**Exhibit 99.1**

 

****

 

 

 

**MINERA ANDES INC.**

**ANNUAL INFORMATION FORM**

**FOR THE YEAR ENDED DECEMBER 31,2009**

 

 

 

March 30, 2010

 

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*Table of Contents*

 
| PRELIMINARY NOTES                                          | 3      |
|------------------------------------------------------------|--------|
| DEVELOPMENT AND DESCRIPTION OF THE BUSINESS                | 5      |
| ARGENTINA                                                  | 15     |
| RISK FACTORS                                               | 19     |
| SAN JOSÉ MINE                                         | 26     |
| LOS AZULES COPPER PROJECT                                  | 58     |
| OTHER PROPERTIES                                           | 78     |
| DIVIDEND POLICY                                            | 78     |
| DESCRIPTION OF CAPITAL STRUCTURE                           | 78     |
| MARKET FOR SECURITIES                                      | 79     |
| DIRECTORS AND OFFICERS                                     | 80     |
| LEGAL PROCEEDINGS AND REGULATORY ACTIONS                   | 84     |
| INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS | 84     |
| TRANSFER AGENT AND REGISTRAR                               | 85     |
| MATERIAL CONTRACTS                                         | 85     |
| INTERESTS OF EXPERTS                                       | 86     |
| AUDIT COMMITTEE AND RELATIONSHIP WITH AUDITORS             | 86     |
| ADDITIONAL INFORMATION                                     | 88     |
| GLOSSARY OF CERTAIN GEOLOGIC AND MINING TERMS              | 89     |
| **SCHEDULE “A”**                                 | **92** |

 

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**PRELIMINARY NOTES**

** **

**Basis of Presentation**

** **

**Unless the context otherwise requires references to “MineraAndes”, the “Corporation”, “us”, “we” or “our” include Minera Andes Inc. andeach of its subsidiaries.  For themeanings of certain technical terms used in this annual information form (“**AIF”), see the “Glossary of Certain Geologic andMining Terms”.

** **

TheCorporation prepares and files its AIF, consolidated financial statements andmanagement discussion & analysis in United States (“**US**”) dollars and in accordance with Canadian generallyaccepted accounting principles.

 

**Date of Information**

** **

**All information in this AIF is as of December 31,2009, unless otherwise indicated.**

** **

**Exchange Rate Information**

 

ThisAIF contains reference to United States dollars, Canadian dollars andArgentinean pesos.  All dollar amountsreferenced, unless otherwise indicated, are expressed in United States dollars,Canadian dollars are referred to as “Canadian Dollars” or “C$” and Argentineanpesos are referred to as ARS$.

 

Thehigh, low average and closing exchange rates for Canadian dollars in terms ofUnited States dollars and Canadian dollars in terms of Argentinean pesos foreach of the three years ended December 31, 2009, 2008, and 2007 as quotedby the Bank of Canada, were as follows:

 

**Canadian dollar per United States dollar**

 
| ** **                      | ** ** | **High** | ** ** | **Low** | ** ** | **Average(1)** | ** ** | **Closing(1)** | ** ** |
|---------------------------------|------------|----------|------------|---------|------------|----------------|------------|----------------|------------|
| **Year ended December 31** |       |     |       |    |       |           |       |           |       |
| 2009                            |       | 1.3000   |       | 1.0292  |       | 1.1420         |       | 1.0466         |       |
| 2008                            |       | 1.2969   |       | 0.9719  |       | 1.0660         |       | 1.2246         |       |
| 2007                            |       | 1.1853   |       | 0.9170  |       | 1.0748         |       | 0.9881         |       |

 

**Canadian dollar per Argentinean peso**

** **
| ** **                      | ** ** | **High** | ** ** | **Low** | ** ** | **Average(1)** | ** ** | **Closing(1)** | ** ** |
|---------------------------------|------------|----------|------------|---------|------------|----------------|------------|----------------|------------|
| **Year ended December 31** |       |     |       |    |       |           |       |           |       |
| 2009                            |       | 0.3633   |       | 0.2692  |       | 0.3037         |       | 0.2713         |       |
| 2008                            |       | 0.3814   |       | 0.3050  |       | 0.3319         |       | 0.3464         |       |
| 2007                            |       | 0.3804   |       | 0.2896  |       | 0.3420         |       | 0.3116         |       |

 

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(1)                                  Daily noon ratesused in average and closing calculation.

 

OnMarch 29, 2010, the Bank of Canada noon spot exchange rate for thepurchase of one United States dollar using Canadian dollars was C$1.0203(C$1.00=US$0.9801).

 

OnMarch 29, 2010, the Bank of Canada noon spot exchange rate for thepurchase of one Argentinean peso using Canadian dollars was C$0.2623(C$1.00=ARS$3.8124).

 

**Forward-Looking Statements and Information**

** **

**Certain statements and information in this AIF,including all statements that are not historical facts, contain forward-lookingstatements and forward-looking information within the meaning of applicable USand Canadian securities laws.  Suchforward-looking statements or information include, but are not limited to,statements or information with respect to the cash from operations at the SanJosé Mine and the future cash requirements of MSC, the estimated operating andcapital costs of the San José Mine, the Corporation’s interest in the San JoséMine being maintained at 49%, the future price of gold, silver, copper andother base metals, production estimates, estimation of mineral reserves,exploration and development capital requirements, our goals and strategies andthe possible outcome of pending or contemplated litigation.  Often, these statements include words such as“plans”, “expects” or “does not**

 

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**expect”, “is expected”, “budget”, “scheduled”, “estimates”,“forecasts”, “intends”, “anticipates” or “does not anticipate” or “believes” orvariations of such words and phrases or statements that certain actions, eventsor results “may”, “could”, “would”, “might” or “will” be taken, occur or beachieved.**

** **

Inmaking the forward-looking statements and providing the forward-lookinginformation included in this AIF, we have made numerous assumptions.  These assumptions include among other things,assumptions about the price of gold, silver, copper and other base metals,decisions to be made by our joint venture partner in respect of the managementand operation of the San José Mine, anticipated costs and expenditures, futureproduction and recovery, that the supply and demand for gold, silver and copperdevelop as expected, that there is no unanticipated fluctuation in interestrates and foreign exchange rates, that there is no further materialdeterioration in general economic conditions and that we are able to obtain thefinancing, as and when, required to, among other things, maintain our interestin the San José Mine. Although our management believes that the assumptionsmade and the expectations represented by such statements or information arereasonable, there can be no assurance that the forward-looking statements willprove to be accurate.  By their nature,forward-looking statements and information are based on assumptions and involveknown and unknown risks, uncertainties and other factors that may cause ouractual results, performance or achievements, or industry results, to bematerially different from future results, performance or achievements expressedor implied by such forward-looking information. Such risks, uncertainties and other factors include among other thingsthe following: actions by, and our relationship with, our joint venturepartner, including decisions regarding the amount and timing of future cashcalls, that any cost overruns or cash shortfalls at the San José Mine mayresult in a requirement for additional investment by us, our lack of operatingcash flow and dependence on external financing, availability of financing, asand when, required to meet any future cash calls in respect of the San JoséMine (to maintain our interest therein), and to finance our day-to-dayoperations and planned growth and development, any decline in the price ofgold, silver, copper and other base metals, changes in general economic and businessconditions, interest rate and exchange rate fluctuations, economic andpolitical instability in Argentina, discrepancies between actual and estimatedproduction and mineral reserves and resources; operational and developmentrisk; the speculative nature of mineral exploration and regulatory risks.

 

Seethis AIF for additional information on risks, uncertainties and other factorsrelating to the forward-looking statements and information.  Although we have attempted to identifyfactors that would cause actual actions, events or results to differ materiallyfrom those disclosed in the forward-looking statements or information, theremay be other factors that cause actual results, performances, achievements orevents not to be anticipated, estimated or intended.  Also, many of the factors are beyond ourcontrol.  Accordingly, readers should notplace undue reliance on forward-looking statements or information.  We undertake no obligation to reissue orupdate forward-looking statements or information as a result of new informationor events after the date of this AIF except as may be required by law.  **All forward-lookingstatements and information made in this document are qualified by thiscautionary statement.**

 

**Cautionary Note to U.S. Investors — Information Concerning Preparationof Resource and Reserve Estimates**

** **

TheAIF has been prepared in accordance with the requirements of the securitieslaws in effect in Canada, which differ from the requirements of United Statessecurities laws. National Instrument 43-101- *Standards ofDisclosure for Mineral Projects* (“**NI 43-101**”)is a rule of the Canadian Securities Administrators which establishesstandards for all public disclosure an issuer makes of scientific and technicalinformation concerning mineral projects. These standards differ significantlyfrom the requirements of the SEC, and reserve and resource informationincorporated by reference herein may not be comparable to similar informationdisclosed by U.S. companies. One consequence of these differences is that “reserves”calculated in accordance with Canadian standards may not be “reserves” underthe SEC standards.

 

Theterms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve”are Canadian mining terms defined in accordance with the Canadian Institute ofMining, Metallurgy and Petroleum (the “**CIM**”) in theCIM Standards on Mineral Resources and Mineral Reserves, adopted by the CIMCouncil, as the same may be amended from time to time by the CIM. Thesedefinitions differ from the definitions in the United States Securities andExchange Commission (“**SEC**”) IndustryGuide 7.

 

UnderU.S. standards mineralization may not be classified as a “reserve” unless adetermination has been made that the mineralization could be economically andlegally produced or extracted at the time the reserve determination is made.

 

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UnderSEC Industry Guide 7 standards, a “Final” or “Bankable” feasibility study isrequired to report reserves, the three-year historical average precious metalsprices are used in any reserve or cash flow analysis to designate reserves andthe primary environmental analysis or report must be filed with the appropriategovernmental authority.

 

Inaddition, the terms “mineral resource”, “measured mineral resource”, “indicatedmineral resource” and “inferred mineral resource” are defined in and requiredto be disclosed by NI 43-101; however, these terms are not defined terms underSEC Industry Guide 7 and normally are not permitted to be used in reports andregistration statements filed with the SEC. Investors are cautioned not to assume that any part or all of themineral deposits in these categories will ever be converted into reserves. “Inferredmineral resources” have a great amount of uncertainty as to their existence,and great uncertainty as to their economic and legal feasibility.  It cannot be assumed that all or any part ofan inferred mineral resource will ever be upgraded to a higher category.

 

UnderCanadian rules, estimates of inferred mineral resources may not form the basisof feasibility or pre-feasibility studies, except in rare cases. Investors arecautioned not to assume that all or any part of an inferred mineral resourceexists or is economically or legally mineable. Disclosure of “contained ounces”in a resource is permitted disclosure under Canadian regulations; however, theSEC normally only permits issuers to report mineralization that does notconstitute “reserves” by SEC standards as in place tonnage and grade withoutreference to unit measures.

 

Accordingly,information contained in this report and the documents incorporated byreference herein containing descriptions of our mineral deposits may not becomparable to similar information made public by U.S. companies subject to thereporting and disclosure requirements under U.S. federal securities laws andthe rules and regulations thereunder.

 

# **DEVELOPMENT AND DESCRIPTION OF THE BUSINESS**

# ** **

***Overview***

** **

MineraAndes Inc. was formed upon the amalgamation of Scotia Prime Minerals,Incorporated and Minera Andes Inc. pursuant to the*Business Corporations Act* (Alberta) on November 6,1995.  Commencing on February 7,2007, Minera Andes was listed on the Toronto Stock Exchange (the “**TSX**”) (symbol: MAI). Prior to February 7, 2007 Minera Andes was listed on the TSXVenture Exchange (the “**TSXV**”), havinginitially been listed thereon on December 20, 1995.  Minera Andes’ common shares are also quotedon the NASD OTC Bulletin Board (symbol: MNEAF).

 

Ourhead office is 99 George Street, 3rd Floor,Toronto, Ontario M5A 2N4 Canada, and our principal business address is CoronelMoldes 837/820, (5500) Mendoza, Argentina. Our registered and records officeand address for service is 7415B 35th Ave. N.W., Calgary, Alberta, T3B 1T4,Canada.

 

Ourprincipal business is the exploration and development of mineral properties,located primarily in the Republic of Argentina, with a focus on gold, silverand copper mineralized targets.  We carryon our business by acquiring, exploring and evaluating mineral propertiesthrough our ongoing exploration program. Following exploration, we either seek to enter into joint ventures tofurther develop these properties or dispose of them if they do not meet ourrequirements.

 

We currently hold mineralrights and applications for mineral rights covering approximately 304,221 acres(123,133 hectares**)** in Argentina, however ourprincipal assets currently consist of:

 

(i)                         a 49% interestin MSC, which owns and operates the San José Mine, an operating silver and goldmine in Santa Cruz Province, Argentina, covering 50,491 hectares and is notincluded in the acres noted above; and,

 

(ii)                      a 100% interestin the Los Azules Copper Project, a porphyry copper exploration project in SanJuan Province, Argentina; and,

 

(iii)                   a portfolio of explorationproperties in the prospective Deseado Massif region of Southern Argentina.

 

Thefollowing chart illustrates the Corporation’s subsidiaries, together with thegoverning law of each company and the percentage of voting securities beneficiallyowned or over which control or direction is exercised by the Corporation, aswell as the Corporation’s principal mineral properties.

 

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Asindicated above, the Corporation’s interest in the San José Mine is held byMinera Andes S.A. (“**MASA**”) and theCorporation’s interest in the Los Azules Copper Project is held by AndesCorporación Minera S.A. (“**Andes Corp**.”).

 

***The San José Mine***

 

TheSan José Mine is a gold-silver mine located in Santa Cruz Province,Argentina.  The San José Mine is a jointventure pursuant to which title to the assets is held by Minera Santa Cruz S.A.(“**MSC**”), an Argentinean corporation.  MSC is owned, as to 49%, by MASA and, as to51%, by Hochschild Mining (Argentina) Corporation S.A., a subsidiary ofHochschild Mining plc (together with its affiliates and subsidiaries, “**Hochschild**”).  See “*Option and Joint Venture Agreement*”.

 

TheCorporation’s interest in, and the affairs of, MSC are governed by an optionand joint venture agreement dated March 15, 2001 between MASA andHochschild, as amended by agreements dated May 14, 2002, August 27,2002 and September 10, 2004, the (“**OJVA**”).

 

Underthe OJVA we are entitled to appoint one of the three members of the Board ofDirectors of MSC and Hochschild is entitled to appoint the balance of themembers of the Board of Directors of MSC. The OJVA grants us a “veto” in respect of certain and very limitedmatters regarding the affairs of MSC and the operation of the San JoséMine.  In particular, we have limited, ifany, ability to control the timing or amount of cash calls and decisions madein that regard may have an adverse affect on our operations and financialposition.  See *“Option andJoint Venture Agreement”*.

 

Wehave the right to receive, upon request, information regarding the San JoséMine.  Historically, however, it wasmanagement’s view that the information received from MSC was in some casesneither timely nor complete.

 

Toaddress this situation, in 2007, the Corporation retained a consultant tomonitor the operation of the San José Mine and report its findings to theCorporation.  This proved to beineffective, and commencing October 2008, the Corporation retainedin-house senior personnel, located in Argentina and North America, tofacilitate the transfer of information from MSC.  The personnel regularly communicate with MSC’sstaff, make periodic visits to the mine and frequently visit MSC’s office inBuenos Aires. In addition, a formal protocol for the transfer of information fromMSC to Minera Andes was established during 2009.   Management believes that this approach hasimproved the quality and timeliness of information available to it regardingthe operation of the San José Mine.

 

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Projectfinancing for the San José Mine has been primarily provided pursuant to aletter agreement dated October 10, 2006 (as amended by agreements dated October 17,2006, October 24, 2006, January 5, 2007, January 25, 2007, February 26,2007, February 28, 2007, March 29, 2007, April 26, 2007 and June 29,2007, the “**Project Loan Letter Agreement**”)between Minera Andes, MSC and by assignment, Hochschild Mining Holdings Limited(the “**Hochschild Lender**”), an affiliate ofHochschild Mining plc.

 

TheProject Loan Letter Agreement is the subject of a lawsuit by the HochschildLender brought against Minera Andes (and a wholly-owned subsidiary) in theState of New York. See*“Project Loan LetterAgreement***”.**

 

Pursuantto the Project Loan Letter Agreement, the Hochschild Lender has effectivelyloaned to MSC the aggregate principal amount of $65 million, which amount, plusaccrued interest is to be repaid by MSC using cash not required for operationsand in priority to the distribution of any other amounts to the shareholders ofMSC.

 

TheSan José Mine has also been, and may in the future, be financed by way ofshareholder loans from the Corporation and Hochschild pursuant to a loanagreement between MSC, MASA, the Corporation, the Hochschild Lender andHochschild dated September 10, 2004 (as amended by agreement dated December 15,2005, the “**Loan Agreement**”).  See “*LoanAgreement*”.

 

TheSan José processing facility commenced production during the second quarter of2007 and full commercial production of 750 metric tonnes per day (“**MTPD**”) was reached in the first quarter of 2008.  The first sale of metals from the San José Mine occurredin December 2007.

 

InAugust 2007, before achieving commercial production, MSC initiated aproject to double the capacity of the San José processing facility.  In October 2008 capacity at the San Joséprocessing plant was increased from 750 MTPD to 1,500 MTPD and by December 2008the plant was operating at an average daily rate of 1,324 MTPD.  Average MTPD in 2009 was 1,397.****At the date of this AIF, approximately 50% of theconcentrate produced at the mill is converted on site to doré bullion.

 

Mineproduction has also been been increased  from 750 MTPD to nominally 1,500MTPD, primarily by accessing the Kospi vein, located between the Huevos Verdesand Frea veins. Due to difficult ground conditions, access to the Kospi veinwas delayed until late January 2009. Production from the Kospi vein commenced in late-June 2009.  During the first half of 2009 mine productionwas supplemented from a surface stockpile of low grade ore until productioncommenced from the Kospi vein.

 

On March 19, 2009 the San José Mine processingfacility was connected to the national power grid through the construction of a130 kilometer 132 kV electric transmission line.****MSC had forecast that thisproject was to be completed by the end of September 2008, however theProvince of Santa Cruz denied MSC’s application for the permits to build theelectric line along the right of way of the Provincial highway. As a result, itwas necessary to redesign and lengthen the location of the electric line andnegotiate agreements with private land owners along the redesigned route. The diesel generating capacity, which is sufficient to run the mill atits full expanded capacity, remains on site as backup.

 

In the processing plant, MSC has purchased partof the equipment necessary to expand the concentrate leaching andelectrowinning circuit so that 100% of the concentrates produced by theoperation can be converted to doré on site. Basic and detailed engineering havebeen completed, but construction of the project has been suspended because thecompletion of the circuit is not economically attractive given the currentmarket conditions for concentrate sales.

 

In 2009 approximately 24,700metres of core drilling in a total of 104 drill holes was completed at the SanJosé Mine.  Drilling focused primarily onthe Frea, Odin and Ayelén veins and consisted of infill and step-out drilling.  Drilling was also carried out on the RamalAyelén, Huevos Verdes Oeste veins and the Cerro Portugués, Cerro Alto andSorpresa areas to explore for new resources.

 

The 2010 explorationprogram at San José consists of surface geophysics and a diamond core drillingprogram totaling approximately 34,000 meters of drilling.  Additional follow-up drilling of up to 22,000meters may be drilled during the course of the year depending upon the successof the basic program.  The goal of thisyear’s exploration program is to upgrade existing resources to replace reservesdepleted during 2010 and to discover new mineralized veins (new resources) onthe San José property, comprising of approximately 115 km2 (28,400 acres).

 

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***The Los Azules Copper Project***

 

TheLos Azules Copper Project is an advanced-stage exploration project located inSan Juan Province, Argentina.  The LosAzules Copper Project was previously subject to an option agreement between theCorporation, MASA, Xstrata Copper and Xstrata Queensland Limited (together withXstrata Copper, “**Xstrata**”) dated November 2,2007 (as amended by assignment and amending agreement dated May 15, 2009,the “**Los Azules Option Agreement**”).  As of October 1, 2009, Xstrata electednot to exercise its one-time right to back in to a 51% interest in theproject.  Consequently, Xstratatransferred those properties held by it and forming part of the Los AzulesCopper Project to Andes Corp., a wholly owned subsidiary of the Corporation,and no longer retains any ownership in or rights with respect to theproject.  Minera Andes, through a whollyowned subsidiary, now owns 100% of the Los Azules Copper Project. See “*Los Azules Option Agreement”.*

 

***Financing***

 

InFebruary 2009, the Corporation completed a private placement with itsprincipal shareholder, Mr. Robert R. McEwen pursuant to which Mr. McEwenpurchased an aggregate of 40 million common shares at a price of C$1.00 pershare for gross proceeds to the Corporation of C$40 million (the “**McEwen Financing**”).

 

TheCorporation closed a short form prospectus equity offering on August 19,2009, whereby a syndicate of underwriters purchased for resale to the publicand Minera Andes issued 26,700,000 units, each unit consisting of one commonshare and one half of a warrant to buy one common share at a price of C$0.75per unit (the “**Offering**”), on a “bought deal”basis, equivalent to C$20 million, and 4,005,000 underwriter over allotmentoptions equivalent to C$3 million.

 

***Bank Loan***

 

Pursuantto the second amended and restated credit agreement dated as of October 22,2007 (the “**Macquarie Credit Agreement**”) withMacquarie Bank Limited (“**Macquarie**”),Macquarie made two non-revolving term loans to us, in the aggregate principalamount $17.5 million (the “**Bank Loan**”).In March 2009, using a portion of the proceeds from the McEwen Financing,the Corporation repaid Macquarie all amounts owing by it under the MacquarieCredit Agreement and received a release from Macquarie to this effect.

 

**History**

** **

*The San José Mine*

 

InOctober 2005 MSC completed a bankable feasibility study at the San JoséMine that led to the development of the San José Mine .

 

InMarch 2006, an environmental impact assessment, the primary document forpermitting the San José Mine, was approved by the province of Santa Cruz,Argentina and a final decision was made to place the San José Mine intoproduction.

 

In March 2007,an aggressive exploration program was approved for the San José Mine by MSC,with an objective of adding new reserves and resources, and identifying newveins to increase mine life.

 

Pre-commissioningproduction commenced at the San José processing facility during the second halfof 2007.

 

InAugust 2007, a decision was made by MSC to double production capacity from750 MTPD to 1,500 MTPD.  Also, in August 2007**,**MSC entered into a one year refining and sale contract (assubsequently extended by agreement dated August 1, 2008 for 12 monthsuntil July 31, 2009) with Argor Heraeus S.A. (“**Argor**”)a refinery based in Switzerland, providing a market for gold and silverproduced as doré bullion from the San José Mine.  Underthis contract MSC is allowed to ship between 4,000 and 6,000 kg of doré twice amonth.

 

Inthe third quarter of 2007, MSC commenced a program to expand mine productionfrom 750 MTPD to 1,500 MTPD, primarily by accessing the Kospi vein.

 

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InFebruary 2008, MSC entered into a contract in respect of the sale of 3,800dry metric tonnes of concentrate to be delivered in 2008 and the first quarterof 2009 to Norddeutsche Affinerie, a smelting and refining company based inGermany.

 

TheSan José processing facility commenced full commercial production of 750 MTPDin the first quarter of 2008 however, the first sale of metals from the SanJosé Mine occurred in December 2007.

 

InMay 2008 work commenced to connect the San José mine to the national powergrid through the construction of a 130 kilometer 132 kV electric transmissionline.

 

InOctober 2008, the expansion of the processing plant to a capacity of 1,500MTPD was completed and by December 2009 the plant was operating at anaverage daily rate of 1,397MTPD.

 

MSC accessed theKospi vein in January 2009 and production from Kospi commenced in late-June 2009,nine months behind schedule.Development of the Kospi vein was crucial to MSC’splans to increase mine production from 750 MTPD to 1,500 MTPD.

 

In March 2009 the San José Mine was connected to the national power grid.

 

***The Los Azules Copper Project***

 

InNovember 2005, the Corporation signed a term sheet with Xstrata Copper, inrespect of the matters provided for in the Los Azules Option Agreement.

 

InMay 2006, the Corporation reported the discovery of significant high-gradecopper at its Los Azules Copper Project with an eleven hole drill programreturning intervals up to 1.6% copper over 221 meters and 1% copper over 173meters in separate holes.

 

InNovember 2007, the Los Azules Option Agreement was executed.  The Los Azules Option Agreement provided forthe consolidation of adjoining properties owned indirectly by Minera Andes andXstrata  straddling a large copperporphyry system.

 

Between2006 and 2008 the Corporation drilled 64 core holes totaling 11,572 meters atthe Los Azules Copper Project and commenced preparation of the preliminaryassessment contemplated by the Los Azules Option Agreement.

 

InSeptember 2008, the Corporation completed a metallurgical testing programindicating that the mineralized material at the Los Azules Copper Project isamenable to conventional flotation recovery methods and that the overall metalrecoveries and the copper concentrate grades are high.  Also, in September 2008, an independentresource estimate was completed in respect of the Los Azules Copper Project anda initial technical report (subsequently revised in January 2009) was preparedin accordance with NI 43-101 was filed.

 

InFebruary 2009, the preliminary assessment was completed and the resultsthereof announced by news release dated February 5, 2009.  A technical report, in support thereof, wassubsequently filed in March, 2009.

 

OnMay 29, 2009, in accordance with the terms of the Los Azules OptionAgreement, Minera Andes delivered to Xstrata the preliminary assessment,thereby exercising its earn-in option and acquiring a 100% interest inthose properties comprising the Los Azules Copper Project held by Xstrata,subject to a one-time option held by Xstrata to back-in to a 51% interest inthe Los Azules Copper Project.

 

On October 1, 2009,back-in right expired, unexercised and Minera Andes, through itswholly owned subsidiaries, now holds 100% of the Los Azules Copper Project .

 

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InDecember 2009 the Corporation initiated a seasonal drilling program at theLos Azules Copper Project.

 

***Corporate Developments***

 

InDecember 2005, Mr. Robert McEwen, Chairman and CEO of U.S. Gold Corp,and founder and former Chairman and CEO of Goldcorp Inc., agreed to invest atotal of C$10 million in Minera Andes by private placement.

 

InMarch 2006 Mr. McEwen purchased 1.2 million shares of Minera Andes inthe market at a price of C$1.10 per share. In addition, in May 2006, Mr. McEwen exercised all the commonshare purchase warrants then held by him. As a result, a total of 14,285,714 common shares were issued resultingin gross proceeds of C$7,857,143 to Minera Andes.  Mr. McEwen then held 30% of the thenissued and outstanding common shares of the Corporation.

 

InFebruary 2007, the Corporation’s shares were listed on, and commencedtrading on, the TSX.  The Corporation’sshares were previously listed and traded on the TSXV.

 

InMarch 2007 and October 2007, the Corporation entered into theMacquarie Credit Agreement in respect of the Bank Loan.

 

BetweenDecember 2007 and February 2008, the Corporation completed privateplacements consisting of the issue of a total of 22,085,668 units, at a priceof C$1.55 per unit, for gross proceeds of C$34.23 million. The proceeds fromthe offering were primarily used to fund the Corporation’s share of the costsat the San José Mine and for exploration drilling and completing thepreliminary assessment on the Los Azules Copper Project.

 

OnAugust 5, 2008, Mr. McEwen joined the Board of Directors of theCorporation, upon exercise of a right to nominate an individual to the Board ofDirectors of the Corporation granted to him as part of the 2006 financing.

 

InFebruary 2009 Mr. McEwen, completed the McEwen Financing, as a resultof which Mr. McEwen held 37.3% of the issued and outstanding shares of theCorporation. The proceeds from the McEwen Financing were used: (i) as to$11.3 million, to pay the Corporation’s portion of the cash call made by MSC inDecember 2008 in respect of the San José Mine; (ii) as toapproximately $17.5 million, to repay all amounts due by the Corporation underthe Macquarie Credit Agreement; and (iii) as to the balance, for generalcorporate purposes.

 

Inconnection with the McEwen Financing, Mr. McEwen was granted the right toappoint two additional directors, to the Corporation’s Board of Directors,which combined with Mr. McEwen’s existing rights to board representationentitles him to nominate a total of three directors to the Corporation’s boardof directors. On February 2, 2009 Mr. Clark resigned from theCorporation’s Board of Directors. On February 23, 2009 Mr. Drummondresigned from the Corporation’s Board of Directors. On February 23, 2009, Mr. RichardBrissenden and Mr. Michael Stein were appointed to the Corporation’s Boardof Directors, as nominees of Mr. McEwen.

 

OnFebruary 23, 2009 Robert R. McEwen was appointed Executive Chairman of theCorporation.

 

OnMarch 13, 2009 James K. Duff was appointed Chief Operating Officer of theCorporation. Mr. Duff has more than 30 years of diverse internationalmining experience and is responsible for managing the Corporation’s interestsin the San José Mine and the Los Azules Copper Project.

 

OnJune 18, 2009, following the Corporation’s annual general and specialmeeting, Robert R. McEwen was appointed President and Chief Executive Officerof the Corporation effective immediately, replacing Mr. Allen Ambrose. Mr. Ambrosewas re-elected to the Board of Directors of the Corporation.

 

TheCorporation completed an equity offering on August 19, 2009, by way ofshort form prospectus  pursuant to whichMinera Andes issued 30,705,000 units, each unit consisting of one common shareand one half of a common share purchase warrant at a price of C$1.25 per unit(the “**Offering**”).  The Offering was completed on  a “bought deal” basis and resulted in netproceeds to the Corporation of approximately c$22 million..

 

OnSeptember 9, 2009, Brian Gavin, Vice President, Exploration of theCorporation submitted his resignation effective October 9, 2010. On September 30,2009, Nils Engelstad, formerly corporate legal counsel to the Corporation, wasappointed Vice President, Corporate Affairs.

 

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InFebruary 2010, the Corporation announced that Perry Ing would be appointedCFO effective April 5, 2010. Henry John, formerly CFO, will continue on asa consultant to the Corporation.

 

**Production and Operations**

** **

Thefollowing table summarizes the total production and operation information forthe San José Mine for the year ended December 31, 2009:

** **
| **Production**                   | ** ** | **2009  Total** | ** ** | **2009  Fourth Quarter** | ** ** | **2009  Third Quarter** | ** ** | **2009  Second Quarter** | ** ** | **2009  First Quarter** | ** ** |
|----------------------------------|------------|-----------------|------------|--------------------------|------------|-------------------------|------------|--------------------------|------------|-------------------------|------------|
| Ore production (metric  tons)    |       | 460,972         |       | 100,460                  |       | 122,342                 |       | 119,184                  |       | 118,986                 |       |
| Average head grade-silver  (g/t) |       | 396             |       | 351                      |       | 407                     |       | 400                      |       | 427                     |       |
| Average head grade-gold  (g/t)   |       | 6.23            |       | 7.34                     |       | 6.65                    |       | 5.65                     |       | 5.29                    |       |
| Silver produced (ounces)         |       | 4,998,000       |       | 1,032,000                |       | 1,402,000               |       | 1,265,000                |       | 1,299,000               |       |
| Gold produced (ounces)           |       | 77,070          |       | 19,960                   |       | 22,470                  |       | 18,080                   |       | 16,560                  |       |
| Net silver sold (ounces)         |       | 5,072,000       |       | 989,000                  |       | 1,536,000               |       | 1,709,000                |       | 838,000                 |       |
| Net gold sold (ounces)           |       | 77,220          |       | 19,230                   |       | 24,680                  |       | 21,930                   |       | 11,380                  |       |

 

Note:Minera Andes has a 49% interest in the San José Mine

 

***Reserves and Resources***

** **

TheCorporation has estimated mineral resources and mineral reserves for the SanJosé Mine and Los Azules Copper Project as follows:

 

MineralResource Estimates

 
| **Property**     | ** ** | **Category**           | ** ** | **Tonnes********(1,000)** | ** ** | **Ag (g/t)** | ** ** | **Au (g/t)** | ** ** | **Ag  (1,000 oz)** | ** ** | **Au  (1,000 oz)** | ** ** | **TCu %** | ** ** |
|------------------|------------|------------------------|------------|---------------------------|------------|--------------|------------|--------------|------------|--------------------|------------|--------------------|------------|-----------|------------|
| San José(1) |       | Measured               |       | 692                       |       | 527          |       | 9.11         |       | 11,719             |       | 203                |       |      |       |
|             |       | Indicated              |       | 1,953                     |       | 463          |       | 6.78         |       | 29,054             |       | 425                |       |      |       |
|             |       | Measured and Indicated |       | 2,645                     |       | 480          |       | 7.39         |       | 40,773             |       | 628                |       |      |       |
|             |       | Inferred               |       | 2,002                     |       | 310          |       | 4.98         |       | 19,953             |       | 321                |       |      |       |
| Los Azules(2)    |       | Inferred               |       | 922                       | (3)        |         |       |         |       |               |       |               |       | 0.55      |       |

 

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Notes:

(1)          Updated mineral reserveestimates by P&E Mining Consultants Inc. See “San José Mine - Mineral Resourcesand Mineral Reserve Estimates”, page 49. Contains 100 percent of theresources, as of December 31, 2009. Minera Andes’ ownership of the mine is49 %. Mineral Resources are inclusive of mineral reserves. Mineralresources that are not mineral reserves do not have demonstrated economic oroperational viability. Minera Andes calculates the silver / goldequivalency as 1 oz gold = 60 oz silver Equivalent.

(2)          From the Los Azules TechnicalReport.

(3)          Using a cut-off grade of0.35.

 

MineralReserve Estimates

 
| **Property**     | ** ** | **Category**        | ** ** | **Tonnes  (1,000)** | ** ** | **Ag (g/t)** | ** ** | **Au (g/t)** | ** ** | **Ag  (1,000 oz)** | ** ** | **Au  (1,000 oz)** | ** ** |
|------------------|------------|---------------------|------------|---------------------|------------|--------------|------------|--------------|------------|--------------------|------------|--------------------|------------|
| San José(1) |       | Proven              |       | 618                 |       | 457          |       | 7.66         |       | 9,077              |       | 152                |       |
|             |       | Probable            |       | 903                 |       | 452          |       | 7.09         |       | 13,116             |       | 206                |       |
|             |       | Proven and Probable |       | 1,521               |       | 454          |       | 7.32         |       | 22,193             |       | 358                |       |

 

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Notes:

(1)          Updated mineral reserveestimates by P&E Mining Consultants Inc. See “San José Mine - Mineral Resourcesand Mineral Reserve Estimates”, page 49. Contains 100 percent of thereserves, as of December 31, 2009. Minera Andes ownership of the mine is49 %. Minera Andes calculates the silver / gold equivalency as1 oz gold = 60 oz silver Equivalent.

 

***Option and Joint Venture Agreement***

 

Underthe OJVA, MASA transferred all of its rights in the San José Mine to MSC, anewly formed corporation organized under the laws of Argentina and wholly ownedby the Corporation.  In July 2003,Hochschild earned a 

 

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51%ownership interest in MSC by expending a total of $3 million, including aminimum of $100,000 per year on exploration targets.  Upon Hochschild acquiring a 51% ownership in MSC,Minera Andes elected to participate in the development of the San José Mine ona pro-rata basis.

 

TheOJVA and the by-laws of MSC provide, in relevant part, that:

 

(i)                                    the Board ofDirectors of MSC shall, at all times, consist of three directors and that, ineffect, two of such directors shall be nominated by Hochschild and one directorshall be nominated by MASA;

 

(ii)                                 the Board ofDirectors of MSC shall meet at least once every calendar quarter, without anystipulation that a nominee of each of Hochschild and MASA be present;

 

(iii)                             at any meetingof the Board of Directors of MSC, each of MASA and Hochschild shall have thatnumber of votes equal to the number of directors it is entitled to appoint;

 

(iv)                             MSC shallfinance its operations and activities from such sources as the Board ofDirectors of MSC sees fit;

 

(v)                                the onlyactions by MSC requiring unanimous approval of both MASA and Hochschild are (a) asale of all or substantially all of the assets of MSC; (ii) any amendmentto the articles of MSC that would have an adverse effect on the rights of anyparticular shareholder to receive its share of the profits of MSC; (c) enteringinto any new line of business; (d) acquiring real property or conductingexploration, development or mining outside of the property initiallytransferred to MSC for the purposes of establishing the joint venture; or (e) anymerger or other corporate combination involving MSC; and

 

(vi)                             in the event ofa disagreement between Hochschild as “majority owner” and MASA as “minorityowner”, concerning any act of MSC that requires the unanimous approval of theBoard of Directors of MSC, Hochschild has the option to purchase all of theshares of MSC held by MASA for “fair value”.

 

TheOJVA provides that MSC shall finance its operations from such sources as theBoard of MSC shall determine, including by issuing additional shares. In suchevent, each shareholder of MSC has a pre-emptive right to subscribe for its prorata share of the additional shares.  Anyshares not subscribed by a shareholder shall be offered to the other,participating, shareholder.  As a result,full exercise of a shareholder’s pre-emptive right (assuming full exercise byother shareholder) maintains its shareholdings in MSC at current levels while afailure to exercise its pre-emptive rights, in full, may result in dilution(the extent of such dilution depending on whether the other shareholderexercises its pre-emptive right and to what extent and whether such shareholderalso purchases shares not purchased by the first shareholder).  Historically, a portion of the operating andcapital costs of the San José Mine have been financed by issuing additionalshares of MSC.

 

TheOJVA also provides that it shall be the policy of MSC to maintain excessdistributable cash and that unless the Board of MSC unanimously decidesotherwise, MSC shall distribute, on a semi-annual basis all cash not reasonablyrequired for operations or expansion.

 

***Project Loan Letter Agreement***

 

Underthe Project Loan Letter Agreement, the Hochschild Lender and Minera Andes Inc.agreed to provide MSC with an unsecured bridge loan in the aggregate amount of$20 million (the “**Bridge Loan**”).  The Project Loan Letter Agreement providesthat the Bridge Loan was to be structured as loans to MSC by each of MineraAndes and the Hochschild Lender, in each case, in amounts proportionate to theshareholdings of Minera Andes and Hochschild in MSC.

 

TheProject Loan Letter Agreement however, further provides that the loan to bemade by Minera Andes to MSC would be structured as (i) a loan by theHochschild Lender to Minera Andes (the “**Project Loan Payable**”);and (ii) a corresponding loan by Minera Andes to MSC (the “**Project Loan Receivable**”). As a result, the Bridge Loan was made by way of (i) a loan by theHochschild Lender to MSC in an amount equal to 51% of the amount of the BridgeLoan; (ii) a loan by the Hochschild Lender to Minera Andes in an amountequal to 49% of the amount of the Bridge Loan; and (iii) a correspondingloan by Minera Andes to MSC in the same amount and on the same terms as thepreceding loan by the Hochschild Lender to Minera Andes.  Both the Project Loan Payable and the ProjectLoan Receivable bear interest at the same rate and upon the same terms (includingrepayment).

 

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TheProject Loan Letter Agreement also provides for a permanent secured projectloan in the aggregate amount of $65 million (the “**Project Loan**”),structured in the same manner as the Bridge Loan, and replacing the BridgeLoan, to be documented in definitive agreements, which, as of the date of thisAIF, have not been settled or entered into.

 

Amountsadvanced under the Project Loan Letter Agreement by the Hochschild Lender toMinera Andes and then by Minera Andes to MSC are currently unsecured exceptthat, as security for the loan made by the Hochschild Lender to Minera Andes,Minera Andes has pledged to the Hochschild Lender, its right to the repaymentof the corresponding loans made by Minera Andes to MSC.

