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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 June 30, 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 August 14, 2006: 152,379,596 shares of common stock, with no par value



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##### Table of Contents

TABLE OF CONTENTS



|                               |  |                                                                                              |  |    |  | 
|------------------------------ |  | -------------------------------------------------------------------------------------------- |  | -- |  | 
|PART I - FINANCIAL INFORMATION |  | Page                                                                                        
|                               |  |                                                                                             
|                               |  | Item 1 Consolidated Financial Statements (Unaudited)                                         |  |   
|                               |  | Consolidated Balance Sheets                                                                  |  | 3 
|                               |  | Consolidated Statements of Operations and Accumulated Deficit                                |  | 4 
|                               |  | Consolidated Statements of Mineral Properties and Deferred Exploration Costs                 |  | 5 
|                               |  | Consolidated Statements of Cash Flows                                                        |  | 6 
|                               |  | Notes to Consolidated Financial Statements                                                   |  | 8 
|                               |  |                                                                                             
|                               |  | Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 22
|                               |  |                                                                                             
|                               |  | Item 3 Quantitative and Qualitative Disclosures About Market Risk                            |  | 29
|                               |  |                                                                                             
|                               |  | Item 4 Controls and Procedures                                                               |  | 29
|                               | 
|PART II - OTHER INFORMATION    |  |                                                                                             
|                               |  |                                                                                             
|                               |  | Item 2 Unregistered Sales of Equity Securities                                               |  | 31
|                               |  |                                                                                             
|                               |  | Item 4 Submission of Matters to a Vote of Security Holders                                   |  | 31
|                               |  |                                                                                             
|                               |  | Item 6 Exhibits                                                                              |  | 32
|                               | 
|SIGNATURES                     |  | 33                                                                                          



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MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED BALANCE SHEETS

(U.S.
Dollars - Unaudited)



|                                                                                                 |  |               |             |   |                   |   |             |  
|------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                 |  | June 30, 2006 |             |   | December 31, 2005 |  
|ASSETS                                                                                           |  |               |             |   |                   |   |             |  
|Current:                                                                                         |  |               |             |   |                   |   |             |  
|Cash and cash equivalents                                                                        |  | $             | 9,429,125   |   |                   | $ | 3,314,559   |  
|Receivables and prepaid expenses                                                                 |  |               | 84,786      |   |                   |   | 95,777      |  
|                                                                                                 |  |               |             |   |                   |   |             |  
|Total current assets                                                                             |  |               | 9,513,911   |   |                   |   | 3,410,336   |  
|Mineral properties and deferred exploration costs (Note 3)                                       |  |               | 6,477,532   |   |                   |   | 4,470,174   |  
|Investment (Note 4)                                                                              |  |               | 25,519,824  |   |                   |   | 17,505,938  |  
|Equipment, net                                                                                   |  |               | 66,775      |   |                   |   | 66,378      |  
|                                                                                                 |  |               |             |   |                   |   |             |  
|Total assets                                                                                     |  | $             | 41,578,042  |   |                   | $ | 25,452,826  |  
|                                                                                                 |  |               |             |   |                   |   |             |  
|LIABILITIES                                                                                      |  |               |             |   |                   |   |             |  
|Current:                                                                                         |  |               |             |   |                   |   |             |  
|Accounts payable and accruals                                                                    |  | $             | 652,562     |   |                   | $ | 259,806     |  
|Bank loan interest payable                                                                       |  |               | 31,601      |   |                   |   | 84,064      |  
|Bank loan (Note 5)                                                                               |  |               | 1,907,187   |   |                   |   | 3,628,635   |  
|                                                                                                 |  |               |             |   |                   |   |             |  
|Total liabilities                                                                                |  |               | 2,591,350   |   |                   |   | 3,972,505   |  
|                                                                                                 |  |               |             |   |                   |   |             |  
|SHAREHOLDERS EQUITY                                                                             |  |               |             |   |                   |   |             |  
|Preferred shares, no par value, unlimited number authorized, none issued                         |  |               |            |   |                   |   |            |  
|Common shares, no par value, unlimited number authorized                                         |  |               |             |   |                   |   |             |  
|Issued June 30, 2006  152,055,926 shares (Note 2) Issued December 31, 2005  108,484,137 shares |  |               | 60,513,190  |   |                   |   | 41,679,110  |  
|Contributed surplus                                                                              |  |               | 3,429,842   |   |                   |   | 2,736,570   |  
|Accumulated deficit                                                                              |  |               | (24,956,340 | ) |                   |   | (22,935,359 | )
|                                                                                                 |  |               |             |   |                   |   |             |  
|Total shareholders equity                                                                       |  |               | 38,986,692  |   |                   |   | 21,480,321  |  
|                                                                                                 |  |               |             |   |                   |   |             |  
|Total liabilities and shareholders equity                                                       |  | $             | 41,578,042  |   |                   | $ | 25,452,826  |  
|                                                                                                 |  |               |             |   |                   |   |             |  

Approved by the Board of Directors:



|                           |  |  |  |                         
|-------------------------- |  |  |  | ------------------------
|                           |  | 
|/s/ Allen V. Ambrose       |  |  |  | /s/ Bonnie L. Kuhn      
|Allen V. Ambrose, Director |  |  |  | Bonnie L. Kuhn, Director

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



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##### Table of Contents

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT

(U.S. Dollars-Unaudited)



