investments and
      a
      decrease in non-US dollar currencies results in a loss.




We
      have
      not utilized market risk sensitive instruments to manage our exposure to foreign
      currency exchange rates but may in the future actively manage our exposure
      to
      foreign currency exchange rate risk. We also hold portions of our cash reserves
      in non-US dollar currencies.




**Equity
      Price Risk**




We
      have
      in the past sought and may in the future seek to acquire additional funding
      by
      sale of common shares. Movements in the price of our common shares have been
      volatile in the past and may also be volatile in the future. As a result, there
      is a risk that we may not be able to sell new common shares at an acceptable
      price should the need for new equity funding arise.




**Item
      4. Controls and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




As
      of the
      end of the period covered by this report, we carried out an evaluation of the
      effectiveness of the design and operation of our “disclosure controls and
      procedures” (as defined in the Securities Exchange Act of 1934 (“Exchange Act”)
      Rules 13a-14(c) and 15d-14(c)) under the supervision and with the participation
      of management, including our President and Chief Financial Officer. Based upon
      that evaluation, our President and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective.




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in Company reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include, but
      are not limited to, controls and procedures designed to ensure that information
      required to be disclosed in Company reports filed under the Exchange Act is
      accumulated and communicated to management to allow timely decisions regarding
      required disclosure.




**Changes
      in Internal Controls**




There
      were no significant changes in our internal controls or, to our knowledge,
      in
      other factors that could significantly affect our disclosure controls and
      procedures subsequent to the date we carried out this evaluation.


-
            27
            -


**PART
      II - OTHER
      INFORMATION**




**Item
      1A.**  **Risk
      Factors**




**RISK
      FACTORS**




You
      should consider the following discussion of risks in addition to the other
      information contained in or included by reference in this Form 10-Q. In addition
      to historical information, the information in this form 10-Q contains
      "forward-looking" statements about our future business and performance. Our
      actual operating results and financial performance may be very different from
      what we expect as of the date of this Form 10-Q. The risks below address
      material factors that may affect our future operating results and financial
      performance.




**FINANCIAL
      RISKS**




**A
      substantial or prolonged decline in metal prices, particularly gold, silver
      or
      copper, would have a material adverse effect on us.**




The
      price
      of our common shares, our financial results, and our exploration and development
      have previously been, and would in the future be, significantly adversely
      affected by a substantial or prolonged decline in metal prices. Metal prices
      are
      volatile and are affected by numerous factors beyond our control such as the
      sale or purchase of metals by various central banks and financial institutions,
      inflation or deflation, fluctuation in the value of the United States dollar
      and
      foreign currencies, global and regional demand, and the political and economic
      conditions of major mining countries throughout the world. Any drop in the
      price
      of metals could adversely impact our future revenues, profits and cash flows.
      In
      particular, sustained low metal prices could:




·
            cause
                suspension of the development of the mine at the San José project if such
                operations become uneconomic at the then-prevailing gold and silver
                prices, thus causing a loss in our investment in the
                project;





·
            cause
                the project financing facility for the San José to become unavailable or
                reduced;





·
            cause
                us to be unable to fulfill our debt payment
                obligations;





·
            halt
                or delay the development of new
                projects;





·
            reduce
                funds available for exploration, with the result that depleted reserves
                are not replaced; and





·
            reduce
                or eliminate the benefit of enhanced growth opportunities anticipated
                from
                the development of our Los Azules
                property.




Furthermore,
      the need to reassess the feasibility of any of our projects because of declining
      metal prices could cause substantial delays or might interrupt operations until
      the reassessment can be completed. Mineral reserve calculations and life-of-mine
      plans using significantly lower metal prices could result in reduced estimates
      of mineral reserves and non-reserve mineral resources and in material
      write-downs of our investment in mining properties and increased amortization,
      reclamation and closure charges.




**We
      may incur substantial losses in the future that could make financing our
      operations and business strategy more difficult.**




We
      had a
      total accumulated deficit of $23.7 million as of March 31, 2006. We had a net
      loss of $0.6 million for the three months ended March 31, 2006 and a net loss
      of
      $3.6 million for the year ended December 31, 2005. Numerous factors, including
      declining metal prices, lower than expected ore grades or higher than expected
      operating costs (including increased commodity prices), and impairment
      write-offs of mine property and/or exploration property costs, could cause
      us to
      be unprofitable in the future. Any future operating losses could make financing
      our operations and our business strategy, or raising additional capital,
      difficult or impossible and could materially and adversely affect our operating
      results and financial condition.