 

Thecurrent drafts of the definitive agreements (the “**Draft LoanDocuments**”) and the Project Loan Letter Agreement provide that theProject Loan will be secured by a security interest granted by MSC in favour ofthe Hochschild Lender and Minera Andes in certain MSC bank accounts.  In addition, under the Draft Loan Documents,Minera Andes will be required to (i) continue to pledge, to the HochschildLender, Minera Andes’s right to receive repayment of the loans made by MineraAndes to MSC; and (ii) grant to the Hochschild Lender a security interestin Minera Andes’s security interest in MSC’s bank accounts.  Minera Andes will also be required to directMSC to pay all amounts owing by it to Minera Andes directly to the HochschildLender with such amounts being concurrently applied against amounts owing by MSCto Minera Andes and the corresponding amounts owing by Minera Andes to theHochschild Lender.

 

TheHochschild Lender and MSC have agreed that until the Draft Loan Documents arefinalized, no payment of interest or principal will be due.  Thereafter principal will be repaid inquarterly installments, however non-payment (in and of itself) will notconstitute an event of default.

 

TheProject Loan currently bears interest at a fixed rate of 7.86% per annum on$9.8 million and 8.21% per annum on $22.1 million (which is based on a LIBORrate at the time of the advance of the Project Loan plus 2.50%).  It has been agreed that once the Draft LoanDocumentation are finalized, interest will be increase to LIBOR plus 2.85% andwill be subject to interest fluctuations.

 

OnMarch 19, 2010, the Corporation was served with a summons and complaint inconnection with a lawsuit by the Hochschild Lender filed in the State of NewYork. The Hochschild Lender, among other claims, claims Minera Andes hasrefused to sign formal Project Loan documentation and caused undue delay of thesame.

 

Hochschildhas demanded that the court order Minera Andes to sign formal Project Loandocuments contemplated under the Project Loan Letter Agreement, enjoin MineraAndes from interfering with the making of payments by MSC in relation to theProject Loans, require Minera Andes to repay to Hochschild Lender the benefitsthat Minera Andes has received from the Project Loans and establish thepriority of other shareholder loans owed by MSC to Hochschild Lender and MineraAndes.

 

Atthe date of this AIF, Minera Andes, in consultation with its New York legaladvisors, were preparing a response.

 

***Loan Agreement***

 

Bythe terms of Loan Agreement, shareholder loans made thereunder, from time totime, are unsecured, repayable by MSC on the “maturity date”, bear interest atthe rate of 12% per annum and are subordinated to all other borrowing byMSC.  For the purposes of the LoanAgreement “maturity date” means the date that is two years after the date upon whichmining operations have first been conducted by MSC for a period of at least 90consecutive days at a rate of at least 75% of planned operating capacity.

 

TheLoan Agreement also contains covenants by MSC that: (i) it will do allthings necessary to comply with all laws applicable to it; (ii) it willobtain and take all action to ensure the continuance of all consents, licenses,filings and registrations and governmental approvals required with respect tothe Loan Agreement; and (iii) it will procure that its obligations underthe Loan Agreement are preferred with respect to all of the MSC’s other presentand future unsecured and unsubordinated obligations, other than those preferredby law.

 

Underthe Loan Agreement, it is an event of default if: (i) MSC fails to pay,any amount due thereunder, as and when required; (ii) any representationmade by MSC therein proves to be incorrect in any material respect; (iii) MSCfails to perform or observe any covenant thereunder and such failure continuesfor 15 consecutive days after notice thereof; (iv) MSC becomes insolventor bankrupt or a trustee is appointed in respect of all or a substantial partof its assets or similar proceedings are instituted; (v) an execution islevied against all or a substantial part of the 

 

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assetsof MSC and not discharged within 30 days; or (vi) in the reasonableopinion of the lenders, there is imminent danger that MSC will lose all or anysubstantial part of its properties or assets.

 

Itis a term of the Loan Agreement that proceeds of loans made thereunder be usedto fund MSC’s costs and investments including, intangible assets, propertiesand equipment, mining exploration, evaluation and development activities.

 

***Los Azules Option Agreement***

 

Underthe terms of an option agreement between Minera Andes and Xstrata Copper (“**Xstrata**”) (and their respective affiliates) dated November 2,2007 (the “**Option Agreement**”), Xstratagranted Minera Andes the right to earn-in and acquire a 100% interest incertain Xstrata properties (the “Xstrata Properties”) adjacent to Minera Andes’properties (“**Earn-in Option**”) upon satisfactionof certain conditions, including delivery of a scoping study/preliminaryassessment. The Minera Andes’ properties and Xstrata Properties togethercomprising the Corporation’s Los Azules Copper Project. Minera Andes exercisedthe Earn-in Option on May 29, 2009.

 

The Option Agreement alsoprovided that Xstrata would have a one-time option to back-in to a 51% interestin the Los Azules Copper Project (the “**Back-in Right**”)upon, among other things, payment to the Corporation of an amount equal tothree times the amount of Minera Andes’ direct exploration expenditures on theLos Azules Copper Project since November 25, 2005. Xstrata had until October 1,2009 to notify Minera Andes if it would exercise the Back-in Right. Xstrata didnot exercise the Back-in Right, and consequently, pursuant to a propertytransfer agreement (the “**Los Azules TransferAgreement**”) Xstrata has transferred the Xstrata Properties to anArgentine subsidiary of Minera Andes. Minera Andes, through its wholly ownedsubsidiaries, now holds 100% of the Los Azules Copper Project .

 

Alllands that comprise the Los Azules Copper Project property’s mineral applicationsare subject to a provincial mouth of mine royalty of between zero and 3%. Thisroyalty will be negotiated with the province of San Juan as the projectadvances.

 

Certainof the Xstrata Properties formerly held by Xstrata and transferred to the Companypursuant to the Option Agreement remain subject to an underlying optionagreement between Xstrata and Solitario Argentina S.A. (“**Solitario**”),whereby Solitario has the right to back-in up to 25% of the properties coveredby the underlying option agreement (the “**Solitario Agreement**”),exercisable by Solitario upon the satisfaction of certain conditions within 36months of Xstrata exercising the option, including the production of afeasibility study. The option expires on or about April 23, 2010. TheSolitario Agreement is the subject of a dispute between Xstrata; and, Solitarioand its parent company TNR Gold Corp. (together “**TNR**”).The dispute was commenced by TNR against Xstrata in the Supreme Court ofBritish Columbia. The dispute surrounds the validity of the 36-month time limitdescribed above. If TNR is successful, the Company’s interest in certain of theXstrata Properties may be reduced by up to 25%. Minera Andes is not a party tothe litigation. See “*Legal Proceedings andRegulatory Actions*”.

 

***Competitive Conditions***

** **

Thebase and precious metal mineral exploration and mining business is acompetitive business.  The Corporationcompetes with numerous other companies and individuals in the search for andthe acquisition of attractive base and precious metal mineral properties.  The ability of the Corporation to acquireprecious and base metal mineral properties in the future will depend not onlyon its ability to develop its present properties, but also on its ability toselect and acquire suitable producing properties or prospects for metaldevelopment or mineral exploration.

 

***Environmental Protection Requirements***

** **

TheCorporation’s mining, exploration and development activities are subject tovarious levels of federal, provincial and state laws and regulations relatingto the protection of the environment, including requirements for closure andreclamation of mining properties.  See “RiskFactors — “Legal, regulatory and permitting requirements significantly affectour mining operations and may have a material adverse effect on our business,financial conditions, results of operations and cash flows”.

 

***Employees***

** **

Asat December 31, 2009, the Corporation had 6 employees and 8 contractors.

 

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***Foreign Operations Risks***

** **

TheSan José Mine and the Los Azules Copper Project, are both located inArgentina.  Any changes in regulations orshifts in political attitudes in such foreign country are beyond the control ofthe Corporation and may adversely affect its business.  Future development and operations may beaffected in varying degrees by such factors as government regulations (orchanges thereto) with respect to the restrictions on production, exportcontrols, income taxes, expropriation of property, repatriation of profits,environmental legislation, land use, water use, land claims of local people andmine safety.  The effect of these factorscannot be accurately predicted.  See “RiskFactors — The Corporation is subject to risks relating to economic andpolitical instability in Argentina”.

 

# **ARGENTINA**

# ** **

***Recent Mining and Economic History in Argentina***

** **

Argentinais the second largest country in South America, over 2.7 million squarekilometers in area.  In 1983, Argentinareturned to a multiparty democracy, which brought an end to nearly a halfcentury of military intervention and political instability.  The country then began to stabilize; however,it was not until 1989, with the election of the government under PresidentCarlos Menem, that Argentina’s economy began to improve.  President Menem initiated economic reformsthat included the privatization of many state companies and the implementationof the Convertibility Plan, which fixed the Argentine peso to the U.S. dollarat par.  Results of the reforms werepositive; Argentina’s gross domestic product grew at up to 8% per annum in theearly 1990s and inflation dropped to between 1% and 3% per annum.  However, following a recession in 1999 and2000, a severe political and economic crisis occurred in late 2001.

 

Between2003 and 2007, Argentina sustained a significant economic growth cycle, with anaverage annual growth rate of approximately 8%. However, during the last quarter of 2007, economic growth in Argentinadecreased, as a result of the current global financial crisis and inparticular, significant reduction in commodity prices.

 

In1993, the Mining Investments Act instituted a new system for mining investmentto encourage mineral exploration and foreign investment in Argentina.  Key incentives provided by the Act includeguaranteed tax stability for a 30-year period, 100% income tax deductions onexploration costs (in addition to the deductions available under the *Income Tax Act (Canada*)), accelerated amortization ofinvestments in infrastructure, machinery and equipment, an exemption from thetax on “Minimum Presumed Income” and an exemption from import duties forcapital goods, equipment and raw materials used in mining and exploration.  Repatriation of capital or transfer ofprofits is unrestricted.  Argentina’smineral resources, are subject to a provincial royalty capped at 3% of the “mouthof mine” value of production, which provinces are entitled to waive or reduce.

 

InJanuary 2008, the Argentinean Government re-assessed regulations levyingexport duties on mining companies operating in the country, negativelyaffecting many operators.  This change ingovernmental policy and practice in respect of export duties did not impact theSan José Mine as MSC is party to a fiscal stability agreement that specificallyfixes the export duty for doré bars at 5% and at 10% for concentrates.

 

***Property and Title in Argentina***

** **

Thelaws, procedures and terminology regarding mineral title in Argentina differconsiderably from those in the United States and in Canada. According to Argentine Political State Organisation,the mines (and their mineral thereof) belong to the provinces in which they arelocated, which grant the exploration permits and mine concessions to theapplicants.

 

However, the rights, obligations, andprocedures for the acquisition, exploration, exploitation, and use of mineralsubstances in Argentina are regulated by the federal government, pursuant tothe National Mining Code (the **“Mining Code”**)while the Provinces have thepower to regulate procedural aspects of the Mining Code through ProvincialMining Procedure Codes and to organise the concession and enforcementauthorities.

 

In general, a similar concept applies to theenvironmental aspects related to mining activities. Although the Mining Coderegulates the main aspects of environmental regulations, the provinces act asenforcement authorities. Furthermore, in application of Section 41 of theArgentine Constitution, many provinces have also enacted additionalenvironmental laws, which are directly or indirectly, applicable to miningactivities.

 

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Thefollowing summarizes the material aspects of Argentinean mining law.

 

*Mining Code*

 

TheMining Code establishes three classes of minerals, two of which are: (i) themain metalliferous substances such as gold, silver, copper, lead, etc. whoseownership is vested in the provincial government, which in turn grantsexploitation concessions to private companies; and (ii) the othermetalliferous substances, earthy minerals, industrial minerals, etc. thatbelong to the land owner. Except for minerals described in preceding item (ii),mineral rights in Argentina are separate from surface ownership rights. Creekbed and placer deposits, as well as abandoned tailings and mine waste rockdeposits, are included in the latter mineral class.

 

*Cateo*

 

Acateo is an exploration concession which does not permit mining but gives theowner a preferential right to a mining concession for the exploitation ofminerals discovered in the same area. Cateos are measured in 500 ha unit areas.A cateo cannot exceed 20 units (10,000 ha). No person may hold more than 20 permits or 400 units in a singleprovince. The term of a cateo is based on its area: 150 days for the first unit(500 ha) and an additional 50 days for each unit thereafter. After a period of300 days, 50% of the area over four units (2,000 ha) must be relinquished. At700 days, 50% of the area remaining must be relinquished. Extensions may begranted to allow for bad weather, difficult access, or similar issues. Cateosare identified by a file number or dossier number.

 

Cateosare awarded by the following process:

 

(i)            an application is made in respect of a designated area, describing aminimum work program and providing an estimate of the investment to be made anda schedule for exploration;

 

(ii)           approval is granted by the province and a formal placement on theofficial map or graphic register is made provided, the requested area is notsuperseded by a previous mining right;

 

(iii)           publication ofthe claim is made in the provincial official bulletin so as to notify thirdparties of the claim, and;

 

(iv)           upon expiry ofa period following publication in the official bulletin, the cateo is awarded.

 

Thelength of this process varies depending on the province, and often takes up totwo years. Applications are processed on a first-come, first-serve basis.During the application period, the first applicant has rights to any mineraldiscoveries made by third parties in the area of the cateo without its priorconsent.

 

UntilAugust 1995, a “canon fee”, or tax, of ARS$400 per unit was payable uponthe awarding of a cateo. A recent amendment to the law requires that this canonfee be paid upon application for the cateo. The canon fee for the cateo is paidonce for the entire term of the exploration permit.

 

*Manifestacionde descubrimiento (elsewhere referred to as “manifestation of discovery”)*

 

This is the status of atenement in respect of which a discovery has been reported to the relevantauthority during the exploration stage. It is effectively a procedural stagebetween exploration rights being converted into mining rights. At this stage,the tenement boundaries are redefined to encompass the specific are of thediscovery.

 

*Mina*

 

Althoughthe prior grant of a cateo is not a pre-condition for the granting of aexploitation right, the most common way to acquire a mina is to discover a mineas a consequence of an exploration process under a cateo. To convert anexploration concession to a mining concession, some or all of the area of acateo must be converted to a “mina”. Minas are mining concessions which permitmining on a commercial basis. The area of a mina is measured in “pertenencias”.Each mina may consist of one or more pertenencias. “Common pertenencias” aresix ha and “disseminated pertenencias” are 100 ha (relating to disseminateddeposits of metals rather than discrete veins).. Once granted, minas have anindefinite term assuming exploration development or mining is in progress inaccordance with applicable law and the annual canon is paid.

 

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Toconvert an exploration concession to a mining concession requires a declarationof manifestation of discovery wherein a point within a cateo must be nominatedas a discovery point. The manifestation of discovery is used as a basis forlocation of the pertenencias. Manifestations of discovery do not have adefinite area until pertenencias are proposed. Within a period following designation of a manifestation of discovery,the claimant may do further exploration, if necessary, to determine the sizeand shape of the ore body.

 

Followinga publication and opposition period and approval by the province, a formalsurvey of the pertenencias (together forming the mina) is completed. A surveyedmina provides the highest degree of mineral rights in Argentina.

 

Theapplication to the mining authority must include official cartographiccoordinates of the mine location and of the reconnaissance area, and a sampleof the mineral discovered. The reconnaissance area, which may be as much astwice the surface area projection of the mine, is intended to allow for thegeological extent of the ore body and for site layout and development. Excessarea is released once the survey plans are approved by the mining authority.

 

Oncethe application for a mine has been submitted, the holder of the miningconcession may commence the mining operation, as long as the environmentalimpact assessment has been approved. Any person may oppose to the granting ofthe mining concession, whether a holder of an overlapping cateo, a land ownerdisputing the existence of the ore deposit or the class of the economicmineral, or a partner in the discovery who claims to have been neglected,

 

Within30 days after the resolution of any dispute against the location, nature, orassignment of the mining concession, the holder of the mining concession mustsubmit a legal survey of the properties (lots) requested for the mine, withinthe maximum property limits allowed by the Mining Code. The request ispublished in the official bulletin and may also be subject to dispute. Approvaland registration of the legal survey request by the mining authorityconstitutes formal title of the mining property.

 

Newmining concessions may also be awarded for mines that were abandoned or forwhich their original mining concessions were declared to have expired. In suchcases, the first person claiming an interest in the property will havepriority. A new mining concession will be awarded for the mine in the conditionleft by the previous holder.

 

Thetitleholder of a mine must fulfill three conditions as part of its miningconcession in order to maintain its title in good standing: (i) payment ofmining canons; (ii) provision of minimum investment; and (iii) reactivationof the mine if it is shut down for more than four years, if so demanded by themining authority.

 

Miningcanons are paid to the state (national or provincial) under which the miningconcession is registered, and are paid in equal installments twice yearly. Thecanon is set by national law according to the category of the mine. In general,the canon due per year is ARS$80 per 6 ha pertenencia for common ore bodiesheld by the mining concession, or ARS$800 per 100 ha pertenencia fordisseminated ore bodies. Failure to comply with this obligation for fourteenmonths results in the cancellation of the mining right. However, thetitleholder can recover the mining right for a period of 45 days after being sonotified by the Mining Authority, by paying the outstanding canon plus a fineequal to 20% of the unpaid canon. The discoverer of the mine is exempt frompaying canons for three years from the date on which formal title was awardedto the mine.

 

Theholder of the mining concession must also commit to investing in the fixedassets of the property to a minimum of at least 500 times the value of theannual mining canon, over a period of five years. In the first two years, 20%of the total required investment must be made each year. For the final threeyears, the remaining 60% of the total required investment may be distributed inanother manner. The mining concession expires if the minimum required investmentschedule is not met. If the exploration or exploitation works at the mine aresuspended for more than four years in a row, the mining authority can requirethe holder of the concession to prepare and undertake a plan to activate orreactivate work. Failure to file such reactivation plan within 6 months resultsin the cancellation of the mining right. Such work must be completed on theproperty within a maximum period of five years.

 

Anew mining operation is entitled to national, provincial, and municipal taxexemptions for five years. The exemptions commence with the awarding of formaltitle to the mine. As discussed above, the Mining Investment Act hasestablished a 30-year guarantee of fiscal stability for new mining projectsand/or extension of existing projects which applies retroactively, onceapproved, to the date of presentation of the feasibility study for the project.The law allows for accelerated depreciation of capital goods, deductions inexploration costs, and access to 

 

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machineryand equipment at international prices. Depreciation of infrastructure occursover a three year time period (60% depreciation in the first year, 20% in thesecond and 20% in the third) while all other depreciation occurs in a straightline method of 33.33%.

 

Themajor taxes that affect the mining sector are National Income Tax (35%), GrossRevenue Tax (1% of revenue (depending on province) and Mining Royalties (up toa maximum of 3% of the “mouth of mine” value of production, depending on theprovince).

 

*Royalties and Export Taxes*

 

Under the Mining Investment Act, Argentina’s mineralresources are subject to a provincial royalty capped at 3% of the “mouth ofmine” (pit-head) value of production, which provinces are entitled to waive orreduce, provided the province on where the mineral resources are locatedadheres to said law.  Theprovince of Santa Cruz, where the San José Mine is located, adhered to theMining Investment Act by provincial law no 2332.

 

In accordance to the applicable regulations,the Province of Santa Cruz is entitled to impose different royalty tax ratesafter evaluating the economic and social benefits that each particular mineoperation brings to the Province, provided, the royalty does not exceed the 3%cap determined by the Mining Investment Act.

 

In that respect, the Province of Santa Cruz hasissued local regulations setting for a range of royalties rates up to a maximumrate of 3% of the “mouth of mine” value of productionapplicable to mineral exploitation in theprovince.

 

In the specific case of MSC, the ProvincialMining Authority has established that doré from the San José Mine will besubjected to the 1.85% royalty rate and that concentrates and precipitates willbe subjected to the 2.55% royalty rate.

 

Under the Mining Investment Act, MSC has beengranted two tax stability certificates in relation to provincial and federaltaxes in Argentina in respect of the San José Mine . The stability certificateshave a term of 30 years commencing on November 18th, 2005 (date of filing of feasibility study).

 

Under this general framework, the mining royaltiesand export duties applicable to the San José Mine can be summarized asfollowing:

 

(i)                                                 themining royalty is fixed at 1.85% of the pit-head value for doré and 2.55% formineral concentrates or precipitates; and

(ii)                                 the National Export Tax is fixed at 5% for doré and 10% for concentratesor precipitates although rebates are available if the final products areshipped from a Patagonian maritime port (depending on the port of exportationthese rebates will be reduced to nil as from 2009 and 2010).

 

*Environmental Regulation*

 

TheEnvironmental Protection Section of the Mining Code of Argentina, enactedin 1995, requires that each Provincial government monitor and enforce the lawspertaining to subscribed development and protection of the environment.

 

TheNational Constitution establishes that the Federal Government has to set theminimum standards.- Provinces are entitled to strengthen those standars.

 

Provincesare allowed to withdraw areas from the normal cateo/mina process. These landsmay be held directly by the province or assigned to provincial companies forstudy or exploration and development. 

 

Aparty wishing to commence or modify any mining-related activity as defined bythe Mining Code, including prospecting, exploration, exploitation, development,preparation, extraction, and storage of mineral substances, as well as propertyabandonment or mine closure activity, must prepare and submit to the ProvincialEnvironmental Management Unit (“**PEMU**”) anInforme de Impacto Ambiental or Environmental Impact Assessment (“**EIA**”) prior to commencing the work. Each EIA must describethe nature of the proposed work, its potential risk to the environment, and themeasures that will be taken to mitigate that risk. The PEMU has a 60-day periodto review and either approve or reject the EIA. However, the EIA is notconsidered to be automatically approved if the PEMU has not responded withinthat period. If the PEMU deems that the EIA does not have sufficient content orscope, the party submitting the EIA is granted a 30-day period in which toresubmit the document.

 

Ifaccepted by the PEMU, the EIA is used as the basis to create a Declaración deImpacto Ambiental or Declaration of Environmental Impact (“**DEI**”)to which the party must swear to uphold during the mining-related activity in 

 

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question.The DEI must be updated every two years, with a report on the results of theprotection measures taken. If protection measures are deemed inadequate,additional environmental protection may be required. Mine operators are liablefor environmental damage. Sanctions and penalties for non-compliance to the DEIare outlined in the Environmental Protection Section of the Mining Code,and may include warnings, fines, suspension of environmental QualityCertification, restoration of the environment, temporary or permanent closureof activities, and removal of authorization to conduct mining-relatedactivities.

 

Furtherto the provisions of the Mining Code on Environmental Protection, miningactivities are also subject to other environmental regulations issued at thefederal and provincial level (from the province in where such activities arecarried out).

 

Allmineral rights described above are considered forms of proprietary rights andcan be sold, leased or assigned to third parties on a commercial basis. Asdescribed before, cateos and minas can be forfeited if minimum work andinvestments requirements are not performed or if annual payments are not made.Generally, notice and an opportunity to cure defaults is provided to the ownerof such rights.

 

Inthe fall of 2009, Legislation was passed in the Province of Santa Cruz, Argentinathat provides for the creation of a special interest area in which miningactivities may occur. Within the special interest area mining and processingactivities would be restricted near cities and certain rivers and lakes. As atthe date of this AIF the Corporation does not anticipate that San José mineoperations will be impacted. Although certain of the Corporation’s grassrootsexplorations properties may be affected, the Corporation does not expect suchrestrictions to materially impact its exploration targets or exploration plans.The provincial government has not issued the administrative regulations toaccompany the legislation. As such, no assurances can be made and theCorporation does not believe it is possible at this time to fully assess theimpacts of this legislation.

 

# **RISK FACTORS**

# ** **

***We do not control (jointly or otherwise) the SanJosé Mine and have no control over the timing or amount of future cash calls.***

 

Wehold 49% of the voting shares of MSC and Hochschild holds the balance.  The Board of MSC consists of three members,only one of which is a nominee of Minera Andes. Hochschild is entitled to appoint the balance of the members of theBoard of Directors of MSC.  The OJVAgrants us a “veto” in respect of certain and very limited matters regarding theaffairs of MSC and the operation of the San José Mine. Accordingly, MSC and theSan José Mine are under the control of Hochschild.

 

Asa result, we have a limited, if any, ability to control the timing or amount ofcash calls or any other matter relating to the management of MSC and the SanJosé Mine and decisions made in that regard may have an adverse effect on ouroperations and financial position.

 

Furthermore,the OJVA provides that the Board of MSC may elect to raise additional funds byissuing shares of MSC, and in such event, each shareholder of MSC shall have apre-emptive right to subscribe and pay for its pro rata share of suchadditional shares of MSC.  Historically,MSC’s operations have been financed in this manner.  Any shares not purchased by Minera Andespursuant to its pre-emptive right may be purchased by Hochschild.  Accordingly, in the event of a cash call byMSC financed by share subscriptions, a failure by Minera Andes to exercise itspre-emptive right, in full or at all, may result in a reduction of theCorporation’s interest in the San José Mine .

 

Therecan be no assurance that if a cash call is made, we will have the fundsavailable to satisfy such cash call when due and that our interest in the SanJosé Mine will not be reduced accordingly.

 

***Any cost overruns or cash shortfall at the San JoséMine could require further investment by us.***

 

MSCcurrently anticipates that cash from operations at the San José Mine will besufficient to finance operations and planned capital expenditures.  There can be no assurance that actual capitalcosts will not exceed budgeted capital costs, that cash from operations willmeet MSC’s forecast or that other capital expenditures will not be approved byMSC for the San José Mine .  If, and tothe extent, cash from operations is insufficient to fund cost-overruns, salesor production are lower than expected or an additional capital project isinitiated, additional investment by the 

 

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shareholdersof MSC (including the Corporation) may be required.  Any requirement for additional investment, byshare subscription or loan or otherwise, could adversely affect the Corporation’sfinancial position.

 

Moreparticularly, and as stated above, any request for financing by MSC structuredas a share subscription under the OJVA, if not fully satisfied by Minera Andes,could cause our interest in the San José Mine to be reduced.

 

***We have no operational cash flow and are dependenton external financing.***

 

Althoughcommercial production at the San José Mine commenced in January 2008, wecurrently have no source of operational cash flow. The OJVA provides that itshall be the policy of MSC to maintain excess distributable cash and thatunless the Board of MSC unanimously decides otherwise, MSC shall distribute, ona semi-annual basis all cash not reasonably required for operations orexpansion.  However, in the Draft LoanDocuments, the parties have agreed that the Project Loan plus accrued interestwill be repaid by MSC quarterly and thereafter distributions will be made tothe shareholders of MSC only to the extent there is sufficient excess cashflow.  As previously stated, theaggregate principal amount of the Project Loan is currently $65 million.Accordingly, there can be no assurance if and when cash distributions will bereceived from MSC, or if such distributions will be sufficient by themselves tofund our continuing exploration and development activities.

 

As a result we may continueto depend on third party financing to pay future cash calls by MSC, fund futureworking capital, capital expenditures, operating and exploration costs andother general corporate requirements. Failure to obtain sufficient financing, as and when required, may resultin a delay or indefinite postponement of exploration, development or productionon any or all of our properties or even a loss of our assets.  There can be no assurance that additionalcapital or other types of financing will be available or that, if available, theterms of such financing will be favourable to the Corporation.

 

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

 

Theprice of our common shares, our financial results, and our exploration,development and mining activities have previously been, and may in the futurebe, significantly adversely affected by declines in metal prices. Metal pricesare volatile and are affected by numerous factors beyond our control such as thesale or purchase of metals by various central banks and financial institutions,interest rates, exchange rates, inflation or deflation, fluctuation in thevalue of the United States dollar and foreign currencies, global and regionalsupply and demand, and the political and economic conditions of major miningcountries throughout the world. Any future serious decline in the price ofmetals could adversely impact our future revenues, profits and cash flows. Inparticular, sustained low metal prices could:

 

·                                         reduce cashfrom operations at the San José Mine, requiring additional investment by, orloan from, the Corporation;

·                                         causesuspension of the development of mine development at the San José Mine;

·                                         delay or renderuneconomic development of our Los Azules Copper Project;

·                                         reduce oreliminate our ability to obtain credit;

·                                         force us tolose our interest in, or to sell, all or some of our properties;

·                                         halt or delaythe development of new projects; and

·                                         reduce fundsavailable for exploration.

 

Furthermore,declining commodity prices could impact our operations by requiring are-assessment of the feasibility of any of our projects.  Even if the project is ultimately determinedto be economically viable, the need to conduct such a reassessment may causesubstantial delays or may interrupt operations until the reassessment can becompleted.  In addition, mineral reservecalculations and life-of-mine plans using significantly lower metal pricescould result in reduced estimates of mineral reserves and non-reserve mineralresources and in material write-downs of our investment in mining propertiesand increased amortization, reclamation and closure charges.

 

***Global economic conditions combined with ourfinancial position could make financing our operations and business strategymore difficult.***

 

TheCorporation had a net income of $4.1 million for the year ended December 31,2009 compared to a net loss of $4.0 million for the year ended December 31,2008. There is no assurance that we will not continue to incur losses.  Numerous factors, including declining metalprices, lower than expected ore grades or higher than expected 

 

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operatingcosts (including increased commodity prices), and impairment write-offs of mineproperty and/or exploration property costs, could cause us to continue to beunprofitable in the future.

 

In the short term, these factors, may impact ourability to obtain equity or debt financing in the future and, if obtained, onterms favourable to us.  In the longerterm these factors could have important consequences, including thefollowing:

 

·                                         increasing ourvulnerability to general adverse economic and industry conditions;

·                                         limiting ourability to obtain additional financing to fund future working capital, capitalexpenditures, operating and exploration costs and other general corporaterequirements;

·                                         limiting ourflexibility in planning for, or reacting to, changes in our business and theindustry; and

·                                         placing us at adisadvantage when compared to our competitors that have cash flow fromoperations.

 

***We anticipate that the Project Loan will be subjectto interest rate fluctuations upon the execution of the Draft Loan Documents.***

 

TheProject Loan currently bears interest at a fixed rate of 7.86% per annum on$9.8 million and 8.21% per annum on $22.1 million (which is based on a LIBORrate at the time of the advance of the Project Loan plus 2.50%).  It hasbeen agreed that once the Draft Loan Documents are finalized, interest will beLIBOR plus 2.85%.  The terms, including the fixed interest rate,of the Project Loan Receivable are the same as the terms of the Project LoanPayable.  As a result, at this time thereis no interest rate risk on the Project Loan Receivable and Project LoanPayable.  We havenot entered into any agreements to hedge against unfavorable changes ininterest rates, but may in the future actively manage our exposure to interestrate risk.

 

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

 

Wemaintain most of our working capital in Canadian and United Statesdollars.  However, a significant portionof our operating costs are incurred in Argentinean pesos.  Accordingly, we are subject to fluctuationsin the rates of currency exchange between the Canadian, United States dollarand Argentinean peso, and these fluctuations could materially affect ourfinancial position and results of operations as construction, development andother costs may be higher than anticipated. Specifically, the costs of goods and services could increase due tochanges in the value of the Canadian dollar, the United States dollar, or theArgentinean peso.  Consequently,operation and development of our properties might be more costly than weanticipate.

 

***The Corporation is subject to risks relating toeconomic and political instability in Argentina.***

 

Allof the Corporation’s material properties are located in Argentina. There arerisks relating to an uncertain or unpredictable political and economicenvironment in Argentina.

 

Duringan economic crisis in 2002 and 2003, Argentina defaulted on foreign debtrepayments and on the repayment on a number of official loans to multinationalorganizations. In addition, the Government has renegotiated or defaulted oncontractual arrangements.

 

InJanuary 2008, the Argentinean Government reassessed its policy andpractice in respect of export duties and began levying export duties on miningcompanies operating in the country. Although this particular change does not affect the Corporation as itsfiscal stability agreement explicitly fixes export duties at 5% for doré barsand 10% for concentrates, there can be no assurance that the ArgentineanGovernment will not unilaterally take other action which could have a materialadversely effect the Corporation’s interests in Argentina, including inparticular the San José Mine .

 

Therealso is the risk of political violence and increased social tension inArgentina and Argentina has experienced periods of civil unrest, crime andlabour unrest.

 

Certainpolitical and economic events such as acts or failures to act by a governmentauthority in Argentina, and acts of political violence in Argentina, could havea material adverse effect on the Corporation’s ability to operate.

 

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Therehave been recent indications in Argentina that refunds of VAT (IVA) may bedelayed. Delays in the payment of VAT refunds may have an impact on the cashflow from the operations of MSC.

 

***Estimates of mineral reserves and mineral resourcescould be inaccurate.***

 

Thefigures for mineral reserves and mineral resources contained in this AIF areestimates only and no assurance can be given that the anticipated tonnages andgrades will be achieved, that the indicated level of recovery will be realizedor that mineral reserves can be mined or processed profitably.  There are numerous uncertainties inherent inestimating proven and probable mineral reserves and measured, indicated andinferred mineral resources, including many factors beyond our control. Theestimation of reserves and resources is a subjective process and the accuracyof such estimates is a function of the quantity and quality of available dataand of the assumptions made and judgments used in engineering and geologicalinterpretation, which could prove to be unreliable. These estimates may not beaccurate and there can be no assurance that mineral reserves and resources canbe mined or processed profitably. Short-term operating factors relating to mineral reserves, such as theneed for orderly development of the ore bodies or the processing of new ordifferent ore grades, may cause the mining operation to be unprofitable in anyparticular accounting period. In addition, there can be no assurance that gold,silver or copper recoveries in small scale laboratory tests will be duplicatedin larger scale tests under on-site conditions or during production.

 

Fluctuationin metal prices, results of drilling, metallurgical testing, production costsor recovery sales, and the evaluation of mine plans subsequent to the date ofany estimate could require revision of reserve and resource estimates. Thevolume and grade of mineral reserves mined and processed and recovery ratesmight not be the same as currently anticipated. Any material reduction inestimates of mineral reserves and resources, or our ability to extract thesemineral reserves and resources, could have a material adverse effect on ourfurther cash flow, results of operation and financial condition.

 

***Mining activities are subject to a number of risksand hazards that may result in damage to property, delays and possible legalliability.***

 

TheCorporation’s business operations are subject to risks and hazards inherent inthe mining industry.  The exploration forand the development of mineral deposits involves significant risks, including:

 

·                                          environmentalhazards;

·                                          discharge ofpollutants or hazardous chemicals;

·                                          industrialaccidents;

·                                          labor disputesand shortages;

·                                          supply andshipping problems and delays;

·                                          shortage ofequipment and contractor availability;

·                                          difficulty inapplying technology such as bio-oxidation processing;

·                                          unusual orunexpected geological or operating conditions;

·                                          cave-ins ofunderground workings;

·                                          failure ofdams;

·                                          fire;

·                                          marine andtransit damage and/or loss;

·                                          changes in theregulatory environment; and

·                                          naturalphenomena such as inclement weather conditions, floods and earthquakes.

 

Theseor other occurrences could result in damage to, or destruction of, mineralproperties or production facilities, personal injury or death, environmentaldamage, delays in mining, delayed production, monetary losses and possiblelegal liability. We could (directly or through a project in which we have aninterest) incur liabilities as a result of pollution and other casualties.Satisfying such liabilities could be very costly and could have a materialadverse effect on our financial position and results of operations.

 

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***We need to continually discover, develop or acquireadditional mineral properties and a failure to do so would adversely affect ourbusiness and financial position in the future.***

 

Mineral exploration, in which we are significantly engaged at thistime, both directly and indirectly, is highly speculative, involves substantialexpenditures, and is frequently unsuccessful. Few prospects that are explored end up being ultimately developed intoproducing mines. To the extent that we continue to be involved in exploration,the long-term success of our operations will be related to the cost and successof our exploration programs. We cannot assure you that our exploration effortswill be successful. The success of exploration is determined in part on thefollowing factors:

 

·                                          the identification ofpotential mineralization based on superficial analysis;

·                                          availability of prospectiveland;

·                                          availability ofgovernment-granted exploration and exploitation permits;

·                                          the quality of ourmanagement and our geological and technical expertise; and

·                                          the availability of capitalfor exploration and development.

 

Substantial expenditures are required to determine if a project haseconomically mineable mineralization. It could take several years to establishproven and probable mineral reserves and to develop and construct mining andprocessing facilities. As a result of these uncertainties, we cannot assure youthat current and future exploration programs will result in the discovery ofmineral reserves, the expansion of existing mineral reserves and thedevelopment of mines.

 

Whether income will result from projects undergoing exploration anddevelopment programs depends on the successful establishment of miningoperations.  Factors including costs,actual mineralization, consistency and reliability of ore grades and commodityprices affect successful development.

 

Developed mines have limited lives based on proven and probable mineralreserves.  The ability to maintain orincrease annual production depends in significant part on the identification ofnew reserves and resources.

 

***Legal, regulatory and permitting requirementssignificantly affect our mining operations and may have a material adverseeffect on our business, financial condition, results of operations and cashflows.***

 

Our activities are subject to numerous environmental laws, regulationsand permitting requirements that can delay production and adversely affectoperating and development costs. Compliance with existing regulations governing the discharge ofmaterials into the environment, or otherwise relating to environmentalprotection, in the jurisdictions where we have projects or interests inprojects may have a material adverse effect on our exploration activities,results of operations and competitive position. New or expanded regulations, if adopted, could affect the exploration ordevelopment of these projects or otherwise have a material adverse effect onoperations.  To the extent such approvalsare required and not obtained, the Corporation or any operator of a project inwhich we have an interest, may be curtailed or prohibited from continuing itsmining operations or from proceeding with planned exploration or development ofmineral properties, or projected production commencement dates, production amountsand costs could be adversely affected.

 

Miningoperations require mining and other permits from the government.  These permits may not be issued on a timelybasis or at all, and such permits, when issued, may be subject to requirementsor conditions with which it is burdensome or expensive to comply.  Furthermore, there is no assurance thatdelays will not occur in connection with obtaining all necessary renewals ofexisting permits, additional permits for any possible future changes tooperations, or additional permits associated with new legislation.

 

Failureto comply with applicable laws, regulations and permitting requirements mayresult in enforcement actions thereunder, including orders issued by regulatoryor judicial authorities causing operations to cease or be curtailed, and mayinclude corrective measures requiring capital expenditures, installation ofadditional equipment, or remedial actions. Parties engaged in mining operationsor in the exploration or development of mineral properties may be required tocompensate those suffering loss or damage by reason of the mining activitiesand may have civil or criminal fines or penalties imposed for violations ofapplicable laws or regulations.  Due toan increased level of non-governmental organization activity targeting themining industry, the potential for the government to delay the issuance ofpermits or impose new requirements or conditions upon mining operations may beincreased.  Environmental legislation isevolving in a manner which will likely require strict standards andenforcement, 

 

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increasedtime and penalty for non-compliance, more stringent environmental assessmentsor proposed projects and a heightened degree of responsibilities for companiesand their officers, directors and employees. Any changes in government policies may be costly to comply with and maydelay mining operations. The exact nature of other environmental controlproblems, if any, which we (or any operator of a project in which we have aninterest) may encounter in the future, cannot be predicted, primarily becauseof the changing character of environmental requirements that may be enactedwithin various jurisdictions.

 

Tothe extent that we (or any operator of a project in which we have an interest)are subject to any such changes, they may have a material adverse effect on ouroperations.  Environmental hazards mayalso exist on the properties on which the Corporation holds interests which areunknown to the Corporation at present and which have been caused by previous orexisting owners or operators of the properties.

 

As a result of the foregoing risks, project expenditures, productionquantities and rates and cash operating costs, among other things, could be materiallyand adversely affected and could differ materially from anticipatedexpenditures, production quantities and rates, and costs. In addition,estimated production dates could be delayed materially. Any such events couldmaterially and adversely affect our business, financial condition, results ofoperations and cash flows.

 

***We currently do not have a hedging program.  Implementation of a hedging program might beunsuccessful and incur losses.***

 

We do not have a hedging program nor do we have plans to engage inhedging activities in the future. Hedging activities are intended to protect a company from fluctuationsin the price of metals and to minimize the effect of declines in metal priceson results of operations for a period of time. However, if we do implement a hedging program in the future, we may beprevented from fully benefiting from higher spot market metal prices to theextent that production is hedged.