|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------- |  | ------------------ | ----------- | - | ---------------- | - | ---------- | --------------------------------------------------------- |  | - | ------------- | - |  | - | ---------- | - |  | - | ---------- | -
|                                                                     |  | Three Months Ended |             |   | Six Months Ended |   |            | Period from July 1, 1994 (inception) throughJune 30, 2006 | 
|                                                                     |  | June 30, 2006      |             |   | June 30, 2005    |   |            | June 30, 2006                                             |  |   | June 30, 2005 |   | 
|Consulting fees                                                      |  | $                  | 122,553     |   |                  | $ | 82,109     |                                                           |  | $ | 247,889       |   |  | $ | 194,502    |   |  | $ | 2,809,865  |  
|Depreciation                                                         |  |                    | 2,352       |   |                  |   | 2,538      |                                                           |  |   | 4,453         |   |  |   | 4,992      |   |  |   | 92,343     |  
|Equipment rental                                                     |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | 21,522     |  
|Foreign exchange (gain) loss                                         |  |                    | (52,007     | ) |                  |   | 125,385    |                                                           |  |   | (24,614       | ) |  |   | 141,815    |   |  |   | 154,314    |  
|Insurance                                                            |  |                    | 15,194      |   |                  |   | 18,265     |                                                           |  |   | 30,424        |   |  |   | 35,520     |   |  |   | 422,308    |  
|Legal, audit and accounting fees                                     |  |                    | 87,515      |   |                  |   | 37,420     |                                                           |  |   | 174,798       |   |  |   | 74,212     |   |  |   | 1,953,228  |  
|Materials, supplies and maintenance                                  |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | 49,260     |  
|Office overhead and administration fees                              |  |                    | 172,836     |   |                  |   | 140,766    |                                                           |  |   | 243,498       |   |  |   | 187,183    |   |  |   | 2,940,279  |  
|Telephone                                                            |  |                    | 8,777       |   |                  |   | 8,127      |                                                           |  |   | 15,281        |   |  |   | 17,748     |   |  |   | 468,204    |  
|Transfer agent                                                       |  |                    | 3,794       |   |                  |   | 2,264      |                                                           |  |   | 9,102         |   |  |   | 3,211      |   |  |   | 148,036    |  
|Travel                                                               |  |                    | 46,591      |   |                  |   | 32,208     |                                                           |  |   | 60,662        |   |  |   | 54,864     |   |  |   | 607,156    |  
|Wages and benefits                                                   |  |                    | 81,577      |   |                  |   | 80,009     |                                                           |  |   | 162,318       |   |  |   | 132,022    |   |  |   | 3,078,304  |  
|Write-off of deferred exploration costs                              |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | 8,540,235  |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|Total operating expenses                                             |  |                    | 489,182     |   |                  |   | 529,091    |                                                           |  |   | 923,811       |   |  |   | 846,069    |   |  |   | 21,285,054 |  
|Gain on sale of equipment                                            |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | (112,330   | )
|Gain on sale of property                                             |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | (898,241   | )
|Finance costs                                                        |  |                    | 688,712     |   |                  |   |           |                                                           |  |   | 688,712       |   |  |   |           |   |  |   | 688,712    |  
|Loss on investment (Note 4)                                          |  |                    | 176,000     |   |                  |   | 182,507    |                                                           |  |   | 326,000       |   |  |   | 327,575    |   |  |   | 2,100,746  |  
|Interest income                                                      |  |                    | (76,230     | ) |                  |   | (29,622    | )                                                         |  |   | (93,009       | ) |  |   | (37,473    | ) |  |   | (692,117   | )
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|Net loss for the period                                              |  |                    | 1,277,664   |   |                  |   | 681,976    |                                                           |  |   | 1,845,514     |   |  |   | 1,136,171  |   |  |   | 22,371,824 |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|Accumulated deficit, beginning of the period, as previously reported |  |                    | 23,678,676  |   |                  |   | 19,710,183 |                                                           |  |   | 22,935,359    |   |  |   | 19,180,452 |   |  |   |           |  
|Adjustment for change in accounting for stock-based compensation     |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | 678,569    |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|                                                                     |  |                    | 23,678,676  |   |                  |   | 19,710,183 |                                                           |  |   | 22,935,359    |   |  |   | 19,180,452 |   |  |   | 678,569    |  
|Adjustment on acquisition of royalty interest                        |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | 500,000    |  
|Share issue costs                                                    |  |                    |            |   |                  |   |           |                                                           |  |   | 175,467       |   |  |   | 75,536     |   |  |   | 1,388,732  |  
|Deficiency on acquisition of subsidiary                              |  |                    |            |   |                  |   |           |                                                           |  |   |              |   |  |   |           |   |  |   | 17,215     |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|Accumulated deficit, end of the period                               |  | $                  | 24,956,340  |   |                  | $ | 20,392,159 |                                                           |  | $ | 24,956,340    |   |  | $ | 20,392,159 |   |  | $ | 24,956,340 |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|Basic and diluted net loss per common share                          |  | $                  | 0.01        |   |                  | $ | 0.01       |                                                           |  | $ | 0.01          |   |  | $ | 0.01       |   |  |   |            |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  
|Weighted average common shares outstanding                           |  |                    | 143,793,997 |   |                  |   | 90,349,827 |                                                           |  |   | 129,393,919   |   |  |   | 81,942,854 |   |  |   |            |  
|                                                                     |  |                    |             |   |                  |   |            |                                                           |  |   |               |   |  |   |            |   |  |   |            |  

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



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MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF MINERAL PROPERTIES

AND DEFERRED EXPLORATION COSTS

(U.S. Dollars-Unaudited)



|                                   |  |                    |           |                  |   |                                                            |  |               |           |  |   |           |  |   |            |  
|---------------------------------- |  | ------------------ | --------- | ---------------- | - | ---------------------------------------------------------- |  | ------------- | --------- |  | - | --------- |  | - | ---------- | -
|                                   |  | Three Months Ended |           | Six Months Ended |   | Period from July 1, 1994 (inception) through June 30, 2006 | 
|                                   |  | June 30, 2006      |           | June 30, 2005    |   | June 30, 2006                                              |  | June 30, 2005 |          
|Administration fees                |  | $                  |          |                  | $ |                                                           |  | $             |          |  | $ |          |  | $ | 392,837    |  
|Assays and analytical              |  |                    | 56,550    |                  |   | 61,361                                                     |  |               | 70,590    |  |   | 86,850    |  |   | 1,227,631  |  
|Construction and trenching         |  |                    |          |                  |   | 7,932                                                      |  |               | 36,265    |  |   | 7,932     |  |   | 570,548    |  
|Consulting fees                    |  |                    | 42,289    |                  |   | 53,244                                                     |  |               | 79,593    |  |   | 100,395   |  |   | 1,401,542  |  
|Depreciation                       |  |                    | 6,392     |                  |   | 6,268                                                      |  |               | 11,434    |  |   | 12,521    |  |   | 233,668    |  
|Drilling                           |  |                    | 705,874   |                  |   | 396,110                                                    |  |               | 850,803   |  |   | 396,110   |  |   | 2,440,196  |  
|Equipment rental                   |  |                    | 61,461    |                  |   | 83,537                                                     |  |               | 95,248    |  |   | 84,303    |  |   | 600,500    |  
|Geology                            |  |                    | 190,041   |                  |   | 58,284                                                     |  |               | 325,273   |  |   | 163,323   |  |   | 4,392,261  |  
|Geophysics                         |  |                    |          |                  |   | 23,325                                                     |  |               |          |  |   | 62,358    |  |   | 374,960    |  
|Insurance                          |  |                    |          |                  |   | 1,853                                                      |  |               | 1,177     |  |   | 1,853     |  |   | 258,589    |  
|Legal                              |  |                    | 29,643    |                  |   | 18,183                                                     |  |               | 54,712    |  |   | 40,058    |  |   | 885,184    |  
|Maintenance                        |  |                    | 1,205     |                  |   | 4,584                                                      |  |               | 3,760     |  |   | 5,424     |  |   | 191,714    |  
|Materials and supplies             |  |                    | 26,087    |                  |   | 12,408                                                     |  |               | 52,255    |  |   | 26,207    |  |   | 569,195    |  
|Project overhead                   |  |                    | 32,656    |                  |   | 15,307                                                     |  |               | 60,946    |  |   | 30,788    |  |   | 500,481    |  
|Property and mineral rights        |  |                    | 115,372   |                  |   | 8,693                                                      |  |               | 121,102   |  |   | 20,339    |  |   | 1,575,185  |  
|Telephone                          |  |                    | 8,513     |                  |   | 9,417                                                      |  |               | 16,280    |  |   | 16,301    |  |   | 151,199    |  
|Travel                             |  |                    | 105,198   |                  |   | 26,339                                                     |  |               | 160,221   |  |   | 63,592    |  |   | 1,480,912  |  
|Wages and benefits                 |  |                    | 33,914    |                  |   | 33,639                                                     |  |               | 67,699    |  |   | 64,807    |  |   | 1,494,907  |  
|                                   |  |                    |           |                  |   |                                                            |  |               |           |  |   |           |  |   |            |  
|Costs incurred during the period   |  |                    | 1,415,195 |                  |   | 820,484                                                    |  |               | 2,007,358 |  |   | 1,183,161 |  |   | 18,741,509 |  
|Balance, beginning of the period   |  |                    | 5,062,337 |                  |   | 3,190,332                                                  |  |               | 4,470,174 |  |   | 2,827,655 |  |   |           |  
|Deferred costs, acquired           |  |                    |          |                  |   |                                                           |  |               |          |  |   |          |  |   | 576,139    |  
|Deferred 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         |  | $                  | 6,477,532 |                  | $ | 4,010,816                                                  |  | $             | 6,477,532 |  | $ | 4,010,816 |  | $ | 6,477,532  |  
|                                   |  |                    |           |                  |   |                                                            |  |               |           |  |   |           |  |   |            |  