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            28
            -


**Our
      obligations could strain our financial position and impede our business
      strategy.**




We
      had
      total consolidated debt and liabilities as of March 31, 2006 of $2.5 million,
      including $1.9 million payable to a bank and $0.6 million in accounts payables
      and accruals. These liabilities could have important consequences, including
      the
      following:




**Our
      estimates of mineral reserves could be inaccurate, which could cause production
      and costs to differ from estimates. Our estimates of non-reserves mineral
      resources could also be inaccurate.**




There
      are
      numerous uncertainties inherent in estimating proven and probable mineral
      reserves and non-reserve measured, indicated and inferred mineral resources,
      including many factors beyond our control. The accuracy of estimates of mineral
      reserves and non-reserves is a function of the quantity and quality of available
      data and of the assumptions made and judgments used in engineering and
      geological interpretation, which could prove to be unreliable. These estimates
      of mineral reserves and non-reserves may not be accurate, and mineral reserves
      and non-reserves may not be able to be mined or processed
      profitably.




Fluctuation
      in metal prices, results of drilling, metallurgical testing and production,
      and
      the evaluation of mine plans subsequent to the date of any estimate could
      require revision of the estimates. The volume and grade of mineral reserves
      mined and processed and recovery rates might not be the same as currently
      anticipated. Any material reductions in estimates of our mineral reserves and
      non-reserves, or of our ability to extract these mineral reserves and
      non-reserves, could have a material adverse effect on our results of operations
      and financial condition.




**We
      currently have no cash flow from operations and will remain dependent on other
      sources of financing until such time, if ever, that we become self-sustaining
      from cash generated from operations.**




We
      anticipate production to begin at the San José project in 2007 but we currently
      have no source of operational cash flow. The definitive agreement relating
      to
      the San José project financing has not yet been completed. This will determine
      the amount and timing of free cash flow that is available for distribution.
      The
      amount and timing of free cash flow that we receive from the San José project,
      when it commences, is further affected by the fact that we only own a 49%
      interest in the project and cash distributions must be approved by the
      shareholders of MSC, the joint-venture company. When cash distributions are
      received from MSC, it is uncertain if they will be sufficient by themselves
      to
      fund our continuing exploration and development activities.




**Lower
      metal prices have adversely affected our ability to obtain financing in the
      past, and recurring lower metal prices could have similar effects in the
      future.**




In
      the
      future, we may not be able to obtain adequate financing on acceptable terms.
      If
      we are unable to obtain additional financing on acceptable terms, we might
      need
      to delay or indefinitely postpone further exploration and development of our
      properties, and as a result, we could lose our interest in, or could be forced
      to sell, some of our properties.




**We
      currently do not have a hedging program but implementation of a hedging program
      might be unsuccessful and incur losses.**




The
      mandate letter related to the project financing facility for the San José
project states a loan amount of $45 million. A hedging program to cover the
      amount of the loan, up to 75% of the mine’s production over the life of the
      loan, is anticipated. The definitive agreement concerning the details of the
      loan has not been completed. Depending on the definitive agreement, we may
      be
      prevented from fully benefiting from higher spot market metal prices to the
      extent that production is hedged. Also, even if the hedge program is
      economically effective, accounting for the derivatives on a mark-to-market
      basis
      could show large swings in any period as any unrealized, non-cash losses/gains
      are recognized through the statement of operations.


-
            29
            -


**We
      are subject to fluctuations in currency exchange rates, which could materially
      adversely affect our financial position.**




We
      maintain most of our working capital in Canadian and United States dollars.
      We
      typically convert our Canadian dollars to United States funds or our Canadian
      and United States funds to Argentinean pesos as payment obligations become
      due.
      Accordingly, we are subject to fluctuations in the rates of currency exchange
      between the Canadian, United States dollar and Argentinean peso, and these
      fluctuations could materially affect our financial position and results of
      operations. A significant portion of our operating costs is in Argentinean
      pesos. We currently have future obligations that are payable in Canadian
      dollars, United States dollars and Argentinean pesos. We and our 49%-owned
      joint-venture company, MSC, obtain construction and other services and materials
      and supplies from providers in other countries. The costs of goods and services
      could increase due to changes in the value of the Canadian dollar, the United
      States dollar, or the Argentinean peso, such as the recent cost increase due
      to
      the decrease in the value of the United States dollar relative to other
      currencies. Consequently, operation and development of our properties might
      be
      more costly than we anticipate.