 

***Changes in, new, or more aggressive enforcement of, laws, regulationsand government practices could adversely impact the Corporation’s business***

 

Miningoperations and exploration activities are subject to extensive laws andregulations, both in Argentina where mining operations and explorationactivities are conducted and in our home jurisdiction, Canada. These relate toproduction, development, exploration, exports, imports, taxes and royalties,labour standards, occupational health, waste disposal, protection andremediation of the environment, mine decommissioning and reclamation, mine safety,toxic substances, transportation safety and emergency response, socialresponsibilities and sustainability, and other matters.

 

In Canada, Bill C-300, *An Act RespectingCorporate Accountability for the Activities of Mining, Oil or Gas in DevelopingCountries*, is proposed legislation which seeks to govern theactivities of Canadian mining companies operating in developing countries. Itis not clear at this time what impact, if any, this may have on the Corporation’soperations.  Since legal requirements change frequently, are subject tointerpretation and may be enforced to varying degrees in practice, theCorporation is unable to predict the ultimate cost or impact of compliance withthese requirements or their effect on operations.

 

***We are subject to litigation risks.***

 

All industries, including the mining industry, are subject to legalclaims, with and without merit. Defence and settlement costs can besubstantial, even with respect to claims that have no merit. Due to theinherent uncertainty of the litigation process, the resolution of anyparticular legal proceeding could have a material adverse effect on ourfinancial position and results of operations. See also “Legal Proceedings andRegulatory Actions”.

 

***We face competition from other mining companies inconnection with the acquisition of properties.***

 

We face strong competition from other mining companies in connectionwith the acquisition of properties producing, or capable of producing, preciousmetals. The majority of these companies have greater financial resources,operational experience and technical capabilities.  As a result of this competition, we might beunable to maintain or acquire attractive mining properties on terms we consideracceptable or at all.  Consequently, ourrevenues, operations and financial condition could be materially adverselyaffected.

 

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***Title to our mineral properties could bechallenged.***

 

We periodically confirm the validity of our title to, or contractrights with respect to, each mineral property in which we have a materialinterest. However, we cannot guarantee that title to our properties will not bechallenged.  Our mineral properties(including those in which we have an interest) could be subject to priorunregistered agreements, transfers or claims, and title could be affected by,among other things, undetected defects. In addition, we (or any operator of aproperty in which we have an interest) might be unable to operate our (ortheir) properties as permitted or to enforce our (or their) rights with respectthereto.

 

***Our insurance coverage could be insufficient.***

 

TheCorporation’s business is (directly and indirectly) subject to a number ofrisks and hazards generally, including adverse environmental conditions, industrialaccidents, labour disputes, unusual or unexpected geological conditions, groundor slope failures, cave-ins, changes in the regulatory environment and naturalphenomena such as inclement weather conditions, floods, hurricanes andearthquakes. Such occurrences could result in damage to mineral properties orproduction facilities, personal injury or death, environmental damage to theCorporation’s properties or the properties of others, delays in mining,monetary losses and possible legal liability.

 

Althoughthe Corporation maintains insurance to protect against certain risks in suchamounts as it considers to be reasonable, its insurance will not cover all thepotential risks associated with a mining company’s operations.  The Corporation may also be unable tomaintain insurance to cover these risks at economically feasible premiums.  Insurance coverage may not continue to beavailable or may not be adequate to cover any resulting liability.  Moreover, insurance against risks such asloss of title to mineral property, environmental pollution, or other hazards asa result of exploration and production is not generally available to theCorporation or to other companies in the mining industry on acceptable terms.The Corporation might also become subject to liability for pollution or otherhazards which may not be insured against or which the Corporation may elect notto insure against because of premium costs or other reasons. Losses from theseevents may cause the Corporation to incur significant costs that could have amaterial adverse effect upon its financial performance and results ofoperations.

 

***Any limitations on the transfer of cash or otherassets between the Corporation and its subsidiaries or joint venture partnerscould adversely impact the available credit, valuation and stock price of theCorporation.***

 

Minera Andes is a Canadian company that conducts operations throughforeign (principally Argentinean) subsidiaries and joint ventures, andsubstantially all of our assets consist of equity in these entities.Accordingly, any limitation on the transfer of cash or other assets between theparent corporation and these entities, or among these entities, could restrictour ability to fund our operations efficiently. Any such limitations, or the perception that such limitations mightexist now or in the future, could have an adverse impact on available creditand our valuation and stock price.

 

***We depend on the services of key executives.***

 

We are dependent on the services of key executives including ourPresident and Chief Executive Officer and a small number of highly skilled andexperienced executives and personnel. Due to the relatively small size of our management team, the loss ofthese persons or our inability to attract and retain additional highly skilledemployees could adversely affect the exploration and development of ourproperties, which could have a material adverse effect on our business andfuture operations. Some of our executives provide services to other publiclylisted entities.  We do not have keyperson insurance.

 

***The market price of our common shares couldexperience volatility and could decline significantly.***

 

Our common shares are listed on the TSX under the symbol MAI and arequoted on the NASD OTC Bulletin Board under the symbol MNEAF. Securities of “small-cap”companies have experienced substantial volatility in the past, often based onfactors unrelated to the financial performance or prospects of the companiesinvolved.  These factors includemacroeconomic developments in North America and globally and market perceptionsof the attractiveness of particular industries. Our share price is also likely to be significantly affected byshort-term changes in metal prices or in our financial condition or results ofoperations as reflected in our quarterly earnings reports.  Other factors unrelated to our performancethat could have an effect on the price of our common shares include thefollowing:

 

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·                                          the extent ofanalytical coverage available to investors concerning our business could belimited if investment banks with research capabilities do not follow oursecurities;

·                                          the tradingvolume and general market interest in our securities could affect an investor’sability to trade significant numbers of common shares; and

·                                          the size of thepublic float in our common shares may limit the ability of some institutions toinvest in our securities.

 

As a result of any of these factors, the market price of our commonshares at any given point in time might not accurately reflect our long-termvalue.  Securities class actionlitigation often has been brought against companies following periods ofvolatility in the market price of their securities.  We could in the future be the target of similarlitigation.  Securities litigation couldresult in substantial costs and damages and divert management’s attention andresources.

 

***Investors could have difficulty or be unable toenforce certain civil liabilities against us, certain of our directors and ourexperts.***

 

Minera Andes is an Alberta incorporated Canadian corporation.  Substantially all of our assets are locatedoutside of Canada and the United States, and our head office is located inToronto, Canada.  It might not bepossible for investors to collect judgments obtained in Canadian or UnitedStates courts predicated on the civil liability provisions of Canadian or U.S.securities legislation.  Execution byUnited States courts of any judgment obtained against us or any of thedirectors, executive officers or experts in the United States courts would belimited to our assets or the assets of such persons or corporations, as thecase might be, in the United States.  Theenforceability in Canada of United States of judgments or liabilities in originalactions in Canadian courts predicated solely upon the civil liabilityprovisions of the federal securities laws of the United States is doubtful.

 

***The existence of outstanding rights to purchase oracquire common shares could impair our ability to raise capital.***

 

As of the date of this AIF, approximately 21,867,500 common shares areissuable on exercise of warrants and options. During the life of the warrantsand options, the holders are given an opportunity to profit from a rise in themarket price of common shares, with a resulting dilution in the interest of theother shareholders. Our ability to obtain additional financing during theperiod such rights are outstanding could be adversely affected, and theexistence of the rights could have an adverse effect on the price of our commonshares.  The holders of the warrants andoptions can be expected to exercise or convert them at a time when we would, inall likelihood, be able to obtain any needed capital by a new offering ofsecurities on terms more favorable than those provided by the outstandingrights.

 

***We may not pay dividends on our common shares.***

 

Wehave never paid cash dividends on our common shares nor do we currently intendto pay dividends.  As a result, investorswill have to rely on capital appreciation, if any, to earn a return on theirinvestment in our common shares in the foreseeable future.

 

***Sales of substantial amounts of our securities mayhave an adverse effect on the market price of our securities.***

 

Salesof a large number of common shares in the public markets, or the potential forsuch sales, could decrease the trading price of the common shares and couldimpair the Corporation’s ability to raise capital through future sales ofcommon shares.

 

**SAN JOSE MINE**

 

Unlessotherwise indicated, technical information in this AIF regarding the San JoséProject is derived from the technical report (the “**San JoséTechnical Report**”) dated July 29, 2009 entitled “TechnicalReport on the San José Silver-Gold Mine, Santa Cruz, Argentina” prepared byEugene J. Puritch (P.Eng); Alfred S. Hayden (P.Eng); James L. Pearson (P.Eng),Antoine R. Yassa, (P.Geo); Fred H. Brown (CPG, PrSciNat) and, Kirstine R.Malloch, 

 

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(MAusIMM)all of P&E Mining Consultants Inc. (“P&E”) and each of whom is a “qualifiedperson” and “independent” of the Corporation, in each case, within the meaningof NI 43-101.  Such information is basedon assumptions, qualifications and procedures which are not fully describedherein.  Reference should be made to thefull text of the San José Technical Report which is available for review underour profile on SEDAR at www.sedar.com. The San José Technical Report is not andshall not be deemed to be incorporated by reference into this AIF. The San JoséTechnical Report, makes reference to a number of other previously filedtechnical reports which are also referenced in the information contained below.Reserve and resource information contained herein supersede informationprovided in the San José Technical Report. Updated reserve and resourceestimates were undertaken by James L. Pearson P.Eng., Alfred Hayden P.Eng andFred Brown CPG PrSciNat under the direction of P&E President, EugenePuritch P.Eng., each of whom are considered to be Qualified Persons within themeaning of NI 43-101.

 

**PROJECTDESCRIPTION AND LOCATION**

 

TheSan José Property covers a total area of approximately 50,491 hectares andconsists of 46 contiguous mining concessions totalling approximately 40,499hectares (consisting of 17 “Minas” or approved mining claims; and 29 “Manifestations”or claims that are in the application process for mining claim status) and oneexploration permit covering approximately 9,992 hectares. Fees paid inArgentinean Pesos, in the amount of Pesos $329,600 (US $95,089.60) for themining concessions and Pesos $8,000 (US $2,308) for the exploration license,were paid in 2008 to keep the licenses in good standing.

 

TheSan José silver-gold Property is located in Perito Moreno District, in theProvince of Santa Cruz, Argentina, lying approximately between latitude 46°41’Sand 46°47’S and longitude 70°17’W and 70°00’W (Gauss Kruger, Zone 2 coordinatesapproximately 4830000N 2400000E). The mine is by air 1,750 km south-south-westof Buenos Aires and 230 km southwest of the Atlantic port of ComodoroRivadavia. The nearest town is Perito Moreno, at approximately 30 km west ofSan José.

 

Titleto the San José Property is held by MSC, the holding and operating company setup under the terms the OJVA between MASA (49 %) and Hochschild Mining(Argentina) Corporation (“**HMC**”) (51 %).MASA is an indirect wholly-owned subsidiary of Minera Andes. The originalAgreement was finalized on 15 March 2001. HMC is a wholly owned CaymanIslands-based subsidiary of Hochschild Mining PLC (“**Hochschild**”or “**HOC**”), a public UK-registered companybased in Peru. Hochschild was formerly a private Peruvian company namedMauricio Hochschild & Cia. Ltda. (“**MHC**”)that in November 2006 became a publicly-traded company on the London stockexchange.

 

MSCwas specifically set up in March 15, 2001 to explore and develop gold andsilver mineralization on the San José Property.

 

Underthe Agreement, MHC could earn a 51 % ownership in the Property by spending atotal of US$3 million over three years, and of that, a minimum of US$100,000per year had to be spent on exploration targets within the Property other thanthe Huevos Verdes vein.

 

Inaddition, MHC was required to make semi-annual payments totalling US$400,000per year (subsequently amended to US$200,000 per year as noted below) until “pilotplant” production was achieved. As part of the Agreement, title to the Propertywas transferred to, and held by, the joint venture holding and operatingcompany (MSC).

 

On May 6,2003 MHC fulfilled all obligations necessary to enable MHC to vest at 51 % inthe Property. In the fourth quarter of 2003, MASA subscribed for additionalequity in MSC, so as to maintain their 49 % interest.

 

On October 20,2004, MASA and MHC reached an amendment to the Agreement whereby theadvanced-stage San José Property could proceed directly to a full-scale millingoperation, should the Feasibility Study (at the time already underway) resultin a positive production decision. The amendment to the Agreement eliminatedthe requirement for initial preliminary production from a 50 t/d pilot plant.

 

MHC’sproperty payment structure to MASA was also changed in the Amendment.Originally, the Agreement included payments totalling US$400,000 a year until a50 t/d pilot was built. In lieu of building the pilot plant, MASA stillreceived payments from MHC of US$400,000 annually that continued until thepositive Feasibility Study was received in October, 2005.  Payments were then reduced to US$200,000annually and continued until 28 March 2006, when the MSC board ofdirectors approved a positive mine completion plan.

 

27

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Inkeeping with the regulations all Property boundaries were survey although thereare no physical markers of licence boundaries on the Property. Surveying wascompleted by MSC using a total station instrument.

 

*SurfaceRights*

 

Amining licence alone is not sufficient to permit mining operations. Anagreement for access and occupation of the surface land is also required fromthe surface owner and occupier before mining may commence. Surface rights inArgentina are not associated with title to either a mining lease or a claim andmust be negotiated with the landowner.

 

Toensure the integrity of its operations, MSC has purchased land andcorrespondingly the surface occupation rights in 2002 from the Beitia Familyknown as “Estancia San José”, for an area of 2,875 hectares covering the arearequired to construct the mine and the facilities for San José. The sale priceagreed on was US $353,400. An amendment to the agreement in November 11,2005 allowed MSC to adjust the location of Estancia San José. MSC were grantedeasement rights and use of existing roads covered by the surface rights.

 

Anew agreement in June 1, 2006 ratified easement rights and detailed andregulated the obligations of each party in connection with easement. The ownersof Estancia San José shall be entitled to collect compensation from MSC in thefollowing cases:

 

·                  If MSC quarries material from Estancia San José for roadconstruction or for any other mining operation, the owners of Estancia San Joséwill be entitled to collect US$0.90 plus VAT/m3 of rock extracted from EstanciaSan José. During the first 12 months from the execution of the New Agreement(2006), the price will be decreased to US$0.40/m3 plus VAT;

 

·                  If MSC performs explorationactivities, compensation to the owners of Estancia San José will be paid asfollows:

1. Construction of Mining Road: US$150/km.

2. Construction of roads: US$250/km.

3. Construction of trenches: US$250/km.

 

·                  A monthly payment of US$800 will be paid to the owners of theEstancia San José for the use of a house located in the Estancia San José.Payment of this price also entitles MSC to use roads connecting Estancia SanJosé and the neighbouring properties.

 

Inthe latest agreement signed by the landowners, in September 2008, MSCagreed to compensate for wider access roads by providing extra accommodation tothe landowners, the Beitia family.

 

On February 14,2006 MSC together with members of the Flores family purchased the surfacerights to ‘Estancia Carmancita’, a 5,543 ha land package covering a portion ofthe area between Highway 43 and the Estancia San José where the mine facilitiesare located. MSC holds 66.6 % of the surface rights to Estancia Carmancitawhich grants MSC free right of access. AMEC (2007a) reported that allobligations regarding this transaction have been completed by MSC.

 

Withthese two agreements the main access route to the Property from Highway 43 andall required mine infrastructure, tailings, dumps, etc are provided for. MSChas expressed its intent to purchase additional land in due course, as may benecessary to ensure its control of any target areas of economic mineralisation.

 

*Argentina’s Mining Royalties*

 

UnderArgentinean Law, mining concessions are real property, which can be transferredfreely and can also be pledged. Concessions are granted for unlimited periodsof time, subject to the following conditions:

 

(a) thepayment twice a year of a mining fee or *canón*of 80 pesos per unit, or *pertenencia*;and

(b) thefiling of a minimum investment plan and compliance with a one-off minimuminvestment in the concession equal to 300 times the relevant *canón*over a five year period. Of thefigure set out in the minimum investment plan for investment over five years,20% must be invested in the first two years. Failure to comply with theseconditions may result in the termination of the concession.

 

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*SanJosé Mining Royalties*

 

Aslegal owners of the mineral resources, provinces are entitled to requestroyalties from mine operators. Regulations vary from province to province. InSanta Cruz, where the San José Property is located, the royalty is fixed at amaximum of 3 % of the mine-site value per year payable monthly. However, underthe Mining Tax Stability Agreement the mining royalty is fixed at 1.85 % of themine-site value per year when the final product is doré and 2.55 % when thefinal products are concentrates or precipitates.

 

MSCpaid US$ 2.3 million in mining royalties and canon to the Province of SantaCruz in 2009.

 

NationalExport Tax is fixed at 5 % for doré and 10% for concentrates or precipitates althoughrebates are available if the final products are shipped from a Patagonianmaritime port (depending on the port of exportation these rebates will bereduced to nil as from 2009 and 2010).

 

*EnvironmentConsiderations*

 

Thefollowing section is sourced from AMEC (2007) on the San José Property. Reviewof environmental constraints and compliance has not formed part of P&EMining Consultants Inc. (“P&E”) scope of present work nor of siteinspection.

 

*Environmental Management*

 

The Environmental and Social Impact Assessment (“**ESIA**”) for the San José Property forms the principal inputfor the permitting of the Property. The ESIA has been designed to fulfill thelegal requirements in Argentina and also to comply with the procedures ofevaluation that are widely accepted internationally regarding environment andsocial protection measures. The ESIA has been structured according to theArgentinean national mining law, which the province of Santa Cruz has adheredto. The Provincial Department of Mining is the lead permitting agency.

 

A detailed characterization of the environmental(physical and biological) and socio-economic aspects of the Property wasdeveloped through studies which began in 2002 and were completed in 2005. Mostof the baseline studies were developed and concluded by local professionals.

 

P&E are not aware of any additional permits requiredto upgrade the operation from 750 t/d to 1,500 t/d.

 

*Provisionsfor Rehabilitation*

 

Theconceptual mine closure plan includes the following activities:

 

·                  All surfacestructures and installations will be dismantled and removed, except thosenecessary to support the ongoing monitoring activities.

·                  The ramps willbe closed and secured to avoid any unauthorized access.

·                  The waste rockstored temporarily on surface will be backfilled to the mine workings and thetailings facility will be capped with an impermeable layer of cement-mixedtailings. The minimum cover thickness will be 1 m.

·                  Waterderivation channels will be conditioned for long-term use.

·                  Some of theroads will be closed, but many will be left open to provide access forlonger-term monitoring.

·                  A monitoringprogram will be executed together with the authorities and the community toguarantee that the physical and chemical stability is achieved.

·                  Employmentlevels are expected to fall at closure.

 

AMEC(2007) estimated the constant dollar cost for reclamation and closure of theSan José Mine is US$6.6 million.

 

*Permitting Requirements*

 

Otherpermits applied and/or accepted in order to advance the San José Propertyoutlined below.

 

Grantsof mining rights, including water rights, are subject to the rights of priorusers. The mining code also contains environmental and safety provisionsadministered by the provinces.

 

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EnvironmentalImpact Reports (“**EIR**”) must be submitted to theprovincial government prior to conducting mining operations. On March 1,2006 MSC received approval for the Environment Impact Assessment (“**EIA**”) for the Property. The EIR must describe the proposedoperation and the methods that will be used to prevent undue environmentaldamage and must be updated biennially. Mine operators are liable forenvironmental damage and violators of environmental standards may be requiredto shut down mining operations (Minera Andes 2007). An EIR must be submittedevery two years in accordance with Argentinean law. MSC submitted an updatedEIR report in June 2008 (SRK 2009).

 

Allof the known mineralized zones, mineral resources and mineral reserves andactive mine workings, existing tailings ponds, waste etc are within MSC’sconcessions.

 

Thereare no back-in rights, payments or other agreements or encumbrances orenvironmental liabilities to which the Property is subjected. All work permitshave been acquired and are in good standing.

 

*Permits for PropertyOperations at San José Mine, Argentina*

** **
| **Permit**                                           | ** ** | **Agency**                                                                       | ** ** | **Observation**                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  

Exploration  permit                          |       | Provincial  Department of Mining Santa Cruz (“DPM”)                    |       | One  Cateo                                                                                                                                                                                                                                                                                                  |
| Mining  Claim (Mina)                                 |       | DPM                                                                              |       | Mina  status for 17 claims (covers all areas of production)                                                                                                                                                                                                                                                 |
| Mining  Claim (Manifestations)                       |       | DPM                                                                              |       | Remaining  29 Manifestations registered to MSC, awaiting final title                                                                                                                                                                                                                                        |
| Investment  plan                                     |       | DPM                                                                              |       | Presented  on February 15, 2005 for each of the 46 claims                                                                                                                                                                                                                                              |
| Mineral  Producer Certificate                        |       | DPM                                                                              |       | Registered  since January 29, 2002 (403.305/02); renewed annually before March                                                                                                                                                                                                                         |
| Environmental  Impact Report                         |       | DPM                                                                              |       | Approved  by DPM on March 1, 2006. Biannual updated report filed with DPM on  June 2008.                                                                                                                                                                                                          |
|  

Hazardous  Waste Generator                   |       |  

 

Secretary  of Environment (SMA)                                  |       | Registered  with the Provincial Environmental Department (SMA) since May 2, 2006  (Res. N° 046-SMA/06). Request of incorporation of Hazardous Waste  corresponding to categories Y1 and Y33 has been submitted to SMA.                                                                            |
| Environmental  Quality Certificate (“EQC”) |       | DPM                                                                              |       | EQC  2006 — issued, EQC 2007 issued, EQC 2008 in process of being issued.                                                                                                                                                                                                                              |
|  

 

 

Explosives  Use              |       |  

 

 

National  Arms Registry                                  |       | “User  that receives explosive services” Register Number RE7082, issued on  August 2004. Registration was dropped on August 2008. “User that  manipulate explosives” Renewed each year: Register Number 980007082, issued  on May 2006. Extended up to August 2009. |
| Explosives  Storage                                  |       | National  Arms Registry                                                          |       | Issued  on May 31, 2006 for 4 deposits Date of expiration: May 31, 2011                                                                                                                                                                                                                           |
|  

 

Water  Use                           |       |  

Department  of Water Resources (DRH)                                     |       | Permit  for water issued on July 7, 2006 (5 year period); water use fee paid to  September 2008 — invoices not yet received by MSC beyond this; monthly  reports, regularly submitted by MSC                                                                                                 |
| Registry  of Importers and Exporters                 |       | Import/Export  National Administration (Dirección General de Aduana)        |       |  

 

Registered  since January 28, 2004. Renewed on June 10, 2008.                                                                                                                                                                                                                     |
| Radio  Frequency use                                 |       | National  Committee of Communications (CNC)                                      |       | Permit  issued for use of the assigned frequency and equipment.                                                                                                                                                                                                                                             |
|  

Registry  of Mining Investors                |       | National  Direction of Mining Investors (depending on National Mining Secretary) |       |  

 

Registered  Since April 18, 2002 (Registry Number 422)                                                                                                                                                                                                                                 |
| Fiscal  Stability Certificate                        |       | National  Mining Secretary                                                       |       | Certificate  issued May 15, 2006 (valid 30 years)                                                                                                                                                                                                                                                      |
| Hydrocarbon  storage permit                          |       | Secretary  of Energy (National level)                                            |       | Storage  of hydrocarbons, tank Certification from Secretary of Energy was not  requested yet.                                                                                                                                                                                                               |

* *

*FromAMEC (2007) and updated in SRK (2009)*

 

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**ACCESSIBILITY,CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY**

 

Theprincipal access route to San José comprises a good unsealed (dirt) roadsection of 32 km and then tarmac road to the port of Comodoro Rivadavia, atotal distance of 350 km. Comodoro Rivadavia has scheduled national airservices to Buenos Aires, the capital of Argentina, with international airconnections.

 

Themain incoming materials are diesel fuel, chemicals, cement, timber supports,spare parts, explosives, zinc powder, sodium cyanide and hydrogen peroxide.Transportation of materials to and from the Property is by truck. Mine haulageroads provide access from the mine portals to the ore stockpile at the processfacility and temporary rock stockpile facilities. Concentrate is exported viathe port of Puerto Deseado in the province of Santa Cruz, 250 km south ofComodoro Rivadavia.

 

TheSan José Mine is within an arid to semi-arid area of Argentina, with short warmsummers with temperatures above 10 °C and winters with temperatures commonlybelow 0 °C. Strong and persistent winds can be encountered especially duringthe warmer months (October to May).Average rainfall at the site isestimated to be 144 mm and snowfall amounts to 32.5 mm. Annual averagetemperature is 8.9 °C. MSC has maintained a weather station at the Propertysince January 2005. Mining and exploration can continue year round in thispart of Argentina.

 

Thenearest town to the San José Property in Argentina is Perito Moreno, atapproximately 30 km to the west. Las Heras, Pico Truncado, and Perito Morenoare small towns (populations ranging from approximately 3,600 to 15,000), whichmostly provide labour for the local oil industry, or, in the case of PeritoMoreno, for tourism and agricultural purposes. These towns are only able tosupply the most basic needs (food, accommodations, fuel, hardware, labour,etc.) for very early stages of exploration. More advanced projects must beserviced from Caleta Olivia, Comodoro Rivadavia, or Buenos Aires.

 

Theimmediate area surrounding the San José Property is isolated, and initiallyelectrical power was provided at the mine and plant site by diesel generators.It was determined that a more cost effective and longer term option would be toconnect the site to the national grid, which required a power line spur of 130km of 132 kV electric line The transmission line was completed in March 20,2009 at a cost of US$ 21 million. The diesel generators, which are fullycapable of providing sufficient power for the expanded 1,500 MTPD operation,will remain on site for back-up.

 

Freshwater is obtained by wells which have been sited so as to dewater the Frea Veinmining area. Water is stored in a surface impoundment. Water for theunderground mine is sourced from the settling ponds.

 

Theclosest deep water port facility is at Comodoro Rivadavia, a driving distanceof approximately 350 km. Alternatively, the port of Puerto Deseado is locatedapproximately 400 km east—southeast of the Property.

 

TheProperty consists of camp facilities that can accommodate up to 712 personnel,medical clinic, security building, maintenance shop, processing facilities,mine and process facility warehouse, surface tailings impoundment, supportbuildings and mine portals, change house, core shack, an administrationbuilding and offices.

 

MSC has installed a satellite-based telephone /data / internet communication system.

 

*Topography,Elevation and Vegetation*

 

Thetopography of the San José Property in Argentina is gently rolling, with a fewdeeply incised valleys. Elevations on the Property range between approximately300 m and 700 m. The Property area is considered to be semi-desert. Vegetationcomprises low scrub bushes and grass, typical of harsh climate and poor soils.Fauna consists of birds, small mammals and reptiles. Most of the Property areais uninhabited; however, it is used by local farmers for sheep and cattlegrazing.

 

**HISTORY**

 

*Historical Exploration*

 

Partsof the Santa Cruz Province were reviewed during the 1970’s as part of a jointArgentine government-United Nations regional exploration plan(Patagonia-Comahue). In the 1980’s FOMICRUZ, S.E., a state owned company,completed reconnaissance surveys in the province to delineate areas of interestfor mineral reserves.

 

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Thereis no formally-recorded exploration on the Property prior to work carried outby Minera Andes in the late 1990s. The Property was acquired by Minera Andes in1997, after a regional structural study and prospecting program uncovered areasof Landsat colour anomalies, and coincident anomalous gold and silver values.Based on these results, Minera Andes embarked on an exploration programcommencing in 1997.

 

**GEOLOGICAL SETTING**

 

Thegeology of the San José Property is extensively covered in the NI 43-101reports of Snowden (2002) and AMEC (2007a) and summarised below. The readershould refer to these reports for detailed information.

 

*Regional Geology*

TheSan José Property is located in the northwest corner of the 60,000 km2 DeseadoMassif of the Santa Cruz Province, Argentina. The Deseado Massif consists ofPaleozoic metamorphic basement unconformably overlain by Middle to UpperJurassic bimodal andesitic and rhyolitic volcanics and volcaniclastics.Cretaceous sediments and Tertiary to Quaternary basalts overlie the Jurassicvolcanic.

 

*Geology of the DeseadoMassif, Argentina*

 

**

*Modified fromhttp://www.argentexmining.com/santacruz-province.php*

 

Jurassicmagmatism in the Deseado Massif accompanied extensional tectonics marked bynormal faults, horst and graben formation, and block tilting during the openingof the southern Atlantic Ocean. Several small basins formed after the mainvolcanic episodes, a consequence of intense diastrophic block faulting.Continental sediments were deposited in the Upper Jurassic to Lower Cretaceousin those basins, represented by tuffaceous sandstones, tuffites, limestones,conglomerates, and shales. LS epithermal Ag-Au deposits accompanied magmatismand deformation. Basaltic plateau volcanism was dominant during the Tertiaryspan, coupled with minor marine ingressions that 

 

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producedthe deposition of sandstones, shales and fossiliferous limestones. Intrusiverocks are scarce in the area. They are represented by irregular bodies ofrhyolitic porphyries that intrude the main silicic volcanic units, and bybasaltic plugs that piercethe whole sequence.

 

Largeamounts of intermediate to silicic volcanics were erupted in the Jurassic, in asub-aerial, cratonic back-arc tensional environment. These volcanics aresubdivided into the Bajo Pobre Formation, predominantly of intermediate tobasic composition, and the felsic Bahia Laura Group that discordantly overliesthe Bajo Pobre Formation. The Bahia Laura Group is further subdivided into theinterdigitating Chon Aike Formation (dominantly ignimbrites) and the La MatildeFormation (dominantly volcaniclastics).

 

Thevolcanic rocks of the Deseado Massif host the producing Ag-Au mines of CerroVanguardia, Marta Mine, Manantial Espejo and San José, as well as the prospectsand properties of El Dorado-Monserrat, Cerro Negro and La José fina.

 

Theprincipal host rock for silver and gold mineralization in the San José districtis the Bajo Pobre Formation where veins are typically developed in competentandesite flows, and to a lesser extent, in volcaniclastic units.

 

*Property Geology*

 

TheProperty is covered by the El Pluma 4769-I map sheet of the 1:250,000 ServicioGeológico Minero Argentino (“SEGEMAR”) geological map series. The geology ofthe San José Property is extensively covered in the NI 43-101 reports ofSnowden (2002), AMEC (2007a) and SRK (2009) and summarised below. The readershould refer to these reports for detailed information.

 

BajoProbre Formation (Upper Jurassic)

 

TheJurassic Bajo Pobre Formation at around 145-150 Ma is the lowermoststratigraphic unit on the San José Property and is assumed to underlie theentire area. It is the main host of Au and Ag mineralization at the HuevosVerdes, Frea and Kospi vein deposits as well as many regional prospects. TheFormation also hosts some of the mineralization at Saavedra West Zone.

 

The formation comprises a lower andesitevolcaniclastic unit and an upper andesite lava flow and has a maximum thicknessof 120 m. A dacitic, hornblende-megacrystic lava flow of restricted extent hasbeen identified but its stratigraphic position within the Formation is unknown.

 

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*Geology of the San José Property*

 

 

Anepiclastic environment is inferred for the andesitic volcaniclastic unit,supported by the chaotic changes in facies. This unit is generally pervasivelyaltered and commonly has at least a propylitic overprint. Age dating of thevolcaniclastic and lava flows indicates a hiatus of around 5 Ma between the twovolcanic events. The andesitic and dacitic lava flows discordantly overlie thevolcaniclastics. The andesitic lava flow has a thickness of up to 50 m. Theseflows are massive, with columnar jointing and auto-breccia textures whereweathering and hydrothermal alteration is concentrated.

 

BahiaLaura Group — Chon Aike & La Matilda Formations (Upper Jurassic)

 

Theandesitic volcanics are discordantly overlain by volcanic rocks of the BahiaLaura Group.  Subdivision of the Groupinto the Chon Aike and La Matilde Formations is not well defined on theProperty and in previous reports the formations have been grouped together andreferred to as the Chon Aike Formation (AMEC 2007a) and this is adopted in thesection below.

 

Previously,outcrops of the Chon Aike Formation were thought to be restricted togeologicallymapped areas to the north of the Rio Pinturas valley and in theSaavedra West area. However, mapping of a widespread tuffaceous unit overlyingthe Bajo Pobre Formation by Dietrich et al. (2004), may belong to the tuffaceous facies of either the Chon Aike orLa Matilde Formation.

 

TheSaavedra West basin is interpreted as a syn-volcanic graben, possibly acaldera, developed within the Bajo Pobre Formation and infilled by pyroclasticscorrelated with the La Matilde Formation. Pebble dykes are abundant within thegraben and ignimbrites that may be correlated with the Chon Aike Formationoccur as dykes along one edge. In the Saavedra West area, the thickness of theGroup is around 80 to 100 m, however at Huevos Verdes, La Sorpresa and RioPinturas the thickness is only 15 to 20 m. Pyroclastic rocks of the Chon AikeFormation are laterally extensive. Age dating of the ignimbrites within theChon Aike Formation gives ages around 147-151 Ma, younger than the age of thevolcaniclastic sequence but older than the andesitic flows of the Bajo PobreFormation.

 

Wherethis Group is overlain by sedimentary rocks of the Cretaceous CastilloFormation, the upper contacts of the Chon Aike Formation are concordant.However, this contact is discordant with the overlying Tertiary flood basaltsof the Alma Gaucha Formation.

 

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*Post-Jurassic Geology*

 

Depositionof Cretaceous sedimentary rocks of the Castillo Formation is interpreted to becontrolled by block faulting which created small, normal fault-controlleddepressions. Thickness of the formation varies but is generally between 5 to 80m and decreases towards the south. The formation is divided into three member,with the lowermost member redefined as a tuffaceous deposit belonging to theChon Aike Formation.

 

Thenorth-western part of the Deseado Massif is covered by an extensive area ofTertiary-aged basalts with at least two basaltic episodes recognised in the SanJosé region. The Upper Oligocene Alma Gaucha Formation occurs as uniformflat-lying flood basalts up to 30 m that cover a significant portion of theProperty. Recent basaltic flows from the Cerro Portuguese volcanic centre formlava flow channels that overlie the flood basalts.

 

Glacially-derived,unconsolidated till deposits up to 50 m in thickness occur predominantly in theRio Pinturas valley.

 

*Structural Geology*

 

TheSan José district is transacted by two north-northeast striking majorlineaments. The Rio Pinturas lineament follows the Rio Pinturas valley and isone of the main structural features of the Deseado Massif. This lineament canbe traced for over 100 km. A second, sub parallel lineament is located 2 kmeast of the Rio Pinturas lineament.

 

Themain structural trend of fault and vein systems on the Property is north-westto north-northwest.Less prominent are east-striking faults and veins and thosenorth to northeast striking.

 

Thevein systems at Huevos Verdes, and possibly also those at Frea, developed alongnorth-northwest striking (average orientation of 325° / 65° NE) sinistralstrike-slip faults that were reactivated during Triassic rifting. The HuevosVerdes vein system is known to be composed of three main segments along strike.

 

Variationsof vein orientation in bends and jogs along, and in between, sub-parallelsinistral faults control vein width and mineralization style.

 

Sinistralshearing along the north-northeast striking lineaments such as Rio Pinturas mayhave resulted in overall extension within the bounding blocks that host the SanJosé mineralization, facilitating formation of structural openings alongre-activated faults of favourable north-northwest strike.

 

*Alteration*

 

Alterationis typically a low sulfidation (“LS”) epithermal with silicificationaccompanying all of the veins and fractures and occurring as a narrowalteration halo, generally surrounded by an extensive zone of intermediateargillic mixed with phyllic alteration. Strong argillic alteration isinterpreted to be a supergene overprint of the propylitic halo withdisseminated pyrite.

 

**EXPLORATION**

 

Informationon exploration on the San José Property from 1997 to September 2007 istaken from the Snowden (2002), AMEC (2007a) and SRK (2009) reports anddescribed in table immediately below. The following section is an update of thesection in these reports.

 

Summary ofexploration on the San José Property, 1997-2008

 
| **Year**     | ** ** | **Company**  | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------------|------------|--------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1997 to 2001 |       | Minera Andes |       | 5 year program  consisting of prospecting; soil sampling; stream sediment sampling; mapping  and sampling; trenching and channel chip sampling. IP/Resistivity (74 line  km) CSAMT (42 line km) and magnetic surveys (186 line km) by Quantec  Geofisica Argentina S.A. RC drilling (85 holes) and diamond drilling (3  holes); alteration studies (Portable Infrared Mineral Analyzer);  metallurgical studies; discovery of Saavedra West and Huevos Verdes Zones,  plus numerous prospects. |

 

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| 2001 to 2003                             |   | MSC |   | JV company created  between Minera Andes and Hochschild; 2 year program consisting of surveying;  IP/Resistivity (45 line km), and Real Section IP (20.25 line km) surveys  by Quantec Geofisica Argentina S.A.; diamond drilling (30 holes); further  definition of the Huevos Verdes Zone; mineral resource estimates at Huevos  Verdes and Saavedra West vein and breccia zones.                                                                                                                                                                                                                       |
|------------------------------------------|--------|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2003 to 2004                             |   | MSC |   | Hochschild vested at 51  % ownership; 2 year program consisting of underground development at HVN and  HVS; surface rights land purchasing; road construction; diamond drilling (39  holes); program further outlined the Huevos Verdes Zone and resulted in the  discovery of the Frea Zone.                                                                                                                                                                                                                                                                                                                  |
| 2004 to 2005                             |   | MSC |   | Definition-style  diamond drilling (144 holes). Initiation of Feasibility Study including  mineral resource and mineral reserve estimates at Huevos Verdes and Frea  managed by MTB Project Management Professionals Inc. of Denver, USA, includes  mine design, capital and operating cost estimation, metallurgical,  geotechnical environmental EIA and social studies by Vector Argentina, AMEC  retained to do resource audit; continued underground development on 480 and  430 levels at HVN and HVS; IP/Resistivity (215 line km) surveys; additional  38 diamond drillholes to test regional targets. |
| October 2005                        |   | MSC |   | Completion of  Feasibility Study in October 2005, decision to proceed to production was  made on March 28, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| November 2005 to  June 2006    |   | MSC |   | Phase 1 and Phase 2  drilling at Kospi Vein (128 holes); EIA approved by DPM on March 1,  2006; continued underground development (ramp construction and drifting at  HVS and Frea); Granting of Environmental Permit, production decision  (March 28, 2006); change of metallurgical processing and recovery  methodology to a Gekko system; supporting metallurgical test work; mine  construction, permitting                                                                                                                                                                                     |
| July 2006 to  September 2007   |   | MSC |   | Ongoing plant and  infrastructure construction, continued mine development, mineral  resource/mineral reserve estimation (Huevos Verdes, Frea, Kospi), continued  metallurgical test work, official mine opening (June 26, 2007),  continued drilling of regional prospects.                                                                                                                                                                                                                                                                                                                              |
| September 2007                      |   | MSC |   | Preparation of a  technical report by AMEC, including a mineral resource and mineral reserve  estimation with effective date of December 31, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| October 2007 to  December 2008 |   | MSC |   | Commercial production  officially commenced on January 01, 2008. Continued drilling on the  Ayelén, Odin, Frea and Ramal Frea as well as exploration drilling totalling  220 drillholes and 48,762 m during 2007-2008. Mine comprised of over 18 km of  workings, which includes 5.7 km advancement in 2008, with 2 access ramps.                                                                                                                                                                                                                                                                    |

 

*1997-2006Exploration Programs*

 

Explorationby Minera Andes on the Property from 1997 to 2001 was concentrated over thenorthern part of the Property and consisted of geological mapping, sampling,trenching, geophysics, alteration and metallurgical studies and RC and diamonddrilling. The reader is referred to Section 10 of this Report for detailson the drilling program for years 1998-2008 on the San José Property.