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



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##### Table of Contents

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars-Unaudited)



|                                                                            |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|--------------------------------------------------------------------------- |  | ------------------ | ---------- | - | ---------------- | - | ---------- | ---------------------------------------------------------- |  | - | ------------- | - |  | - | ---------- | - |  | - | ----------- | -
|                                                                            |  | Three Months Ended |            |   | Six Months Ended |   |            | Period from July 1, 1994 (inception) Through June 30, 2006 | 
|                                                                            |  | June 30, 2006      |            |   | June 30, 2005    |   |            | June 30, 2006                                              |  |   | June 30, 2005 |   | 
|Operating Activities:                                                       |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Net loss for the period                                                     |  | $                  | (1,277,664 | ) |                  | $ | (681,976   | )                                                          |  | $ | (1,845,514    | ) |  | $ | (1,136,171 | ) |  | $ | (22,371,824 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Write-off of incorporation costs                                            |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | 665         |  
|Write-off of deferred exploration costs                                     |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | 8,540,235   |  
|Finance costs                                                               |  |                    | 688,712    |   |                  |   |           |                                                            |  |   | 688,712       |   |  |   |           |   |  |   | 688,712     |  
|Loss on investment                                                          |  |                    | 176,000    |   |                  |   | 182,507    |                                                            |  |   | 326,000       |   |  |   | 327,575    |   |  |   | 2,100,746   |  
|Depreciation                                                                |  |                    | 2,352      |   |                  |   | 2,538      |                                                            |  |   | 4,453         |   |  |   | 4,992      |   |  |   | 92,343      |  
|Stock option compensation                                                   |  |                    | 17,508     |   |                  |   | 8,929      |                                                            |  |   | 59,272        |   |  |   | 18,173     |   |  |   | 1,507,273   |  
|Gain on sale of equipment                                                   |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | (112,330    | )
|Gain on sale of mineral properties                                          |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | (898,241    | )
|Change in:                                                                  |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Receivables and prepaid expenses                                            |  |                    | 28,374     |   |                  |   | 22,089     |                                                            |  |   | 10,991        |   |  |   | 24,548     |   |  |   | (84,786     | )
|Accounts payable and accruals                                               |  |                    | 617        |   |                  |   | 11,507     |                                                            |  |   | 392,756       |   |  |   | 8,999      |   |  |   | 652,562     |  
|                                                                            |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Cash used in operating activities                                           |  |                    | (364,101   | ) |                  |   | (454,406   | )                                                          |  |   | (363,330      | ) |  |   | (751,884   | ) |  |   | (9,884,645  | )
|                                                                            |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Investing Activities:                                                       |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Incorporation costs                                                         |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | (665        | )
|Purchase of equipment                                                       |  |                    | (2,786     | ) |                  |   | (2,044     | )                                                          |  |   | (16,284       | ) |  |   | (2,485     | ) |  |   | (321,896    | )
|Proceeds from sale of equipment                                             |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | 14,225      |  
|Proceeds from sale of property                                              |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | 898,241     |  
|Mineral properties and deferred exploration                                 |  |                    | (1,408,803 | ) |                  |   | (814,216   | )                                                          |  |   | (1,995,924    | ) |  |   | (1,170,640 | ) |  |   | (18,507,841 | )
|Investment                                                                  |  |                    | (3,039,342 | ) |                  |   | (3,127,961 | )                                                          |  |   | (8,061,334    | ) |  |   | (5,268,018 | ) |  |   | (25,498,339 | )
|Proceeds from sale of subsidiaries                                          |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | 9,398       |  
|Acquisition of royalty interest                                             |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   |           |   |  |   | (500,000    | )
|Mineral property option proceeds                                            |  |                    |           |   |                  |   |           |                                                            |  |   |              |   |  |   | 200,000    |   |  |   | 2,778,901   |  
|                                                                            |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  
|Cash used in investing activities                                           |  |                    | (4,450,931 | ) |                  |   | (3,944,221 | )                                                          |  |   | (10,073,542   | ) |  |   | (6,241,143 | ) |  |   | (41,127,976 | )
|                                                                            |  |                    |            |   |                  |   |            |                                                            |  |   |               |   |  |   |            |   |  |   |             |  



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##### Table of Contents

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars-Unaudited)



|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|------------------------------------------------------------------ |  | ------------------ | ---------- | ------------- | ---------------- | ---------- | -------------------------------------------------------- |  | - | ------------ | - |  | - | --------- |  | - | ---------- | -
|                                                                   |  | Three Months Ended |            |               | Six Months Ended |            | Period fromJuly 1,
1994(inception) ThroughJune 30, 2006) | 
|                                                                   |  | June 30, 2006      |            | June 30, 2005 |                  |            | June 30, 2006                                            |  |   | June 30,2005 |  
|Financing Activities:                                              |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Shares and subscriptions issued for cash, less issue costs         |  |                    | 10,687,066 |               |                  | 129,069    |                                                          |  |   | 18,603,901   |   |  |   | 7,830,154 |  |   | 58,494,209 |  
|Bank loan proceeds received                                        |  |                    |           |               |                  |           |                                                          |  |   |             |   |  |   | 1,000,000 |  |   | 4,000,000  |  
|Repayment of bank loan                                             |  |                    |           |               |                  |           |                                                          |  |   | (2,000,000   | ) |  |   |          |  |   | (2,000,000 | )
|Bank loan interest payable                                         |  |                    | 2,490      |               |                  |           |                                                          |  |   | (52,463      | ) |  |   |          |  |   | (52,463    | )
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Cash provided by financing activities                              |  |                    | 10,689,556 |               |                  | 129,069    |                                                          |  |   | 16,551,438   |   |  |   | 8,830,154 |  |   | 60,441,746 |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Increase (decrease) in cash and cash equivalents                   |  |                    | 5,874,524  |               |                  | (4,269,558 | )                                                        |  |   | 6,114,566    |   |  |   | 1,837,127 |  |   | 9,429,125  |  
|Cash and cash equivalents, beginning of period                     |  |                    | 3,554,601  |               |                  | 7,833,505  |                                                          |  |   | 3,314,559    |   |  |   | 1,726,820 |  |   |           |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Cash and cash equivalents, end of period                           |  | $                  | 9,429,125  |               | $                | 3,563,947  |                                                          |  | $ | 9,429,125    |   |  | $ | 3,563,947 |  | $ | 9,429,125  |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Supplementary disclosure of cash flow information:                 |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Interest paid                                                      |  | $                  | 32,750     |               | $                | 23,200     |                                                          |  | $ | 123,437      |   |  | $ | 30,537    |  | $ | 207,781    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Non-cash investing and financing activities and other information: |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Stock option compensation                                          |  | $                  | 17,508     |               | $                | 8,929      |                                                          |  | $ | 59,272       |   |  | $ | 18,173    |  | $ | 1,507,273  |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Capitalized interest (Note 5)                                      |  | $                  | 35,240     |               | $                | 43,072     |                                                          |  | $ | 89,900       |   |  | $ | 98,512    |  | $ | 268,308    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Capitalized accreted interest expense (Note 5)                     |  | $                  | 44,779     |               | $                | 40,719     |                                                          |  | $ | 278,552      |   |  | $ | 80,482    |  | $ | 517,187    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Depreciation capitalized to mineral properties                     |  | $                  | 6,392      |               | $                | 6,268      |                                                          |  | $ | 11,434       |   |  | $ | 12,521    |  | $ | 63,043     |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Accrual for finance costs related to MSC                           |  | $                  |           |               | $                |           |                                                          |  | $ | 371,918      |   |  | $ |          |  | $ | 371,918    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Adjustment for change in accounting for stock-based compensation   |  | $                  |           |               | $                |           |                                                          |  | $ |             |   |  | $ |          |  | $ | 678,569    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Deferred costs, acquired                                           |  | $                  |           |               | $                |           |                                                          |  | $ |             |   |  | $ |          |  | $ | 576,139    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Deferred costs, contributed to MSC                                 |  | $                  |           |               | $                |           |                                                          |  | $ |             |   |  | $ |          |  | $ | 2,320,980  |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  
|Shares issued for acquisition                                      |  | $                  |           |               | $                |           |                                                          |  | $ |             |   |  | $ |          |  | $ | 575,537    |  
|                                                                   |  |                    |            |               |                  |            |                                                          |  |   |              |   |  |   |           |  |   |            |  