**Risks
      inherent in acquisitions that we might undertake could adversely affect our
      current business and financial condition and our growth.**




We
      plan
      to continue to pursue the acquisition of producing, development and advanced
      stage exploration properties and companies. The search for attractive
      acquisition opportunities and the completion of suitable transactions are time
      consuming and expensive, divert management attention from our existing business
      and may be unsuccessful. Our success in our acquisition activities depends
      on
      our ability to complete acquisitions on acceptable terms and integrate the
      acquired operations successfully with those of Minera Andes. Any acquisition
      would be accompanied by risks. For example, there may be a significant change
      in
      commodity prices after we have committed to complete a transaction and
      established the purchase price or exchange ratio, a material ore body may prove
      to be below expectations or the acquired business or assets may have unknown
      liabilities which may be significant. We may lose the services of our key
      employees or the key employees of any business we acquire or have difficulty
      integrating operations and personnel. The integration of an acquired business
      or
      assets may disrupt our ongoing business and our relationships with employees,
      suppliers and contractors. Any one or more of these factors or other risks
      could
      cause us not to realize the anticipated benefits of an acquisition of properties
      or companies, and could have a material adverse effect on our current business
      and financial condition and on our ability to grow.




**We
      are subject to litigation risks.**




All
      industries, including the mining industry, are subject to legal claims, with
      and
      without merit. Defense and settlement costs can be substantial, even with
      respect to claims that have no merit. Due to the inherent uncertainty of the
      litigation process, the resolution of any particular legal proceeding could
      have
      a material effect on our financial position and results of
      operations.




**OPERATIONAL
      RISKS**




**The
      technology, capital costs and cost of production of mineral reserves and
      non-reserves at the San José project remain subject to a number of
      uncertainties, including funding uncertainties.**




Based
      upon the completion of the San José project feasibility study in 2005, the
      proven and probable mineral reserves are prepared in accordance within 43-101
      of
      the Canadian securities regulators. While the feasibility study indicated that
      the mineral reserves can be profitably mined and processed at current metal
      prices, the capital cost to construct a plant, together with related mining
      equipment and facilities, may significantly increase before the mine is
      completed due to factors beyond our control. While the processing technology
      envisioned in the feasibility study has been successfully utilized at other
      mines, and despite testing, engineering and analysis, the technology may not
      perform successfully at commercial production levels on the San José ores, in
      which case our production estimates may not be achieved.


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            30
            -


Our
      activities are subject to a number of risks and hazards including:




·
              environmental
                  hazards;
 
 ·
              discharge
                  of pollutants or hazardous
                  chemicals;
 
 ·
              industrial
                  accidents;
 
 ·
              labor
                  disputes and shortages;
 
 ·
              supply
                  and shipping problems and delays;
 
 ·
              shortage
                  of equipment and contractor
                  availability;
 
 ·
              difficulty
                  in applying technology such as bio-oxidation
                  processing;
 
 ·
              unusual
                  or unexpected geological or operating
                  conditions;
 
 ·
              cave-ins
                  of underground workings;
 
 ·
              failure
                  of dams;
 
 ·
              fire;
 
 ·
              marine
                  and transit damage and/or loss;
 
 ·
              changes
                  in the regulatory environment; and
 
 ·
              natural
                  phenomena such as inclement weather conditions, floods and
                  earthquakes.
 These
        or
        other occurrences could result in damage to, or destruction of, mineral
        properties or production facilities, personal injury or death, environmental
        damage, delays in mining, delayed production, monetary losses and possible
        legal
        liability. We could incur liabilities as a result of pollution and other
        casualties. Satisfying such liabilities could be very costly and could have
        a
        material adverse effect on our financial position and results of
        operations.
  **Our
        mining properties are subject to numerous environmental laws, regulations
        and
        permitting requirements that can delay production and adversely affect operating
        and development costs.**
  Compliance
        with existing regulations governing the discharge of materials into the
        environment, or otherwise relating to environmental protection, in the
        jurisdictions where we have projects may have a material adverse effect on
        our
        exploration activities, results of operations and competitive position. New
        or
        expanded regulations, if adopted, could affect the exploration or development
        of
        our projects or otherwise have a material adverse effect on our
        operations.
 -
              31
              -
 Mining
        operations require mining and other permits from the government. These permits
        may not be issued on a timely basis or at all, and such permits, when issued,
        may be subject to requirements or conditions with which it is burdensome
        or
        expensive to comply. Such permitting issues could adversely affect projected
        production commencement dates, production amounts and costs.
  Due
        to an
        increased level of non-governmental organization activity targeting the mining
        industry, the potential for the government to delay the issuance of permits
        or
        impose new requirements or conditions upon mining operations may be increased.
        Any changes in government policies may be costly to comply with and may delay
        mining operations. The exact nature of other environmental control problems,
        if
        any, which we may encounter in the future, cannot be predicted, primarily
        because of the changing character of environmental requirements that may
        be
        enacted within various jurisdictions. To the extent that we are subject to
        any
        such changes, they may have a material adverse effect on our
        operations.
  As
        a
        result of the foregoing risks, project expenditures, production quantities
        and
        rates and cash operating costs, among other things, could be materially and
        adversely affected and could differ materially from anticipated expenditures,
        production quantities and rates, and costs. In addition, estimated production
        dates could be delayed materially. Any such events could materially and
        adversely affect our business, financial condition, results of operations
        and
        cash flows.
  **The
        development and operation of our mining projects involve numerous uncertainties
        that could affect the feasibility or profitability of such
        projects.**
  Mine
        development projects typically require a number of years and significant
        expenditures during the development phase before production is
        possible.
  Development
        projects are subject to the completion of successful feasibility studies
        and
        environmental assessments, issuance of necessary governmental permits and
        receipt of adequate financing. The economic feasibility of development projects
        is based on many factors such as:
  ·
                estimation
                    of mineral reserves and mineral
                    resources;
 