 

Followingthe JV agreement with MHC in 2001 and the formation of JV company MSC, theProperty name was changed from El Pluma-Cerro Saavedra to San José. Anextensive exploration program was undertaken which included detailedtopographic surveying of the Property, IP geophysics and drilling.

 

Explorationduring 2003-2004 consisted of underground exploration / development,environmental and metallurgical studies and the construction and commissioningof a pilot plant at Huevos Verdes Vein. Land was purchased and right-of-wayagreements were obtained and a camp road was constructed. Exploration on othertargets on the Property included geophysical programs, surface sampling anddrilling.

 

A technicalsupport program with the Colorado School of Mines commenced in late 2003 andconsisted of regional mapping over a 165 km2 area and detailed target mappingas well as petrographic studies, geochemical analyses, age dating, oremicroscopy, fluid inclusion studies, PIMA analyses, remote sensing studies anddatabase reviews.

 

Surveyingof the topography, planned access and infrastructure in the Huevos Verdes andFrea areas was carried out during 2005-2007. Further IP geophysical surveyswere undertaken during 2004-2005, as well as continuing development ofunderground workings on the Huevos Verdes Vein and diamond drilling to 2008.

 

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MSCcommissioned a feasibility study on the Property during 2004-2005 with AMECretained to do a mineral resource audit, mine engineering, metallurgicalstudies and a review of capital and operating costs while Vector (Peru) S.A.and Vector Argentina were retained to undertaken the geotechnical,environmental and social aspects of the report. Based on the report outcomes, adecision was made to proceed to production phase. Pre-production at the HuevosVerdes and Frea Veins commenced on 26 June 2007.

 

*2007-2008Exploration Program*

 

Asof December 31, 2008 the San José Mine comprised more than 18 km ofunderground workings accessed by two ramps with construction of a third ramp toaccess the Kospi Vein having been completed in January 2009 (Minera Andes2008). In 2008, several hundred metres of drifting was completed along the FreaVein, with a total of approximately 5.7 km advancement of the San José workingscompleted in 2008. All underground development in mineralization has beensystematically channel chip-sampled. The Frea, Odin and Ayelén Veins all havemineral potential and remain open at depth and along strike.

 

Undergroundchannel sampling was undertaken in workings on the Frea, Huevos Verdes, Kospiand Ramal Frea veins in 2007-2008. The table below details the number ofchannels and samples taken at each of the veins.

 

Underground Channel Sampling Program, 2007-2008

 
| **Vein**      | ** ** | **Year** | ** ** | **Number of Channels** | ** ** | **Number of Samples** | ** ** |
|---------------|------------|----------|------------|------------------------|------------|-----------------------|------------|
| Frea          |       | 2007     |       | 957                    |       | 4,299                 |       |
|          |       | 2008     |       | 1,099                  |       | 4,277                 |       |
| Huevos Verdes |       | 2007     |       | 920                    |       | 2,830                 |       |
|          |       | 2008     |       | 1,729                  |       | 4,315                 |       |
| Kospi         |       | 2008     |       | 20                     |       | 83                    |       |
| Ramal Frea    |       | 2008     |       | 22                     |       | 102                   |       |

 

The2007 surface drilling program consisted of 113 diamond drillholes totalling28,585.74 m and focussed on regional prospects as well as strikeextensions of known veins with most of the drilling concentrated on the Ayelén,Frea and Odin veins. The 2008 surface drilling program consisted of 80 diamonddrillholes totalling 18,691.00 m and focussed on the Ayelén, Odin andRamal Frea veins with the objective to increase the mineral resources on theseveins as well as to undertake minor amounts of exploration drilling. During2007-2008, 27 underground drillholes totalling 1,485 m were drilled in theFrea and HVS workings to explore for branches off of the main vein structures.No promising veins or structures were intercepted. 

 

**MINERALIZATION**

 

Mineralizationat the San José Property is extensively covered in the Snowden (2002), AMEC(2007a) and SRK (2009) reports and summarized below. The reader should refer tothese reports for detailed information.

 

Mineralizationin the San José area occurs as LS epithermal quartz veins, breccias andstockwork systems accompanying normal-sinistral faults striking 330° to 340°and conjugate dextral faults.  Most ofthe known mineralization at San José is hosted by the Jurassic Bajo Pobre andChon Aike Formations.

 

*Veins and Vein Systems*

 

Regionalexploration has identified 13 vein targets, of which only three, Huevos Verdes,Frea and Kospi, have been extensively explored by surface diamond drilling andsubsequently developed by underground mining. A restricted amount of diamond drillinghas been carried out at the other veins, Ayelén and Odín.

 

Afterreviewing the various drilling programs AMEC (2007a) concluded the Frea andKospi Veins are the most significant zones in terms of grade and tonnage. Themineralized Frea has been traced over an 1,200 m strike length and to depths ofup to 250 m, with an average width of up to 2.5 m (AMEC 2007a, Minera AndesNews Release, September 2, 2008). The Kospi Vein has been traced for over1,300 m strike length (SRK 2009) and to depths of up to 230 m, with an averagewidth of around 3.0 m.

 

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Majorvein systems and exploration targets on the San José Property are discussed indetail below and illustrated in the Figure below.

 

*HuevosVerdes*

 

The HuevosVerdes vein system is one of the most important targets on the Propertyconsisting of three to four discontinuous zones: HVN, HVS, HVC and HVR. Thesystem is comprised of an array of sub-parallel veins striking 325° with dipsranging between 45° and 75° to the northeast that can be traced almost 2,000 malong strike. Mineralization is hosted by the Jurassic Bajo Pobre Formation,close to the contact of andesitic lava flows with underlying volcaniclastics.

 

Thevein system has a pinch and swell nature and has numerous bends and jogs.Several subparallel veins and splays off the main vein have been identified.The width of the vein zone is variable, ranging from less than 1 m to around 15m. With the exception of limited outcrops of the HVS, the remainder of theveins are blind targets, below a Cretaceous-Tertiary cover layer of up to 50 m.

 

Withinthe HVN and HVS zones, the strongest mineralization is restricted tosub-vertical 50 to 80 m long ore shoots which can extend 50 to 200 mvertically. The location of these shoots may correspond to structural bends andjogs.

 

High-gradeportions of the veins consist of banded to mottled quartz with irregularsulfide bands mineralized by fine-grained argentite and pyrite. Ruby silver andnative silver are locally observed. The base metal content (Zn, Pb, Cu) of theveins and the amount of sphalerite, galena and chalcopyrite tends to increasewith depth.

 

*Veinsystems on the San José Property*

 

 

*HuevosVerdes North (HVN)*

 

Themain HVN vein is irregularly-shaped and pinches and swells along the 400 m ofstrike. The vein width varies between 0.5 to 4 m and the dip ranges between 65°to 70° to the northnortheast.  The veinand surrounding host rocks have associated strong illitic and argillicalteration with minor propylitic and potassium feldspar alteration.

 

Thenorthern and southern extents of the vein have been closed off by drilling. Atdepth, mineralization is mostly closed off, except at the northernmost end ofthe zone. This zone is the weakest mineralized structure of the three HuevosVerdes zones. The strongest levels of gold and silver mineralization arerestricted to two principal sub-

 

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verticalshoots, which are each approximately 50 to 80 m long and can be tracedapproximately 150 to 200 m vertically.

 

*HuevosVerdes South (HVS)*

 

TheHVS vein has been traced for approximately 520 m along strike and ranges inwidth from 0.5 to 3 m. The dip of the vein ranges from 42° to 75° to thenorth-northeast and the strike varies from 100° to 190°. The change inorientation has implications for mineralization and may explain the bettermineralization and higher gold and silver grades at HVS compared to the HVNvein. Four main sub-vertical shoots, up to 80 m long horizontally and up to 200m vertical trace, appear to control the majority of the mineralization.Mineralization is open to the northnorthwest and similar to the HVN, gold andsilver grades are strongest in the uppermost parts of the vein and appear todecrease with depth.

 

*HuevosVerdes Central (HVC)*

 

TheHVC vein has been traced approximately 400 m along strike and ranges in widthbetween0.5 to 5.0 m. The dip of the vein ranges from 70° to 75° to thenorth-northeast. The strongestmineralization is restricted to an gentlyplunging ore shoot 40 to 70 m in width. The shoot hasbeen traced for almost 300m and remains open at depth.

 

*HuevosVerdes Ramal (HVR)*

 

TheHVR vein has been traced approximately 200 m along an east-west strike andranges in width from 1 to 3 m. The vein is located between the HVC and HVS andhas been traced vertically for 250 m.

 

*FreaVein*

 

TheFrea vein is hosted in Jurassic volcanics and controlled by northwest trendingfaults. The vein is a blind target below Cretaceous sediments and Tertiarybasalts, discovered in 2003 as a result of test drilling a IP / resistivitytarget. The vein has been traced approximately 1,200 m along itsnorthwest-trending strike and vertically to 200 m. The width of the vein variesfrom 0.5 to 7 m and dips at approximately 52° to the northeast. The veinremains open in all directions except the northwest extent which is closed offby drilling.

 

*Kospi Vein*

 

TheKospi vein is also hosted by Jurassic volcanics and controlled by northwesttrending faults however, it dips to the southwest at about 70°. Kospi is also ablind target beneath Cretaceous and Tertiary cover rocks, discovered in 2005 asa result of test drilling an IP / resistivity target.  The vein has been traced for approximately1,300 m along its northwest strike at 308° and vertically to 230 m. Thethickness of the vein ranges from 0.25 to 9.5 m. The vein remains open to thesoutheast but is closed off by drilling in its northwest extent.

 

*Odinand Ayelén Veins*

 

TheOdin and Ayelén veins are the two most north-easterly northwest-strikingsub-parallel systems that have been drilled. As a result of the 2008 drillingprogram, Odin has been traced approximately 1.6 km along strike and Ayelén 1.2km along strike, with both dipping to the southwest (Minera Andes NewsReleases, September 2, 2008 and January 9, 2009). SRK (2009) reportedan extension to these veins of 1.9 km for Odin and 1.6 km for Ayelén. Both ofthese vein systems were discovered by test drilling blind geophysical targets.The Odin vein remains open to the west along strike and at depth where it hasbeen tested to 200 m.

 

OtherVein Systems and Exploration Targets

 

Thereare additional mineralized veins and targets identified in the AMEC (2007a) andSRK (2009) reports within the San José Property:

 

·                  Huevos Verdes Oeste (West) (“HVO”)

·                  Aguas Vivas

·                  La Sopresa

·                  El Pluma West

·                  Pluma

 

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·                  Pluma South

·                  Ramal Frea (Frea Satellite)

·                  Ramal Kospi

·                  Austri

·                  Frigga

·                  Roadside

·                  Portugues

·                  Saavedra (Discovery Hill)

 

Thesehave been identified using a combination of geochemical and structuralmodelling, geophysical surveying and drilling.

 

*StructuralControls on Mineralization*

 

Themost important control on mineralization at San José is structure, which governsthe formation and opening of faults and the creation of open space during themineralizing event. The strike of the veins are not only related to vein widthbut also mineralization styles and gold and silver grades.

 

HuevosVerdes veins have the best developed ore shoots with respect to grade and widthat strike directions of 320° to 305°. Vein segments with strikes greater than325° usually lack significant mineralization and are characterised bybrecciation and fault gouge. These findings led to the conclusion that theHuevos Verdes vein system developed in a sinistral strike-slip setting.  Counter-clockwise bending of a sinistralstrike-slip fault creates a dilational setting, whereas clockwise bendingcreates a compressional environment. Therefore, open space will preferentiallyform in counter-clockwise bends whereas increased tectonic friction with faultgouge and brecciation will develop preferentially in a compressional settingalong clockwiserotated bends. With respect to the Huevos Verdes system, thebest mineralization will generally occur where structures bend counterclockwise from the average strike (less than 325°).  Mineralized shoots would be expected to occuralong the vein system where vein strike bends towards less than 325°.

 

Earlynorth-northwest striking normal faults were established in the region due toPermian-Triassic rifting (See reference to Dietrich et al. 2005 in the SanJoséTechnical Report). Dextral east-west to west-northwest-trending wrenchfaulting associated with mineralization in the Deseado Massif occurred at 150to 125 Ma. The Huevos Verdes vein system formed as sinistral extension fissureswithin this dextral wrench fault system. The Permian-Triassic north-northwesttrending faults were reactivated and became hosts to mineralization.

 

TheHuevos Verdes system is discontinuous and displays counter-clockwise bending atthe tips of mineralized sections. This geometry is interpreted to reflectformation of mineralized tension fissures with sinistral strike-slipdisplacement in between dextral master wrench faults. The bending indicatesproximity to dextral east-west trending master faults. Dextral wrench faultingis thought to have occurred during mid to upper Jurassic times in the regionand related to the early opening of the southern Atlantic. Outcrops ofeast-west striking, weakly-to-unmineralized quartz veins are exposed in theintermittent segments between the three zones of the Huevos Verdes system.East-west trending lineaments are rare but present in the northwestern DeseadoMassif.

 

Sinistral,north-northeast striking lineaments on the San José Property and illustrated inthe figure immediately below, limit the known occurrences of thenorth-northwest striking mineralized veins such as Huevos Verdes. The RioPinturas and the San José lineaments form a prospective corridor, with no knownmineralization either east or west of this corridor.

 

Litho-stratigraphymay also play an important role in governing mineralization where certainlitho-stratigraphic horizons favoured the opening of fractures. Mapping in thePluma Zone noted that the fracturing of rocks is by far more intense inandesitic lava flows than in underlying volcaniclastic rocks.Fracture-controlled wall rock alteration and mineralization is more pronounced inthe lava flows. Host lithology may be a factor controlling the depth ofmineralized shoots.

 

40

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*Structural Lineaments on theSan José Property*

 

 

Thestructure at the Saavedra / Saavedra West (Discovery Hill) deposits has beeninterpreted to be a syn-volcanic graben possibly a caldera that developedwithin the Bajo Pobre Formation and infilled with sedimentary rocks of the LaMatilde Formation (AMEC 2007a). A series of N-NW trending steeply dipping Au-Agquartz veins and siliceous structures occur at Discovery Hill.  These veins may have been emplaced alonggraben-bounding faults. This trend is sub-parallel to that at Huevos Verdes andIP / resistivity surveys have traced this trend from just NE of Discovery Hillto a point that occurs 100 m directly SW of the HVS zone. Recent interpretationof the structure of the Huevos Verdes, Kospi, Frea, Odin and Ayelén veins byMinera Andes (see figure below) suggest a similar graben structure, interpretedby this author as possibly caldera-related, that may be an extension of thestructures at Saavedra.

 

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*Cross section showing thehorst and graben structure at San José*

 

****

 

**DRILLING**

 

Thefollowing information on the drill program on the San José Property from1998-mid 2007 is taken from the AMEC (2007a) and SRK (2009) reports and updatedbelow to December 31, 2008.

 

From1998-2008, 772 reverse circulation (“**RC**”) anddiamond exploration surface and underground drillholes totalling 139,192 m havebeen drilled on the Property.  The tablebelow gives the details on the program for each year to year-end 2008.

 

*Drilling Program on the San José Property,1998-2008*

 
| **Year**  | ** ** | **No. drillholes** | ** ** | **No. metres** | ** ** | **Drill hole Numbers**                                       | ** ** | **Core or RC**                  | ** ** | **Company**   | ** ** |
|-----------|------------|-------------------------|------------|---------------------|------------|--------------------------------------------------------------|------------|---------------------------------|------------|---------------|------------|
| 1998      |       | 38                      |       | 3,956.00            |       | EP-01  to 38                                                 |       | RC                              |       | Minera  Andes |       |
| 1999      |       | 21                      |       | 1,648.00            |       | EP-39  to 59                                                 |       | RC                              |       | Minera  Andes |       |
| 2000      |       | 29                      |       | 3,698.21            |       | EP-60  to 85 & EPD-01 to 03                         |       | RC &  HQ core          |       | Minera  Andes |       |
| 2001      |       | 30                      |       | 5,113.24            |       | HVD-1  to 30                                                 |       | HQ  core                        |       | MSC           |       |
| 2002-2003 |       | 32                      |       | 4,376.87            |       | SJD-1  to 32                                                 |       | HQ  core                        |       | MSC           |       |
| 2004      |       | 13                      |       | 2,807.45            |       | HVD-31  to 36 & SJD-33 to 39                        |       | NQ &  HQ core          |       | MSC           |       |
| 2005      |       | 211                     |       | 43,730.12           |       | SJD-40  to 215 & SJM-1 to 28A & MSC-4 to 8 |       | BQ,  NQ, HQ core & RC  |       | MSC           |       |
| 2005-2006 |       | 178                     |       | 25,100.36           |       | SJD-216  to 330 & SJM 29 to 74                      |       | NQ &  HQ core          |       | MSC           |       |
| 2007      |       | 135                     |       | 29,846.74           |       | SJD-331  to 443 & SJM-75 to 95 & SJM-97    |       | HQ  core & NQ, BQ core |       | MSC           |       |
| 2008      |       | 85                      |       | 18,915.05           |       | SJD  444 to 523 & SJM-96 & SJM-100 to 103  |       | HQ  core & NQ, BQ core |       | MSC           |       |
| TOTAL     |       | 772                     |       | 139,192.04          |       |                                                         |       |                            |       |          |       |

 

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Drilling by Minera Andes between 1998 and 2000and by MSC between 2000 and 2004 was undertaken for the early stages of theexploration program. From 2004 onwards, MSC have primarily concentrated ondrilling for mineral resource definition and infill drilling at Huevos VerdesNorth (“HVN”), HVS and Huevos Verdes Central (“HVC”), Frea and Kospi Veins. Aminor amount of regional prospect drilling has also continued.

 

*Minera Andes Drilling, 1998-2000*

 

Thefirst drilling on the Property was RC drilling over three seasons by MineraAndes. A total of 85 RC holes (EP-01 to EP-85), totally an estimated 8,594 mwere drilled to test a various geophysical and geological targets. The holeswere drilled on the HVN, HVS and HVC Veins; there are no RC holes drilled oneither the Frea or Kospi Veins. Holes were drilled at a range of azimuths anddips to depths of between 48 and 174 m. These holes were re-surveyed by MSC in2005.

 

Threediamond holes were drilled in 2000 totalling 270 m on the Saavedra West(Discovery Hill) prospect by Minera Andes.

 

*MSC Diamond Drilling, 2001*

 

The2001 drilling program saw 30 diamond drillholes drilled, totalling 5,113 m byMSC. The targets were predominantly HVN, HVS and HVC Veins and their extensionsand a geophysical anomaly close to the South Vein. Four holes were drilled totest for a northern extension of the Huevos Verdes system beneath the basaltcover. All holes were HQ, drilled at dips ranging from -50° to -85° and todepths between 63 to 304 m. Core recoveries averaged above 90 %.

 

Fifteendrillholes intercepted significant values of gold and silver ranging between 2to 41.64 g/t Au and 10 to 4,100 g/t Ag over true thicknesses ranging between0.25 and 6.8 m. The drilling assisted in tracing the vein for a total ofapproximately 2.25 km.

 

*MSC Diamond Drilling, 2002-2003*

 

BetweenNovember 2002 and February 2003, 32 diamond drillholes totalling4,376.87 were undertaken by MSC. These holes targeted geophysical andgeological targets outside the main Huevos Verdes Zone. The holes were drilledat dips ranging from -45° to -69° and depths between 56 m and 279 . Corerecoveries averaged greater than 90 %.

 

Holestargeting IP / resistivity anomalies below the Cretaceous-Tertiary cover rocksled to the discovery of the Frea Zone. No other holes in this programintersected significant mineralization.

 

MSCinitiated the use of standard logging procedures in 2002. Collars were surveyedafter the completion of a drill hole and down-hole deviation measurements weretaken.

 

*MSC Diamond Drilling, 2004*

 

MSCdrilled seven holes totalling approximately 695.8 m targeting northern andsouthern extensions of the HVN and HVS Zones. Drillholes were drilled to thesouthwest at dips ranging from -45° to -60° and with depths ranging between 63and 148 m. In late 2004, seven holes totalling 2,175 m were drilled on the FreaZone as a follow-up to the anomalous results of the 2003 drill program. Holeswere drilled to the southwest at dips ranging from -50° to -57° and with depthsranging between 220 and 421 m. Collars were surveyed after the completion of adrill hole and down-hole deviation measurements were taken.

 

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*MSC Definition Diamond Drilling, 2005*

 

MSCembarked on a three-phase drilling program between December 2004 and May 2005,designed to outline the mineral resources on the HVN, HVS and HVC Zones and theFrea Zone.  The drilling programconsisted of 138 surface diamond holes totally 32,409.59 m and 30 undergrounddiamond drillholes totalling 1,825.85 m.

 

Thesurface holes drilled on the Huevos Verdes Zone were drilled for the most parttowards the southwest, with dips ranging from -45° and -90° and depths rangingfrom 37 and 320 m. Holes drilled on the Frea Zone were drilled to the southwestat dips ranging between -45° and -90° and depths ranging between 56 to 421 m.Surface holes were drilled with HQ to approximately 145 m then reduced to NQ.

 

Undergroundholes were collared horizontally at various azimuths towards either the northeastor southwest and had depths ranging from 7 to 108 m. All drillholes weredrilled using BQ diameter.

 

Drillholesat the Huevos Verdes Zones were positioned 35 m apart along strike and 50 mvertically along section lines oriented at an azimuth of 054°. Drillholes onthe Frea Zone were positioned 35 m apart along strike and 50 m vertically alongsection lines oriented at an azimuth of 050°.

 

*MSC Regional Diamond Drilling, 2005-2006*

 

Thedrill program consisted of drill-testing regional IP / resistivity geophysicalanomalies that are ‘blind’, occurring beneath the Tertiary basalt and / orCretaceous sedimentary cover rocks. A total of 54 surface diamond drillholestotalling 10,596.28 m were completed. This program led to the discovery of theKospi Vein.

 

TheSJD series holes were drilled using for the most part HQ, at variousorientations depending on the target but mostly either to the northeast orsouthwest with dips around -50°. Hole depths ranged from 24 to 325 m. The HVDseries holes were drilled with either NQ or BQ. Drill-testing holes on theKospi Vein were drilled towards the northeast at dips averaging -50° and withdepths ranging between 41 and 130 m. Average core recovery for both drillprograms exceeded 90 %. A total of 937 samples were taken.

 

*MSC Drilling, 2006*

 

MSCundertook a major drilling program in late 2006 primarily concentrated onoutlining mineral resources at the Kospi Vein. A total of 115 surface diamonddrillholes totally 21,211 m were completed, three of these holes were drilledon the Frea Vein. The program also included 46 underground diamond drillholesdrilled at HVN, HVS and the Frea Veins.

 

Kospisurface holes were drilled mostly towards the northeast at dips around -50° anddepths ranging from 54 to 354 m. The Kospi holes were oriented at 40 m apartalong strike and 40 m vertically along section lines oriented at an azimuth of040°. The three Frea holes were drilled to test northern and southernextensions of the vein and were drilled to the northeast at depths ranging between147 and 438 m. All surface holes were drilled using HQ. The undergrounddrillholes were mostly collared horizontally at various azimuths either to thenortheast or southwest and lengths ranging from 3.4 to 136.9 m. The undergroundholes were completed using NQ and BQ equivalent diameters.

 

*MSC Drilling, 2007*

 

Thefocus of the 2007 diamond drilling program was on regional prospects and strikeextensions of known veins with most of the drilling concentrating on theAyelén, Frea and Odin Veins. The start of the program tested the northwestextensions of the Frea Vein outside of the underground working, with surfacedrillholes drilled towards the southwest at dips averaging -50° and hole depthsvarying between 80 and 525 m.

 

Explorationhighlights for the program include a newly discovered mineralized area about500 m long at the northwest extension of the Frea vein. To date, drillingindicates that the Frea vein is an open-ended mineralized vein, averaging 2.7 min width (Minera Andes News Release November 11, 2007).

 

In September through to December 2007,82 surface SJD-series holes totalling 20,274 m were drilled at the Frea, Odin,Ayelén, Frigga and Lourdes veins. The majority of drilling in this periodconcentrated on the Odin and Ayelén

 

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veins. Drilling expanded theAyelén vein to a strike length of 1200 m and a depth of 200 m. The Frea, Odinand Ayelén veins contain high-grade gold / silver mineralization discovered inlate 2005 through reconnaissance drilling of blind geophysical targets. Thehighest grade intercept from this drilling campaign was in drill hole SJD-412with an intercept of 1.68 m at 52.44 g/t Au and 1,147 g/t Ag, drilled on theOdin Vein.

 

Four holes were drilled on theLourdes target, five holes were drilled on the Frigga target and one hole wasdrilled on the Kospi Vein. These holes encountered quartz veining and / orhydrothermal breccia that returned gold or silver values at or below backgroundlevels, however geological features at these targets are indicative of epithermalsystems. A goal of the 2007 program was the identification of geological trendsthat will be further tested in order to explore for high-grade shoots typicalof those found at Frea, Kospi and Huevos Verdes veins.

 

Twenty two underground holes,SJM-series, were drilled in the HVS and Frea workings at horizontal dips eithertowards the northeast or southwest, totalling 1,261 m. These holes were drilledto explore possible branches of the main veins but did not intersect anystructures or veins of interest. Holes were drilled using Ingetrol WL-66(drilling NQ core) and WL-56 (drilling BQ core). The highest grade interceptfrom this drilling was in drill hole SJM-86 in the Frea workings with anintercept of 2.58 m at 13.97 g/t Au and 1,448 g/t Ag.

 

A total of 113 surface diamonddrillholes totalling 28,585.74 m were completed in 2007 bytwotruck-mounted Boart Longyear rigs, model LF-90 producing HQ core andreported in Minera Andes News Release, September 02, 2008 and the MineraAndes (2007).

 

*Drilling on the San José Property, Drill holes Used inthe Mineral Resource Estimate*

*Highlights of the 2007 DrillingProgram (September to December)*

 

----

**All of the drillholes are angleholes. True thickness of the vein is undetermined.*

 

*MSCDrilling, 2008*

 

The focus of the 2008 drillprogram was the Ayelén, Odín and Ramal Frea Veins, with 80 SJD series surfacedrillholes drilled on the Property, totaling 18,691.00 m. The objectives of theprogram was mainly to increase

 

45

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mineral resources on thesethree veins with a minor amount of exploration drilling. Holes drilled formineral resource definition were drilled on along a 80 m grid. Explorationdrilling was undertaken on HVS, HVN and HVO, Kospi NW, Kospi-Frea, Ayelén NE,Frea South and Ramal Kospi veins and exploration targets.

 

For the most part, surfacedrillholes were drilled towards either the northeast or the southwest,perpendicular to structures, at dips of approximately -50° and ranged in lengthfrom approximately 110 to 350 m. Holes were drilled by two truck-mounted BoartLongyear rigs, model LF-90 capable of drilling HQ core.

 

Highlights for 2008 includethe newly discovered Odín Vein with intercepts including 1.85 m at 18.7 g/t Auand 1,506 g/t Ag in hole SJD-451 and in hole SJD-478 with 30.92 g/t Au and 778g/t Ag over a 1.56 m intercept (Minera Andes News Release September 2,2008 and January 9, 2009).  Drillingidentified massive and banded quartz veining with disseminated pyrite andargillic alteration. The Odin vein remains open west along strike and to depth.

 

Bonanza silver grades wereintersected in hole SJD-477 on the Frea vein where 4,945 g/t Ag was interceptedover 0.30 m. After the 2007-2008 drilling program, known mineralization alongthe Frea vein has been extend to approximately 1.2 km (Minera Andes NewsRelease September 2, 2008).

 

Five underground holes,SJM-series, were drilled in the Huevos Verdes workings at horizontal dips (twoat 20°) and varying azimuths, totalling 224 m. These holes were drilled toexplore possible branches off the main veins but did not intersect anystructures or veins of interest.  Holeswere drilled using Ingetrol WL-66 (drilling NQ core) and WL-56 (drilling BQcore).

 

A table of significantintercepts for the 2008 surface drilling program was reported in the MineraAndes News Releases, September 2, 2008 and January 09, 2009.

 

Drill hole collars were surveyed by MSC surveyorsusing a Total Station Leica Geosystem TCR-405 and TCR-1105.

 

*Conclusionson the Drilling Program*

 

P&E is of the opinion thatthe drilling programs were well run and that MSC used industry best practisesfor drilling and logging.

 

**SAMPLINGMETHOD AND APPROACH**

 

The following section wassourced from the Snowden (2002), AMEC (2007a) and SRK (2009) reports.

 

*Trenching*

 

Trenching took place on theProperty from 1997 to 2002 and trenches were dug over the Huevos Verdes,Saavedra West, Pluma and Sorpresa Zones. Trenches are typically 1.2 m wide, 0.5— 1.5 m deep and range from 6 — 232 m. Approximately 203 trenches were dug andover 1,048 channel chip samples were taken. Chip samples from trenching are notincluded in the mineral resource estimate.

 

*UndergroundChannel Samples*

 

Prior to 2004, undergroundchannel samples were taken at HVN and HVS using a hammer and chisel method. Thesamples were collected across the back of the drift in 0.20 to 0.25 m widesample lines, oriented perpendicularly to the vein strike and with linesapproximately 2.0 m apart. MSC collected approximately 3,670 underground channelsamples utilising this method.  DuringAMEC’s 2004 site visit it was determined that the channel chip-sampling processwas not done appropriately and was resulting in poor sampling precision (AMEC2005).

 

Subsequently, channel samplingis now undertaken using a pneumatic drill in order to obtain representativesamples with consistent fragment and sample size. AMEC recommended that theminimum sample length be 0.3 m. MSC then initiated a re-sampling program ofevery second channel, approximately every 4 m where accessible. AMEC reviewedthis methodology during a 2007 site visit.

 

Channel lines are painted onthe top wall and surveyed at one extremity as a collar. Azimuth and from / tointervals are entered in the database and the channels are recorded as drillholes.AMEC noted that in some instances the samples lines do not extend across theentire drift to include wall rock and recommend this be done. AMEC also

 

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suggested the collection ofsamples from the adjacent wall rock to provide information for dilutionanalysis as well as identifying possible new zones of mineralization that maynot be visually evident.

 

Channel sampling proceduresfor the 2007-2008 program were not supplied to P&E and it is assumed by theauthors to be the same as that outlined by the AMEC (2007a) report. P&Esuggests that future channel sampling should take into account AMEC’srecommendations to obtain representative samples.

 

*DrillholeSampling*

 

Sampling protocols andprocedures prior to 2002 are described in detail in AMEC (2007a) and are onlybriefly reviewed and summarized in this Report.

 

*Minera AndesRC Drilling (1998-2000)*

 

Drillholes were sampled overtheir entire length at approximately 1 to 1.5 m intervals and split using aGilson splitter to obtain a representative sample. Two splits were taken fromeach sample interval, one sent to the laboratory for sample preparation andanalysis and the other was retained on site. A small sample was collected inchip trays for geological logging. All samples were shipped directly by ALSChemex to their preparation laboratory in Mendoza, with pulps flown toDegerstrom for analysis. Degerstrom held an interest through shares in MineraAndes and were not considered as an independent laboratory.

 

*Minera AndesDiamond Drilling (2000)*

 

There is no information on thesampling procedure for these holes. AMEC assumed that laboratory handlingprocedures were similar to those of the above mentioned RC program.

 

*MSC DiamondDrilling (2001)*

 

The drill core was marked upat 0.1 to 3.4 m intervals of logged mineralization. The core was splitmechanically, with half retained for reference and the other half sampled.Samples were retained in a secure storage area until the shipment was truckedby MSC to the ALS Chemex laboratory in Mendoza for preparation and analysis.

 

*MSC DiamondDrilling (2002-2008)*

 

AMEC have reviewed drill coresampling procedures during site visits between 2004 to 2007.  AMEC have also reviewed the samplepreparation and assaying procedures during a visit to Alex Stewart, MSC’sprincipal laboratory prior to July 2007, and the laboratory preparationfacility in Mendoza in 2005. The Smee (2008) report reviews sample preparationand assaying procedures at the San José on site laboratory.

 

The following procedures werereported as current by AMEC as of 2007 and P&E are not aware of anychanges:

 

·                  Theproject geologist is responsible for ensuring procedures are followed at thedrill rig which includes verifying core retrieval and assembly, core boxorientation, core marker placement and mark-up, core transportation methodologyand also security, geotechnical logging procedures, recovery and photography.

·                  Thelogging process includes recording lithology, alteration, mineralogy andstructure.

·                  Sampleintervals are marked both on the core and the core box. The geologist marks thecore splitting line on the core. Friable zones are taped prior to the cuttingof the core to avoid loss at the saw. A metallic wedge is used on friable coreto force it into two halves and then all material from one of the halves issampled in its entirety including fines.

·                  Sampleintervals take into account geological, mineralogical and structuralboundaries.  Recommended by AMEC. thatsample lengths be no less than 0.5 m and preferably longer than 1.0 m.

·                  Theproject geologist ensures that the core is cut properly in half by thetechnician using a diamond saw. One half of the core is returned to the corebox, the other half is placed in a pre-numbered and tagged sample bag.

·                  Oncethe sample is complete, the bag is immediately sealed. The sample bag has thesample number clearly written on both sides of the bag and the correspondingsample tag included in the bag with the sample. Individual sample tags havepre-assigned sample numbers to account for the insertion of blanks, duplicatesand certified standards that will be submitted with the shipment. All samplesare then entered into the database.

·                  Sampleswere kept in a secure storage area and loaded into a truck when sufficientnumbers were ready for shipment to the laboratory. Prior to July 2007, allsamples were shipped directly by truck to Alex Stewart

 

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laboratories in Mendoza forpreparation and analysis. Currently, only 5 % of all batches are sent to AlexStewart laboratories for reanalysis as part of MSC QA/QC procedures. All samplepreparation and analysis, apart from base metal analysis, is done on site.

 

P&E is of the opinion thatthe 2007-2008 drilling program was well run and that MSC was using industrybest practices for drilling, logging and sample chain of custody.

 

P&E endorses SRK (2009)recommendation that core no smaller than NQ be drilled on the deposit in orderto ensure that a representation sample be obtained. During the 2007-2008drilling programs 27 out of the 220 holes drilled were NQ or smaller and allwere drilled underground.

 

*Summary ofSample Preparation, Analyses and QC/QC Program for San José*

** **
| **YEAR**                                                                    | ** ** | **SAMPLE PREP  LABORATORY**      | ** ** | **ANALYTICAL  LABORATORY**        | ** ** | **ASSAY**                                                                                                                                                                                         | ** ** | **QA/QC**                                                                                                                                                                                                                                              |
|-----------------------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Minera Andes RC drilling  1998-2000 and diamond drilling 2000               |       | Geolab (now ALS Chemex)  Mendoza |       | Degerstrom                        |       | Fire Assay Fusion with  direct coupled plasma (DCP) finish for Au.

Aqua regia digestion and  DCP-atomic emission spectrometry for Ag, Cu, Pb, Zn, As and Bi.

Nitric acid digestion for Hg. |       | Bondar Clegg laboratories  (ALS Chemex) provided check analyses. No QA/QC program. Pulps and rejects no  longer available for re-sampling.                                                                                                             |
| MSC diamond drilling 2001                                                   |       | ALS Chemex, Mendoza              |       | ALS Chemex, Mendoza               |       | Unknown                                                                                                                                                                                           |       | Check analyses by Alex  Stewart Laboratories in Mendoza. Limited QA/QC program, no pulps or rejects  available for re-sampling. Limited core as most used previously for  re-sampling or metallurgical work.                                           |
| MSC diamond drilling  2002-2003                                             |       | ALS Chemex, Mendoza              |       | Alex Stewart Laboratory,  Mendoza |       | 4 FA/AA for Au and FA/Grav  for Ag. ICP for Cu, Pb, Zn and As.                                                                                                                                    |       | Check analyses by ALS  Chemex, La Serena (Chile). Limited QA/QC program, no pulps or rejects  available for re-sampling. Limited core as most used previously for  re-sampling or metallurgical work.                                                  |
| MSC diamond drilling  2004-2005                                             |       | ALS Chemex, Mendoza              |       | Alex Stewart Laboratory,  Mendoza |       | 4 FA/AA for Au and FA/Grav  for Ag. ICP for Cu, Pb, Zn and As.                                                                                                                                    |       | Check analyses by ALS  Chemex, La Serena (Chile). QA/QC program designed by AMEC implemented by MSC  in 2005, commencing in drill hole SJD-40. Twin, duplicate, CRM and blank  samples accounting for 1 in 30 samples or 3 %. Granulometric tests |
| MSC diamond drilling 2006-  July 2007 and underground channel sampling |       | ALS Chemex, Mendoza              |       | Alex Stewart Laboratory,  Mendoza |       | 4 FA/AA for Au and FA/Grav  for Ag. ICP for Cu, Pb, Zn and As.                                                                                                                                    |       | Check analyses by ALS  Chemex, La Serena (Chile). QA/QC program with Twin, duplicate, CRM and blank  samples                                                                                                                                           |
| MSC diamond drilling July 2007-2008  and underground channel sampling  |       | In house laboratory              |       | In house laboratory               |       | FA/Grav finish for Au and Ag.                                                                                                                                                                |       | Check analyses (5 %)  by Alex Stewart, Mendoza. QA/QC program reviewed by Smee (2008).                                                                                                                                                            |

 

**SECURITY OFSAMPLES**

 

AMEC (2007) noted there wereno descriptions of the security measures in place for the sampling program.AMEC had previously made recommendations in their 2005 technical report forsample security which, as of the 2007 technical report, had not beenimplemented. P&E endorses the recommendations of the AMEC (2005) report andthe implementation of those recommendations.

 

The Smee (2008) audit of theSan José internal laboratory and sample analysis concluded that the laboratorywas being operated in accordance with industry best practice.

 

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P&E believes that thequality of the data is reliable and that the sample preparation and analysis,are carried out in accordance with exploration best practices and industrypractices.

 

**MINERAL RESOURCEAND MINERAL RESERVE ESTIMATES**

 

Certain authors of the SanJosé Technical Report have provided the Corporation with an updated mineral resourceand reserve estimate, based on work from our joint venture partner Hochschild,with an effective date of December 31, 2009, prepared by James L. PearsonP.Eng., Alfred Hayden P.Eng and Fred Brown CPG PrSciNat under the direction ofP&E President, Eugene Puritch, P.Eng. Each of the persons named herein areconsidered to be Qualified Persons within the meaning of NI 43-101. The resultsbelow supersede the mineral resource and reserve estimates contained in the SanJosé Technical Report.

 

P&E used a gold price ofUS$925 per ounce (oz) and a silver price of US$15.00 per oz for estimatingmineral resources and US$810 per ounce (oz) and a silver price of US$13.50 peroz for estimating mineral reserves, which reflect the 24 month trailing averageprice levels at the end of 2009.

 

At December 31, 2009total Measured and Indicated Mineral Resources at the San José Mine were628,000 ounces of gold and 40.8 million ounces of silver, contained in2,645,000 tonnes grading 7.39 grams/tonne (g/t) gold and 480 g/t silver, or78.5 million ounces of silver on a silver equivalent basis (see table below).  An additional 321,000 ounces of gold and 20.0million ounces of silver, contained in 2,002,000 tonnes, grading 4.98 g/t goldand 310 g/t silver are classified as Inferred Resources.  A marginal cutoff grade of 149 g/t of silverequivalent, representing the variable operating cost was used to estimate themineral resources (using a price of US$925/oz for gold and US$15.00/oz forsilver).