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



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##### Table of Contents

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 and six months period ended June 30, 2006 and 2005 and for the cumulative
period from inception (July 1, 1994) through June 30, 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 June 30, 2006, there was substantial doubt that we would be able to continue as a going concern.

For the six months ended
June 30, 2006, we had a loss of approximately $1,846,000 and an accumulated deficit of approximately $25 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.



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##### Table of Contents

2. Changes to Share Capital



|                                                        |  |                 |  |        |           
|------------------------------------------------------- |  | --------------- |  | ------ | ----------
|                                                        |  | Number ofShares |  | Amount
|Balance, January 1, 2006                                |  | 108,484,137     |  | $      | 41,679,110
|Issued for cash on exercise of stock options            |  | 760,000         |  |        | 327,689   
|Issued for cash on exercise of warrants (Note 5)        |  | 28,108,965      |  |        | 13,850,023
|Issued for cash on exercise of broker warrants (Note 5) |  | 1,546,135       |  |        | 890,368   
|Issued for cash (private placement Cdn$0.35 each), net  |  | 13,156,689      |  |        | 3,766,000 
|                                                        |  |                 |  |        |           
|Balance, June 30, 2006                                  |  | 152,055,926     |  | $      | 60,513,190
|                                                        |  |                 |  |        |           

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.

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 fully vested 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 shares from the exercise of these new warrants will be subject to a hold period expiring on September 6, 2006. The fair value of the warrants, $634,000, was calculated using the Black-Scholes option pricing model with the
following assumptions: dividend yield  Nil; risk free interest rate  4.99%; expected volatility of 92.37% and an expected life of 12 months and was included in finance costs for the period ended June 30, 2006.

Subsequent to June 30, 2006, we issued 10,000 common shares for the exercise of stock options, 142,500 common shares for the exercise of warrants and 171,170 common
shares for the exercise of broker warrants for total gross proceeds of $173,773.



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##### Table of Contents

3. Mineral Properties and Deferred Exploration Costs

At June 30, 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 our 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:

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 |  | $     |         |   |  | $ | 4,470,174
|Assays and analytical        |  |                 | 40,435    |                   |   | 26,045        |  |                     | 1,363   |  |       | 2,747    |   |  |   | 70,590   
|Construction and trenching   |  |                 | 36,265    |                   |   |              |  |                     |        |  |       |         |   |  |   | 36,265   
|Consulting fees              |  |                 | 4,186     |                   |   | 12,627        |  |                     | 8,494   |  |       | 54,286   |   |  |   | 79,593   
|Depreciation                 |  |                 |          |                   |   |              |  |                     |        |  |       | 11,434   |   |  |   | 11,434   
|Drilling                     |  |                 | 507,081   |                   |   | 343,722       |  |                     |        |  |       |         |   |  |   | 850,803  
|Equipment Rental             |  |                 | 95,248    |                   |   |              |  |                     |        |  |       |         |   |  |   | 95,248   
|Geology                      |  |                 | 229,081   |                   |   | 60,557        |  |                     | 2,163   |  |       | 33,473   |   |  |   | 325,274  
|Insurance                    |  |                 |          |                   |   |              |  |                     |        |  |       | 1,177    |   |  |   | 1,177    
|Legal                        |  |                 |          |                   |   |              |  |                     |        |  |       | 54,712   |   |  |   | 54,712   
|Maintenance                  |  |                 | 3,051     |                   |   | 84            |  |                     |        |  |       | 625      |   |  |   | 3,760    
|Materials and supplies       |  |                 | 24,855    |                   |   | 16,950        |  |                     | 4,169   |  |       | 6,281    |   |  |   | 52,255   
|Project overhead             |  |                 | 8,948     |                   |   | 605           |  |                     | 2,023   |  |       | 49,369   |   |  |   | 60,945   
|Property and mineral rights  |  |                 | 106,957   |                   |   | 10,212        |  |                     | 3,933   |  |       |         |   |  |   | 121,102  
|Telephone                    |  |                 | 3,866     |                   |   | 4,235         |  |                     | 19      |  |       | 8,160    |   |  |   | 16,280   
|Travel                       |  |                 | 107,637   |                   |   | 16,947        |  |                     | 411     |  |       | 35,226   |   |  |   | 160,221  
|Wages and benefits           |  |                 | 13,525    |                   |   | 5,637         |  |                     |        |  |       | 48,537   |   |  |   | 67,699   
|Overhead allocation          |  |                 | 225,869   |                   |   | 75,909        |  |                     | 4,249   |  |       | (306,027 | ) |  |   |         
|                             |  |                 |           |                   |   |               |  |                     |         |  |       |          |   |  |   |          
|Balance, end of period       |  | $               | 2,556,290 |                   | $ | 3,673,032     |  | $                   | 248,210 |  | $     |         |   |  | $ | 6,477,532
|                             |  |                 |           |                   |   |               |  |                     |         |  |       |          |   |  |   |          

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.



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##### Table of Contents

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 |  | $    | 17,505,938 |  
|Plus:                              |  |      |            |  
|Deferred costs incurred            |  |      | 940,886    |  
|Advances during the period         |  |      | 7,399,000  |  
|Loss from equity investment        |  |      | (326,000   | )
|                                   |  |      |            |  
|Investment in MSC, June 30, 2006   |  | $    | 25,519,824 |  
|                                   |  |      |            |  

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 $940,886 include, among other things, engineering consulting costs, legal fees, and interest and finance costs related to our investment in MSC.

Subsequent to June 30, 2006, we made further payments of $2,695,000 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.



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##### Table of Contents

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 six months period ended June 30, 2006, $278,552 of debt discount was accreted.