 ·
                anticipated
                    metallurgical recovery rates;
 
 ·
                environmental
                    considerations and permitting;
 
 ·
                future
                    metal prices; and
 
 ·
                anticipated
                    capital and operating costs.
  Our
          mine
          development projects could have limited relevant operating history upon
          which to
          base estimates of future operating costs and capital requirements. Estimates
          of
          proven and probable mineral reserves and operating costs determined in
          feasibility studies are based on geologic and engineering analyses and
          might not
          prove to be accurate.
 -
                32
                -
 The
          management of mine development projects and start up of new operations
          are
          complex, and neither, we, nor Hochschild, the operators of the San José project,
          have a history of managing an ongoing operation, the start-up of a new
          operation
          and a significant development project in Argentina. Completion of development
          and the commencement of production may be subject to delays. Any of the
          following events, among others, could affect the profitability or economic
          feasibility of a project:
  ·
                  unanticipated
                      changes in grade and tonnage of ore to be mined and
                      processed;
 
 ·
                  unanticipated
                      adverse geotechnical conditions;
 
 ·
                  incorrect
                      data on which engineering assumptions are
                      made;
 
 ·
                  costs
                      of constructing and operating a mine in a specific
                      environment;
 
 ·
                  availability
                      and cost of processing and refining
                      facilities;
 
 ·
                  availability
                      of economic sources of power;
 
 ·
                  adequacy
                      of water supply;
 
 ·
                  adequate
                      access to the site including competing land uses (such as agriculture
                      and
                      illegal mining);
 
 ·
                  unanticipated
                      transportation costs and shipping incidents and
                      losses;
 
 ·
                  significant
                      increases in the cost of diesel fuel, cyanide or other major
                      components of
                      operating costs;
 
 ·
                  government
                      regulations (including regulations relating to prices, royalties,
                      duties,
                      taxes, permitting, restrictions on production, quotas on exportation
                      of
                      minerals, as well as the costs of protection of the environment
                      and
                      agricultural lands);
 
 ·
                  fluctuations
                      in metal prices; and
 
 ·
                  accidents,
                      labor actions and force majeure
                      events.
  Adverse
            effects on the operations or further development of a project could also
            adversely affect our business, financial condition, results of operations
            and
            cash flow. Because of these uncertainties, and others identified in these
            "Risk
            Factors," our production estimates at the San José project may not be
            achieved.
 -
                  33
                  -
 **We
            need to continually discover, develop or acquire additional mineral properties
            reserves for production and a failure to do so would adversely affect
            our
            business and financial position in the future.**
  Because
            mines have limited lives based on proven and probable mineral reserves,
            we will
            need to continually replace and expand our mineral reserves when the
            San José
project begins production. At an average production rate of 750 tons
            per day
            (tpd), we estimate that the San José project has a mine life of 4.3 years given
            the reserves identified in the feasibility study but our estimates might
            not be
            correct and the mine life would be shortened if we expand production.
            Our
            ability to maintain or increase our annual production will be dependent
            in
            significant part on our ability to identify new reserves, bring new mines
            into
            production and to expand or extend the life of existing mines.
  Mineral
            exploration is highly speculative, involves substantial expenditures,
            and is
            frequently unsuccessful. Few prospects that are explored end up being
            ultimately
            developed into producing mines. To the extent that we continue to be
            involved in
            exploration, the long-term success of our operations will be related
            to the cost
            and success of our exploration programs. We cannot assure you that our
            exploration efforts will be successful. The success of exploration is
            determined
            in part on the following factors:
  ·
                  the
                      identification of potential mineralization based on superficial
                      analysis;
 