 

**Mineral Resources* — Measured and Indicated**

** **
| ** **                        | ** ** | **Measured** | ** ** | **Indicated** | ** ** | **Measured  and Indicated** | ** ** | **Contained  Ounces** | ** ** |
|-----------------------------------|------------|--------------|------------|---------------|------------|-----------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **Tonnes**   | ** ** | **Ag**        | ** ** | **Au**                      | ** ** | **Tonnes**            | ** ** | **Ag** | ** ** | **Au** | ** ** | **Tonnes** | ** ** | **Ag** | ** ** | **Au** | ** ** | **Silver** | ** ** | **Gold** | ** ** | **Eq. Ag** | ** ** |
| **Vein**                          | ** ** | **(1000)**   | ** ** | **(g/t)**     | ** ** | **(g/t)**                   | ** ** | **(1000)**            | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(1000)** | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(k oz)** | ** ** | **(k oz)** | ** ** | **(k oz)** | ** ** |
| **Ayelen**                        |       |         |       |          |       |                        |       | 140                   |       | 381 |   | 4.54 |   | 140 |   | 381 |   | 4.54 |   | 1,729 |   | 21 |   | 2,963 |   |
| **Frea**                          |       | 202          |       | 383           |       | 11.24                       |       | 132                   |       | 241 |   | 11.42 |   | 334 |   | 327 |   | 11.31 |   | 3,519 |   | 121 |   | 10,824 |   |
| **Huevos  Verdes Sur**            |       | 98           |       | 678           |       | 13.15                       |       | 40                    |       | 503 |   | 8.48 |   | 138 |   | 627 |   | 11.8 |   | 2,769 |   | 52 |   | 5,894 |   |
| **Sigmoides  HVS**                |       | 4            |       | 538           |       | 9.69                        |       | 1                     |       | 384 |   | 8.61 |   | 5 |   | 499 |   | 9.42 |   | 90 |   | 2 |   | 192 |   |
| **Huevos  Verdes Central**        |       | 46           |       | 593           |       | 6.36                        |       | 29                    |       | 500 |   | 5.97 |   | 75 |   | 558 |   | 6.21 |   | 1,337 |   | 15 |   | 2,231 |   |
| **Huevos  Verdes Norte**          |       | 51           |       | 508           |       | 5.87                        |       | 66                    |       | 630 |   | 6.79 |   | 117 |   | 577 |   | 6.39 |   | 2,171 |   | 24 |   | 3,613 |   |
| **Kospi**                         |       | 127          |       | 817           |       | 8.59                        |       | 468                   |       | 752 |   | 9.37 |   | 595 |   | 766 |   | 9.21 |   | 14,692 |   | 176 |   | 25,286 |   |
| **Odin**                          |       | 3            |       | 956           |       | 12.23                       |       | 363                   |       | 338 |   | 5.04 |   | 366 |   | 342 |   | 5.09 |   | 4,026 |   | 60 |   | 7,623 |   |
| **Ramal  Huevos Verdes Sur**      |       | 10           |       | 291           |       | 3.79                        |       | 35                    |       | 345 |   | 4.61 |   | 45 |   | 333 |   | 4.43 |   | 489 |   | 7 |   | 879 |   |
| **Ramal  Frea**                   |       | 18           |       | 703           |       | 7.88                        |       | 51                    |       | 531 |   | 6.96 |   | 69 |   | 576 |   | 7.2 |   | 1,288 |   | 16 |   | 2,254 |   |
| **Ramal  483 Frea**               |       | 29           |       | 227           |       | 3.13                        |       | 58                    |       | 253 |   | 2.53 |   | 87 |   | 244 |   | 2.73 |   | 686 |   | 8 |   | 1,145 |   |
| **Ramal  480 Este Frea**          |       | 19           |       | 476           |       | 3.82                        |       | 32                    |       | 421 |   | 3.46 |   | 51 |   | 441 |   | 3.59 |   | 713 |   | 6 |   | 1,062 |   |
| **Ramal  Kospi**                  |       | 9            |       | 95            |       | 5.51                        |       | 60                    |       | 174 |   | 5.09 |   | 69 |   | 164 |   | 5.14 |   | 361 |   | 11 |   | 1,040 |   |
| **Ramal  Huevos Verdes Norte**    |       | 1            |       | 81            |       | 3.22                        |       | 64                    |       | 644 |   | 9.2 |   | 65 |   | 640 |   | 9.16 |   | 1,322 |   | 19 |   | 2,456 |   |
| **Ramal  HVN A**                  |       |         |       |          |       |                        |       | 3                     |       | 176 |   | 2.08 |   | 3 |   | 176 |   | 2.08 |   | 14 |   | 0 |   | 24 |   |
| **Ramal  HVN B**                  |       |         |       |          |       |                        |       | 2                     |       | 460 |   | 2.64 |   | 2 |   | 460 |   | 2.64 |   | 22 |   | 0 |   | 30 |   |
| **Ramal  HVN C**                  |       | 4            |       | 371           |       | 3.92                        |       | 72                    |       | 314 |   | 4.21 |   | 76 |   | 317 |   | 4.2 |   | 773 |   | 10 |   | 1,386 |   |
| **Ramal  HVN D**                  |       |         |       |          |       |                        |       | 4                     |       | 997 |   | 13.63 |   | 4 |   | 997 |   | 13.63 |   | 112 |   | 2 |   | 204 |   |
| **Ramal  HVN E**                  |       | 1            |       | 361           |       | 2.97                        |       | 23                    |       | 630 |   | 7.05 |   | 24 |   | 620 |   | 6.89 |   | 470 |   | 5 |   | 784 |   |
| **Frea-Odin**                     |       |         |       |          |       |                        |       | 59                    |       | 201 |   | 2.77 |   | 59 |   | 201 |   | 2.77 |   | 383 |   | 5 |   | 701 |   |
| **Ramal  861 A Kospi**            |       | 15           |       | 170           |       | 7.8                         |       | 8                     |       | 130 |   | 9.47 |   | 23 |   | 156 |   | 8.37 |   | 113 |   | 6 |   | 477 |   |
| **Ramal  861 B Kospi**            |       | 12           |       | 395           |       | 15.54                       |       | 12                    |       | 305 |   | 13.02 |   | 24 |   | 349 |   | 14.26 |   | 263 |   | 11 |   | 906 |   |
| **Ramal  861 C Kospi**            |       | 9            |       | 649           |       | 8.39                        |       | 100                   |       | 318 |   | 3.43 |   | 109 |   | 346 |   | 3.85 |   | 1,219 |   | 14 |   | 2,033 |   |
| **Ramal  861 D Kospi**            |       |         |       |          |       |                        |       | 53                    |       | 676 |   | 10.94 |   | 53 |   | 676 |   | 10.94 |   | 1,154 |   | 19 |   | 2,275 |   |
| **Ramal  Ayelen**                 |       |         |       |          |       |                        |       | 7                     |       | 220 |   | 2.3 |   | 7 |   | 220 |   | 2.3 |   | 47 |   | 0 |   | 77 |   |
| **Ramal  350 Frea**               |       | 9            |       | 88            |       | 6.34                        |       | 22                    |       | 205 |   | 6.74 |   | 31 |   | 171 |   | 6.62 |   | 173 |   | 7 |   | 575 |   |
| **Sigmoide  Frea**                |       | 25           |       | 432           |       | 5.41                        |       | 1                     |       | 470 |   | 7.66 |   | 26 |   | 433 |   | 5.47 |   | 350 |   | 4 |   | 616 |   |
| **Ramal  360 Frea**               |       |         |       |          |       |                        |       | 46                    |       | 318 |   | 4.68 |   | 46 |   | 318 |   | 4.68 |   | 467 |   | 7 |   | 879 |   |
| **Ramal  425**                    |       |         |       |          |       |                        |       | 2                     |       | 307 |   | 2.69 |   | 2 |   | 307 |   | 2.69 |   | 21 |   | 0 |   | 32 |   |
| **Total  December 31, 2009** | ** ** | **692**      | ** ** | **527**       | ** ** | **9.11**                    | ** ** | **1,953**             | ** ** | **463** | ** ** | **6.78** | ** ** | **2,645** | ** ** | **480** | ** ** | **7.39** | ** ** | **40,773** | ** ** | **628** | ** ** | **78,461** | ** ** |
| Total December 31,  2008     |       | 516          |       | 575           |       | 8.85                        |       | 1,724                 |       | 513 |   | 7.72 |   | 2,240 |   | 527 |   | 7.98 |   | 37,958 |   | 575 |   | 72,445 |   |
| **Percentage  Change**            | ** ** | **+34**      | **%**      | ** **    | ** ** | ** **                  | ** ** | **+13**               | **%**      | ** ** | ** ** | ** ** | ** ** | **+18** | **%** | ** ** | ** ** | ** ** | ** ** | **+7** | **%** | **+10** | **%** | **+8** | **%** |

 

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*Note: Contains 100 percentof the resources, Minera Andes’ ownership of the mine is 49%. Mineral Resourcesare inclusive of mineral reserves. Mineral resources that are not mineralreserves do not have demonstrated economic or operational viability.  Minera Andes calculates the Silver/Goldequivalency as 1oz gold = 60 oz silver Equivalent.

 

The San José mineral resource estimate is based on 754surface and underground drill holes and 10,744 channel samples.  Channel samples were taken from drift backsin the Huevos Verdes Sur, Huevos Verdes Norte, Odin, Frea, and Kospi veinsystems.

 

The resource models were developed usingindustry-accepted methods.  P&Evalidated and adjusted the model estimates and found them to reasonablyestimate grade and tonnage.  The mineralresource estimates are compliant with CIM Definition Standards for MineralResources and Mineral Reserves as incorporated by reference in NI 43—101.

 

**Mineral Reserves**

 

At December 31, 2009 the Proven and ProbableMineral Reserves, based on an economic cutoff value of US$125.60/t and amarginal cutoff value of US$53.87 (using a price of US$810/oz for gold andUS$13.50/oz for silver), are 1,521,000 tonnes at 454 g/t silver and 7.32 g/tgold, containing 22,193,000 ounces of silver and 358,000 ounces of gold.  The mineral reserves takes into accountmarginal blocks of ore located within or on the periphery of higher gradezones.  The marginal cutoff was definedby the value of ore that meets the variable costs, but not the fixed costs.

 

**Mineral Reserves* - Proven and Probable**

 
| ** **                        | ** ** | **Proven** | ** ** | **Probable** | ** ** | **Proven  and Probable** | ** ** | **Contained  Ounces** | ** ** |
|-----------------------------------|------------|------------|------------|--------------|------------|--------------------------|------------|-----------------------|------------|
| ** **                        | ** ** | **Tonnes** | ** ** | **Ag**       | ** ** | **Au**                   | ** ** | **Tonnes**            | ** ** | **Ag** | ** ** | **Au** | ** ** | **Tonnes** | ** ** | **Ag** | ** ** | **Au** | ** ** | **Silver** | ** ** | **Gold** | ** ** | **Eq. Ag** | ** ** |
| **Vein**                          | ** ** | **(1000)** | ** ** | **(g/t)**    | ** ** | **(g/t)**                | ** ** | **(1000)**            | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(1000)** | ** ** | **(g/t)** | ** ** | **(g/t)** | ** ** | **(k oz)** | ** ** | **(k oz)** | ** ** | **(k oz)** | ** ** |
| **Frea**                          |       | 151        |       | 268          |       | 11.08                    |       | 143                   |       | 159 |   | 9.59 |   | 294 |   | 215 |   | 10.36 |   | 2,037 |   | 98 |   | 7,916 |   |
| **Kospi**                         |       | 142        |       | 597          |       | 6.94                     |       | 528                   |       | 615 |   | 7.19 |   | 670 |   | 611 |   | 7.14 |   | 13,132 |   | 153 |   | 22,311 |   |
| **Huevos  Verdes Sur**            |       | 86         |       | 649          |       | 10.05                    |       | 1                     |       | 235 |   | 4.81 |   | 87 |   | 645 |   | 9.99 |   | 1,798 |   | 28 |   | 3,477 |   |
| **Huevos  Verdes Central**        |       | 60         |       | 413          |       | 4.02                     |       | 22                    |       | 371 |   | 3.88 |   | 82 |   | 402 |   | 3.98 |   | 1,054 |   | 11 |   | 1,713 |   |
| **Huevos  Verdes Norte**          |       | 92         |       | 473          |       | 5.14                     |       | 41                    |       | 227 |   | 2.47 |   | 133 |   | 398 |   | 4.33 |   | 1,702 |   | 19 |   | 2,841 |   |
| **Ramal  350 Frea**               |       | 0          |       | 0            |       | 0.00                     |       | 35                    |       | 111 |   | 4.53 |   | 35 |   | 111 |   | 4.53 |   | 126 |   | 5 |   | 425 |   |
| **Ramal  480 Este Frea**          |       | 9          |       | 539          |       | 5.87                     |       | 2                     |       | 801 |   | 9.00 |   | 11 |   | 590 |   | 6.48 |   | 205 |   | 2 |   | 325 |   |
| **Ramal  483 Frea**               |       | 27         |       | 263          |       | 3.11                     |       | 17                    |       | 306 |   | 3.93 |   | 44 |   | 280 |   | 3.43 |   | 396 |   | 5 |   | 695 |   |
| **Ramal  Frea**                   |       | 30         |       | 586          |       | 6.86                     |       | 34                    |       | 414 |   | 4.87 |   | 64 |   | 496 |   | 5.81 |   | 1,018 |   | 12 |   | 1,737 |   |
| **Ramal  861 A Kospi**            |       | 9          |       | 189          |       | 8.84                     |       | 5                     |       | 61 |   | 8.62 |   | 14 |   | 143 |   | 8.76 |   | 67 |   | 4 |   | 307 |   |
| **Ramal  861 B Kospi**            |       | 4          |       | 224          |       | 7.80                     |       | 18                    |       | 285 |   | 13.57 |   | 22 |   | 275 |   | 12.65 |   | 192 |   | 9 |   | 731 |   |
| **Ramal  861 C Kospi**            |       | 0          |       | 0            |       | 0.00                     |       | 10                    |       | 455 |   | 6.62 |   | 10 |   | 455 |   | 6.62 |   | 140 |   | 2 |   | 260 |   |
| **Ramal  Huevos Verdes Norte**    |       | 0          |       | 0            |       | 0.00                     |       | 7                     |       | 546 |   | 4.97 |   | 7 |   | 546 |   | 4.97 |   | 133 |   | 1 |   | 193 |   |
| **Ramal  Huevos Verdes Sur**      |       | 4          |       | 293          |       | 5.38                     |       | 11                    |       | 150 |   | 6.42 |   | 15 |   | 189 |   | 6.14 |   | 93 |   | 3 |   | 273 |   |
| **Ramal  Kospi**                  |       | 4          |       | 92           |       | 5.64                     |       | 29                    |       | 96 |   | 5.72 |   | 33 |   | 95 |   | 5.72 |   | 100 |   | 6 |   | 459 |   |
| **Total  December 31, 2009** | ** ** | **618**    | ** ** | **457**      | ** ** | **7.66**                 | ** ** | **903**               | ** ** | **452** | ** ** | **7.09** | ** ** | **1,521** | ** ** | **454** | ** ** | **7.32** | ** ** | **22,193** | ** ** | **358** | ** ** | **43,663** | ** ** |
| Total December 31,  2008     |       | 519        |       | 508          |       | 7.92                     |       | 1,114                 |       | 529 |   | 7.90 |   | 1,632 |   | 522 |   | 7.90 |   | 27,388 |   | 415 |   | 52,274 |   |
| **Percentage  Change**            | ** ** | **+19**    | **%**      | ** **   |       |                     | ** ** | **-19**               | **%**      | ** ** | ** ** | ** ** | ** ** | **-7** | **%** | ** ** | ** ** | ** ** | ** ** | **-19** | **%** | **-14** | **%** | **-16** | **%** |

 

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*Note: Contains 100 percentof the reserves.  Minera Andes ownershipof the mine is 49%.  Minera Andescalculates the Silver/Gold equivalency as 1oz gold = 60 oz silver Equivalent.

 

50

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The decrease in the silverand gold content of the mineral reserves from December 31, 2008 to December 31,2009 is due to lower Ag and Au grades and less tonnage being identified by theconversion of resources to reserves than being mined during 2009.  At the current mill capacity of 1,500 tonnesper day, the reserves provide a mine life of 2.9 years as of December 31,2009.

 

The following table providesa reconciliation of the December 2009 mineral reserves to the December 31,2008 mineral reserves taking production during the period into account.  The percentage gain (loss) is calculated bydividing the reported December 31, 2009 reserves by the reported December 31,2008 reserves.  The amount gained is themineral reserve reported on December 31, 2009 less the depleted mineralreserve resulting from production.

 

**Reconciliation of Mineral Reserves* on December 31, 2009compared to December 31, 2008**

 
| **Description**                                    | ** ** | **Tonnes**    | ** ** | **Ag (oz)**    | ** ** | **Au (oz)** | ** ** | **EqAg  (oz)** | ** ** |
|----------------------------------------------------|------------|---------------|------------|----------------|------------|-------------|------------|----------------|------------|
| **Reported 12/31/2008**                            | ** ** | **1,632,000** | ** ** | **27,388,000** | ** ** | **415,000** | ** ** | **52,274,000** | ** ** |
| **Less 2009 Reserve Depletion (Production)**       |       | (404,000      | )          | (6,256,000     | )          | (90,000     | )          | (11,642,000    | )          |
| **Depleted at 12/31/2009**                         |       | 1,228,000     |       | 21,132,000     |       | 325,000     |       | 40,632,000     |       |
| **Reported 12/31/2009**                            | ** ** | **1,521,000** | ** ** | **22,193,000** | ** ** | **358,000** | ** ** | **43,663,000** | ** ** |
| **Plus 2009 Reserve Addition**                     |       | 293,000       |       | 1,061,000      |       | 33,000      |       | 3,031,000      |       |
| **Percent Gain (Loss) 12/31/2009 over 12/31/2008** | ** ** | **-7**        | **%**      | **-19**        | **%**      | **-14**     | **%**      | **-16**        | **%**      |

 

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*Note: Contains 100 percentof the reserves.  Minera Andes**’** ownership of the mine is 49%.

Minera Andes calculates theSilver/Gold equivalency as 1oz gold = 60 oz silver Equivalent.

 

Key assumptions, parametersand methods used in the mineral resource and mineral reserve estimates are:

 

·                                Drillhole assay values and channelsamples were combined for mineral resource estimation;

·                                Bulk density values used for the estimateare 2.60 tonnes per cubic meter (t/m3) for Huevos Verdes Sur, 2.60 t/m3 forFrea, and 2.60 t/m3 for Kospi;

·                                Assays values manually identified asore-grade were composited to length-weighted composite samples;

·                                Prior to block estimation, gold compositesamples were cut to 150 g/t at Huevos Verdes Sur,70 g/t at Frea and 40 g/t atKospi. Silver assays were cut to 10,000 g/t at Huevos Verdes Sur, 4,200 g/t atFrea, and 4,400 g/t at Kospi;

·                                Estimation was done using oriented searchellipses and Ordinary Kriging where sufficient resolution was available forvariography, or by Inverse Distance Cubed weighting of composite values wherethe resolution was poor;

·                                Mineral resource estimation was confinedto areas considered to have a reasonable degree of geological confidence.

·                                The mineral reserve cut-off value (“COV”)is based on historical January to November 2009 geologic, mining,plant and mine administration variable and fixed costs, and December 2009estimated costs.  Economic Cut-off Values(“ECOV”) were estimated using both variable and fixed costs and MarginalCut-off Values (“MCOV”) were estimated using variable costs only.  The mineral reserve estimate is primarilybased on the ECOV.  Ore with a gradeabove the MCOV and less than the ECOV are included in the mineral reserveestimate if it was necessary to develop through them in order to access oregrades above the ECOV.  A total of 78% ofreserves are at or above the ECOV and 22% of mineral reserves are between theECOV and the MCOV.  The ECOV and the MCOVare US$125.60/t and US$53.87/t, respectively.

·                                The economic and marginal cut-offs usedto estimate mineral reserves are 388 g/t Ag and 166 g/t Ag Equivalent,respectively.

·                                Mineral reserves are estimated to aminimum 0.8 meter (m) mining thickness. This adds 0.8% to the initial measured and indicated mineral resourcesused to estimate mineral reserves.

·                                Within the boundaries of this 0.8 mminimum thickness there is some material that contains combined Ag and Au gradevalues below the MCOV cut-off value that must be mined.  This material is referred to as planned internaldilution.  Planned internal dilution isestimated to be 5.4 %, 0.5 % and 0.5 % by tonnes, contained Ag and containedAu, respectively.

·                                Mine recovery is estimated based on themine plan and design.  Mine recoverylosses includes pillars not recovered, losses due to bad ground and blasted oreleft in stopes.  Of the initial measuredand indicated mineral resources used to estimate mineral reserves an estimated76% of these mineral resources will be recovered.

 

51

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·                                Planned external dilution is estimated,based on the mine plan and design.  Thisplanned external dilution is estimated based on historical reconciliation datagathered, including excavation surveys, and includes slough and blasted wasterock from both the hanging and footwalls, mined backfill and blasted waste sentto the mill.  Planned external dilutionis estimated to be 21%.

 

**MINING OPERATIONS**

 

The San José mill and related facilities were toured by P&E duringthe month of February, 2009.

 

The process plant is a conventional flotation mill with some concentrateprocessed to doré on site. The current cyanidation circuit however hasinsufficient capacity to process all concentrate and the balance is shipped toa smelter or broker. Mechanical completion of mill expansion to increaseprocess capacity from 750 t/d to 1500 t/d was achieved in October 2008. Athroughput rate of 1500 t/d has been achieved occasionally on a daily basissince November 2008, and the average daily rate was 1342 t/d in December 2008.

 

Process sampling and tonnage measurements in the mill are controlled bylaboratory personnel.  Except for finalconcentrate sampling, single stage straight line automatic sample cutters areemployed for slurry sampling. Current sampling accuracy is considered to beunsatisfactory by MSC and upgrading of all mill sampling stations is planned,including a conversion from one to two stage sampling. Single stage sampling ingeneral is not appropriate for sampling of high flowrates, partly because thesampling frequency and cut size must be set to provide a manageable finalsample size, rather than to necessarily meet sampling requirements. Multistagesampling overcomes this difficulty. Historically, other operations haveemployed up to four sample stages for head sampling from cyclone overflow, butas the number of stages is increased the maintenance and supervisionrequirement for the system increases. Two stages is a reasonable compromise andwill yield improved metallurgical accounting.

 

Flotation concentrate is packaged in bags for shipment. Each bag is pipesampled for analysis and moisture determination.

 

The San José laboratory facilities were audited in early 2008 by Smeeand Associates Consulting Ltd. of North Vancouver. Their recommendations havenow been partially implemented; a new laboratory building is under constructionwhich will facilitate full implementation of recommended QA/QC standards.

 

Crushing is conventional, consisting of a 762 mm x 1060 mm jaw crusherfollowed by Metso HP200 standard and HP200 shorthead cone crushers to produce a9.5 mm crushed and screened product. The ore contains no clay.

 

Grinding is conducted in two 1000 hp ball mills operating in parallel toproduce a target grind of 105 microns for flotation. A gravity circuit shown onthe flowsheet is not in use.

 

Gold and silver are recovered in a flotation circuit consisting ofrougher/scavenger flotation followed by a single cleaning stage to produce,currently, about 45 t/d of concentrate. The concentrate tonnage exceeds thecapacity of the cyanidation circuit and the excess is thickened, filtered,bagged in one tonne tote bags, and shipped for smelting elsewhere. Withcompletion of an expansion currently under evaluation, all concentrate would beprocessed to doré on site.

 

Cyanidation of concentrates is conducted in three Gekko ILR operating on24 hour cycles.  Leached slurry isdischarged to a three stage CCD circuit for solution recovery. This would beincreased to five stages in the expansion to improve soluble losses. Solutionis clarified and precious metals are electrowon in EW cells using steel woolcathodes. After drying and retorting for mercury removal, the product is metedto doré in crucible furnaces.

 

Washed cyanidation tailings are discharged to a lined cyanidationtailings pond, with decanted solution returned to the process. By agreementwith the provincial government a maximum of 50 ppm total cyanide in the pondwas agreed to in the absence of provincial or federal guidelines.  With the knowledge of the Argentineanauthorities, the current total cyanide level has been allowed to exceed thistarget pending installation of a Merrill Crowe recovery plant this year and thesubsequent recovery of significant silver and gold values contained in thepond.

 

The tailings disposal area has capacity for 7 years of flotationtailings and 5 years of cyanidation tailings.

 

52

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Monitoring of water and air quality, soil sampling and otherenvironmental and meteorological measurements are routinely conducted andrecorded in quarterly reports, which also include records of social andcommunity support activities undertaken in the period.

 

*Metallurgy*

 

Tonnage processed in theSan José mill averaged 809 t/d for 2008 and 1300 and 1372 t/d for November andDecember, respectively. Ore grades trended lower toward during the latter halfof the year.

 

Reported gold and silverrecoveries are referred to by MSC as “effective recoveries” and are calculatedas metal physically recovered divided by metal in feed based on assay heads.Fig. 15-1 shows a comparison on a monthly basis between assay heads and “calculatedheads” (by P&E) which are based on production + inventory + tails. Thecomparison over the year is satisfactory, but there are significant variationson a monthly basis which may in part be due to fluctuations in circuitinventory that are not reflected in the reported balance. In this latterrespect, a periodic cleanups in the electrowinning area (which is reported asinventory and shown as “cathodes”) are not included in the reported effectivemonthly recovery calculations but are included in the cumulative recoveries forthe year. Table 15.6 records a summary of effective recoveries and totalrecoveries including “cathode inventory”. The data are P&E calculatedfigures and differ slightly from San José monthly report figures because ofrounding errors.

 

Summaryof effective recoveries and total recoveries including cathode inventory

 
| **Month** | ** ** | **Effective  Production, oz** | ** ** | **Cathode  Inventory, oz** | ** ** | **Total  Production, oz** | ** ** |
|-----------|------------|-------------------------------|------------|----------------------------|------------|---------------------------|------------|
| **2008**  | ** ** | **Au**                        | ** ** | **Ag**                     | ** ** | **Au**                    | ** ** | **Ag** | ** ** | **Au** | ** ** | **Ag** | ** ** |
| 1         |       | 3267                          |       | 248378                     |       | 529.92                    |       | 35845.05 |   | 3797 |   | 284223 |   |
| 2         |       | 3781                          |       | 302435                     |       |                      |       |   |   | 3781 |   | 302435 |   |
| 3         |       | 4560                          |       | 381428                     |       |                      |       |   |   | 4560 |   | 381428 |   |
| 4         |       | 3794                          |       | 334722                     |       | 147.8                     |       | 12892.72 |   | 3942 |   | 347614 |   |
| 5         |       | 4206                          |       | 356954                     |       |                      |       |   |   | 4206 |   | 356954 |   |
| 6         |       | 4254                          |       | 388757                     |       |                      |       |   |   | 4254 |   | 388757 |   |
| 7         |       | 4105                          |       | 377648                     |       | 277.34                    |       | 42349.82 |   | 4382 |   | 419998 |   |
| 8         |       | 4039                          |       | 287309                     |       |                      |       |   |   | 4039 |   | 287309 |   |
| 9         |       | 3925                          |       | 282501                     |       |                      |       |   |   | 3925 |   | 282501 |   |
| 10        |       | 4469                          |       | 321942                     |       | 235.7                     |       | 31106.44 |   | 4704 |   | 353048 |   |
| 11        |       | 4866                          |       | 379680                     |       |                      |       |   |   | 4866 |   | 379680 |   |
| 12        |       | 6988                          |       | 516719                     |       | 796.92                    |       | 80003.38 |   | 7785 |   | 596722 |   |

 

Silver Calculated Head vs. Assay Head

 

53

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Average reported oregrades and recoveries for 2008 are shown below.

 

AverageOre Grades and Reported Metal Recoveries, Jan-Dec 2008

 
| **Mine**           | ** ** | **San  José** | ** ** |
|--------------------|------------|--------------------|------------|
| Silver Grade, g/t  |       | 559                |       |
| Silver Recovery, % |       | 82.3               |       |
| Gold Grade, g/t    |       | 6.69               |       |
| Gold Recovery, %   |       | 85.2               |       |

 

*OperatingCosts and Consumptions*

 

Direct plant operatingcosts under mill control include labour and reagents/supplies. Other costs thatare distributed monthly to the various cost centres including the plantinclude, primarily, maintenance labour and power.

 

The October 2008average mill costs for processing San José ore to concentrate and doré are summarizedas follows.

 

*October 2008Average Mill Costs*

 
| **Item**              | ** ** | **$/t** | ** ** |
|-----------------------|------------|---------|------------|
| Labour                |       | 7.29    |       |
| Reagents and supplies |       | 9.43    |       |
| Other expenses        |       | 6.88    |       |
| Distributables        |       | 14.77   |       |
| Total                 |       | 38.37   |       |

 

*MillManning*

 

Excluding management andmaintenance support, operating labour totalled 75 in December 2008, plus 7on the metallurgical staff and 27 in the laboratory.

 

*Reagentsand Steel Consumption*

 

Year to date averageconsumption of steel and major reagents for 2008 was as follows.

 

*2008Year to Date Average Consumption of Steel and Major Reagents*

 

54

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| **Item**          | ** ** | **kg/t** | ** ** |
|-------------------|------------|----------|------------|
| Grinding steel    |       | 1.725    |       |
| Xanthate          |       | 0.128    |       |
| Frother           |       | 0.025    |       |
| Cyanide           |       | 0.083    |       |
| Hydrogen peroxide |       | 0.085    |       |

 

*Power*

 

Power consumption for theplant is recorded at 53.2 kWh/t. Unit power cost for 2008 was$0.27 / kWh. This cost will decrease substantially in future due toconversion from diesel to power from the national grid.

 

*MineDesigns*

 

The San José Mine iscurrently a ramp access underground mining operation. The San José veins areaccessed from three main portals: The Tehuelche Portal, the Kospi Portal andthe Güer Aike Portal. Initially two small inclined shafts were developed toprovide access to the HVS and HVN veins. These shafts are now used tosupplement the primary ventilation circuit. Main ramps are generally 4.0 m wideby 4.3 m high at a 12 % gradient on the straight sections and 10.5 % on thecurves. A smaller profile is used in areas where truck access is not required.The main ramps are located about 50 m from the vein, depending on the dip ofthe ore. Cross-cuts to the ramp are centrally positioned on the vein andusually have an ore pass and a waste/backfill pass.

 

The average mining widthacross all of the vein systems is about 2m. The dip of the veins varies from55o to 70o. Both Conventional, for stopes less than 2 m wide, and MechanizedCut and Fill using scoop trams, and jacklegs (pneumatic rock drills) orsingle-boom jumbos, respectively, is used at San José. The majority ofproduction ore is derived from the “uphole retreat” technique where a panel ofapproximately 50m in length is drilled with upholes and retreated along strike.Horizontal “breasting” is only used on the initial lift in each stope. A “resue”mining technique is employed in narrow high grade areas.  Stoping areas are separated by 3 m high sillpillars. A timber floor mat, for narrow stopes, or cemented backfill, for widerstopes, is placed on the sill pillar (1st lift). The primary ventilationutilizes the negative pressure system that is based on the main (primary)ventilation fan drawing the contaminated air from the mine. Fresh air entersthe mine through either the main access declines or a dedicated fresh air raisewhere it is directed to each of the working areas via a secondary ventilationsystem. Development waste rock is usually hauled to a surface stockpile andthen rehandled through waste passes when it is required underground asbackfill. Supplementary backfill is available from a surface quarry(s). Theground support consists of random rockbolts with occasional mesh. Timber setsare also used in some areas. Groundwater inflow is estimated to be between 8and 20 L/s. Floor gradients are constructed to assist the natural flow of waterto the sumps. Mine water is pumped to the main underground sumps using small7ph Flygt submersible pumps. Grindex 50 hp submersible pumps are used to pumpthe water to the surface settling ponds. Clean water is pumped directly fromthe settling pond to the processing plant and the main water reservoir, or returnedto the mine to be used as mine process water (for drilling, washing etc.).

 

The undergroundproduction rate is scheduled to be 1,500 t/d. It is estimated that theHuevos Verdes, Frea and Kospi veins will each deliver 500 t/d ore,100 t/d. from each stoping area. Production from San José is estimated todeliver 1,625,800 tonnes of ore to the mill facility, by the first quarter of2012.

 

The long-hole stopingmining method is being considered, which has the potential of reducingdrilling, blasting and mucking mining cost at the expense of higher dilutionand lower mine extraction. P&E recommends this mining method be tested, ina stope, to evaluate the pros and cons of this method.

 

A summary of San José’smine operating development requirements and schedule is presented below.

 

55

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**OperatingDevelopment Summary**

**San José Mining Operation**

 
| ** **              | ** ** | ** ** | ** ** | **Year** | ** ** | **2009 /  11** | ** ** |
|-------------------------|------------|------------|------------|----------|------------|----------------|------------|
| ** **              | ** ** | **Size**   | ** ** | **2009** | ** ** | **2010**       | ** ** | **2011** | ** ** | **Total** | ** ** |
| **Description**         | ** ** | **(mxm)**  | ** ** | **(m)**  | ** ** | **(m)**        | ** ** | **(m)** | ** ** | **(m)** | ** ** |
| Preparation By Vein     |       |       |       |     |       |           |       |   |   |   |   |
| Huevos Verdes Sur       |       |       |       | 1,084    |       | 0              |       | 0 |   | 1,084 |   |
| Huevos Verdes Centro    |       |       |       | 2,240    |       | 0              |       | 0 |   | 2,240 |   |
| Veta HVN                |       |       |       | 330      |       | 1,615          |       | 0 |   | 1,945 |   |
| Veta Frea               |       |       |       | 1,968    |       | 690            |       | 0 |   | 2,658 |   |
| Veta Kospi              |       |       |       | 3,030    |       | 3,267          |       | 860 |   | 7,157 |   |
| Ramal Huevos Verdes Sur |       |       |       | 0        |       | 117            |       | 267 |   | 384 |   |
| Ramal 483               |       |       |       | 0        |       | 117            |       | 238 |   | 355 |   |
| Total                   |       |       |       | 8,652    |       | 5,806          |       | 1,365 |   | 15,823 |   |
|                    |       |       |       |     |       |           |       |   |   |   |   |
| Preparation By Type     |       |       |       |     |       |           |       |   |   |   |   |
| Ramp Development        |       | 3.0 x 3.0  |       | 6,852    |       | 4,692          |       | 840 |   | 12,384 |   |
| Raise Boring            |       | 1.8        |       | 500      |       | 0              |       | 0 |   | 500 |   |
| Horizontal Development  |       | 4.30 x 4.0 |       | 620      |       | 334            |       | 70 |   | 1,024 |   |
| Vertical Development    |       | 1.5 x 1.5  |       | 680      |       | 780            |       | 455 |   | 1,915 |   |
| Total                   |       |       |       | 8,652    |       | 5,806          |       | 1,365 |   | 15,823 |   |

 

Note:  Represents 100% of theProperty. Minera Andes has a 49 % interest in the Property.

 

A summary of San José’smine capital development requirements and schedule is presented in thefollowing table.

 

**CapitalDevelopment and Infrastructure Summary**

**San José Mining Operation**

 
| ** **                           | ** ** | ** ** | ** ** | **Year** | ** ** | **2009 /  11** | ** ** |
|--------------------------------------|------------|------------|------------|----------|------------|----------------|------------|
| ** **                           | ** ** | **Size**   | ** ** | **2009** | ** ** | **2010**       | ** ** | **2011** | ** ** | **Total** | ** ** |
| **Description**                      | ** ** | **(mxm)**  | ** ** | **(m)**  | ** ** | **(m)**        | ** ** | **(m)** | ** ** | **(m)** | ** ** |
| Development / Infrastructure By Vein |       |       |       |     |       |           |       |   |   |   |   |
| Veta Frea                            |       |       |       | 275      |       | 660            |       | 0 |   | 935 |   |
| Huevos Verdes Centro                 |       |       |       | 2,254    |       | 0              |       | 0 |   | 2,254 |   |
| Veta HVN                             |       |       |       | 1,486    |       | 1,899          |       | 0 |   | 3,385 |   |
| Ramal Frea                           |       |       |       | 702      |       | 954            |       | 0 |   | 1,656 |   |
| Veta Kospi                           |       |       |       | 4,096    |       | 5,093          |       | 2,186 |   | 11,375 |   |
| Ramal Huevos Verdes Sur              |       |       |       | 0        |       | 700            |       | 690 |   | 1,390 |   |
| Ramal 483                            |       |       |       | 0        |       | 750            |       | 800 |   | 1,550 |   |
| Total                                |       |       |       | 8,813    |       | 10,056         |       | 3,676 |   | 22,545 |   |
|                                 |       |       |       |     |       |           |       |   |   |   |   |
| Development / Infrastructure By Type |       |       |       |     |       |           |       |   |   |   |   |
| Ramp Development                     |       | 3.0 x 3.0  |       | 3,108    |       | 2,219          |       | 1,136 |   | 6,463 |   |
| Raise Boring                         |       | 1.8        |       | 1,810    |       | 2,510          |       | 720 |   | 5,040 |   |
| Horizontal Development               |       | 4.30 x 4.0 |       | 3,830    |       | 5,262          |       | 1,760 |   | 10,852 |   |
| Vertical Development                 |       | 1.5 x 1.5  |       | 65       |       | 65             |       | 60 |   | 190 |   |
| Total                                |       |       |       | 8,813    |       | 10,056         |       | 3,676 |   | 22,545 |   |

 

Note: Represents100% of the Property. Minera Andes has a 49 % interest in the Property.

 

During 2007 and 2008 atotal of 93,000 tonnes and 296,000 tonnes of ore were processed at the San JoséMine, respectively. A total of 1,625,800 tonnes of ore, grading 522.7 g/t Agand 7.89 g/t Au is scheduled to be mined from 2009 to 2012, life of mine, fromthe underground operations at San José. A summary of this mine productionschedule is presented below.

 

56

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**Underground Mine Ore Production Schedule**

**San José Mining Operation**

 
| ** **           | ** ** | ** ** | ** ** | **Year** | ** ** | **2009-12** | ** ** |
|----------------------|------------|------------|------------|----------|------------|-------------|------------|
| **Mining Method**    | ** ** | **Units**  | ** ** | **2009** | ** ** | **2010**    | ** ** | **2011** | ** ** | **2012** | ** ** | **Total** | ** ** |
| Mechanized C&F   |       | t          |       | 347,737  |       | 328,315     |       | 432,822 |   | 62,331 |   | 1,171,206 |   |
| Ag grade             |       | g/t        |       | 542      |       | 590         |       | 478 |   | 802 |   | 546 |   |
| Au grade             |       | g/t        |       | 7.71     |       | 8.26        |       | 9.30 |   | 10.29 |   | 8.59 |   |
| Conventional C&F |       | t          |       | 160,761  |       | 201,176     |       | 92,634 |   | 0 |   | 454,571 |   |
| Ag grade             |       | g/t        |       | 508      |       | 449         |       | 420 |   |   |   | 464 |   |
| Au grade             |       | g/t        |       | 6.46     |       | 5.76        |       | 6.16 |   |   |   | 6.09 |   |
| Total                |       | t          |       | 508,498  |       | 529,491     |       | 525,457 |   | 62,331 |   | 1,625,777 |   |
| Ag grade             |       | g/t        |       | 531      |       | 536         |       | 468 |   | 802 |   | 523 |   |
| Au grade             |       | g/t        |       | 7.32     |       | 7.31        |       | 8.75 |   | 10.29 |   | 7.89 |   |

 

Note: Represents 100% of the Property. Minera Andes has a 49 %interest in the Property.