The bank loan and debt discount are summarized as follows:



|                                                                            |  |             |            |   |          |   |          |               |  |   |            |  
|--------------------------------------------------------------------------- |  | ----------- | ---------- | - | -------- | - | -------- | ------------- |  | - | ---------- | -
|                                                                            |  | Face Amount |            |   | Discount |   |          | CarryingValue | 
|Bank loan, initial and second tranche, being the balance at January 1, 2006 |  | $           | 4,000,000  |   |          | $ | 371,365  |               |  | $ | 3,628,635  |  
|Accretion of debt discount                                                  |  |             |           |   |          |   | (278,552 | )             |  |   | 278,552    |  
|Repayment of second tranche                                                 |  |             | (2,000,000 | ) |          |   |         |               |  |   | (2,000,000 | )
|                                                                            |  |             |            |   |          |   |          |               |  |   |            |  
|Bank loan, initial tranche, being the balance at June 30, 2006              |  | $           | 2,000,000  |   |          | $ | 92,813   |               |  | $ | 1,907,187  |  
|                                                                            |  |             |            |   |          |   |          |               |  |   |            |  

As at June 30, 2006, interest expense incurred of $89,900 (June 30, 2005 -$48,568), and accreted interest
expense related to the debt discount of $278,552 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 June 30, 2006 is:



|                               |  |           |   |  |                                       |     
|------------------------------ |  | --------- | - |  | ------------------------------------- | ----
|                               |  | Options   |   |  | Weighted Average Exercise Price (Cdn)
|Outstanding at January 1, 2006 |  | 6,745,000 |   |  | $                                     | 0.54
|Exercised                      |  | (760,000  | ) |  | $                                     | 0.49
|                               |  |           |   |  |                                       |     
|Outstanding at June 30, 2006   |  | 5,985,000 |   |  | $                                     | 0.54
|                               |  |           |   |  |                                       |     
|Exercisable at June 30, 2006   |  | 5,947,500 |   |  | $                                     | 0.54
|                               |  |           |   |  |                                       |     

At June 30, 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       
|                 |  |               
|495,000          |  | Cdn$0.40       |  | June 27, 2007     
|                 |  |               
|1,370,000        |  | Cdn$0.59       |  | December 5, 2008  
|                 |  |               
|100,000          |  | Cdn$0.50       |  | March 29, 2009    
|                 |  |               
|1,275,000        |  | Cdn$0.55       |  | September 10, 2009
|                 |  |               
|50,000           |  | Cdn$0.61       |  | December 14, 2009 
|                 |  |               
|2,200,000        |  | Cdn$0.60       |  | December 28, 2010 
|                 |  |               
|495,000          |  | Cdn$0.31       |  | March 21, 2013    
|                 |  |                |  |                   
|                 |  |               
|5,985,000        |  |                |  |                   
|                 |  |                |  |                   



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Concerning stock option compensation, the fair value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model. The following weighted average assumptions were used for employee and non-employee option grants:



|                             |  |      |  |     
|---------------------------- |  | ---- |  | ----
|                             |  | 2006 |  | 2005
|Dividend yield (%)           |  |     |  |    
|Expected volatility (%)      |  | 84   |  | 85  
|Risk-free interest rates (%) |  | 4.32 |  | 3.40
|Expected lives (years)       |  | 4.5  |  | 5.0 

We recorded $59,272, and $18,173 of stock option compensation, related to the vesting of certain non-employee
stock options, during the six months ended June 30, 2006 and 2005, respectively.

7. Warrants



|                                             |  |             |   |  |                                       |     
|-------------------------------------------- |  | ----------- | - |  | ------------------------------------- | ----
|                                             |  | Warrants    |   |  | Weighted Average Exercise Price (Cdn)
|Outstanding and exercisable, January 1, 2006 |  | 36,505,798  |   |  | $                                     | 0.61
|Purchase warrants                            |  | 8,578,344   |   |  | $                                     | 0.81
|Brokers warrants                            |  | 322,339     |   |  | $                                     | 0.55
|Exercised                                    |  | (29,655,100 | ) |  | $                                     | 0.57
|                                             |  |             |   |  |                                       |     
|Outstanding and exercisable, June 30, 2006   |  | 15,751,381  |   |  | $                                     | 0.84
|                                             |  |             |   |  |                                       |     

At June 30, 2006, there were warrants outstanding and exercisable as follows:



|                   |  |                |  |                  
|------------------ |  | -------------- |  | -----------------
|Number of Warrants |  | Exercise Price |  | Expiry Date      
|                   |  |               
|2,738,700          |  | Cdn$0.91       |  | December 14, 2006
|                   |  |               
|104,158            |  | Cdn$0.70       |  | March 22, 2007   
|                   |  |               
|2,000,000          |  | Cdn$1.80       |  | May 6, 2007      
|                   |  |               
|1,002,343          |  | Cdn$0.55       |  | November 25, 2007
|                   |  |               
|322,339            |  | Cdn$0.55       |  | March 8, 2008    
|                   |  |               
|2,093,025          |  | Cdn$0.50       |  | November 13, 2008
|                   |  |               
|7,490,816          |  | Cdn$0.70       |  | March 22, 2010   
|                   |  |                |  |                  
|                   |  |               
|15,751,381         |  |                |  |                  
|                   |  |                |  |                  

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 $2,150 per month with a commitment through November 2009. We have the right to terminate the lease on three months notice without
penalty.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | We rent office space in Vancouver, British Columbia, Canada for Cdn$900 per month, without a commitment.
| | -- | --------------------------------------------------------------------------------------------------------



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| | 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. | As at June 30, 2006, MSC had 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 $2,700,000. 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 in the respective period. Funds recovered in the future related to the fraud will be recorded if and when they are received.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9. Related Party Transactions

During the six-month period ended June 30, 2006 we incurred legal fees to a firm in which a director and
officer is an associate totaling $29,002 (six-month period ended June 30, 2005$24,775). This transaction was in the normal course of operations and 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 six months ended
June 30, 2006, the year ended December 31, 2005 and for the period from July 1, 1994 (inception) through June 30, 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 began capitalizing all deferred exploration costs allowable under U.S. GAAP related to the proven and probable reserves of MSC made subsequent
to December 31, 2005, totaling $7,425,955 for the six months ended June 30, 2006.



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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 six months ended June 30, 2006, the Company expensed $59,272 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 six months ended June 30,
2006, the new US requirements has not created differences between Canadian and US GAAP with respect to shareholders equity at June 30, 2006 nor the net loss for the six months ended June 30, 2006.

The net loss under US GAAP for the six months ended June 30, 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 the stock compensation expense by $261,833 for the six months ended June 30, 2005. Upon adoption of SFAS 123R variable accounting is no longer required and no adjustment is
required for the six months ended June 30, 2006.

The impact of this US GAAP restatement, which has no impact on
the Canadian GAAP financial statements, is as follows:



|                                                                     |  |                    |            |   |             |   |            |  
|-------------------------------------------------------------------- |  | ------------------ | ---------- | - | ----------- | - | ---------- | -
|                                                                     |  | Previouslyreported |            |   | As restated |  
|Net loss under US GAAP for the six months period ended June 30, 2005 |  | $                  | (6,985,429 | ) |             | $ | (6,723,596 | )
|Loss per share                                                       |  | $                  | (0.08      | ) |             | $ | (0.08      | )



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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 2005, December 2005 and March 2006. 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 |   |      |   | 1,650,293 |  
|Risk-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      |   |      |   | 24        |  
|Value 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 value of the warrants 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. For the six months ended June 30, 2006, the effect of remeasurement was to increase the fair value of the liabilities associated with these warrants by
$1,098,830 (2005  $704,892) which was debited to the Statement of Operations and Accumulated Deficit. On March 2, 2006, Macquarie exercised all of the second tranche warrants. 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. 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 a net increase of $92,813 in total asset under US GAAP as compared to Canadian GAAP. The total assets under
US GAAP purposes was $17,099,454, as at June 30, 2006 (December 31, 2005  $3,848,079). These GAAP differences related to the valuation and classification of warrants and differences in accounting treatment of deferred financing costs
would result in total liabilities under US GAAP purposes to be increased by $1,054,912 (December 31, 2005  $1,686,257) from liabilities under Canadian GAAP to $3,646,262 as at June 30, 2006 (December 31, 2005  $5,658,762).