 ·
                  availability
                      of prospective land;
 
 ·
                  availability
                      of government-granted exploration and exploitation
                      permits;
 
 ·
                  the
                      quality of our management and our geological and technical
                      expertise;
                      and
 
 ·
                  the
                      capital available for exploration and
                      development.
   Substantial
            expenditures are required to determine if a project has economically
            mineable
            mineralization. It could take several years to establish proven and probable
            mineral reserves and to develop and construct mining and processing facilities.
            As a result of these uncertainties, we cannot assure you that current
            and future
            exploration programs will result in the discovery of mineral reserves,
            the
            expansion of our existing mineral reserves and the development of
            mines.
  **We
            face competition from other mining companies in connection with the acquisition
            of properties.**
  We
            face
            strong competition from other mining companies in connection with the
            acquisition of properties producing, or capable of producing, precious
            metals.
            Many of these companies have greater financial resources, operational
            experience
            and technical capabilities. As a result of this competition, we might
            be unable
            to maintain or acquire attractive mining properties on terms we consider
            acceptable or at all.
  Consequently,
            our revenues, operations and financial condition could be materially
            adversely
            affected.
 -
                  34
                  -
 **Title
            to our mineral properties could be challenged.**
  We
            seek
            to confirm the validity of our rights to title to, or contract rights
            with
            respect to, each mineral property in which we have a material interest.
            However,
            we cannot guarantee that title to our properties will not be challenged.
            Title
            insurance generally is not available, and our ability to ensure that
            we have
            obtained a secure claim to individual mineral properties or mining concessions
            could be severely constrained. We generally do not conduct surveys of
            our
            properties until they have reached the development stage, and therefore,
            the
            precise area and location of such properties could be in doubt. Accordingly,
            our
            mineral properties could be subject to prior unregistered agreements,
            transfers
            or claims, and title could be affected by, among other things, undetected
            defects. In addition, we might be unable to operate our properties as
            permitted
            or to enforce our rights with respect to our properties.
  **We
            depend on the services of key executives.**
  We
            are
            dependent on the services of key executives including our President and
            Chief
            Executive Officer and a small number of highly skilled and experienced
            executives and personnel. Due to the relatively small size of our management
            team, the loss of these persons or our inability to attract and retain
            additional highly skilled employees could adversely affect the exploration
            and
            development of our properties, which could have a material adverse effect
            on our
            business and future operations. We do not have key person insurance.
  The
            period of weak metal prices prior to 2002 resulted in depletion of the
            number of
            trained and experienced professionals and managers in our industry. Higher
            metal
            prices have resulted in an increased demand for these people, and it
            could
            therefore be more difficult to attract or retain such experienced professionals
            and managers without significantly increasing the cost to us.
  **Our
            insurance coverage could be insufficient.**
  Our
            business is subject to a number of risks and hazards generally,
            including:
  ·
                    adverse
                        environmental conditions;
 
 ·
                    industrial
                        accidents;
 
 ·
                    labor
                        disputes;
 
 ·
                    unusual
                        or unexpected geological
                        conditions;
 
 ·
                    ground
                        or slope failures;
 
 ·
                    cave-ins;
 
 ·
                    changes
                        in the regulatory environment;
 
 ·
                    marine
                        transit and shipping damage and/or
                        losses;
 
 ·
                    natural
                        phenomena such as inclement weather conditions, floods and
                        earthquakes;
                        and
 
 ·
                    political
                        risks including expropriation and civil
                        war.
  -
                    35
                    -
 Such
              occurrences could result in:
 
 ·
                    damage
                        to mineral properties or production
                        facilities;
 
 ·
                    personal
                        injury or death;
 
 ·
                    loss
                        of legitimate title to properties;
 
 ·
                    environmental
                        damage to our properties or the properties of
                        others;
 
 ·
                    delays
                        in mining, processing and
                        development;
 