 

*Ore Stockpile*

 

A summary of orestockpile is presented the table immediately below. As of December 31,2008 an estimated total of 65,500 tonnes, grading 383.1 g/t Ag and 4.31 g/t Au,was in stockpile(s) at San José. MSC estimates 13,500 tonnes, grading389.0 g/t Ag and 1.67 g/t Au, of stockpiled ore will be processed in 2009. Theremaining stockpile will be processed in the 1st quarter 2012, at end of minelife.

** **

**Ore Stockpile**

**San José Mining Operation**

 
| **Year**            | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Total** | ** ** |
|---------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| Tonnes at Beginning |       | 65,528   |       | 51,980   |       | 51,980   |       | 51,980   |       |      |       |
| Ag                  |       | 383.12   |       | 383.12   |       | 383.12   |       | 383.12   |       |      |       |
| Au                  |       | 4.31     |       | 4.31     |       | 4.31     |       | 4.31     |       |      |       |
|                |       |     |       |     |       |     |       |     |       |      |       |
| Tonnes Processed    |       | 13,548   |       | 0        |       | 0        |       | 51,980   |       | 65,528    |       |
| Ag                  |       | 383.12   |       |     |       |     |       | 383.12   |       | 383.12    |       |
| Au                  |       | 4.31     |       |     |       |     |       | 4.31     |       | 4.31      |       |
|                |       |     |       |     |       |     |       |     |       |      |       |
| Tonnes at End       |       | 51,980   |       | 51,980   |       | 51,980   |       | 0.1      |       |      |       |
| Ag                  |       | 383.12   |       | 383.12   |       | 383.12   |       | 383.12   |       |      |       |
| Au                  |       | 4.31     |       | 4.31     |       | 4.31     |       | 4.31     |       |      |       |

 

*Note:Represents 100% of the Property. Minera Andes has a 49 % interest in theProperty.*

 

*Processing*

 

Processing informationand data was supplied by MSC.

 

A floatation concentrateis produced recovering an average 84.1 % and 84.4 % of the containedgold and silver, respectively, from the ore. Approximately fifty percent of thefloatation concentrate is further processed on site by intensive cyanideleaching followed by electrowinning to produce a precipitate product. Theprecipitate is smelted in furnaces to produce doré bullion. A total of 343,400oz of gold and 22.7 million oz of silver will be recovered in the doré and thefloatation concentrate representing an overall recovery of 81.5 % gold and80.7 % silver, LOM. A summary of these plant statistics, and others, ispresented below.

 

**ProcessPlant Statistics**

**San José Mining Operation**

 
| **Description / Year**        | ** ** | **Units** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Total** | ** ** |
|-------------------------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
| Plant capacity                |       | mt/day    |       | 1,500    |       | 1,500    |       | 1,500    |       | 1,500    |       | 1,500     |       |
| Tonnage Treated               |       | mt        |       | 522,046  |       | 529,491  |       | 525,457  |       | 114,311  |       | 1,691,305 |       |
| Grades Au                     |       | gr/mt     |       | 7.24     |       | 7.31     |       | 8.75     |       | 7.57     |       | 7.75      |       |
| Grades Ag                     |       | gr/mt     |       | 527.3    |       | 536.4    |       | 467.6    |       | 611.7    |       | 517.3     |       |
| Concentrate From Ore          |       | mt        |       | 34,803   |       | 35,299   |       | 35,030   |       | 7,621    |       | 112,754   |       |
| Flotation Recovery -  Au |       | %         |       | 83.9     | %          | 82.8     | %          | 85.3     | %          | 83.5     | %          | 84.1      | %          |
| Flotation Recovery -  Ag |       | %         |       | 84.4     | %          | 84.0     | %          | 85.3     | %          | 83.1     | %          | 84.4      | %          |
| Concentrate Ratio             |       |      |       | 15       |       | 15       |       | 15       |       | 15       |       | 15        |       |
| Humidity                      |       | %         |       | 10.0     | %          | 10.0     | %          | 10.0     | %          | 10.0     | %          | 10.0      | %          |

 

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| Concentrate Au Fines              |   | oz     |   | 50,968    |   | 51,506    |   | 63,008    |   | 11,616    |   | 177,098    |   |
|-----------------------------------|--------|--------|--------|-----------|--------|-----------|--------|-----------|--------|-----------|--------|------------|--------|
| Concentrate Ag Fines              |   | oz     |   | 3,733,230 |   | 3,836,267 |   | 3,367,802 |   | 934,576   |   | 11,871,876 |   |
| Precipitate Production Capacity   |   | mt/day |   | 50        |   | 50        |   | 50        |   | 50        |   | 50         |   |
| Precipitate Concentrate           |   | mt     |   | 17,402    |   | 17,650    |   | 17,515    |   | 3,810     |   | 56,377     |   |
| Flotation to Precipitate Rec - Au |   | %      |   | 94.0      | %      | 94.1      | %      | 94.1      | %      | 94.1      | %      | 94.1       | %      |
| Flotation to Precipitate Rec - Ag |   | %      |   | 91.7      | %      | 92.2      | %      | 92.2      | %      | 92.2      | %      | 92.0       | %      |
| Dust in Precipitate               |   | %      |   | 9.0       | %      | 10.0      | %      | 10.0      | %      | 10.0      | %      | 9.7        | %      |
| Precipitate                       |   | mt     |   | 119       |   | 124       |   | 109       |   | 30        |   | 382        |   |
| Precipitate to Dore Rec. - Au     |   | %      |   | 99.8      | %      | 99.8      | %      | 99.8      | %      | 99.8      | %      | 99.8       | %      |
| Precipitate to Dore Rec. - Ag     |   | %      |   | 99.2      | %      | 99.2      | %      | 99.2      | %      | 99.2      | %      | 99.2       | %      |
| Dore Au Fines                     |   | oz     |   | 47,826    |   | 48,365    |   | 59,165    |   | 10,908    |   | 166,264    |   |
| Dore Ag Fines                     |   | oz     |   | 3,395,543 |   | 3,506,839 |   | 3,078,602 |   | 854,323   |   | 10,835,307 |   |
| Overall Recovery - Au             |   | %      |   | 81.3      | %      | 80.3      | %      | 82.7      | %      | 80.9      | %      | 81.5       | %      |
| Overall Recovery - Ag             |   | %      |   | 80.6      | %      | 80.4      | %      | 81.6      | %      | 79.6      | %      | 80.7       | %      |
| Total Au Fines                    |   | oz     |   | 98,794    |   | 99,871    |   | 122,173   |   | 22,524    |   | 343,362    |   |
| Total Ag Fines                    |   | oz     |   | 7,128,773 |   | 7,343,107 |   | 6,446,404 |   | 1,788,899 |   | 22,707,183 |   |

 

Note:Represents 100% of the Property. Minera Andes has a 49 % interest in theProperty.

 

**EXPLORATIONAND DEVELOPMENT**

 

The 2010 explorationprogram at San José consists of surface geophysics and a diamond core drillingprogram totaling approximately 34,000 meters of drilling.  Additional follow-up drilling of up to 22,000meters may be drilled during the course of the year depending upon the successof the basic program.  The goal of thisyear’s exploration program is to upgrade existing resources to replace reservesdepleted during 2010 and to discover new mineralized veins (new resources) onthe San José Property, comprising of approximately 115 km2 (28,400 acres).

 

# **LOS AZULES COPPER PROJECT**

# ** **

Unless otherwiseindicated, technical information in this AIF regarding the Los Azules CopperProject is derived from the technical report (the “**Los Azules Technical Report**”) entitled “Canadian NationalInstrument 43-101 Technical Report in Support of the Preliminary Assessment onthe Development of the Los Azules Copper Project, San Juan Province, Argentina”dated March 19, 2009 prepared by Randolph P. Schneider (MAusIMM), projectmanager, Samuel Engineering, Inc., Robert Sim (P.Geo), an independentconsultant of SIM Geological, Inc., Bruce M. Davis (Ph.D., FAusIMM),president of BD Resource Consulting Inc., William L. Rose (P.E), principalmining engineer of WLR Consulting, Inc., and Scott C. Elfen (P.E.),general manager of Vector Perú S.A.C.,each of whom is a “qualified person” and “independent”of the Corporation, in each case, within the meaning of NI 43-101. Suchinformation is based on assumptions, qualifications and procedures which arenot fully described herein.  Referenceshould be made to the full text of the Los Azules Technical Report which isavailable for review under our profile on SEDAR at www.sedar.com. The LosAzules Report is not and shall not be deemed to be incorporated by referenceinto this AIF.

 

**PROJECTDESCRIPTION AND LOCATION**

 

The Los Azules Project islocated near 31° 13' 30" south latitude and 70° 13' 50" westlongitude in the western portion of San Juan Province, Calingasta Department,adjacent to the Argentina/Chilean border as shown below.

 

The Los Azules Project isabout 20,612 ha (50,933 acres) and was discovered by Minera Andes geologiststhrough regional exploration in the Andes. The project is situated between two prolific mineral belts and is heldby two “Manifestaciones de Descubrimiento”.

 

The hydrothermal systemat Los Azules is an altered area approximately 8 km (N-S) by 5 km (E-W)surrounding a core mineralized porphyry target that is about 3 km by 1 km insize.  Initial exploration efforts havebeen typical for a porphyry type deposit and have used a hole spacing of 400 m(N-S) and 200 m (E-W).  Now thatmineralization has been confirmed, Minera Andes is continuing to infill drillthe grid spacing in order to upgrade the mineral resource estimate from anInferred status to an Indicated and Measured status in preparation for aPrefeasibility Study.

 

58

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*Environmental Liabilities*

*** ***

Atthe present time, there are no significant environmental issues at the projectsite, as it is an exploration project. Reclamation activities are comprised ofre-grading the drill pad sites.

 

In February 2007, Minera Andes had deployed an environmental group(Vector Argentina S.A.) from Mendoza to commence an initial baseline studywhich includes a water sampling program within the primary target area, as wellas surrounding areas and downstream of the mancamp.

 

59

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*Permitting Requirements*

*** ***

Whenconsidering project permitting, the Argentine legislation differentiatesbetween prospecting and exploration activities. It is understood thatexploration activities include sampling and site mapping, whereas prospectingactivities include drilling.

 

Allpermits required for prospecting have been obtained and are kept current,including all necessary environmental and water usage permits.

 

Otherregulations to be completed for the Los Azules Project are related to HazardousWaste regulations set forth in National Law 24051, adopted by the province ofSan Juan. This law regulates the generation, handling, transportation,treatment and disposal of hazardous waste materials.

 

Forthe Health and Safety framework, the mining company must hire an OccupationalHazard Insurer (ART, as per the acronym in Spanish) in order to identify andevaluate occupational hazards and to design Preventive and Emergency Programs.For the mining sector, companies must give priority to riskier occupationalactivities and employee training.

 

**ACCESSIBILITY, CLIMATE, LOCAL RESOURCES,INFRASTRUCTURE AND PHYSIOGRAPHY**

 

The Los Azules project is west and slightly north of the townCalingasta, in the San Juan Province of Argentina.  The project site is accessed by 120 km ofunimproved dirt road with eight river crossings and two mountain passes (bothabove 4,100 m elevation).  Calingasta islocated west of the city of San Juan along Route 12.At the Los Azules project,elevation ranges between 3,500 m and 4,500 m above mean sea level. The climateis tundra-like (semiarid/cold) with abundant snowfall during winter andtemperatures as low as -30°C. Frequent northwesterly winds can approach 120km/hr.Exploration work typically commences in November and terminates inearly April.

 

Thepopulation of the department of Calingasta is 8,176 inhabitants (INDEC, Census2001) and 8,456 inhabitants estimated for 2005 (Calingasta Municipality) with adensity of 0.4 inhabitants per km2.

 

Thepopulation of the town of Villa Calingasta is 2,039 inhabitants (INDEC, Census2001).

 

The Los Azules porphyry copper deposit is some 6 km to the southeast ofthe nearest Chilean-Argentina frontier. The project is west and slightly north of Calingasta, accessed by 120 kmof unimproved dirt road with eight river crossings and two mountain passes(both above 4,100 m elevation) in the Cordillera de la Totora, in the San JuanProvince of Argentina. Calingasta is located west of the city of San Juan alongRoute 12. The last 95 km of dirt road to the project was constructed by BattleMountain Gold, prior to which, access was by mules.

 

*Available Resources*

 

Historically,Villa Calingasta was a mining town that exploited aluminum. Today there is aUNDP program to remedy the liabilities of this time.

 

Theprincipal activity of the area is agriculture with fruit trees (apple andwalnut) forming 36% of the activity. Other lesser activities are the following:

 

·                  Timberand vegetables;

·                  Woodmanufacturing activities;

·                  Cidermanufacturing;

·                  Tourism(hotels, restaurants);

·                  Commercialactivities (shops); and

·                  Publicservice (health, safety, education).

 

Thecensuses do not show that nearby projects (Casposo of Intrepid, Pachón ofXstrata, Los Azules of Minera Andes, Altar of Peregrine, and a project owed byRio Doce) have increased considerably the population associated with mining.

 

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*Workers Available for the Mining Project*

** **

Basedon the INDEC 2001 census, there are 2,221 employees in the entire department;the rest are self-employed. Of those that are employed:

 

·                  31%work in public administration;

·                  14%in education;

·                  5%in domestic service;

·                  5.6%in commerce;

·                  2.5%in mines and quarries;

·                  1.4%in hotel/restaurant industry;

·                  1.2%in electricity and gas; and

·                  0.3%in financial services.

 

Theremaining approximately 6,000 persons, who are self-employed, work mainly inagriculture, which has decreased by 45% since the 1970s. These people form apotential worker pool for the project.

 

*Power*

* *

*PresentSituation*

** **

TheCalingasta substation is the nearest source of power to the Los Azules project;however, it is isolated from the provincial network.  Power supply to the region is currentlysatisfied by means of local hydro or thermal generation.

** **

*San JuanProvince Official Network Expansion to Connect New Projects*

** **

TheSan Juan provincial government is planning to expand the existing 500 kVnetwork based on the assumption that all mining projects placed on the westside of the province will be connected to the new 500/220 kV El Rodeo andCalingasta substations.  In addition tothe construction of these new substations, the 500/220 kV San Juan substation,a 165 km San Juan to El Rodeo transmission line (“**TL**”)and a 160 km El Rodeo to Calingasta TL will also have to be constructed.  Finally, the existing Gran Mendoza to SanJuan TL will need to be upgraded from 220 kV to 500 kV.  The 500 kV TL that will connect the futureSan Juan, Rodeo and La Rioja 500 kV substations is called the “Linea Minera II”(the Mining Line II) and is a national project under the regime of the Secretariade Energía de la Nacion (Federal Department of Energy).

 

Accordingto an agreement signed between Barrick and the province of San Juan, the PascuaLama and Veladero projects located in the northwest side of the province are tobe connected to the grid through the Rodeo substation; however, the agreementis presently on hold due to the retention taxes applied to mining operations bythe federal government.  A similaragreement is being considered by El Pachón, located southwest of the province,which would connect the project to the grid through a 220 kV double circuit TLconnected to the Calingasta substation, subject to the same retention taxsituation.

 

The500 kV TL that will connect the future Rodeo and Calingasta 500 kV substationsis a new venture developed by the Province of San Juan through the EnteRegulador Provincial de Electricidad — EPRE (Provincial Electric RegulatoryEntity).  At present, the project is inthe engineering stage and it is being designed to initially operate at 132 kVto connect the 6 MW Casposo project and local sites like Tamberias andBarrial.  It is planned to start theconstruction process by a call for tenders in the 1Q of 2009 and be put intooperation in 2010.  Confirmation of thefeasibility of Los Azules may alter the configuration.

 

*Cost ofEnergy*

** **

Arecent energy study commissioned by Minera Andes estimates an energy cost ofapproximately US$65 per MWh at the substation. Accounting for line losses and annual O&M expenses, the estimatedenergy cost rises to approximately US$70 per MWh at the mine site.

 

*SurfaceRights*

*** ***

TheCorporation has confirmed that it has what it believes are sufficient surfacerights for the Los Azules Project.

 

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*Topography,Elevation and Vegetation*

*** ***

Theproject is centered on La Ballena (English translation: the whale), a lowNNW-SSE-trending ridge located on the property. The property is rugged andranges in elevation from 3,500 m to nearly 4,500 m. Vegetation is sparse and isvirtually absent at higher elevations.

 

Long,narrow lakes occupy the valley floors on either side of La Ballena. These lakesare fed by snowmelt, but apparently reflect the groundwater regime as well,with standing water levels at about 3,600 m in elevation. Springs are noted atabout 3,790 m in elevation upstream of the lake along the west side of LaBallena. Groundwater-fed springs and lakes are also noted around the range tothe west between 3,800 and 3,900 m in elevation and along the eastern flank ofCordillera de la Totora. These lakes then feed the westerly flowing Rio LaEmbarrada, which is joined by the Rio Frio to the west before turning southinto the Rio de las Salinas, a main tributary to the San Juan River.

 

Depositsof glacial debris (morainal materials) and scree mantle much of the deposit andadjacent mountainsides. In the target area, these materials locally exceed 60 min thickness, but on La Ballena the cover is often 10 m or less.

 

**HISTORY**

 

OnJune 21, 2000 Battle Mountain Gold Corporation (“**BMGC**”)merged with Newmont Mining Corporation (“**NMC**”).  Prior to the merger, BMGC explored a block ofclaims on the Chile-Argentine border and discovered a large hydrothermalalteration zone associated with dacite porphyry intrusions and stockworkstructural zones, which was drilled with reverse circulation holes during 1998and 1999. This discovery led to the recognition that the suggested porphyrycopper-gold deposit area was not entirely contained within the lands controlledby BMGC.  The merger with NMC failed andthe BMGC properties were subsequently acquired by Sr. Bosque and SolitarioArgentina S.A. (“**SASA**”) and later by MIM ArgentinaS.A. (“**MIM**”). Xstrata succeeded MIM and in 2007, signed an agreement with MASAoptioning of the Los Azules lands now held by Minera Andes. The Los Azulesproject is now held 100% by the Corporation.

 

**GEOLOGICAL SETTING**

 

Theproperty is located in a geological province known as the Cordillera Frontal, amountainous region situated between the Pre-Cordillera and the Cordillera Principal.This region, located along the western side of Argentina and adjacent to theChilean border, covers the provinces of Catamarca, La Rioja, San Juan andMendoza between latitude 21°00’ south and 36°46’ south.

 

DuringMiddle to Lower Miocene times, active volcanism resulted in a geographicallybroad distribution of porphyry-type copper-gold epithermal gold-silver depositsover 250 km wide zone from the Andean Cordillera through the Pampean ranges.

 

TheLos Azules project is based on a NNW-SSW-trending ridge (“**La Ballena**”)that exists at the southern end of a hydrothermally altered systemapproximately 8 km long (N-S) by 5 km wide (E-W), which surrounds a coremineralized porphyry target that is about 3 km long by 1 km wide.

 

Previouswork recognizes two principal geological groups at Los Azules: an uppervolcanic suite and a lower intrusive complex. The volcanic suite comprises a basal rhyolitic unit overlain by daciticpyroclastics and andesitic flows.  Thelower suite is described as diorite-tonalite in composition with a daciteporphyry core.  In addition, arhyolitic-dacitic pyroclastic and volcaniclastic suite, interpreted to be partof the Choiyoi Group (Permian- Triassic) form the known basement rocks in theLos Azules area.

 

Thereappears to have been a very minor degree of near-surface remobilization ofcopper due to acidic fluids created from the breakdown of pyrite in thisreducing environment.  These mechanismsare well documented in relation to many porphyry copper deposits, oftendeveloping a high-grade blanket of “supergene” enrichment, which is overlain bya “leach” cap and is essentially void of contained metals.  It is apparent that both of these types ofmineralization zones (“**Minzone**”) havebeen developed at Los Azules and are underlain by primary sulfidemineralization comprised of pyrite, chalcopyrite and bornite.

 

Separatedomains have been interpreted for overburden (“**OVB**”),leached (“**LX**”) and supergene (“**SS**”) zones using a combination of mineral zone logging(visual observation of enrichment minerals such as chalcocite and/or covellite)and assay grades.  In many areas, thebase of the SS zone is defined at the interval where the ratio of

 

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cyanidesoluble copper (“CSCu”) to total copper (“TCu”) is greater than 60 percent.Soluble copper assay data is not present in all drill holes and hence, visualobservation is utilized in these cases.

 

Overburdenis thickest in the valley floor and thins as the slopes steepen to the west andeast.  Thicknesses are variable and rangeup to 100 m in some locations but average approximately 60 m in thickness abovethe zone of mineralization.  The Leachedzone is also locally variable in thickness from non-existent in some drillholes to almost 200 m thick in others. The average thickness of the Leach zone above the deposit isapproximately 40 m.  The underlyingSupergene zone is also somewhat variable with thicknesses ranging from zero toover 250 m with an average of approximately 70 m.

 

**EXPLORATION**

 

Noformal records of previous exploration in the project area exist prior to1980.  Evidence of prospecting (smalltrenches or pits) exists on some of the cateos.

 

Allsurvey work (primarily drill hole collar surveys) has been performed byIngeniero Agrimensur Jose Hurtado, a local contractor registered with theprovince of Mendoza with AFIP: Matricula #1498, Colegio Agrimensura deMendoza.  Jose and Associates have done,or checked, all survey work reported to date at Los Azules.

 

Accordingto BMGC and its operating subsidiaries (1999) the high Cordillera of San Juan,especially the Los Azules range (also known as the Valle de Los Patos Norte)was not effectively explored prior to the 1980’s. The only important projectactive was the Cu-Mo porphyry at El Pachón, some 100 km south of Los Azules.

 

Explorationactivities documented by BMGC included the following:

 

·                  Atthe end of the 1970’s, airborne reconnaissance and reconnaissance mappingsurveys detected a series of color anomalies that might correspond to porphyrycopper systems. These areas were located some 20 km south of the Paso de LaCoipa-Los Azules range.

·                  Duringthe summer field season of 1985 and 1986, reconnaissance geological mapping,and surface geochemical sampling in the vicinity of some of these coloranomalies returned various anomalous values of arsenic, silver and copper inthe region of Rincones de Araya and La Coipa.

·                  In1994, subsequent to a TM imagery study, BMGC asked for an exploration cateo inthe “Los Azules” region. BMGC also optioned properties owned by SASA (now TNR GoldCorp.). In March 1995, BMGC initiated work in the sector of Quebrada LaEmbarrada along the Paso de La Coipa and Cordon de Los Azules west ofCordillera La Tortora. This work defined several zones of alteration and thepresence of extrusive volcanic rocks and porphyries. Some chip samples returnedvalues ranging from 0.3 to 0.5 g Au/t and up to 41 g Ag/t associated withanomalous copper values.

·                  InDecember 1995, a detailed geological and prospecting campaign confirmedthe presence of porphyritic intrusive rocks and hydrothermal veins. During thesummer season of 1996/1997, BMGC decided that an access road should beestablished.

·                  In1997 and early 1998, BMGC constructed a new road for a total distance of about95 km.

·                  DuringMarch 1998, BMGC completed an airborne survey, detailed geologicalmapping, rock chip sampling, trenching and ten (10) widely spaced RC drillholes (total 2,167 m). These holes confirmed the presence of porphyry copper -gold mineralization in the east central portion of the property.

·                  Duringthe 1998/1999 field season, an additional fourteen (14) RC holes totaling 3,490m were drilled in the northern portion of the Los Azules option (Escorpio II,Manifestacion #0154-F-28) and three (3) holes totaling 836 m werecompleted on the “La Coipa” property (Paso de La Coipa, Cateo # 545940-B-94),approximately 10 km west of the Los Azules property and immediately adjacent tothe international border with Chile.

 

*SubsequentExploration*

*** ***

TheSan Juan Province project is a regional reconnaissance program, focused onepithermal gold and gold-copper porphyry targets in the easterncordillera.  All of the lands wereacquired based on the results of satellite image analysis.  Preliminary field examination, including rockchip sampling and property-wide stream sediment sampling, has been completed onall properties.

 

MineraAndes, Inc. geologists discovered the Los Azules property through regionalexploration and prospecting using Landsat imaging, mapping and sampling.  The acquired land position coversapproximately half of a large area

 

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ofhydrothermal alteration typically associated with mineralized systems.  Exploration drilling in 1998 within thenorthern property boundary by BMGC encountered significant copper intervals.

 

BMGCalso completed an airborne magnetics survey over the entire Los Azules targetarea. This work also validates the porphyry target on the Minera Andesground.  The base of information for LosAzules is taken primarily from an unsigned “Battle Mountain Gold” report,titled “Los Azules Project”, Final Report, dated September 1999, by BattleMountain Canada Ltd., San Juan, Argentina and includes drilling data presentedon Los Azules along with some of the technical information provided to MineraAndes by BMGC under the terms of a joint venture agreement.

 

InDecember 2003, Minera Andes initiated an exploration program at LosAzules, including geologic mapping and sampling, ground magnetic and inducedpolarization geophysical surveys and core drilling. In May of 2004 MineraAndes reported the discovery of a large, enriched (chalcocite) copper in anarea defined by geology, MIMDAS deep penetration IP and magnetic geophysicalsurveys.  The mineralized area isapproximately 1,500 m by 2,000 m.

 

Ninereconnaissance core holes totaling 2,050 m were drilled in the campaign todepths of between 154 to 330 m.  Theprimary focus of the drilling was to test the extension of known leachable(chalcocite) copper mineralization identified on the adjacent property.  Minera Andes’s drilling tested a deeppenetrating IP chargeability high anomaly as well as a well-defined magneticlow on its eastern flank. Drilling at Los Azules encountered features typicalof many porphyry copper systems. In the discovery zone, strongly leached caprock extended from 65 to 161 m depth followed by an enriched zone of secondarycopper mineralization (chalcocite) overlying a zone of mixed secondary andprimary (chalcopyrite) copper mineralization. The mineralization in Minera Andes’s drilling was consistent with themineralization observed in a prior hole drilled by BMGC some 220 m north ofMinera Andes’s property, which contained a 117-m weighted average interval of0.61% copper in the enriched zone.

 

**MINERALIZATION**

 

Mineralizationat the Los Azules deposit consists of various copper sulfide minerals in twomain zones, which consist of the supergene and primary zones.  The leached cap zone above the secondary orsupergene enrichment zone is void of copper oxide minerals as none have beennoted from surface or drill core observations. The upper part of the drill holes generally show a restricted leach zoneless than 50 m in depth, but occasionally reach 140 m in depth, represented bylimonites, mainly goethite and hematite. Most of the leached zone is by way of pyrite vein oxidation, yieldinglimonites (mainly goethite).  Theextension of the alteration halo is only centimeters, on both sides of thevein.

 

Mineralsin the supergene enrichment zone are comprised of chalcocite replacingchalcopyrite and to a lesser extent pyrite. The supergene zone varies considerably in thickness from 40 m to wellover 200 m, as some holes bottomed in copper mineralization.

 

Mineralizationin the primary zone is comprised of chalcopyrite and pyrite with minor amountsof bornite and covellite. Although it was not always possible to visually pickthe contact between the supergene and primary zone, an attempt was made to pickthe zone based on the ratio of copper grade from the sequential chemical copperanalysis. When the ratio of cyanide soluble copper to total copper fell below50%, the zone was considered within the primary zone rather than secondaryzone. As the project continues, further review of this determination will berequired as the depth to heap-leachable copper will be necessary to determineeconomic verses non-economic grade copper.

 

Mineralizationcontrols consist of the extensive stockworks, veining, and faulting as noted inthe drill core.  Faulting is extreme asevident by the significant rubblization of the majority of core holes.  Mr. Ken Rippere, a geotechnicalconsultant hired by Minera Andes, also noted that faulting and brecciation areextreme.  In addition, Mr Rippere notedthat the oxide cap is generally of better quality than the underlying sulfidesand at this time, the anomalous condition has not been explained.

 

Thedrill hole spacing of 400 m (N-S) by 200 m (E-W) appears to indicate that thecopper porphyry system is continuous from drill hole to drill hole.  Locally the mineralized porphyry targetappears to extend about 3 km (N-S) by 1 km (E-W).

 

**DRILLING**

 

Drillinghas been completed using both reverse circulation (“**RC**”)and diamond core (“**core**”) methods.The 1998

 

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and1999 drilling programs were completed by BMGC. The remaining drilling programshave been completed by Minera Andes and MIM - now Xstrata Copper, prior to theinitial Option and Joint Venture Agreements between the two companies. Thetable immediately below etails the drilling to date by year and by company.

** **

**ExplorationDrilling by Year and by Company**

 
| **Year** | ** ** | **Company**                              | ** ** | **No. of Holes** | ** ** | **Meters Drilled** | ** ** |
|----------|------------|------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| 1998     |       | Battle Mountain Gold  Corporation (BMGC) |       | 16                    |       | 3,614              |       |
| 1999     |       | Battle Mountain Gold  Corporation (BMGC) |       | 8                     |       | 2,067              |       |
| 2004     |       | Xstrata Copper (MIM)                     |       | 4                     |       | 864                |       |
| 2004     |       | Minera Andes                             |       | 9                     |       | 2,064              |       |
| 2006     |       | Minera Andes                             |       | 12                    |       | 2,953              |       |
| 2007     |       | Minera Andes                             |       | 18                    |       | 3,783              |       |
| 2008     |       | Minera Andes                             |       | 16                    |       | 4,836              |       |
| Total    |       |                                     |       | 83                    |       | 20,181             |       |

 

HolesMinera Andes drilled during the 2008 campaign were intended to continueinfilling the grid spacing of 400 m (N-S) and 200 m (E-W). During the 2008campaign, 16 additional holes were drilled totaling 4,836 m, thereby bringingthe total number of holes drilled on the project to 83.

 

Thedrilling program further tested the grade and the mineralized extension ofsupergene leachable copper (chalcocite), identified in prior drill campaigns onMinera Andes’s and Xstrata’s property (the Xstrata property is the same landpackage explored by BMGC and Xstrata’s predecessor company, MIM).  Overall, geology from the holes indicates auniform sequence of dacite porphyry intruding diorite porphyry (granodiorite porphyry).  The mineralization and alterationdistribution, with respect to the rock type, indicate a lithological control onthe disposition of the quartz veins and associated stockwork zones.

 

Drillingon the property begins with UDR diamond core rigs using a tricone bit to passthrough surface talus or gravels where possible.  Core drilling commenced with HQ size drillsteel, narrowing to NQ size as necessary to reach depths of 300 to 350 m oruntil the drill passes through the supergene enrichment zone.  Some PQ drill core has been recovered from thesite as well.  Several holes havebottomed in mineralization, either because the hole diameter has been reducedto the point that no smaller bits are available or the drill gets stuck orwater circulation is lost as there appears to be significant fracturing in manyparts of the deposit.

 

Currentestimates indicate that the width of mineralization varies from a minimum of400 m to a maximum of over 1 km.  Thelength of the mineralization exceeds 3 km. As stated before, the true depth of mineralization is unknown; however,it is greater than 700 m below the current surface.  Enriched secondary mineralization occurs as ahorizontal layer starting 60 to 170 m below the current surface and varies from40 to more than 200 m in thickness.

 

Drillhole recovery and RQD data is logged at the drill site by an Minera Andesemployee.  The cuttings or core aretransported to the man-camp for splitting and sample gathering.  The core is identified by hole number andinterval and photographed as whole core. The core is then split using a pneumatic core splitter, bagged, tagged,and prepared for transportation to Mendoza for continued sample preparation atthe ACME lab.

 

Multipledrilling contractors have worked the project since Minera Andes starteddrilling the deposit. The most recent group is Major from the city of San Juan,just north of Mendoza.  In addition toits own geologists, Minera Andes used the geologic consulting services of Rojasy Asociados of Mendoza, Argentina from time to time.

 

**SignificantDrilling Results**

 
| ** **                  | ** ** | ** **      | ** ** | **Intersection**  | ** ** | ** **      | ** ** | ** **            | ** ** |
|-----------------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|-----------------------|------------|
| **Drill Hole ID** | ** ** | **TD (m)** | ** ** | **From (m)** | ** ** | **To (m)** | ** ** | **Interval (m)** | ** ** | **Total Copper (%)** | ** ** |
| AZ0401                      |       | 195             |       | 130.0             |       | 195.0           |       | 65.0                  |       | 0.62 |   |
| Includes                    |       |            | 150.0      |              | 192.0      |            | 42.0       |                  | 0.82       |   |

 

65

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| ** **                  | ** ** | ** **      | ** ** | **Intersection**  | ** ** | ** **      | ** ** | ** **            | ** ** |
|-----------------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|-----------------------|------------|
| **Drill Hole ID** | ** ** | **TD (m)** | ** ** | **From (m)** | ** ** | **To (m)** | ** ** | **Interval (m)** | ** ** | **Total Copper (%)** | ** ** |
| AZ0402                      |       | 330.5           |       | 164.0             |       | 304.0           |       | 140.0                 |       | 0.38 |   |
| Includes                    |       |            | 164.0      |              | 190.0      |            | 26.0       |                  | 0.47       |   |
| Includes                    |       |            | 230.0      |              | 304.0      |            | 74.0       |                  | 0.42       |   |
| AZ0404                      |       | 300.8           |       | 162.0             |       | 282.0           |       | 120.0                 |       | 0.54 |   |
| Includes                    |       |            | 162.0      |              | 202.0      |            | 40.0       |                  | 0.59       |   |
| Includes                    |       |            | 236.0      |              | 282.0      |            | 46.0       |                  | 0.64       |   |
| AZ0407                      |       | 168.8           |       | 96.0              |       | 152.0           |       | 56.0                  |       | 0.44 |   |
| Includes                    |       |            | 126.0      |              | 152.0      |            | 26.0       |                  | 0.58       |   |
| AZ0610                      |       | 261.35          |       | 174.0             |       | 261.35          |       | 87.35                 |       | 0.83 |   |
| AZ0611                      |       | 270.7           |       | 112.0             |       | 270.7           |       | 158.7                 |       | 0.51 |   |
| AZ0614                      |       | 224.55          |       | 132.0             |       | 180.0           |       | 48.0                  |       | 1.13 |   |
| Includes                    |       |            | 136.0      |              | 158.0      |            | 22.0       |                  | 1.40       |   |
| AZ0617                      |       | 183.5           |       | 66.0              |       | 183.5           |       | 117.5                 |       | 0.63 |   |
| Includes                    |       |            | 66.0       |              | 124.0      |            | 58.0       |                  | 0.84       |   |
| AZ0619                      |       | 299.4           |       | 78.25             |       | 299.4           |       | 221.15                |       | 1.62 |   |
| Includes                    |       |            | 78.25      |              | 116.0      |            | 37.75      |                  | 2.22       |   |
| Includes                    |       |            | 134.0      |              | 146.0      |            | 12.0       |                  | 3.94       |   |
| AZ0620                      |       | 253.3           |       | 80.0              |       | 226.0           |       | 146.0                 |       | 1.10 |   |
| Includes                    |       |            | 80.0       |              | 106.0      |            | 26.0       |                  | 1.54       |   |
| AZ0722                      |       | 271.2           |       | 119.0             |       | 155.0           |       | 36.0                  |       | 0.99 |   |
| AZ0724D                     |       | 278.2           |       | 124.0             |       | 160.0           |       | 36.0                  |       | 0.79 |   |
| AZ0729B                     |       | 226.85          |       | 130.0             |       | 214.0           |       | 84.0                  |       | 0.73 |   |
| Includes                    |       |            | 172.0      |              | 204.0      |            | 32.0       |                  | 0.94       |   |
| AZ0730                      |       | 342.6           |       | 123               |       | 323.8           |       | 200.8                 |       | 0.89 |   |
| Includes                    |       |            | 140        |              | 253        |            | 113        |                  | 1.04       |   |
| AZ0832                      |       | 420.0           |       | 80                |       | 140             |       | 60                    |       | 0.78 |   |
| AZ0833                      |       | 387.8           |       | 73                |       | 313             |       | 240                   |       | 0.94 |   |
| AZ0837A                     |       | 540.95          |       | 326               |       | 516             |       | 190                   |       | 0.82 |   |
| AZ0841                      |       | 400.15          |       | 241               |       | 285             |       | 44                    |       | 1.83 |   |

 

RobertSim of Sim Geological Inc. visited the Los Azules property during the period ofMarch 30 and 31, 2008.  During hisvisit, Mr. Sim reviewed the geology of the project with Minera Andes sitegeology personnel.  The results of therecent drilling program were discussed and select intervals from a series ofdrill holes were reviewed.  A series ofsurface exposures were visited at the deposit site.  Two active drill sites were visited(AZ-08-40B and AZ-08-43) and a series of (completed) drill holes collars wereobserved.

 

Timewas spent reviewing the sampling procedures and QA/QC practices used during thedrilling program.  The sampling practiceswere found to adhere to accepted industry standards.  Standard reference material is prepared byAlex Stewart from local source rocks and sent to a series of labs for roundrobin testing. Blank material is made from “barren” quartz with a small portionof leached material “to add some color” (i.e. in an attempt to appear anonymousin the sample string).  As discussedlater in the section, this material is not completely sterile and anothersource of blank material is recommended for future QA/QC programs.  “Coarse” duplicates taken at site areactually core duplicates obtained from quarter core splits.  Actual coarse material splits are recommendedas a check of the crushing stage of sample preparation.

 

RobertSim also visited Mineral Andes office and core storage facility in Mendoza on April 2,2008. Drill core was observed from a series of random intervals and comparisonsmade between the assay results and the visual presence

 

66

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ofcopper bearing minerals. The assay results were confirmed by visualobservations and checking against original assay certificates.

 

**SAMPLING AND ANALYSIS**

 

Drillhole samples are bagged and numbered when split. Subsequently 5 to 6 samplesare placed in sacks containing approximately 25 kg.  These sacks are closed with numbered bagties.  The sacks are not opened untilthey reach the laboratory where the bag tie number is recorded by laboratorypersonnel.  Samples are transported byproject personnel from the project to the laboratory.

 

Duringthe 2004 and 2006 field season, sample pulps were prepared by Alex Stewart andshipped to the ALS Chemex laboratory in Chile for analysis.  For the 2007 field season, and initiallyduring the 2008 field season, samples were taken to the Alex Stewart Laboratoryin Mendoza for sample preparation.  Dueto the heavy seasonal work load at this laboratory some problems occurred whentransporting pulps from the Alex Stewart laboratory to ACME AnalyticalLaboratories in Mendoza for analysis.  Inparticular, there was one instance where blanks and standards were not insertedinto the numbered sequence of pulps when sent to ACME. Subsequently, fieldsamples were taken directly to the ACME laboratory in Mendoza which only doessample preparation work. Sample pulps prepared at Alex Stewart, and later atthe ACME laboratory in Mendoza, were shipped by ACME to ACME’s analyticallaboratory in Santiago, Chile.

 

ALSChemex, Alex Stewart, and ACME are all ISO 9001:2000 certified.

 

Thesample preparation protocol consists of samples being dried at 60oC until thedesired moisture content is achieved. The entire sample is crushed to 85%passing 10 mesh (2 mm).  The crusher iscleaned with high pressure air after every sample.  The entire sample is then run through a Jonesor riffle splitter to obtain 500 g. Rejects are retained.

 

The500 g sample is pulverized in a ring-and-puck pulverizer to 95% passing 150mesh (105 microns).  The particle size ofthe samples is checked by screening random samples.  The pulverizer is cleaned after every samplewith high pressure air.

 

A150 gram split of the pulp is placed in a pulp envelope numbered and sent tothe assay lab.  The remainder of the 500gram pulp sample is saved as a pulp reject. These pulp rejects have been used for later check analysis at the AlexStewart Laboratory in Mendoza.