The fair value of the first tranche warrants, as at June 30, 2006, was calculated to be $962,099 using the Black-Scholes option pricing model with
the following assumptions: dividend yield  Nil; risk free interest rate  3.53%; expected volatility of 63.48% and an expected life of 6 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.



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Impact on Consolidated Financial Statements

The impact of the above on the interim consolidated financial statements is as follows:



|                                                                                    |  |               |             |   |                  |   |             |  
|----------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                    |  | June 30, 2006 |             |   | December 31,2005 |  
|Shareholders equity, end of period, per Canadian GAAP                              |  | $             | 38,986,692  |   |                  | $ | 21,480,321  |  
|Adjustment for mineral properties and deferred exploration costs                    |  |               | (6,477,532  | ) |                  |   | (4,470,174  | )
|Adjustment for mineral property and deferred exploration cost portion of investment |  |               | (18,093,869 | ) |                  |   | (17,505,938 | )
|Loss on revaluation of liability for warrants subject to registration rights        |  |               | (1,803,722  | ) |                  |   | (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                  |  | $             | 13,453,192  |   |                  | $ | (1,810,683  | )
|                                                                                    |  |               |             |   |                  |   |             |  



|                                                                             |               |                  |            |               |                                                            |   |            |   |  |   |             |  
|---------------------------------------------------------------------------- | ------------- | ---------------- | ---------- | ------------- | ---------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                             |               | Six Months Ended |            |               | Period from July 1, 1994 (inception) through June 30, 2006 |  
|                                                                             | June 30, 2006 |                  |            | June 30, 2005 |                                                            |  
|                                                                             |               | (restated)*      |           
|Net loss for the period, per Canadian GAAP                                   |               | $                | (1,845,514 | )             |                                                            | $ | (1,136,171 | ) |  | $ | (22,371,823 | )
|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 |               |                  | (1,098,830 | )             |                                                            |   | 172,859    |   |  |   | (1,803,722  | )
|Adjustment for deferred exploration costs, net                               |               |                  | (2,007,358 | )             |                                                            |   | (1,183,161 | ) |  |   | (6,477,532  | )
|Adjustment for investment                                                    |               |                  | (587,931   | )             |                                                            |   | (4,838,956 | ) |  |   | (18,093,869 | )
|Adjustment for variable intrinsic value                                      |               |                  |           |               |                                                            |   | 261,833    |   |  |   | (304,925    | )
|                                                                             |               |                  |            |               |                                                            |   |            |   |  |   |             |  
|Net loss for the period, per U.S. GAAP                                       |               | $                | (5,539,633 | )             |                                                            | $ | (6,723,596 | ) |  | $ | (54,753,621 | )
|                                                                             |               |                  |            |               |                                                            |   |            |   |  |   |             |  
|Basic and diluted net loss per common share, per U.S. GAAP                   |               | $                | (0.04      | )             |                                                            | $ | (0.08      | ) |  |   |             |  
|                                                                             |               |                  |            |               |                                                            |   |            |   |  |   |             |  

|* | See stock compensation above
|- | ----------------------------



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|                                                                             |  |               |            |   |                  |   |           |  
|---------------------------------------------------------------------------- |  | ------------- | ---------- | - | ---------------- | - | --------- | -
|                                                                             |  | June 30, 2006 |            |   | December 31,2005 |  
|Total liabilities, per Canadian GAAP                                         |  | $             | 2,591,350  |   |                  | $ | 3,972,505 |  
|Adjustment for reclassification of debt discount to deferred financing costs |  |               | 610,000    |   |                  |   | 610,000   |  
|Adjustment for amortization of debt discount                                 |  |               | (517,187   | ) |                  |   | (238,635  | )
|Adjustment to recognize warrant liability                                    |  |               | 610,000    |   |                  |   | 610,000   |  
|Loss on revaluation of liability for warrants subject to registration rights |  |               | 1,803,722  |   |                  |   | 704,892   |  
|Adjustment arising upon exercise of warrants subject to registration rights  |  |               | (1,451,623 | ) |                  |   |          |  
|                                                                             |  |               |            |   |                  |   |           |  
|Total liabilities, per US GAAP                                               |  | $             | 3,646,262  |   |                  | $ | 5,658,762 |  
|                                                                             |  |               |            |   |                  |   |           |  



|                                                                                    |  |               |             |   |                  |   |             |  
|----------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                    |  | June 30, 2006 |             |   | December 31,2005 |  
|Total assets, per Canadian GAAP                                                     |  | $             | 41,578,042  |   |                  | $ | 25,452,826  |  
|Adjustment for mineral properties and deferred exploration costs                    |  |               | (6,477,532  | ) |                  |   | (4,470,174  | )
|Adjustment for mineral property and deferred exploration cost portion of investment |  |               | (18,093,869 | ) |                  |   | (17,505,938 | )
|Adjustment for deferred financing costs                                             |  |               | 610,000     |   |                  |   | 610,000     |  
|Amortization of deferred financing costs                                            |  |               | (517,187    | ) |                  |   | (238,635    | )
|                                                                                    |  |               |             |   |                  |   |             |  
|Total assets, per US GAAP                                                           |  | $             | 17,099,454  |   |                  | $ | 3,848,079   |  
|                                                                                    |  |               |             |   |                  |   |             |  



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|                                                                    |  |               |             |   |               |   |            |                                                            |  |   |             |  
|------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ---------- | ---------------------------------------------------------- |  | - | ----------- | -
|                                                                    |  | June 30, 2006 |             |   | June 30, 2005 |   |            | Period from July 1, 1994 (inception) through June 30, 2006 | 
|Cash flows used in operating activities under Canadian GAAP         |  | $             | (363,330    | ) |               | $ | (751,884   | )                                                          |  | $ | (9,892,461  | )
|Adjustment related to investment                                    |  |               | (587,931    | ) |               |   | (5,268,018 | )                                                          |  |   | (18,024,936 | )
|Adjustment related to mineral properties                            |  |               | (1,995,924  | ) |               |   | (1,170,640 | )                                                          |  |   | (18,507,841 | )
|                                                                    |  |               |             |   |               |   |            |                                                            |  |   |             |  
|Cash flows used in operating activities under US GAAP               |  | $             | (2,947,185  | ) |               | $ | (7,190,842 | )                                                          |  | $ | (46,425,238 | )
|                                                                    |  |               |             |   |               |   |            |                                                            |  |   |             |  
|Cash flows used in investing activities under Canadian GAAP         |  | $             | (10,073,542 | ) |               | $ | (6,241,143 | )                                                          |  | $ | (36,250,468 | )
|Adjustment related to investment                                    |  |               | 587,931     |   |               |   | 5,268,018  |                                                            |  |   | 17,421,917  |  
|Adjustment related to mineral properties                            |  |               | 1,995,924   |   |               |   | 1,170,640  |                                                            |  |   | 18,507,841  |  
|                                                                    |  |               |             |   |               |   |            |                                                            |  |   |             |  
|Cash flows (used in) provided by investing activities under US GAAP |  | $             | (7,489,687  | ) |               | $ | 197,515    |                                                            |  | $ | (320,710    | )
|                                                                    |  |               |             |   |               |   |            |                                                            |  |   |             |  

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 6 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



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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 did not 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 did not 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. The adoption of SFAS No. 155 is not
expected to have a material effect on our consolidated financial statements.