 ·
                    monetary
                        losses; and
 
 ·
                    possible
                        legal liability.
   Although
              we maintain insurance in amounts that we believe to be reasonable,
              our insurance
              might not cover all the potential risks associated with our business.
              We might
              also be unable to maintain insurance to cover these risks at economically
              feasible premiums. Insurance coverage might not continue to be available
              or
              might not be adequate to cover any resulting liability. Moreover, insurance
              against risks such as environmental pollution or other hazards as a
              result of
              exploration and production is not generally available to us or to other
              companies in the mining industry on acceptable terms. We might also
              become
              subject to liability for pollution or other hazards which we cannot
              insure
              against or which we might elect not to insure against because of premium
              costs
              or other reasons. Losses from these events might cause us to incur
              significant
              costs that could have a material adverse effect upon our financial
              performance
              and results of operations.
  **GOVERNMENTAL
              AND REGULATORY RISKS**
  Minera
              Andes is a Canadian company that conducts operations through foreign
              (principally Argentinean) subsidiaries and joint ventures, and substantially
              all
              of our assets consist of equity in these entities. Accordingly, any
              limitation
              on the transfer of cash or other assets between the parent corporation
              and these
              entities, or among these entities, could restrict our ability to fund
              our
              operations efficiently, or to repay our debt. Any such limitations,
              or the
              perception that such limitations might exist now or in the future,
              could have an
              adverse impact on available credit and our valuation and stock
              price.
  **We
              are subject to changes in the regulatory environment where we operate
              which may
              increase our costs of compliance.**
  Our
              mining development and exploration activities are subject to extensive
              regulation governing various matters, including:
  ·
                      licensing;
 
 ·
                      production;
 
 ·
                      taxes;
 
 ·
                      disposal
                          of process water or waste rock;
 
 ·
                      toxic
                          substances;
 
 ·
                      development
                          and permitting;
 
 ·
                      exports;
 
 ·
                      imports;
 
 ·
                      labor
                          standards;
 
 ·
                      occupational
                          health and safety;
 
 ·
                      mine
                          safety; and
 
 ·
                      environmental
                          protections.
  -
                      36
                      -
 Compliance
                with these regulations increases the costs of the following:
 
 ·
                      planning;
 
 ·
                      designing;
 
 ·
                      drilling;
 
 ·
                      operating;
 
 ·
                      developing;
 
 ·
                      constructing;
                          and
 
 ·
                      closure
                          and reclamation.
  We
                believe that we are in substantial compliance with current laws and
                regulations
                in Argentina and elsewhere. However, these laws and regulations are
                subject to
                frequent change and reinterpretation. Amendments to current laws
                and regulations
                governing operations and activities of mining companies or more stringent
                implementation or interpretation of these laws and regulations could
                have a
                material adverse impact on us, cause a reduction in levels of production
                and
                delay or prevent the development or expansion of our properties.
  **We
                are subject to risks relating to exploration, development and operations
                in
                foreign countries.**
  Our
                assets and operations are affected by various political and economic
                uncertainties, including:
  ·
                        the
                            risks of war, civil unrest, coups or other violent or
                            unexpected changes
                            in government;
 
 ·
                        political
                            instability and violence;
 
 ·
                        expropriation
                            and nationalization;
 
 ·
                        renegotiation
                            or nullification of existing concessions, licenses, permits,
                            and
                            contracts;
 
 ·
                        illegal
                            mining;
 
 ·
                        changes
                            in taxation policies;
 
 ·
                        restrictions
                            on foreign exchange and repatriation;
                            and
 
 ·
                        changing
                            political conditions, currency controls, and governmental
                            regulations that
                            favor or require the awarding of contracts to local contractors
                            or require
                            foreign contractors to employ citizens of, or purchase
                            supplies from, a
                            particular jurisdiction.
  -
                        37
                        -
 **Our
                  activities are subject to complex laws, regulations and accounting
                  standards
                  that can adversely affect operating and development costs, the
                  timing of
                  operations, the ability to operate and financial results.**
  Our
                  business, mining operations and exploration and development activities
                  are
                  subject to extensive Canadian, United States, Argentinean and other
                  foreign,
                  federal, state, provincial, territorial and local laws and regulations
                  governing
                  exploration, development, production, exports, taxes, labor standards,
                  waste
                  disposal, protection of the environment, reclamation, historic
                  and cultural
                  resource preservation, mine safety and occupational health, toxic
                  substances,
                  reporting and other matters, as well as accounting standards. Compliance
                  with
                  these laws, regulations and standards or the imposition of new
                  such requirements
                  could adversely affect operating and development costs, the timing
                  of
                  operations, the ability to operate and financial results.
  **MARKET
                  RISKS**
  **The
                  market price of our common shares could experience volatility and
                  could decline
                  significantly.**
  Our
                  common shares are listed in Canada on the TSX Venture Exchange
                  under the symbol
                  MAI and in the United States on the NASD OTC Bulletin Board under
                  the symbol
                  MNEAF. Securities of small-cap companies have experienced substantial
                  volatility
                  in the past, often based on factors unrelated to the financial
                  performance or
                  prospects of the companies involved. These factors include macroeconomic
                  developments in North America and globally and market perceptions
                  of the
                  attractiveness of particular industries. Our share price is also
                  likely to be
                  significantly affected by short-term changes in metal prices or
                  in our financial
                  condition or results of operations as reflected in our quarterly
                  earnings
                  reports. Other factors unrelated to our performance that could
                  have an effect on
                  the price of our common shares include the following:
  ·
                          the
                              extent of analytical coverage available to investors
                              concerning our
                              business could be limited if investment banks with
                              research capabilities
                              do not follow our securities;
 