 

*Core Sampling*

** **

RQDmeasurements and core recovery are measured at the drill rig by Minera Andespersonnel prior to the core being boxed. The core is placed in core boxes by the drill crew and is systematicallylogged by the geology staff at the core shed almost as soon as it becomesavailable. Core boxes are marked by the geologist every 2 m for sampling.  Subsequently the core is photographed threeboxes at a time by the sampling staff. Core is cut with a pneumatic splitter in order to minimize loss of sootychalcocite, which could be lost by washing during cutting by diamond saw.

 

Alternatingcore halves are selected for assay.  Noparticular scrutiny that might bias the results is applied to the alternatinghalves selected.  The core inventorysystem is scrupulously maintained.  Thesample is bagged immediately after splitting. A lab generated sample ticket is inserted with the sample, and a secondticket is stapled into the throat of the bag. Nylon cable ties are used to sealthe bags.  The bags are then weighed and5 to 6 sample bags are sealed in a larger rip-stop-mesh sack.  The sacks are sealed with a larger cable tielabeled SECURED with a number attached. Samples are shipped at least once a week.

 

*QC Sample Insertion*

** **

Thesampling staff insert standards as specified in the quality sample handlingprocedure memo.  There was everyindication that the procedure was being strictly followed and QC samplecoverage was adequate for the drilling.

 

Duplicatesamples were taken every 40 to 45 samples by quartering the assay coresplits.  Blank material was inserted atthe rate of one in every 40 to 45 samples.

 

67

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*Chain of Custody*

** **

Thechain of custody has been outlined in the previous sampling sections.  It appears that any tampering with individualbags or the ties would be immediately evident when the samples arrived at thelab.  Any tampering with the larger bagswould also be apparent on arrival at the lab. Documentation was provided such that that it would be difficult for amix up in the samples to occur either during shipment or at the lab.

 

Allprocedures were being carefully attended to and meet or exceeded industrystandards for collection, handling and transport of drill core samples.

 

*Conclusions*

 

Resultsfrom the standard reference material, SRM, analysis indicate that the copperand gold assay processes are under sufficient control to produce reliablesample assay data for resource estimation and release of drill hole assayresults. Blank results suggest mineralized blank material that should bereplaced.  Coarse reject duplicates andpulp duplicates need to be appropriately paired for evaluation, which MineraAndes is in the process of preparing for future evaluation.

 

Althoughthere are some minor deficiencies in the current QC program that needremediation, the Los Azules sampling and assaying program appears to beproducing sample information that meets industry standards for copper and goldaccuracy and reliability.  The assayresults are sufficiently accurate and precise for use in resource estimationand the release of drill hole results on a hole by hole basis.

 

**MINERAL RESOURCE ESTIMATES**

 

Themineral resource estimate was prepared under the direction of Robert Sim, P.Geowith the assistance of Bruce Davis, FAusIMM. Mr. Sim is an independentQualified Person within the meaning of NI 43-101 for the purposes of mineralresource estimates.  Resource estimatesare made from 3-dimensional block models based on geostatistical applicationsusing commercial mine planning software (MineSight® v4.00.04).

 

Mineralizationat the Los Azules deposit consists of various copper sulfide minerals in twomain zones consisting of the supergene and primary zones. Minerals in thesupergene enrichment zone are comprised of chalcocite, chalcopyrite, and pyrite.The supergene zone varies considerably in thickness from 40 m to well over 200m, as some holes bottomed in copper mineralization. Mineralization in theprimary zone consists of chalcopyrite and pyrite with minor amounts of borniteand covellite. Mineralization controls consist of the extensive stockworks,veining and faulting as noted in the drill core.  At the current drill hole spacing (400 mnorth-south by 200 m east-west) the copper porphyry system appears to becontinuous from drill hole to drill hole. Locally the mineralized porphyrytarget appears to extend about 3 km north-south by 1 km east-west.

 

Thereare a total of 83 drill holes in the Los Azules database with a cumulativelength of 19,680 meters and a total of 10,919 samples analyzed for total copperwith an average individual sample length of 1.5 meters. A total of 35 drillholes have some portion of the sample intervals tested for sequential copperanalysis providing additional information supporting the interpretation of thesupergene zone.  The resource estimatehas been generated from drill hole sample assay results and the interpretationof a geologic model which relates to the spatial distribution of copper in thedeposit.  Grade estimates have been madeusing ordinary kriging with a nominal block size of 20x20x15 meters.  The resources have been classified by theirproximity to the sample locations and are reported, as required by NI43-101,according to the CIM standards on Mineral Resources and Reserves. InferredMineral Resources are blocks in the supergene and primary domains which are amaximum distance of 200 m from a drill hole.

 

TheLos Azules mineral resources are summarized in the table immediately below at aseries of copper cutoff grades for comparison purposes.  The “base case” cut-off grade of 0.35%Cu,highlighted in the table, is considered appropriate for this deposit and isbased on assumptions derived from other projects exhibiting similarcharacteristics, potential scale of operation and location.

 

68

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**Inferred Mineral Resources**

 
| **Cutoff Grade (TCu%)** | ** ** | **Million Tonnes** | ** ** | **TCu%** | ** ** |
|-------------------------|------------|--------------------|------------|----------|------------|
| 0.30                    |       | 1,171              |       | 0.50     |       |
| **0.35**                | ** ** | **922**            | ** ** | **0.55** | ** ** |
| 0.40                    |       | 727                |       | 0.60     |       |
| 0.50                    |       | 451                |       | 0.69     |       |
| 0.60                    |       | 273                |       | 0.78     |       |
| 0.70                    |       | 161                |       | 0.87     |       |
| 0.80                    |       | 93                 |       | 0.97     |       |

* *

*Note:Mineral Resources do not have demonstrated economic viability.*

 

Thereare no known factors related to environmental, permitting, legal, title,taxation, socioeconomic, marketing or political issues which could materiallyaffect the mineral resource.

 

**MINING OPERATIONS**

 

*Metallurgy*

 

Thescope of the metallurgical testing program was to determine the flotationresponse of Los Azules mineralized material samples and provide data for thedesign of the grinding and flotation circuits.

 

Themetallurgical testwork indicated the flotation response on the samples testedare typical of ore deposits for the recovery of copper, gold and silver.  Two composites and 16 drill core samples weresent to CH Plenge & Cia. for the metallurgical test work.  Composite No. 1 is a secondary strong enrichmentcomposite with 17% of the copper in chalcopyrite, while composite No. 2 isa primary weak enrichment composite with 49% of the copper inchalcopyrite.  A small amount of highgrade sample (No. 3) of primary sulfide with 75% of the copper in chalcopyritewas also sent to Plenge for metallurgical test work and it was confirmed thatthe high grade sample responded well to copper recovery by flotation.

 

Locked-cycletests were performed on each of the two composites and Sample 3.  The results of the locked-cycle tests areshown below.

 

**Locked-Cycle Test Work Results**

 
| ** **                                  | ** ** | **Concentrate  Assay** | ** ** | **Metal  Recoveries (%)** | ** ** |
|---------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| **Composite**                               | ** ** | **Copper  (%)**        | ** ** | **Silver  (g/t)**         | ** ** | **Gold  (g/t)** | ** ** | **Copper** | ** ** | **Silver** | ** ** | **Gold** | ** ** |
| 1 — Strong Enrichment                  |       | 35                     |       | 101                       |       | 2.7 |   | 94.1 |   | 70 |   | 56 |   |
| 2 — Weak Enrichment                    |       | 31                     |       | 80                        |       | 3.9 |   | 94.7 |   | 62 |   | 66 |   |
| Sample 3 — High-grade  Primary Sulfide |       | 34                     |       | 84                        |       | 2.4 |   | 95.1 |   | 83 |   | 74 |   |

 

Theseresults were factored for use in the process design to relate laboratoryresults to expected industry capabilities. In this, composite No. 1 concentrate is 34% copper with 92% copperrecovery, composite No. 2 is 30% copper with 93% copper recovery andsample No. 3 is 33% copper with 93% copper recovery.  From the results of these two composites andsample a weighted final concentrate copper grade of 30.8% copper and a recoveryof 92.8% copper were applied to the process design.

 

*ProcessDescription*

** **

Theprocess flow sheet (contained in the Los Azules Report) and the process blockflow diagram (see below) in the Los Azules Report show a plant design representativeof a conventional flotation concentrator.

 

TheLos Azules concentrator will have an annual throughput of 36,000,000 tonnes,based on an average daily throughput of 100,000 tonnes and 360 operating daysper annum.  The concentrator on site willinclude a comminution circuit followed by a flotation circuit and a coppercircuit with thickener, filtration and concentrate load out and shipping.Tailings thickener, tailings storage, and water reclaim are part of thetailings storage facilities (“**TSF**”).  This circuit will have a design capacity of108,696 tonnes per day (“**tpd**”) and theaforementioned nominal capacity of 100,000 tpd.

 

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The1524 mm x 2794 mm (60 inch x 110 inch) primary gyratory crusher will produce a175 mm (7 inch) feed which will be conveyed to a coarse material stockpile witha live capacity of 100,000 tonnes. Material from the stockpile is reclaimed andtransported by conveyor to two (2) parallel grinding lines.

 

Eachgrinding line is comprised of one (1) 12.2 m diameter x 6.7 m long (40 ftx 22 ft) semi-autogenous grinding (“**SAG**”) millpowered by an 25 MW gearless drive, and one (1) 7.6 m diameter x 11.3 mlong (25 ft x 37 ft) ball mill powered by a 15 MW dual pinion drive.  The two (2) SAG mills discharge throughtrommel screens and the screens oversize (“critical”) report to two (2) 5.36m x 3.87 m (17.6 ft x 12.7 ft) pebble crushers, each driven by a 1.0 MW motor,before returning to the SAG mills. Cyclone classification is employed to produce the required particle sizedistribution at P80 of 125microns (“μm”).

 

Thisoverflow will be fed to two (2) rougher flotation circuits.  Tailings from the rougher flotation circuitswill be combined and sent to two (2) scavenger flotation banks, while theconcentrate from the scavenger circuit will be combined with the rougherconcentrate and both will report to a regrind circuit, and the tails willreport to the tailings thickener.

 

Thecombined rougher and scavenger concentrates are reduced to a P80 of 30 μm in six (6) 1,250hp tower mills before being pumped to the 3-stage cleaner circuit.

 

The1st cleaner underflow is transferred to thecleaner/scavenger flotation circuit and the reclaimed concentrate is sent backto the regrind circuit.  The tailingsfrom the cleaner/scavenger are then joined by the rougher and scavengerflotation tailings and transferred to two (2) 80 m (263 ft) diametertailings thickeners.

 

Theconcentrate from the 1st cleaner flotation cells transfers to the 2nd cleaner flotation circuit.  Tails from the 2nd cleaner circuit will be sent back to the 1st cleaner circuit.  Concentrate from the 2nd cleaner will report to the 3rd cleaner flotation circuit.

 

Tailsfrom the 3rd cleaner circuit report back to 2nd cleaner flotation.  Concentrate from the 3rd cleaner reports to the copper concentratethickener.

 

Finalcopper concentrate at 25% solids from the 3rd cleaner flotation concentrate stream will bethickened to 60% solids in one (1) 45 m (148 ft) diameter thickener.  The copper concentrate thickener overflowreports back to the process water tank for reuse, while the thickened copperconcentrate will be pumped via pipeline to the port facility of Coquimbo, Chile,which houses three (3) vertical pressure type dewatering filters.  The filter cake containing 8% moisturereports to the covered copper concentrate stockpile for loading by a front-endloader to copper concentrate transport ships destined for smelters in theOrient.  The filtrate will be pumped toan evaporation pond for final disposal.

 

70

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*Process Block Flow Diagram*

 

 

*Basic Process Design Criteria*

** **

TheTable below shows the design criteria used to establish the process for a100,000 tonnes per day operation process facility.

 

71

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**Basic Design Criteria**

 
| ** **                                     | ** ** | **Units**              | ** ** | **Design**                  | ** ** | **Source**                 | ** ** |
|------------------------------------------------|------------|------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ***General  Site Information***                |
| Location                                       |       |                   |       |                        |       |                       |       |
| Latitude - Approximate                         |       | angular                |       | S31° 13'89 30"    |       | Rojas  y Asociados         |       |
| Longitude - Approximate                        |       | angular                |       | W70° 13' 50" |       | Rojas  y Asociados         |       |
| Elevation                                      |       |                   |       |                        |       |                       |       |
| Minimum                                        |       | masl                   |       | 3,650                       |       | Minera  Andes              |       |
| Maximum                                        |       | masl                   |       | 3,900                       |       | Minera  Andes              |       |
| Ambient Air Temperature                        |       |                   |       |                        |       |                       |       |
| Minimum                                        |       | °C                |       | -20°                   |       | Minera  Andes              |       |
| Maximum                                        |       | °C                |       | 25°                    |       | Minera  Andes              |       |
| Average Annual Precipitation                   |       | mm/y                   |       | 380                         |       | Vector  Engineering        |       |
| *General Project  Information*                 |
| Mineable Resource to Mill                      |       | tonnes (“t”) |       | 842,894,000                 |       | WLR                        |       |
| Estimated Project Life @ 100,000 tpd           |       | y                      |       | 23.6                        |       | Samuel  Engineering        |       |
| Copper Grading                                 |       | %                      |       | 0.51                        |       | Minera  Andes              |       |
| Gold Grading                                   |       | g/t                    |       | 0.05                        |       | Minera  Andes              |       |
| Silver Grading                                 |       | g/t                    |       | 1.68                        |       | Minera  Andes              |       |
| Operating Schedule                             |       |                   |       |                        |       |                       |       |
| Hours per Day                                  |       | h                      |       | 24                          |       | Samuel  Engineering        |       |
| Days per Year                                  |       | d                      |       | 360                         |       | Samuel  Engineering        |       |
| Hours per Year                                 |       | h                      |       | 8,640                       |       | Samuel  Engineering        |       |
| Plant Capacity                                 |       | dmtpd                  |       | 100,000                     |       | Samuel  Engineering        |       |
| Based on a 92% grinding circuit operating time |       | dmtpd                  |       | 108,696                     |       | Samuel  Engineering        |       |
| Based on a 92% grinding circuit operating time |       | dmtph                  |       | 4,529                       |       | Samuel  Engineering        |       |
| Annual Mineralized Material Processed per Year |       | t                      |       | 36,000,000                  |       | Samuel  Engineering        |       |
| *Copper Concentrate  Production*               |
| Copper Recovery to Copper Concentrate          |       | %                      |       | 92.8                        |       | Plenge/Samuel  Engineering |       |
| Copper Grade in Copper Concentrate             |       | %                      |       | 30.8                        |       | Plenge/Samuel  Engineering |       |
| Copper Concentrate Production                  |       | dmtph                  |       | 116                         |       | Samuel  Engineering        |       |
| Copper Concentrate Production                  |       | dmtpy                  |       | 1,002,146                   |       | Samuel  Engineering        |       |

*** ***

*Tailings Storage Facility (“**TSF**”)*

*** ***

Themine plan estimates mine life at approximately 24 years with a production rateof approximately 100,000 tpd.  It isestimated that approximately 98% of mineralized material fed into the processplant will be discharged as gangue (tailings) and co-disposed of into the TSFand waste rock disposal facility (“**WRDF**”). Currentestimates show that approximately 80% [663 million tonnes (dry)] of thetailings will enter the TSF, while the remaining 20% [166 million tonnes (dry)]will be diverted to the WRDF. At an estimated average dry density of 1.3tonnes/m3, this equates to approximately 510 million m3 placedin the TSF and 128 million m3 placed in the WRDF.

 

Tailingswill be discharged by gravity from the process plant into the impoundment asslurry, a mixture of pulverized rock and water, estimated to contain 55%solids.  In addition to the tailings, theTSF will hold ponded water which includes water that separates from thetailings slurry, incident rainfall, rainfall runoff from the surroundingcatchment and water pumped into the TSF from other sources such as pitdewatering.

 

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*** ***

*Waste Rock Disposal Facility*

*** ***

During24 years of mining operations, it is calculated that approximately 1,272.7million tonnes of waste rock will be generated from the open pit.

 

TheWRDF will be located immediately west and downstream of the pit in Los AzulesValley and extend into the confluences with Embarrada Valley, and the SalinasValley.  It will ultimately buttress theTSF embankment located in the Embarrada Valley. Approximately 236 million tonnes of waste rock will be placed in thenorthern end of the pit.  In-pit wastedisposal will start in Year 16 of operation based on the current mine plan.

 

Thetotal capacity of the WRDF is reduced by 389 million tonnes due to requirementsfor the construction of the TSF embankment and in-pit filling operations.

 

*Mine Plan*

*** ***

Anallowance of five days per annum was made for weather delays and/or shutdowns forholidays.  Otherwise, pit operationswould be scheduled around the clock. Mineralized material feed for the first year of concentrator operationswas limited to 29.55 million tonnes to account for a gradual ramp-up of millingrates during the first seven months after startup.

 

Onlyprimary and secondary sulfide mineral resources above a 0.22% Cu cutoff wereconsidered as mineralized material for purposes of developing the mineproduction schedule.  Advanced strippingneeded to maintain adequate mineralized material exposure was estimated for theabove milling rates.  A proprietaryscheduling program sequenced the necessary material by bench, by phase, foreach time period.  Mining phases wereprocessed in order, from the upper most benches downward.  Concurrent phase mining was allowed foradvanced stripping purposes, subject to the restriction that previous phasescannot be undercut by subsequent pushbacks. The Table below summarizes the resulting mine production schedule.

 

**Mine Production Schedule Basedon Inferred Mineral Resources**

 
| **Time**   | ** ** | **Mineral Resources* (>= 0.22% Cu Cutoff)** | ** ** | **Waste**  | ** ** | **Total**  | ** ** | **Strip**    | ** ** |
|------------|------------|------------------------------------------------|------------|------------|------------|------------|------------|--------------|------------|
| **Period** | ** ** | **(Million t)**                                | ** ** | **Cu (%)** | ** ** | **Mo (%)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** | **(Million t)** | ** ** | **(Million t)** | ** ** | **Ratio** | ** ** |
| PP         |       | 2.874                                          |       | 0.67       |       | 0.002      |       | 0.080        |       | 2.67 |   | 147.397 |   | 150.271 |   | 51.29 | ** ** |
| Y1*        |       | 29.55                                          |       | 0.86       |       | 0.003      |       | 0.079        |       | 2.59 |   | 63.65 |   | 93.2 |   | 2.15 |   |
| Y2         |       | 36.0                                           |       | 0.74       |       | 0.004      |       | 0.071        |       | 1.60 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y3         |       | 36.0                                           |       | 0.56       |       | 0.002      |       | 0.047        |       | 1.38 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y4         |       | 36.0                                           |       | 0.60       |       | 0.005      |       | 0.052        |       | 1.44 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y5         |       | 36.0                                           |       | 0.61       |       | 0.005      |       | 0.057        |       | 2.10 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y6         |       | 36.0                                           |       | 0.56       |       | 0.003      |       | 0.057        |       | 1.69 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y7         |       | 36.0                                           |       | 0.55       |       | 0.004      |       | 0.076        |       | 1.59 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y8         |       | 36.0                                           |       | 0.55       |       | 0.004      |       | 0.065        |       | 2.35 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y9         |       | 36.0                                           |       | 0.44       |       | 0.003      |       | 0.039        |       | 1.26 |   | 57.2 |   | 93.2 |   | 1.59 |   |
| Y10        |       | 36.0                                           |       | 0.41       |       | 0.002      |       | 0.033        |       | 1.12 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y11        |       | 36.0                                           |       | 0.40       |       | 0.003      |       | 0.047        |       | 1.15 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y12        |       | 36.0                                           |       | 0.41       |       | 0.003      |       | 0.054        |       | 1.32 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y13        |       | 36.0                                           |       | 0.60       |       | 0.004      |       | 0.066        |       | 1.87 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y14        |       | 36.0                                           |       | 0.47       |       | 0.003      |       | 0.053        |       | 1.72 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y15        |       | 36.0                                           |       | 0.46       |       | 0.004      |       | 0.058        |       | 1.45 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y16        |       | 36.0                                           |       | 0.47       |       | 0.003      |       | 0.060        |       | 2.27 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y17        |       | 36.0                                           |       | 0.57       |       | 0.002      |       | 0.058        |       | 1.57 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y18        |       | 36.0                                           |       | 0.51       |       | 0.002      |       | 0.053        |       | 1.85 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y19        |       | 36.0                                           |       | 0.44       |       | 0.002      |       | 0.046        |       | 1.83 |   | 52.6 |   | 88.6 |   | 1.46 |   |
| Y20        |       | 36.0                                           |       | 0.45       |       | 0.002      |       | 0.045        |       | 1.90 |   | 51.627 |   | 87.627 |   | 1.43 |   |
| Y21        |       | 36.0                                           |       | 0.40       |       | 0.002      |       | 0.044        |       | 1.52 |   | 14.07 |   | 50.07 |   | 0.39 |   |
| Y22        |       | 36.0                                           |       | 0.37       |       | 0.002      |       | 0.046        |       | 1.67 |   | 5.749 |   | 41.749 |   | 0.16 |   |
| Y23        |       | 36.0                                           |       | 0.45       |       | 0.002      |       | 0.045        |       | 1.69 |   | 3.126 |   | 39.126 |   | 0.09 |   |
| Y24        |       | 21.344                                         |       | 0.52       |       | 0.001      |       | 0.043        |       | 1.49 |   | 3.522 |   | 24.866 |   | 0.17 |   |
| Total      |       | 845.767                                        |       | 0.51       |       | 0.003      |       | 0.050        |       | 1.68 |   | 1,272.743 |   | 2,118.51 |   | 1.50 |   |

 

----

* Includes rehandling 2.874  million t of stockpiled ROM mineralizedmaterial during Year 1.

 

73

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Mineralizedmaterial feed to the mills would total 842,894 kt over the life of the mine,which is projected at 23.6 years.  About2,874 kt of run-of-mine (“**ROM**”)mineralized material stockpiled during preproduction stripping would bereclaimed and hauled to the primary crusher during Year 1.

 

Peakmaterial handling rates from Years 2-9 would average nearly 259,000 tpd, beforesettling back to about 246,000 tpd from Year 10 through late Year 20.  Over 150 million tonnes of waste rock andmineralized material would be stripped during preproduction to exposesufficient mineralized material for the concentrator startup.  Preproduction stripping operations would lastapproximately two years.

 

Arotating, four-crew system would be used to staff mine operations andmaintenance craft labor positions.  Thesecrews would work 12-hour shifts.  Peakmanpower levels of 595 are projected for Years 12-14.

 

*Operating Costs*

*** ***

Thetotal life-of-mine (“**LoM**”) operatingcost is estimated at $6.40 billion, or $7.59/t mineralized material assummarized inthe figure below.   Thechart below shows the percentage of each operating cost component.

 

**LoMOperating Cost Summary**

 
| **Description**                   | ** ** | **LoM Cost ($000s)** | ** ** | **LoM Cost/t Mineralized Material ($)** | ** ** |
|-----------------------------------|------------|----------------------|------------|-----------------------------------------|------------|
| Mining                            |       | 2,367,702            |       | 2.81                                    |       |
| Processing                        |       | 3,308,494            |       | 3.92                                    |       |
| General & Administrative |       | 603,857              |       | 0.72                                    |       |
| Mine Reclamation / Closure        |       | 116,106              |       | 0.14                                    |       |
| LoM Operating Cost                |       | 6,396,159            |       | 7.59                                    |       |

 

 

 

**LoMOperating Costs per Tonne Mineralized Material**

 

74

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*** ***

*Capital Costs*

*** ***

Thetotal capital cost is estimated at $3.49B, being comprised of $2.75B duringpreproduction, $39.0M for working capital, and $704M in sustaining capital overthe LoM.

 

**LoM Capital Cost Summary**

 
| **Description**                                      | ** ** | **Units** | ** ** | **LoM Cost** | ** ** |
|------------------------------------------------------|------------|-----------|------------|--------------|------------|
| Mine Area Facilities                                 |       | $000s     |       | 31,332       |       |
| Mineralized Material Storage, Handling and  Crushing |       | $000s     |       | 111,870      |       |
| Grinding and Concentrating                           |       | $000s     |       | 318,141      |       |
| Tailings                                             |       | $000s     |       | 68,487       |       |
| Concentrate Transport                                |       | $000s     |       | 144,357      |       |
| Port Concentrate Handling Facilities                 |       | $000s     |       | 81,687       |       |
| Utilities                                            |       | $000s     |       | 49,229       |       |
| Off-site Infrastructure                              |       | $000s     |       | 178,052      |       |
| Site Development                                     |       | $000s     |       | 135,160      |       |
| Contracted Indirects                                 |       | $000s     |       | 486,333      |       |
| Owner Directs                                        |       | $000s     |       | 414,758      |       |
| Owner Indirects                                      |       | $000s     |       | 186,970      |       |
| Freight, Duties & Taxes                     |       | $000s     |       | 119,628      |       |
| Contingency                                          |       | $000s     |       | 421,630      |       |
| Total Preproduction  Capital                         |       | $000s     |       | 2,747,634    |       |
| Sustaining                                           |       | $000s     |       | 703,549      |       |
| Working Capital                                      |       | $000s     |       | 39,021       |       |
| Total LoM Capital                                    |       | $000s     |       | 3,490,204    |       |

 

Theaccuracy target for this capital cost estimate is intended to be plus or minus35%. Most of the costs have been derived using a recently completed estimatefor a similar plant, located in the Peruvian Andes, and making adjustment forproject specific requirements and differences.

 

Thecosts presented in this document are based on estimates prepared as of December 2008and no provision has been included to offset future escalation in prices.

 

Wheresource information was provided in other currencies, these amounts have beenconverted at rates shown in the Figure below.

 

75

----

 

 

***ForeignCurrency Conversion Rates***

 

Therate of foreign currency exchange could have a serious impact on the value oflabor and materials obtained in the local market (including freight, duties,and taxes).  In addition, the value ofthe U.S. dollar against other world currencies could also influence futureproject cost if equipment is purchased in Europe or elsewhere. No funds havebeen allocated in the estimate to offset potential future currencyfluctuations.

 

*Project Economics*

*** ***

ThePA set out herein is preliminary in nature and includes inferred mineralresources that are considered too speculative geologically to have the economicconsiderations applied to them that would enable them to be categorized asmineral reserves.  There is no certaintythat the PA will be realized.

 

Theproject before-tax pro forma cash flow shows an 10.8% IRR and a $496 millionNPV at an 8% discount rate.

 

Thepro forma cash flow used the following conventional methodology:

 

·                  unleveraged100% equity basis (no project financing or debt);

·                  stand-aloneproject basis;

·                  no exportretentions;

·                  before-taxdetermination of project economics;

·                  annual cashflows discounted on end of year basis;

·                  costs in thirdquarter 2008 U.S. Dollars (US$); and

·                  no employeeprofit sharing.

 

Thegeneral parameters used in the economic analysis are shown in the Tablebelow.  The preproduction period isestimated at four years including one year for preparation of a feasibility studyand three years for project development and construction.

 

76

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**Production,Metal Prices, Royalties and Smelting-Refining (“TC-RC”) Terms**

 
| **Parameter**                                               | ** ** | **Data**            |
|-------------------------------------------------------------|------------|---------------------|
| *General*                                                   |
| Estimate  Basis                                             |       | Third quarter 2008  |
| Preproduction  Period                                       |       | Three years         |
| Mine  Production Life                                       |       | 23.6 years          |
| Inferred  Mineral Resources (Contained within Designed Pit) |       | 842,894,000 t       |
| Annual  Mineralized Material Production Capacity            |       | 36,000,000 t        |
| *Market Prices*                                             |
| Copper  Price                                               |       | $1.90/lb            |
| Gold  Price                                                 |       | $750.00/oz          |
| Silver  Price                                               |       | $12.00/oz           |
| *Royalties*                                                 |
| San  Juan Province                                          |       | 3.00%               |
| Xstrata  Land Agreements                                    |       | 0.00%               |
| *Transportation,  Smelting, and Refining Charges and Terms* |
| Copper  Concentrate Transportation — Ocean Shipping    |       | $55/wmt Cu conc.    |
| Copper  Concentrate Treatment Charge                        |       | $70/dmt conc.       |
| Copper  Refining Charge                                     |       | $0.075/lb (payable) |
| Gold  Refining Charge                                       |       | $5.00/oz (payable)  |
| Silver  Refining Charge                                     |       | $0.45/oz (payable)  |
| Copper  Payfor                                              |       | 96.5%               |
| Gold  Payfor (net of deductions)                            |       | 54.9%               |
| Silver  Payfor (net of deductions)                          |       | 59.4%               |

 

The Table below summarizes the LoMconcentrate productions and payable metals.

 

**ConcentrateProductions & Payable Metals**

 
| **Description**          | ** ** | **Units** | ** ** | **Value**  | ** ** |
|--------------------------|------------|-----------|------------|------------|------------|
| Copper Concentrate       |       |
| Copper Concentrate       |       | t         |       | 12,542,753 |       |
| Copper Concentrate Grade |       | %         |       | 31.9       |       |
| Contained Copper         |       | t         |       | 4,002,595  |       |
| Gold Content             |       | g/t       |       | 2.22       |       |
| Contained Gold           |       | oz        |       | 895,231    |       |
| Silver Content           |       | g/t       |       | 74.0       |       |
| Contained Silver         |       | oz        |       | 29,827,136 |       |
| Payable Metals           |
| Copper                   |       | t         |       | 3,856,672  |       |
| Gold                     |       | oz        |       | 491,233    |       |
| Silver                   |       | oz        |       | 17,702,746 |       |

 

77

----

 

The Los Azules Project is at theexploration stage of investigation; consequently, this study is at the scopinglevel of accuracy, preliminary in nature, and includes inferred mineralresources in the conceptual mine plan and the mine production schedule.  Inferred mineral resources are considered toospeculative geologically to have the economic considerations applied to themthat would enable them to be categorized as mineral reserves under thestandards set forth in NI 43-101.  Thereis no certainty that the preliminary assessment will be realized.

 

**Explorationand Development**

 

In the fourth quarter the Corporation established a seasonalfield camp at the Los Azules site to support a drilling campaign during the2009-2010 field season.  Two diamonddrills arrived at the Los Azules Project in December and initiateddrilling. A third diamond drill arrived the first week of January 2010.  Drilling will continue until the field seasoncloses in mid-to late-April. The objective of the drilling program is to expandthe known limits of the mineralization, look for extensions of high-grademineralization, and to increase the confidence level of the current inferredresource.  The Corporation plans to drillapproximately 8,800 meters of diamond drilling during the field season.  More geological mapping and geophysical workwill be conducted during the field season to target possible extensions of themineralization.  Planning andorganization for a preliminary feasibility study also commenced during thefourth quarter.

 

**OTHERPROPERTIES**

** **

In addition to the San José Mine and the Los Azules Copper Project, weown a 100% interest in several exploration properties located in the provincesof Chubut, San Juan and Santa Cruz, Argentina. We hold our interest in these properties pursuant to 9 cateos and 41manifestations of discovery covering an aggregate of 132,988.74 hectares.

 

Management believes that the exploration results received to dateindicate that certain of these properties located in the Santa Cruz provincehave numerous similarities to the San José Mine and the San Juan provinceproperties have similarities to the Los Azules Project.

 

**DIVIDENDPOLICY**

** **

Nodividends have been paid on any common shares of the Corporation, sinceincorporation, nor do we currently intend to pay dividends.

 

TheCorporation’s current policy is to retaining its cash resources for explorationand development and to acquire additional mineral resource properties.

 

**DESCRIPTIONOF CAPITAL STRUCTURE**

** **

TheCorporation’s authorized capital consists of an unlimited number of commonshares and an unlimited number of preferred shares of which, as of the datehereof, 264,741,621 commonshares are issued and outstanding and no preferred shares are issued andoutstanding.

 

*Common Shares*

** **

Theholders of common shares are entitled to receive notice of and to attend anymeeting of the shareholders of the Corporation and are entitled to one vote foreach common share held (except at meetings at which only the holders of anotherclass of shares are entitled to vote). The holders of common shares areentitled to receive dividends, as and when declared by the directors. Suchdividend payment is subject to the rights, privileges, restrictions andconditions attached to any preferred share of the Corporation. The holders ofthe common shares are entitled to share equally in the distribution of theassets of the Corporation in the event of liquidation, dissolution orwinding-up of the Corporation or upon any distribution of the assets of theCorporation among its shareholders, subject to the rights, privileges,restrictions and conditions attached to any preferred shares of theCorporation.

 

78

----

 

*Preferred Shares*

 

TheCorporation is authorized to issue an unlimited number of preferred shareswhich may be issued in one or more series. The designation, rights, privileges,restrictions and conditions including, but not limited to, the voting rights,the rate or amount of dividends on the method of calculating dividends, thedates of payment therefor, the terms and conditions of redemptions, purchaseand conversion if any, and any sinking funds or other provisions of any seriesof preferred shares shall be determined by the resolution of the directors intheir sole discretion, except as required by law. The preferred shares rankprior to the common shares with respect to distribution in the event ofliquidation, dissolution or winding-up of the Corporation. If any cumulativedividends are not paid in full, all series of preferred shares shallparticipate rateably. The holders of preferred shares shall not, except asspecifically provided in the *BusinessCorporations Act*(Alberta) or as resolved by the directors, in theirdiscretion, be entitled to receive notice of or vote at any meeting ofshareholders.

 

**MARKET FOR SECURITIES**

** **

*Trading Price and Volume*

 

TheCorporation’s common shares have been listed and posted for trading on the TSXsince February 7, 2007 and prior to February 7, 2007, on the TSXV, underthe trading symbol “MAI” and quoted on NASD Over the Counter Bulletin Board as “MNEAF”.  The trading price and volume of theCorporation’s common shares on the TSX for the year ended December 31,2009 is as follows:

 

79

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| ** **            | ** ** | **High** | ** ** | **Low** | ** ** | **Volume** | ** ** |
|-----------------------|------------|----------|------------|---------|------------|------------|------------|
| ** **            | ** ** | **C$**   | ** ** | **C$**  | ** ** | ** ** | ** ** |
| March 1-29, 2010 |       | 1.05     |       | 0.75    |       | 14,976,700 |       |
| February 2010    |       | 0.78     |       | 0.67    |       | 3,981,300  |       |
| January 2010     |       | 0.94     |       | 0.69    |       | 6,708,200  |       |
| December 2009    |       | 1.00     |       | 0.76    |       | 10,560,900 |       |
| November 2009    |       | 0.81     |       | 0.63    |       | 7,282,100  |       |
| October 2009     |       | 0.77     |       | 0.63    |       | 11,524,400 |       |
| September 2009   |       | 0.76     |       | 0.60    |       | 12,151,300 |       |
| August 2009      |       | 0.75     |       | 0.59    |       | 11,907,600 |       |
| July 2009        |       | 0.87     |       | 0.69    |       | 6,089,600  |       |
| June 2009        |       | 0.99     |       | 0.76    |       | 5,159,600  |       |
| May 2009         |       | 0.89     |       | 0.64    |       | 4,556,300  |       |
| April 2009       |       | 0.74     |       | 0.57    |       | 5,170,500  |       |
| March 2009       |       | 0.80     |       | 0.55    |       | 4,785,400  |       |
| February 2009    |       | 0.79     |       | 0.32    |       | 14,442,300 |       |

** **

*Prior Sales*

** **

During the most recently completed financial year ended December 31,2009, the following securities of the Corporation, which are not listed orquoted on a market place, were issued:

 
| ** **         | ** ** | **Number**          | ** ** | **Price Per**       | ** ** | ** **              |
|--------------------|------------|---------------------|------------|---------------------|------------|-------------------------|
| **Date of Issue**  | ** ** | **of Securities**   | ** ** | **common share C$** | ** ** | **Reason for Issuance** |
| March 1, 2009      |       | 200,000 options     |       | 0.73                |       | Stock Options           |
| March 13, 2009     |       | 200,000 options     |       | 0.67                |       | Stock Options           |
| August 19, 2009    |       | 13,350,000 warrants |       | 1.25                |       | Purchase Warrants       |
| August 19, 2009    |       | 2,002,500 warrants  |       | 1.25                |       | Purchase Warrants       |
| September 30, 2009 |       | 220,000 options     |       | 0.66                |       | Stock Options           |

** **

**DIRECTORSAND OFFICERS**

** **

The following table setsforth information about the Corporation’s directors and executive officers andtheir respective positions as of the date of this AIF:

** **
| **Name  and Municipality of Residence**     | ** **   | **Position  with  Corporation**                                       | ** **   | **Principal  Occupation**                                                                                                                                                                                                                                                                                                                                                           | ** **   | **Director Since**  |
|---------------------------------------------|--------------|-----------------------------------------------------------------------|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|---------------------|
| ***Directors***                             | *** *** | *** ***                                                          | *** *** | *** ***                                                                                                                                                                                                                                                                                                                                                                        | *** *** | *** ***        |
|                                        |         |                                                                  |         |                                                                                                                                                                                                                                                                                                                                                                                |         |                |
| ROBERT R. McEWEN  Toronto, Ontario,  Canada |         | Executive Chairman,  President, Chief Executive Officer, and Director |         | President and Chief  Executive Officer of the Corporation (June 2009 to present); Executive  Chairman of the Corporation (Feb. 2009 to present); Chairman and CEO of  US Gold Corporation (a United States based gold and silver exploration  company) (August 2005 to present); Chairman of Goldcorp Inc. (1986 to  2005), and CEO of Goldcorp Inc. (1994 to 2005). |         | August 5, 2008 |

 

80

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| ALLEN V. AMBROSE,Spokane, Washington,  United States of America                                       |   | Director |   | Director of the Corporation  (1995 to present); President of the Corporation (1995-August 2009);  Chairman of the Board of Directors of the Corporation (2006 to  Feb. 2009) Chief Executive Officer of the Corporation (to Feb. 2009);  director of, and consultant to Century Mining Corporation and Caerus Resource  Corporation (formerly named Samba Gold Inc.), (2002 to year-end 2009),  consultant to Franconia Minerals Corporation (1998 to present), director of  Mexivada Mining Corporation (2005 to present), director of Rockgate Capital  Corporation (2005 to present), director of Gold Port Resources Ltd. (2006 to  present), director of Stoneshield Capital Corp. (2007 to present), a director  of Northrock Resources Inc. (2008 to present) and a director of Butler  Developments Corp. (2008 to November 2009). |   | November 6, 1995  |
|-------------------------------------------------------------------------------------------------------|--------|----------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|
|                                                                                                  |   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |
| VICTOR  LAZAROVICI (1) (2) (3)  Mt. Pleasant, South Carolina, United States of America |   | Director |   | A director of Abacus Mining  and Exploration Corp. (July 2008 to present), Managing Director - Senior  Base Metals and Minerals, BMO Capital Markets (1998 to 2008).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | August 5, 2008    |
|                                                                                                  |   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |
| ALLAN J. MARTER  (1) (3)  Littleton, Colorado,  United States of America                         |   | Director |   | Chief financial officer of  Copperbelt Minerals Limited, a private BVI company with copper properties in  the DRC (2009 to present); director of Maestro Ventures Ltd. (2009 to  present); president of the board and director of EURO Ressources SA, a French  gold royalty company (2005 to 2009); director of Franconia Minerals  Corporation (2006 to present); chief financial officer of Golden Star  Resources Ltd. (1999 to 2006), and president of Waiata Inc.,  Mr. Marter’s personal services company.                                                                                                                                                                                                                                                                                                                               |   | November 9, 2006  |
|                                                                                                  |   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |
| DR. DONALD R.M. QUICK  (2) (3)Hamilton, Ontario,  Canada                                         |   | Director |   | Private investor, a  director of Goldcorp Inc. (2000 to 2006) and a director of CSA Management  Inc. (1996 to 2000). Prior to 2003 Dr. Quick was in private practice as  a chiropractor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | August 5, 2008    |
|                                                                                                  |   |     |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                   |
| MICHAEL L. STEIN(2)Toronto, Ontario,  Canada                                                          |   | Director |   | Chairman and Chief  Executive Officer of MPI Group Inc., a company engaged in real estate  investment and development (1994 to present); Chairman of the board of  directors of Canadian Apartment Properties Real Estate Investment Trust  (May 1997 to present); a director of CSA Management Inc. (1994 to 2000);  a director of Goldcorp Inc. (2000 to 2006); a director of  Moneysworth & Best Shoe Care Inc. (1997 to 2000).                                                                                                                                                                                                                                                                                                                                                                                                          |   | February 23, 2009 |

 

81

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| RICHARD W. BRISSENDEN(1)Toronto, Ontario,  Canada                   |         | Director                           |         | Businessman;  President of Regal Consolidated Ventures Limited, (formerly named Regal  Goldfields Limited), a mineral exploration company currently being  re-activated (1996 to present); Vice- President, William G. Brissenden Inc.,  a private investment management firm; director of Canuc Resources Corporation  (2008 to present); director of Corona Gold Corporation (1996 to present);  director of Lexam Explorations Inc. (1994 to present); director of Valdez  Gold Inc. (2002 to present); and, former President (2006 to 2008) and  Honorary Chairman (2009 — present), Director (1990 to 2009) and Chairman of  Excellon Resources Inc. (1991-2006). |         | February 23,  2009 |
|---------------------------------------------------------------------|--------------|------------------------------------|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|-------------------------|
|                                                                |         |                               |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         |                    |
| ***Executive Officers***                                            | *** *** | *** ***                       | *** *** | *** ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | *** *** | *** ***            |
| *** ***                                                        | *** *** | *** ***                       | *** *** | *** ***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | *** *** | *** ***            |
| HENRY A. JOHN(4)  British Columbia,  Canada                         |         | Chief Financial Officer            |         | Chief Financial Officer of  the Corporation (2007 to present) and accountant with the accounting firm of  LeMaster & Daniels (1997 to 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         | N/A                     |
|                                                                |         |                               |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         |                    |
| PERRY ING(5)  Toronto, Ontario  Canada                              |         | Chief Financial Officer            |         | Chief Financial Officer of  the Corporation (appointed effective April 5, 2010); and Vice President,  Finance of the Corporation (January 2010 - present); Chief Financial  Officer of US Gold Corporation (2008 — present); Chief Financial Officer of  Lexam Explorations Inc. (2005-present); Consultant to Barrick Gold  Corporation (2005-2008).                                                                                                                                                                                                                                                                                                        |         | N\A                     |
|                                                                |         |                               |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         |                    |
| JAMES K. DUFF  Coeur d’Alene, Idaho,  United States of America |         | Chief Operating Officer            |         | Chief Operating Officer of  the Corporation (March 2009 to present), President, South American  Operations for Coeur d’Alene Mines Corporation (2005 to 2008) and management  consultant to Coeur d’Alene Mines Corporation and director of Empresa Minera  Manquiri, S.A., a Bolivian subsidiary of Coeur d’Alene Mines (2002 to 2005)                                                                                                                                                                                                                                                                                                                 |         | N/A                     |
|                                                                |         |                               |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |         |                    |
| NILS F. ENGELSTAD  Toronto, Ontario  Canada                         |         | Vice President, Corporate  Affairs |         | Vice President, Corporate  Affairs of the Corporation (September 2009 to present). Corporate  Counsel to the McEwen Capital group of companies (July 2009 — present)  which includes serving as Secretary of US Gold Corporation and Vice  President, Legal of Lexam Explorations Inc.; formerly at the law firm of  Stikeman Elliott LLP.                                                                                                                                                                                                                                                                                                                   |         | N/A                     |

 

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**Notes:**

(1)                                  Member of theAudit Committee. Mr. Marter chairs this committee.