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 EITF 96-19 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.



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11. Subsequent Events

Subsequent to June 30, 2006, we issued 10,000 common shares for the exercise of stock options, 142,500 common shares for the exercise of warrants and 171,170 common shares for the exercise of broker warrants for total gross proceeds of
$173,773.

In August 2006, we accepted an offer letter from Macquarie Bank Limited (Australian Stock Exchange, ASX: MBL) to provide a loan facility of up
to US$20 million. This facility will provide funding to Minera Andes and its joint venture partner for building and construction work at the San José/Huevos Verdes silver/gold project in Argentina scheduled for production at the end of the
first quarter of 2007.

The US$20 million debt facility to be provided by Macquarie is subject to completion of documentation and certain regulatory
approvals. This facility will act as bridge financing for the joint ventures costs of completing, construction and development work with respect to establishing a mine at the San José project. The bridge facility will have a term of 90 days
and will become part of a larger project finance facility planned by Minera Andes (49% owner) and its joint venture partner, Mauricio Hochschild & Cia. Ltda,(51% owner and operator) at the San José project to complete the mine.

The commercial terms of the loan include a facility fee of 3.0% of the principal amount of the initial tranche and interest of Libor plus 3% p.a.,
currently totaling approximately 8.4% p.a. A success fee of US$96,000, being one percent of 49 percent of the principal amount of the facility, is payable to Xystus Limited for assisting with the structuring and negotiation of the loan facility.

Macquarie Bank Limited is a diversified international provider of specialist investment banking and financial services with over 7,600 employees in 23
countries. Headquartered in Sydney, Australia, Macquarie Bank listed on the Australian Stock Exchange in 1996 and is ranked as one of Australias top 15 companies by market capitalization.

Drawdown of the initial tranche of this finance facility is subject to completion of documentation, receipt of regulatory approval and fulfillment of conditions
precedent with Macquarie.

The project loan previously announced on July 25, 2005 with Standard Bank Plc. and Bayerische Hypo-und Vereinsbank AG has
been terminated and a new facility has been structured with Macquarie. Minera Andes agreed to pay break fees of $572,000 of which $200,000 had been paid and the balance accrued as at June 30, 2006.



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|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 June 30, 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.comand on the SECs EDGAR system at www.sec.gov. 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.

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.

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.

In November 2005, we signed a letter of intent with Xstrata Copper (Xstrata), a commodity business unit within Xstrata plc., over the Los Azules porphyry
copper project in the San Juan province in northern Argentina. Minera Andes owns a 100 percent interest in its land that makes up the southern half of the property. The Xstrata Copper lands are subject to a letter of intent whereby Minera Andes has
the right to earn a 100 percent interest in Xstrata Coppers property by spending at least US$1.0 million on the property over the next four years, making payments to keep the property in good standing and producing a preliminary economic
assessment (to NI 43-101 standards). If the preliminary assessment shows the project to be potentially economically viable at a potential production rate of 100,000 tonnes (200 million pounds) of copper per year for 10 years then Xstrata Copper will
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back-in right to earn a fifty one percent interest in the combined properties by making a cash payment to Minera Andes of three times Minera Andes
expenditures on the property, completing a bankable feasibility study within five years and assuming underlying property commitments. In the event that the preliminary assessment does not meet the size criterion contemplated above, Xstrata
Coppers interest would reduce to a first right of refusal on any subsequent sale of the property. All lands that make up the propertys mineral applications are subject to a provincial mouth of mine royalty of between zero and three
percent. This royalty will be negotiated with the province of San Juan as the project advances. We are in the process of completing the definitive agreement with Xstata.

Update

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. At the end of June 2006, approximately 370 personnel, including
consultants, were working at the site, over 2,900 meters of drifts and 1,700 meters of ramps had been completed, and over 18,000 tonnes of mineralized material, grading 5.04 g/t gold and 329 g/t silver, were stockpiled. 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.

In addition to the above, MSC is continuing exploration on the San José property as it develops the mine. Since the completion of the feasibility study, four
new veins have been reported. To date, there are approximately 40 kilometers of known vein trends of which only 10% has been drill-tested so far. The highest grade intercept encountered in the current 2006 drilling campaign (totaling 5,500 meters)
is 32.64 g/t (1.04 ounces per ton - opt) gold and 4,567 g/t (147 opt) silver over 0.55 meters in hole SJD-227 on the new Kospi vein. Other highlights, also on the Kospie vein, include 4.12 meters of 12.64 g/t (0.41 opt) gold and 336 g/t (11 opt)
silver in hole SJD-216. Holes SJD-225 and SJD-224 also encountered 18.63 g/t gold and 1,063 g/t silver and 9.38 g/t gold and 1,432 g/t silver over 1.54 meters and 2.77 meters, respectively.

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. Results from the eleven hole drill
program returned intervals up to 1.62% copper over 221 meters and 1.00% copper over 173 meters in separate holes.

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. Final results from this campaign are being
compiled.

Plan of Operations

At quarter end,
we had working capital of approximately $6.9 million. Subsequent to June 30, 2006, we received approximately $174,000 from the exercise of warrants and stock options.

We plan to spend approximately $1.8 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 2006/2007 budget for the exploration, development and construction to place the San José project into production
by the first quarter of 2007 is approximately $84 million, of which we have funded $10.1 million through July 2006 and currently estimate we will be required to fund an additional $4.4 million. 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



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complete construction of the project. If this financing is completed we may not be required to spend additional equity funds on the project other than as
noted above; 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

Second quarter 2006 compared with second quarter 2005

We had a net loss of approximately $1.28 million for the second quarter of 2006, compared to a net loss of $682,000 for the second quarter of 2005 due to finance costs
and foreign exchange gain in 2006 as a result of a weakening US dollar.

Six months ended June 30, 2006 compared with six months ended
June 30, 2005

We had a net loss of approximately $1.85 million for the six months ended June 30, 2006, compared to a net loss of $1.14
million for the six months ended June 30, 2005. The difference is due primarily to finance costs of $688,712 relating to the early exercise of warrants, including $634,000 for the issuance of new warrants. Total mineral property and deferred
exploration costs were approximately $2 million during the six months ended June 30, 2006, compared with approximately $1.2 million spent in the same period of 2005. The costs are associated with drill programs at our Los Azules and Cerro
Mojón projects, ongoing reconnaissance exploration programs, new property acquisitions, evaluation of existing properties, and exploration at our Los Azules project.

Administrative expenditures for the six months period ended June 30, 2006 included $247,889 in consulting fees. The costs are associated with our investor relations program and stock compensation expense for
consultants. Legal, audit and accounting activities were $174,798 for the six months ended June 30, 2006 compared to $74,212 in the same period last year. Travel for the six months ended June 30, 2006 was $60,662 compared with $54,864 in
the same period in 2005. Foreign exchange gain was $24,614 as a result of a weakening US dollar for the six months ended June 30, 2006 compared with a loss of $141,815 in the same period in 2005.

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.

In March 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



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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.