 ·
                          the
                              trading volume and general market interest in our securities
                              could affect
                              an investor's ability to trade significant numbers
                              of common shares;
                              and
 
 ·
                          the
                              size of the public float in our common shares may limit
                              the ability of
                              some institutions to invest in our securities;
                              and
   As
                    a
                    result of any of these factors, the market price of our common
                    shares at any
                    given point in time might not accurately reflect our long-term
                    value. Securities
                    class action litigation often has been brought against companies
                    following
                    periods of volatility in the market price of their securities.
                    We could in the
                    future be the target of similar litigation. Securities litigation
                    could result
                    in substantial costs and damages and divert management's attention
                    and
                    resources.
  **Investors
                    could have difficulty or be unable to enforce certain civil liabilities
                    against
                    us, certain of our directors and our experts.**
  Minera
                    Andes is a Canadian corporation. Substantially all of our assets
                    are located
                    outside of Canada and the United States, and our head office
                    is located in the
                    United States. It might not be possible for investors to collect
                    judgments
                    obtained in Canadian courts predicated on the civil liability
                    provisions of
                    Canadian or U.S. securities legislation. It could also be difficult
                    for you to
                    effect service of process in connection with any action brought
                    in the United
                    States upon our directors and experts. Execution by United States
                    courts of any
                    judgment obtained against us or any of the directors, executive
                    officers or
                    experts in the United States courts would be limited to our assets
                    or the assets
                    of such persons or corporations, as the case might be, in the
                    United States. The
                    enforceability in Canada of United States judgments or liabilities
                    in original
                    actions in Canadian courts predicated solely upon the civil liability
                    provisions
                    of the federal securities laws of the United States is doubtful.
  **The
                    existence of outstanding rights to purchase or acquire common
                    shares could
                    impair our ability to raise capital.**
  As
                    of May
                    5, 2006 approximately 25.5 million common shares are issuable
                    on exercise of
                    warrants and options. During the life of the warrants and options,
                    the holders
                    are given an opportunity to profit from a rise in the market
                    price of common
                    shares, with a resulting dilution in the interest of the other
                    shareholders. Our
                    ability to obtain additional financing during the period such
                    rights are
                    outstanding could be adversely affected, and the existence of
                    the rights could
                    have an adverse effect on the price of our common shares. The
                    holders of the
                    warrants and options can be expected to exercise or convert them
                    at a time when
                    we would, in all likelihood, be able to obtain any needed capital
                    by a new
                    offering of securities on terms more favorable than those provided
                    by the
                    outstanding rights.
 -
                          38
                          -
 **Item
                    2.**  **Unregistered
                    Sales of Equity Securities**
  On
                    March
                    8, 2006, we completed the second private placement with Robert
                    McEwen and sold
                    13,156,689 units at a price of Cdn$0.35 per unit for gross proceeds
                    of
                    Cdn$4,604,841 (US$3,970,703). Each unit consists of one common
                    share and
                    one-half of one common share purchase warrant. One whole common
                    share purchase
                    warrant entitles the holder to purchase one additional common
                    share at an
                    exercise price of Cdn$0.55 per share at any time prior to the
                    earlier of: a) the
                    date which is the 15th trading day after receiving notice from
                    Minera Andes that
                    the weighted average price of the common shares on the TSX Venture
                    Exchange has
                    been equal to or greater than Cdn$1.00 for a period of 20 consecutive
                    trading
                    days commencing 120 days after the date of issuance of the warrants,
                    and b)
                    March 8, 2008.
  The
                    agents received a cash commission of 5% of the gross proceeds
                    of the financing
                    and 322,339 broker warrants, equal to 2.45% of the aggregate
                    number of units
                    sold. Each broker warrant upon exercise will entitle the holder
                    to acquire one
                    common share at an exercise price of Cdn$0.55 per common share
                    at any time prior
                    to the earlier of: a) the date which is the 15th trading day
                    after receiving
                    notice from Minera Andes that the weighted average price of the
                    common shares on
                    the TSX Venture Exchange has been equal to or greater than Cdn$1.00
                    for a period
                    of 20 consecutive trading days commencing 120 days after the
                    date of issuance of
                    the warrants, and b) March 8, 2008.
  During
                    the three months ended March 31, 2006, we also issued 470,000
                    common shares for
                    the exercise of stock options, 6,929,592
                    common shares for the exercise of purchase warrants and 1,054,474
                    shares for the
                    exercise of broker warrants for total gross proceeds of $4,326,302.
  Subsequent
                    to March 31, 2006, we issued 140,000 common shares for the exercise
                    of stock
                    options, 17,862,873 common shares for the exercise of purchase
                    warrants and
                    188,830 common shares for the exercise of broker warrants for
                    total gross
                    proceeds of $8,988,363. Refer to Subsequent Events for additional
                    details for
                    14,285,714 of the common shares issued for the exercise of warrants
                    subsequent
                    to March 31, 2006.
  In
                    reliance on Rule 903 of Regulation S under the Securities Act
                    of 1933, as
                    amended (the “Securities Act”), the units and broker warrants were offered and
                    sold outside of the United States without any directed selling
                    efforts pursuant
                    to Category 1 of Rule 903(b), in that Minera Andes is a foreign
                    private issuer
                    and there is no substantial U.S. market interest for the class
                    of securities
                    sold. Investors exercised outstanding warrants either in reliance
                    on Rule 903 of
                    Regulation S or in reliance on Rule 506 of Regulation D under
                    the Securities
                    Act. Transactions under Rule 506 were made without general solicitation
                    or
                    advertising, and subject to resale restrictions, to accredited
                    investors in the
                    United States who represented they were purchasing with investment
                    intent and
                    without a view to distribute the units. Options were exercised
                    pursuant to
                    registration under a Form S-8 registration statement.
  **Item
                    4.**  **Submission
                    of Matters to a Vote of Security Holders**
  Minera
                    Andes shareholders of record as of January 10, 2006 were sent
                    proxy materials
                    concerning a special shareholders meeting held February 7, 2006
                    in Spokane,
                    Washington. The management of Minera Andes asked shareholders
                    of the company to
                    approve a private placement with Robert McEwen, redeem the rights
                    under the
                    company’s shareholder rights plan and repeal the shareholder rights plan
                    to
                    facilitate Mr. McEwen’s purchase of the company’s stock. For
                    particulars of matters acted upon see the management information
                    circular filed
                    January 16, 2006 **** on
                    file
                    with SEDAR at www.sedar.com .
  At
                    the
                    special meeting of the common shareholders, 37,847,501 shares
                    were voted of
                    which 36,763,721 shares (97%) voted for and 999,940 shares (3%)
                    voted against
                    approval of the matters put to shareholders. 83,840 shares voted
                    were deemed
                    invalid. The shares voted represent 35% of the issued and outstanding
                    shares of
                    the company.
  **Item
                    6.**  **Exhibits**
  The
                    Exhibits listed in the Index to Exhibits at the end of this report
                    a re included
                    as part of this Form 10-Q.
 -
                          39
                          -
 **SIGNATURES**
  Pursuant
                    to the requirements of the Exchange Act, the registrant has duly
                    caused this
                    report to be signed on its behalf by the undersigned thereunto
                    duly
                    authorized.



