(2)                                  Member of theCorporate Governance, Nominating and Compensation Committee. Mr. Lazarovicichairs this committee.

(3)                                  Member of theSpecial Committee. Special Committee was constituted to review the terms of theMcEwen Financing, to review any alternative proposals to McEwen Financing andto seek an extension to the MSC cash call received in December 2008.

(4)                                  Mr. Johnhas indicated his resignation from his role as Chief Financial Officer with aneffective date of April 5, 2010.

(5)                                  Mr. Ing wasappointed Chief Financial Officer, to take effect upon Mr. John’sdeparture which is expected on April 5, 2010.

 

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As of the date hereof, the number of common shares of the Corporationbeneficially owned, or controlled or directed, directly or indirectly, by alldirectors and executive officers of the Corporation as a group is 85,147,143 or32.2% of the issued and outstanding common shares of the Corporation.

 

The term of office of the directors expires annually at the time of theCorporation’s annual general meeting or until their successors are elected orappointed.

 

*Cease Trade Orders, Bankruptcies,Penalties, or Sanctions*

** **

Exceptas disclosed below, no director or executive officer of the Corporation is, asat the date hereof or has been within the ten years prior to the date hereof, adirector, chief executive officer or chief financial officer of any companythat was the subject of a cease trade or similar order or an order that deniedthe relevant company access to any exemption under securities legislation, fora period of more than 30 consecutive days issued: (1) while that personwas acting as director, chief executive officer or chief financial officer (2) afterthe director or executive officer ceased to be a director, chief executiveofficer or chief financial officer and which resulted from an event thatoccurred while that person was acting in that capacity.

 

Mr. Ambrosehas advised the Corporation that he is a director of Century Mining Corporation(“**Century**”). On March 20, 2008, theBritish Columbia Securities Commission issued a cease trade order against theinsiders of Century for not filing, in the correct form, a technical reportunder NI 43-101, interim financial statements for the financial period ended September 30,2007, and management discussion and analysis for the period ended September 30,2007.   The cease order was rescinded on July 18,2008 and is no longer in effect.

 

Mr. Brissendenhas advised the Corporation that he is a director and officer of RegalConsolidated Ventures Limited, which is subject to a cease trade order issuedon June 12, 2001 by the Ontario Securities Commission for failure to fileaudited financial statements for the year ended December 31, 2000 andinterim financial statements for the three-month period ended March 31,2001. The cease trade order is still in effect.

 

Mr. Steinhas advised the Corporation that he was a director of Moneysworth &Best Shoe Care Inc. (“**Moneysworth**”)when it filed for voluntary assignment into bankruptcy on July 11, 2000under the *Bankruptcy and Insolvency Act*(Canada) and was subject to cease trade orders issued by the Ontario SecuritiesCommission on July 21, 2000 and the British Columbia Securities Commissionon October 25, 2000 against Moneysworth for failure to file certainfinancial statements. These cease trade orders are still in effect.

 

Exceptas disclosed above no director or executive officer of the Corporation orshareholder holding a sufficient number of securities of the Corporation toaffect materially the control of the Corporation is, as at the date hereof orhas been within the ten years prior to the date hereof, a director or executiveofficer of any company that, while that person was acting in that capacity, or withina year of that person ceasing to act in that capacity, became bankrupt, made aproposal under any legislation relating to bankruptcy or insolvency or wassubject to or instituted any proceedings, arrangement or compromise withcreditors or had a receiver, receiver manager or trustee to hold its assets.

 

Nodirector or executive officer of the Corporation or shareholder holding asufficient number of securities of the Corporation to affect materially thecontrol of the Corporation, has been subject to any penalties or sanctionsimposed by a court relating to securities legislation or by a securitiesregulatory authority or has entered into a settlement agreement with asecurities regulatory authority, or has had any other penalties or sanctionsimposed by a court or regulatory body that would likely be considered importantto a reasonable investor in making an investment decision.

 

*Personal Bankruptcies*

 

Nodirector or executive officer of the Corporation or shareholder holding asufficient number of securities of the Corporation to affect materially thecontrol of the Corporation, has during the ten years prior to the date hereofbecome bankrupt, made a proposal under any legislation relating to bankruptcyor insolvency or become subject to or instituted any proceedings, arrangementor compromise with creditors, or had a receiver, receiver manager or trusteeappointed to hold such person’s assets.

 

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*Conflicts of Interest*

 

Thedirectors and officers of the Corporation are, or may become, directors orofficers of other companies with businesses which may conflict with thebusiness of the Corporation. Directors are required to act honestly and in goodfaith with a view to the best interests of the Corporation. In addition,directors in a conflict of interest position are required to disclose certainconflicts to the Corporation and to abstain from voting in connection with thematter. To the best of the Corporation’s knowledge, there are no known existingor potential conflicts of interest between the Corporation or a subsidiary ofthe Corporation and a director or officer of the Corporation or a subsidiary ofthe Corporation as a result of their outside business interests at the datehereof. However, certain of the directors and officers serve as directorsand/or officers of other companies. Accordingly, conflicts of interest mayarise which could influence these persons in evaluating possible acquisitionsor in generally acting on behalf of the Corporation.

 

# **LEGALPROCEEDINGS AND REGULATORY ACTIONS**

# ** **

Certainof the Xstrata Properties formerly held by Xstrata and transferred to theCompany pursuant to the (Los Azules) Option Agreement remain subject to an underlyingoption agreement between Xstrata and Solitario Argentina S.A. (“**Solitario**”), whereby Solitario has the right to back-in upto 25% of the properties covered by the underlying option agreement (the “**Solitario Agreement**”), exercisable by Solitario upon thesatisfaction of certain conditions within 36 months of Xstrata exercising theoption, including the production of a feasibility study. The 36-month periodexpires on or about April 23, 2010. The Solitario Agreement is the subjectof a dispute between Xstrata; and, Solitario and its parent company TNR GoldCorp. (together “**TNR**”). The dispute was commencedby TNR against Xstrata in the Supreme Court of British Columbia on October 27,2008. The dispute surrounds the validity of the 36-month time limit describedabove. If TNR is successful, the Company’s interest in certain of the XstrataProperties may be reduced by up to 25%. Minera Andes is not a party to thelitigation.

 

OnMarch 19, 2010, the Corporation was served with a summons and complaint inconnection with a lawsuit by the Hochschild Lender filed in the State of NewYork. The Hochschild Lender, among other claims, claims Minera Andes hasrefused to sign formal Project Loan documentation and caused undue delay of thesame. Hochschild has demanded that the court order Minera Andes to sign formalProject Loan documents contemplated under the Project Loan Letter Agreement,enjoin Minera Andes from interfering with the making of payments by MSC inrelation to the Project Loans, require Minera Andes to repay to HochschildLender the benefits that Minera Andes has received from the Project Loans andestablish the priority of other shareholder loans owed by MSC to HochschildLender and Minera Andes.  At the date ofthis AIF, Minera Andes, in consultation with its New York legal advisors, werepreparing a response.

 

Otherthan as disclosed above there are no material legal proceedings involving theCorporation or a subsidiary of the Corporation or of which their respectiveproperties are the subject matter of as at the date of this AIF .

 

Therehave been no penalties or sanctions imposed against the Corporation by a courtrelating to securities legislation or by a securities regulatory authority, orimposed by a court or regulatory body against the Corporation that would likelybe considered important to a reasonable investor in making an investmentdecision, and the Corporation has not entered into any settlement agreementswith a court relating to securities legislation or with a securities regulatoryauthority.

 

# **INTERESTOF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS**

# ** **

No director or executive officer of the Corporation, no person orcompany that beneficially owns, or controls or directs, directly or indirectly,more than 10% of any class or series of the Corporation’s outstanding votingsecurities and no associate or affiliate of any of such persons or companieshas any material interest, direct or indirect, in any transaction within thethree most recently completed financial years or during the current financialyear that has materially affected or will materially affect the Corporationother than as disclosed below.

 

OnDecember 20, 2005, the Corporation entered into a private placementagreement (the “**First McEwen Agreement**”) at arm’slength with Robert R. McEwen of Toronto, Ontario, providing for the purchase by

 

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Mr. McEwenor any associate or affiliate of Mr. McEwen (together, “**McEwen**”) of an aggregate of 15,414,740  units of the Corporation (“**First Private Placement Units**”), at a price of C$0.35 perFirst Private Placement Unit, for gross proceeds of C$5,395,159 (the “**First Private Placement**”). Each First Private Placement Unitwas comprised of one common share and one-half of one common share purchasewarrant (the “**First Private Placement Warrant**”).One whole First Private Placement Warrant entitled the holder thereof topurchase one additional common share at an exercise price of C$0.55 per commonshare.

 

Inaddition, on December 20, 2005 the Corporation signed a furthersubscription agreement, (as amended, the “**Second McEwen Agreement**”),with McEwen, granting McEwen the right to acquire a further 13,156,689 units ofthe Corporation, on the same terms as the First Private Placement, for gross proceedsof C$4,604,841.10 (the “**Second Private Placement**”).The Second Private Placement closed on March 8, 2006.

 

Inconnection with the aforementioned private placements McEwen was granted theright, from time to time and at any time, to nominate one individual (the “**Subscriber Nominee**”) to the board of directors of theCorporation for a period of five years following closing of the Second PrivatePlacement provided McEwen then owns not less than 10% of the issued andoutstanding common shares of the Corporation. In addition, the Corporation agreed to use all reasonable efforts tocause its board of directors to pass such resolutions and to take such otheractions as may be required in order to maintain the number of members of theboard of directors of the Corporation at not more than six. Mr. McEwenhimself joined the Board of Directors of the Corporation on August 5,2008, upon exercise of this right.

 

Pursuantto an agreement dated May 5, 2006 Mr. McEwen completed the earlyexercise of 14,285,714 warrants then held by him.  In consideration for the early exercise ofthese warrants, the Corporation issued to Mr. McEwen 2,000,000 new commonshare purchase warrants. Each new warrant entitles McEwen to purchase onecommon share at an exercise price of C$1.80 per share. On May 4, 2007 Mr. McEwenexercised these 2,000,000 common share purchase warrants.

 

OnFebruary 17, 2009, the Corporation entered in a amended and restatedprivate placement agreement (the “**2009 McEwenAgreement**”) with Mr. McEwen in respect of the McEwen Financing.As previously stated, pursuant to the McEwen Financing Mr. McEwenpurchased an aggregate of 40 million common shares at a purchase price ofC$1.00 per share.

 

Inconnection with the McEwen Financing, Mr. McEwen was granted the right tonominate an additional two directors to the Corporation’s board. Messrs. RichardBrissenden and Michael Stein were appointed as directors of Minera Andes on February 23,2009 pursuant to the exercise of this right. In addition, the Corporationagreed to use all reasonable efforts to cause its board of directors to passsuch resolutions and to take such other actions as may be required in order tomaintain the number of members of the board of directors of the Corporation atnot more than seven.

 

Asof the date of this AIF, Mr. McEwen holds 84,857,143 or 32.1% of theissued and outstanding common shares of the Corporation and 100,000 optionseach exercisable for one common share at a price of C$0.81 per share.

 

# **TRANSFERAGENT AND REGISTRAR**

# ** **

Theregistrar and transfer agent for the Corporation’s common shares isComputershare Trust Company of Canada, 100 University Avenue, 8th Fl., Toronto, ON, M5J 2Y1. Registration andtransfers of the Corporation’s common shares may be effected throughComputershare’s offices in Toronto, Ontario; Calgary, Alberta; and, Vancouver,British Columbia.

# ** **

# **MATERIALCONTRACTS**

# ** **

Thefollowing is a list of every contract, other than contracts entered into in theordinary course of business, which is material to the Corporation and wasentered into within the most recently completed financial year, or before themost recently completed financial year but is still in effect:

 

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(1)          Option andJoint Venture Agreement;

 

(2)          Project Loan LetterAgreement;

 

(3)          Loan Agreement; and

 

(4)          The 2009 McEwen Agreement.

 

# **INTERESTSOF EXPERTS**

# ** **

**Technical information relating to the Corporation’sprincipal mineral projects contained in this AIF was derived from the San JoséTechnical Report and the Los Azules Technical Report.**

** **

**The following table sets out the individuals who arenamed as authors of the San José Technical Report or Los Azules TechnicalReport, as the case may be.:**

 
| **Project**               | ** ** | **Qualified Person(s)**                                                                                                                                 |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| San José Mine        |       | Eugene Puritch, P.Eng; Al Hayden, P.Eng; James Pearson, P.Eng; Antoine  Yassa, P.Geo; Fred H. Brown, CPG, Pr. Sci. Nat; and; Kirstine Malloch,  MAusIMM |
| Los Azules Copper Project |       | Randolph P. Schneider, MAusIMM; Robert Sim, P.Geo; Bruce M. Davis,  Ph.D., FAusIMM; William L. Rose, P.E.; and, Scott C. Elfen, P.E.                    |

** **

**None of the aforementioned firms or persons held anysecurities of the Corporation or of any associate or affiliate of theCorporation when they prepared the reports referred to above or following thepreparation of such reports nor did they receive any direct or indirectinterest in any securities of the Corporation or of any associate or affiliateof the Corporation in connection with the preparation of such reports.**

** **

**None of the aforementioned firms or persons, nor anydirectors, officers or employees of such firms, are currently expected to beelected, appointed or employed as a director, officer or employee of theCorporation or of any associate or affiliate of the Corporation.**

** **

BDOCanada LLP (“**BDO**”) of Vancouver, British Columbiaresigned as auditors of the Corporation effective September 29, 2009. KPMGLLP (“**KPMG”**), of Toronto, Ontario wereappointed as the independent auditors of the Corporation by the board effectivethat same date.

 

Atthe effective date of BDO’s resignation, there had been no reservations in thetheir reports on any of the Corporation’s financial statements commencing atthe beginning of the two most recently completed financial years and ending onthe date of the their resignation. There were no reportable events between theCorporation and BDO. The resignation of BDO and the appointment of KPMG wereconsidered and approved by the Audit Committee and the Board of Directors ofthe Corporation.

 

# **AUDITCOMMITTEE AND RELATIONSHIP WITH AUDITORS**

# ** **

National Instrument 52-110 —*Audit Committees* of theCanadian Securities Administrators (**“NI 52-110**”) requires theCorporation to disclose annually in its AIF certain information concerning theconstitution of its audit committee and its relationship with its independentauditors.

 

TheCorporation’s audit committee (the “**Audit Committee**”)is governed by an Audit Committee Charter, the text of which is attached asSchedule A to this AIF.

 

TheAudit Committee is comprised of three directors, Allan J. Marter (Chairman),Victor Lazarovici (since September 11, 2008) and Richard Brissenden (sinceFebruary 23, 2009). As defined in NI 52-110, each of Allan J. Marter,Victor Lazarovici, and Richard Brissenden are “independent”. Also as defined inNI 52-110, all of the Audit Committee members are “financially literate”.

 

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EachAudit Committee member possesses education or experience that is relevant tothe performance of their responsibilities as members of the Corporation’s AuditCommittee.

 

Mr. Marterhas more than 30 years experience in the financial sector of the miningindustry. Mr. Marter was Chief Financial Officer of Golden Star ResourcesLtd., a TSX listed company between 1999 and 2006.  Mr. Marter served as President of theboard and as a director of EURO Ressources SA until January 2009, a TSXand Euronext listed company and has previously served as an officer anddirector of a number of North American junior exploration and mining companies.Mr. Marter is also currently a director of Franconia Minerals Corporation,a TSX listed company and a director of Maestro Ventures Ltd., a TSX-V listedcompany.  Mr. Marter currently(since October 2009) serves as chief financial officer of CopperbeltMinerals Limited, a private BVI company with copper properties in theDemocratic Republic of the Congo.

 

Mr. Lazaroviciwas the managing director, senior base metals and minerals analyst for BMOCapital Markets (New York) from 1998 to 2008. From 1993 to 1998, Mr. Lazaroviciserved as a managing director and senior metals and minerals analyst for SmithBarney (New York).  Mr. Lazarovicihas completed the NYSE/NASD Series 86/87 (Research Analyst QualificationExamination) examinations.  Prior toentering the financial services industry, Mr. Lazarovici held severalfinancial management positions in manufacturing and mining industries. Mr. Lazaroviciholds a bachelor of engineering from Sir George Williams University and an MBAfrom York University.

 

Mr. Brissendenis a chartered accountant with more than 25 years experience in the mining andexploration sector. Mr. Brissenden serves as a director on several miningcompanies, including Canuc Resources Corporation, Corona Gold Corporation,Lexam Explorations Inc. and Valdez Gold Inc.

 

**Audit, Audit Related, Tax, and Other Fees**

** **
| **Category of Fee** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **Amount   2009** | ** ** | **Amount   2008** | ** ** |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| Audit Fees          |       | Fees incurred by  the Corporation’s external auditor in connection with the audit of the  Corporation’s financial statements and with the review of the Corporation’s  interim financial statements.                                                                                                                                                                                                                 |       | $                 | 378,042    |              | $          | 248,946 |   |
| Audit-Related Fees  |       | Fees incurred by  the Corporation’s external auditor in connection with a non-audit review and  change of auditor notice.                                                                                                                                                                                                                                                                                                      |       | $                 | 17,478     |              | —     |   |
| Tax Fees            |       | Fees billed by  the Corporation’s external consultants in connection with preparation of tax  returns and certain tax advice.                                                                                                                                                                                                                                                                                                  |       | $                 | 36,296     |              | $          | 15,569 |   |
| Other Fees          |       | Fees billed by  the Corporation’s external consultants in connection with correspondence with  various corporate matters such as efficient treatment of certain  transactions, transitional support services, and the filing of a Preliminary  Short Form Prospectus ($40,483).  Fees  pertaining to Sarbanes  Oxley compliance of $112,453 and $43,344 are included in the 2009 and 2008  other fees, respectively. |       | $                 | 452,051    |              | $          | 76,883 |   |
| **Total Fees**      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                |       | $                 | 883,867    |              | $          | 341,398 |   |

 

As previously stated, BDO resigned as auditors of the Corporationeffective September 29, 2009 and KPMG was appointed as the independentauditors of the Corporation by the board effective that same date.  Audit fees billed by KPMG for 2009 and 2008amounted to $212,000. Audit fees billed by BDO for 2009 and 2008 amounted to$166,042 and $248,946 respectively.

 

**Audit Committee Approval of Audit and Non-Audit Services**

 

The Audit Committee is responsible for overseeing the Corporation’sindependent auditor and pre-approving all services provided by KPMG.  The Audit Committee sets forth itspre-approval in the minutes of its meetings. “Audit Related Fees” and “Tax Fees” are typically approved separatelyduring regular meetings of the Audit 

 

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Committee or, on an as-needed basis, the Audit Committee’s Chair isauthorized to approve such services in advance on behalf of the Committee withsuch approval being reported to the full Audit Committee at its next meeting.

 

# **ADDITIONALINFORMATION**

# ** **

Additionalinformation relating to the Corporation can be found on SEDAR at www.sedar.com.Additional information, including directors’ and officers’ remuneration andindebtedness, principal holders of the Corporation’s securities, and securitiesauthorized for issuance under equity compensation plans are contained in theCorporation’s management information circular prepared in connection with theCorporation’s annual and special meeting of shareholders held on June 18,2009.  Additional financial informationis provided in the Corporation’s annual financial statements and managementdiscussion and analysis, also filed on SEDAR.

 

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# ** **

# **GLOSSARYOF CERTAIN GEOLOGIC AND MINING TERMS**

# ** **

The following is a glossaryof technical terms which are used in this AIF:

 

“**Ag**” meanssilver;

 

**“andesite”**is a type ofdark colored, fine grained volcanic rock;

 

**“anomalous”**means either ageophysical response that is higher or lower than the average background orrock samples that return assay values greater than the average background;

 

**“argillic”** meanspertaining to clay or clay minerals;

 

“**As**” meansarsenic;

 

“**Au**” means gold;

 

**“Bankable Feasibility Study”** means thestudy, prepared to industry standards, based upon which a bank or other lendinginstitution may loan the Corporation or MASA funds for production developmenton the Claims;

 

**“breccia”**means a coursegrained rock, composed of angular broken rock fragments held together by afiner grained matrix;

 

**“Cateo”**means anexploration concession for mineral rights granted to an individual or companyin the Republic of Argentina, as defined by the Republic of Argentina MiningCode, as amended;

 

**“Claims”**means theCateos, Manifestación de Descubrimiento, Mina, Estaca Mina (as defined by theRepublic of Argentina Mining Code, as amended) described herein issued to MASA,MSC or the Corporation by the government of Argentina or any provincialgovernment;

 

“**Cu**” meanscopper;

 

**“dacite”**is a type offine-grained extrusive rock;

 

**“Estaca Mina”**means areasgranted to extend the area covered by existing Minas;

 

**“felsic”**describes anigneous rock having abundant light colored minerals;

 

“**g/t**” meansgrams per tonne;

 

“**g/t Au**” meansgrams per tonne gold;

 

“**g/t Ag**” meansgrams per tonne silver;

 

**“graben”**means anelongate crustal block that is bounded by faults on its long sides;

 

**“grab sample”**means one ormore pieces of rock collected from a mineralized zone that when analyzed do notrepresent a particular width of mineralization nor necessarily the true mineralconcentration of any larger portion of a mineralized area;

 

“**ha**” meanshectare(s);

 

“**Hg**” meansmercury;

 

**“igneous rock”**means a rockformed by the cooling of molten rock either underground or at the surface ofthe earth;

 

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**“illitic”**is a generalname for a group of clay minerals;

 

**“intrusive rock”**means anigneous rock that, when in the molten or partially molten state, penetratedinto or between other rocks, but cooled beneath the surface;

 

“**IP/RES**” meansinduced polarization and resistivity (survey);

 

“**kg**” meanskilogram(s);

 

“**km**” meanskilometer(s);

 

**“low sulfidation”**applies to atype of mineralization low in sulfur content;

 

“**m**” meansmeter(s);

 

**“Manifestación deDescubrimiento”**(literally, manifestation of discovery) means theintermediate stage between the exploration phase and exploitation phase ofdevelopment;

 

**“metamorphic rock”**means anigneous or sedimentary rock that has been altered by exposure to heat andpressure (resulting from deep burial, contact with igneous rocks, compressionin mountain building zones or a combination of these factors) but withoutcomplete melting. Metamorphosis typically results in partial recrystallizationand the growth of new minerals.

 

**“Metasediment”**refers tometamorphosed sedimentary rock.  **“Metavolcanics”**refers to metamorphosedvolcanic rock;

 

**“Mina”**means anexploitation grant based on Manifestación de Descubrimiento;

 

“**Mo**” meansmolybdenum;

 

**“net profits royalty”**is a form ofroyalty payable as a percentage of the net profits of a mining operation.  In contrast to net smelter return royalties,costs relating to exploration, development and mining may be deducted from thenet proceeds of the operation in calculating the royalty.  However, such royalties are established bycontract or statute (in the case of property owned by governments), and thespecific terms of such contracts or statutes govern the calculation of theroyalty;

 

**“net smelter return royalty”**is a form of royalty payable as a percentage of the value of the finalproduct of a mine, after deducting the costs of transporting ore or concentrateto a smelter, insurance charges for such transportation, and all charges orcosts related to smelting the ore. Normally, exploration, development and mining costs are not deducted incalculating a net smelter return royalty. However, such royalties are established by contract or statute (in thecase of property owned by governments), and the specific terms of suchcontracts or statutes govern the calculation of the royalty;

 

“**NSR**” means NetSmelter Return;

 

**“orebody”**means acontinuous well-defined mass of material containing enough ore to make extractioneconomically feasible;

 

“**opt**” meansounces per ton;

 

“**oz**” meansounce;

 

“**Pb**” means lead;

 

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**“porphyry”**means anigneous rock of any composition that contains conspicuous large mineralcrystals in a fine-grained ground mass;

 

“**ppb**” meansparts per billion;

 

“**ppm**” parts permillion;

 

**“pyroclastic”**meanspertaining to rock material formed by volcanic explosion or expulsion from avolcanic vent;

 

**“rhyolite”**is a type offelsic lava flow;

 

“**Sb**” means antimony;

 

“**sq.**” meanssquare;

 

**“stratabound”**means a mineraldeposit confined to a single stratigraphic unit;

 

**“stratigraphy”**means thescience of rock strata;

 

**“synvolcanic”**means formed atthe time of volcanic activity;

 

**“tuffaceous”**is a generalterm for all consolidated pyroclastic rocks;

 

**“Underlying Royalty”**means anyroyalties on the Claims that are part of the lease, purchase or option of saidClaim from the owner or any royalties that may be imposed by the provincialgovernment;

 

**“vein”**means a mineralfilling of a fault or fracture in the host rock, typically in tabular orsheet-like form;

 

**“VLF-EM”**means a verylow frequency electromagnetic geophysical instrument used in exploration tomeasure variances of conductivity in surficial sediments and bedrock (survey);

 

**“volcanic rock”**(basalt,pillowed-flows, rhyolite) means an igneous rock that has been poured out orejected at or near the earth’s surface;

 

**“volcanoclastic rock”**(wacke, tuff,turbidite) means a sedimentary rock derived from the transportation anddeposition of volcanic rock fragments by air (tuff) or water (wacke orturbidite); and

 

“**Zn**” means zinc.

 

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# **SCHEDULE“A”**

# ** **

**MINERA ANDES INC.**

(the “Corporation”)

**AUDIT COMMITTEE CHARTER**

 

***A.            Purpose***

 

TheAudit Committee (the “**Committee**”) isa committee of the board of directors (the “**Board**”)of the Corporation the primary function of which is to assist the Board in itsoversight of the nature and scope of the annual audit, management’s reportingon internal accounting standards and practices, financial information andaccounting systems and procedures and financial reporting and statements and torecommend, for approval of the Board, or to approve, the audited financialstatements, interim financial statements and any other releases containingfinancial information.

 

The primary objectives ofthe Committee are as follows:

 

1.     To assist directors meet theirresponsibilities (especially for accountability) in respect of the preparationand disclosure of the financial statements of the Corporation and relatedmatters.

 

2.     To oversee the work of the externalauditors.

 

3.     To provide better communication betweendirectors and external auditors.

 

4.     To enhance the external auditors’independence.

 

5.     To increase the credibility and objectivityof financial reports.

 

6.     To strengthen the role of the outsidedirectors by facilitating in depth discussions between directors on theCommittee, management and the external auditors.

 

***B.            Responsibility ofManagement and External Auditors***

 

The Committee’s role is oneof oversight. Management is responsible for preparing the Corporation’sfinancial statements and other financial information and for the fairpresentation of the information set forth in the financial statements inaccordance with generally accepted accounting principles (“**GAAP**”).Management is also responsible for establishing internal controls andprocedures and for maintaining the appropriate accounting and financialreporting principles and policies designed to assure compliance with accountingstandards and all applicable laws and regulations.

 

The external auditors’responsibility is to audit the Corporation’s financial statements and providetheir opinion, based on their audit conducted in accordance with generallyaccepted auditing standards, that the financial statements present fairly, inall material respects, the financial position, results of operations and cashflows of the Corporation in accordance with GAAP.

 

***C.            Membership andOrganization***

 

1.     **Composition**- The Committee shall be comprised of not less than threeindependent members of the Board.

 

2.     **Independence**- None of the members of the Committee shall be members ofmanagement of the Corporation, and all of them shall be “independent” (as suchterm is used in Multilateral Instrument 52-110 - Audit Committees (“**MI 52-110**”).

 

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3.     **Appointmentand Removal of Committee Members**- Each member of the Committeeshall be appointed by the Board on an annual basis and shall serve at thepleasure of the Board or until the earlier of: (a) the close of the nextannual meeting of the shareholders of the Corporation at which the member’s term of office expires; (b) thedeath of the member; or (c) the resignation, disqualification or removalof the member from the Committee or from the Board. The Board may fill thevacancy in the membership of the Committee.

 

4.     **FinancialLiteracy**- All of the members of the Committee shall be “financiallyliterate” within the meaning used in MI 52-110 or a member who is notfinancially literate must become so within a reasonable period of timefollowing his or her appointment.

 

5.     **Chair**-At the time of the annual appointment of the members of the Committee, theBoard shall appoint a Chair of the Audit Committee. The Chair shall be a memberof the Committee, preside over all Committee meetings, coordinate the Committee’scompliance with this Charter, work with management to develop the Committee’sannual work plan and provide reports of the Committee to the Board. The Chairmay vote on any matter requiring a vote. In the case of an equality of votes,the Chair shall be entitled to a second or casting vote. The Chair shall reportto the Board, as required by applicable law or as deemed necessary by the Committee or as requested by the Board, onmatters arising at Committee meetings and, where applicable, shall present theCommittee’s recommendation to the Board for its approval.

 

***D.            Functions andResponsibilities***

 

The Committee shall have thefunctions and responsibilities set out below as well as any other functionsthat are specifically delegated to the Committee by the Board. In addition tothese functions and responsibilities, the Committee shall perform the dutiesrequired of an audit committee by the Alberta *BusinessCorporations Act*, by any requirements of stock exchanges on whichthe securities of the Corporation are listed, and all other applicable laws.

 

1.     **OverseeExternal Auditors**- The Committee shall oversee the work of the externalauditors, including reviewing any disagreements between management and theexternal auditors in connection with the preparation of financial statementsand shall communicate directly with the external and any internal auditors.

 

2.     **InternalControls**- The Committee shall monitor the system of internalcontrol. The Committee shall require management to implement and maintainappropriate systems of internalcontrol in accordance with applicable laws, regulations and guidance, includinginternal control over financial reporting and disclosure and to review,evaluate and approve these procedures. At least annually, the Committee shallconsider and review with management and the external auditors:

 

(a)          theeffectiveness of, or weaknesses or deficiencies in: the design or operation ofthe Corporation’s internal controls (including computerized information systemcontrols and security); the overall control environment for managing businessrisks; and accounting, financial and disclosure controls (including, withoutlimitation, controls over financial reporting), non financial controls, andlegal and regulatory controls and the impact of any identified weaknesses ininternal controls on management’s conclusions.

 

(b)         any significantchanges in internal control over financial reporting that are disclosed, orconsidered for disclosure, including those in the Corporation’s periodicregulatory filings;

 

(c)          any materialissues raised by any inquiry or investigation by the Corporation’s regulators;

 

(d)         any relatedsignificant issues and recommendations of the external auditors together withmanagement’s responses thereto, including the timetable for implementation ofrecommendations to correct weaknesses in internal controls over financialreporting and disclosure controls.

 

3.     **ReviewFinancial Statements**- The Committee shall review the annual andinterim financial statements of the Corporation and related management’sdiscussion and analysis (“**MD&A**”)prior to their approval. The process should include but not be limited to:

 

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(a)          reviewingchanges in accounting principles and policies, or in their application, whichmay have a material impact on the current or future years’ financialstatements;

 

(b)         reviewing significantaccruals, reserves or other estimates;

 

(c)          reviewing any “relatedparty” transactions, with related party having the meaning ascribed to it byCanadian securities regulations;

 

(d)         reviewingaccounting treatment of unusual or non-recurring transactions;

 

(e)          ascertainingcompliance with covenants under loan agreements;

 

(f)            reviewingdisclosure requirements for commitments and contingencies;

 

(g)         reviewingunresolved differences between management and the external auditors;

 

(h)         obtainexplanations of significant variances with comparative reporting periods;

 

(i)             reviewing anylegal matters which could significantly impact the financial statements asreported on by the general counsel and meet with outside counsel wheneverdeemed appropriate; and

 

(j)             reviewing auditresponse letters from the Corporation’s legal counsel made under the JointPolicy Statement of the Canadian Bar Association and the Canadian Institute ofChartered Accountants.

 

4.     **PublicDisclosure**- The Committee shall review the financial statements,MD&A, annual information forms (“**AIF**”),management information circulars and any prospectuses as well as all public disclosure containingaudited or unaudited financial information (including, without limitation, anypress releases disclosing earnings or financial results) before release andprior to Board approval and shall satisfy itself that adequate procedures arein place for the review of the Corporation’s public disclosure of financialinformation extracted or derived from the Corporation’s financial statements.

 

5.     **InterimFinancial Statements**- The Committee shall review the interimfinancial statements and disclosures, and obtain explanations from managementas required. After completingits review of the interim financial statements, if advisable, the Committeeshall, if so authorized by the Board, approve the interim financial statementsand the related MD&A, or if not so authorized by the Board, then approveand recommend them for approval by the Board.

 

6.     **HiringPolicies**- The Committee shall review and approve the Corporation’s hiring policiesregarding the hiring of partners, employers and former partners and employeesof the present and former external auditors of the Corporation. The Committeeshall review candidates for the position of Chief Financial Officer of theCorporation and make recommendations to the Board with respect to theappointment of a Chief Financial Officer.

 

7.     **Appointmentof External Auditors**- With respect to the appointment of externalauditors by the Board, the Committee shall:

 

(a)          recommend tothe Board the appointment of the external auditors;

 

(b)         recommend tothe Board the terms of engagement of the external auditor, including thecompensation of the auditors and a confirmation that the external auditorsshall communicate directly to the Committee;

 

(c)          on an annualbasis, review and discuss with the external auditors all significantrelationships such auditors have with the Corporation to determine the auditors’independence;

 

(d)         review theperformance of the external auditors;

 

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(e)          when there isto be a change in auditors, review the issues related to the change and theinformation to be included in the required notice to securities regulators ofsuch change; and

 

(f)            review andapprove in advance any non-audit services to be provided to the Corporation orits subsidiaries by the external auditors and consider the impact on theindependence of such auditors, including reviewing the range of servicesprovided in the context of all consulting services bought by the Corporation.The Committee may delegate to one or more members the authority to approve non—auditservices, provided that the member report to the Committee at the nextscheduled meeting such pre—approval and the member comply with such otherprocedures as may be established by the Committee from time to time.

 

8.     **Evaluationand Rotation of Lead Partner**- At least annually, the Committeeshall review the qualifications and performance of the lead partners of theexternal auditors. The Committee shall obtain a report from the externalauditors annually verifying that the lead partner of the external auditors hasserved in that capacity for no more than five fiscal years of the Corporation andthat the engagement team collectively possesses the experience and competenceto perform an appropriate audit.

 

9.     **Reviewwith External Auditors**- Review with external auditors (and internalauditor if one is appointed by the Corporation) their assessment of theinternal controls of the Corporation, their written reports containingrecommendations for improvement, and management’s response and follow-up to anyidentified weaknesses. The Committee shall also review annually with theexternal auditors their plan for their audit and, upon completion of the audit,their reports upon the financial statements of the Corporation and itssubsidiaries.

 

10.   **RiskPolicies and Procedures**- The Committee shall review risk managementpolicies and procedures of the Corporation (e.g. hedging, litigation andinsurance), regarding current areas of great financial risk and whethermanagement is managing these effectively.

 

11.   **Treatmentof Complaints/Submissions**- The Committee shall review and approvethe establishment by management of procedures for the receipt, retention andtreatment of complaints received by the Corporation from employees or others,regarding accounting, internal accounting controls, or auditing matters as wellas the confidential, anonymous submission by employees of the Corporation ofconcerns regarding questionable accounting or auditing matters.

 

12.   **Investigations**- The Committee shall have the authority to investigate anyfinancial activity of the Corporation. All employees of the Corporation are to cooperateas requested by the Committee.

 

13.   **RetainExperts**- The Committee may retain independent counsel, personshaving special expertise and/or obtain independent professional advice toassist in filling their responsibilities at the expense of the Corporationwithout any further approval of the Board. The Committee has the authority toset, and have the Corporation, pay the compensation for any such personsengaged by the Committee.

 

14.**Advising Board**- The Committeeshall ensure that the Board is aware of matters which may significantly impactthe financial condition or affairs of the business.

 

15.   **Updates toCharter**- The Committee shall review and recommend to the Board anyupdates to the Audit Committee Charter. All changes to the Audit CommitteeCharter shall be approved by the Board.

 

***E.            Adoption of theAudit Committee Charter and Amendments***

 

1.     This Charter was adopted and approved bythe Board of Directors of the Corporation on May 20, 2005.

 

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