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 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 shares will be subject to a hold period expiring on September 6, 2006. The fair value of the warrants, $634,000, was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield 
Nil; risk free interest rate  4.99%; expected volatility of 92.37% and an expected life of 12 months and was included in finance costs for the period ended June 30, 2006.

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

At June 30, 2006 we had cash and cash equivalents of approximately $9.4 million compared to approximately $3.6 million at June 30, 2005. Working capital at June 30, 2006 was approximately $6.9 million.
Subsequent to the quarter end, we received approximately $173,773 from the exercise of warrants and stock 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 $363,000 in the first half of
2006 compared with using approximately $752,000 in the first half of 2005. Administrative expenditures for the period included approximately $248,000 in consulting fees (an increase of $53,000 over the same period last year); approximately $61,000
in travel; approximately $244,000 in office overhead and approximately $15,000 in telephone expenditures. These costs are due to our investor relations and public relations program.

Investing activities used approximately $10.1 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 half of 2006 compared with approximately $6.2 million used in the first half of 2005.

Financing activities provided approximately
$16.6 million, as a result of a private placement, exercise of warrants, broker warrants and options, and repayment of bank loan in the first half of 2006 compared with approximately $8.8 million provided in the first half of 2005. Cash and cash
equivalents increased in the first half by approximately $6.1 million in 2006 compared with an increase of approximately $1.8 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 June 30, 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 six months ended June 30, 2006, we had a loss of approximately $1.8 million and an accumulated deficit of
approximately $25 million. In addition, due to the nature of the mining business, the acquisition, exploration and



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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 are 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.

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 6 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
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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 obligationas 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 did not 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 did not 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



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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. The adoption of SFAS No. 155 is not expected to have a material effect on our consolidated financial statements.

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 EITF 96-19 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.

Subsequent events

Subsequent
to June 30, 2006, we issued 10,000 common shares for the exercise of stock options, 142,500 common shares for the exercise of warrants and 171,170 common shares for the exercise of broker warrants for total gross proceeds of $173,773.

In August 2006, we accepted an offer letter from Macquarie Bank Limited (Australian Stock Exchange, ASX: MBL) to provide a loan facility of up to US$20
million. This facility will provide funding to Minera Andes and its joint venture partner for building and construction work at the San José/Huevos Verdes silver/gold project in Argentina scheduled for production at the end of the first
quarter of 2007.

The US$20 million debt facility to be provided by Macquarie is subject to completion of documentation and certain regulatory approvals.
This facility will act as bridge financing for the joint ventures costs of completing, construction and development work with respect to establishing a mine at the San José project. The bridge facility will have a term of 90 days and will
become part of a larger project finance facility planned by Minera Andes (49% owner) and its joint venture partner, Mauricio Hochschild & Cia. Ltda (51% owner and operator), at the San José project to complete the mine.

The loan will allow construction of the mine to proceed on schedule while the project loan documentation is completed. In addition, this debt facility limits the need
for equity financing dilution to shareholders and it allows us time to set pricing on the hedging required by the bank to secure the project loan.

The
commercial terms of the loan include a facility fee of 3.0% of the principal amount of the initial tranche and interest of Libor plus 3% p.a., currently totaling approximately 8.4% p.a. A success fee of US$96,000, being one percent of 49 percent of
the principal amount of the facility, is payable to Xystus Limited for assisting with the structuring and negotiation of the loan facility.

Macquarie Bank
Limited is a diversified international provider of specialist investment banking and financial services with over 7,600 employees in 23 countries. Headquartered in Sydney, Australia, Macquarie Bank listed on the Australian Stock Exchange in 1996 and
is ranked as one of Australias top 15 companies by market capitalization.



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Drawdown of the initial tranche of this finance facility is subject to completion of documentation, receipt of regulatory
approval and fulfillment of conditions precedent with Macquarie.

The project loan previously announced on July 25, 2005 with Standard Bank Plc. and
Bayerische Hypo- und Vereinsbank AG has been terminated and a new facility has been structured with Macquarie. Minera Andes agreed to pay break fees of $572,000 of which $200,000 had been paid and the balance accrued as at June 30, 2006.



|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 June 30, 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



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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.



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PART II - OTHER INFORMATION



|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 six months ended June 30, 2006, we also issued 760,000 common
shares for the exercise of stock options, 28,108,965 common shares for the exercise of purchase warrants and 1,546,135 shares for the exercise of broker warrants for total gross proceeds of $15,068,080.

Subsequent to June 30, 2006, we issued 10,000 common shares for the exercise of stock options, 142,500 common shares for the exercise of warrants and 171,170 common
shares for the exercise of broker warrants for total gross proceeds of $173,773.

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 May 23, 2006 were sent proxy materials concerning an annual general and special shareholders meeting held June 28, 2006 in Spokane, Washington. The management of Minera Andes asked shareholders of the company
to approve resolutions to fix the number of Directors to be elected at five (5); to elect as Director all proposed nominees for the ensuing year; to appoint BDO Dunwoody LLP as Auditors of the Company and authorize the Directors to fix their
remuneration; and to approve the amendments to the Companys stock option plan. For particulars of matters acted upon see the management information circular filed June 6, 2006 on file with SEDAR at www.sedar.com.

At the annual general and special shareholders meeting of the common shareholders, 66,722,473 shares were voted. The shares voted represent 44.73% of the issued and
outstanding shares of the company.



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Each of the proposals submitted to a shareholder vote was approved. The results of the shares voted for the various
resolutions were as follows:



|                                                                                                             |  |                  |  |           |  |           |  |         |  |            |  |           
|------------------------------------------------------------------------------------------------------------ |  | ---------------- |  | --------- |  | --------- |  | ------- |  | ---------- |  | ----------
|                                                                                                             |  | Number of Shares |  |          
|                                                                                                             |  | For              |  | Against   |  | Withheld  |  | Invalid |  | Non-Votes  |  | Total     
|To fix the number of Directors to be elected at five (5)                                                     |  | 66,279,634       |  | 442,839   |  | N/A       |  | 0       |  | 0          |  | 66,722,473
|To elect as Director all proposed nominees for the ensuing year                                              |  | 64,905,727       |  | N/A       |  | 1,816,746 |  | 0       |  | 0          |  | 66,722,473
|To appoint BDO Dunwoody LLP as Auditors of the Company and authorize the Directors to fix their renumeration |  | 66,129,627       |  | N/A       |  | 592,846   |  | 0       |  | 0          |  | 66,722,473
|To approve the amendments to the Companys stock option plan                                                 |  | 24,752,705       |  | 1,320,247 |  | N/A       |  | 0       |  | 40,649,521 |  | 66,722,473



|Item 6. | Exhibits
|------- | --------

The Exhibits listed in the Index to Exhibits at the end
of this report are included as part of this Form 10-Q.



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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: August 18, 2006 |  |  |  | By:               |  | /s/ Allen V. Ambrose   
|                      |  |  |  |                   |  |                         |  | Allen V. Ambrose
|                      |  |  |  |                   |  |                         |  | President       
|                      |  |  | 
|Date: August 18, 2006 |  |  |  | By:               |  | /s/ William V. Schara  
|                      |  |  |  |                   |  | William V. Schara      
|                      |  |  |  |                   |  | Chief Financial Officer



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INDEX TO EXHIBITS



|               |  |                                                                                                                                                    
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Identification of Exhibit                                                                                                                          
|3.1            |  | Articles of 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 2002.              
|               | 
|32.2           |  | 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.



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