**MINERA
                ANDES INC.**Date:****May
                22, 2006
            
            By:/s/
                Allen V. AmbroseAllen
                V. AmbrosePresidentDate:May
                22, 2006
            
            By:/s/
                William V. ScharaWilliam
                V. ScharaChief
                Financial Officer
































-
            40
            -


**INDEX
      TO EXHIBITS**


**Exhibit**
                  **Number**
                **Identification
                    of Exhibit**3.1
                Articles
                    if Incorporation (incorporated by reference to Exhibit 3.1 to
                    Minera
                    Andes’ Registration Statement on Form 10-SB (the “Form
                    10-SB”).3.2
                Bylaws
                    (incorporated by reference to Exhibit 3.2 to the Form
                    10-SB).31.1
                Certification
                    of President
                    (Principal Executive Officer) pursuant to Section 302 of the
                    Sarbanes-Oxley Act of 2002.31.2
                Certification
                    of Chief Financial
                    Officer (Principal Financial Officer) pursuant to Section 302
                    of the
                    Sarbanes-Oxley Act of 2002.32.1
                Certification
                    of President
                    pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to Section
                    906 of
                    the Sarbanes-Oxley Act of 200232.2
                Certification
                    of Chief Financial
                    Officer pursuant to 18 U.S.C. Section 1350, as adopted, pursuant
                    to
                    Section 906 of the Sarbanes-Oxley Act of 2002.




























-
            41
            -