Exhibit 99.2

Report of Independent Registered Public Accounting Firm

To the Shareholders of Minera Andes Inc.:

We have completed an integrated audit of the consolidated financial statements and internal control over financial reporting of Minera Andes Inc. (an
exploration stage corporation) as of December 31, 2007 and 2006. Our opinions, based on our audits, are presented below.

Consolidated financial
statements

We have audited the consolidated balance sheets of Minera Andes Inc. (an exploration stage corporation) as at December 31, 2007 and
2006 and the consolidated statements of operations and accumulated deficit, mineral properties and deferred exploration costs and cash flows for the years then ended. We have also audited the consolidated statements of operations and accumulated
deficit, mineral properties and deferred exploration costs and cash flows for the period from July 1, 1994 (inception) through December 31, 2007. These consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in
accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated
financial statements present fairly, in all material respects, the financial position of Minera Andes Inc. (an exploration stage corporation) as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years
then ended and for the period from July 1, 1994 (inception) through December 31, 2007 in accordance with Canadian generally accepted accounting principles.

Internal control over financial reporting

We have also audited Minera Andes Inc.s (an exploration stage
corporation) internal control over financial



1



---

reporting as of December 31, 2007, based on criteria established in Internal Control  Integrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). Minera Andes Inc.s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures
as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations or management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis. The following
material weaknesses have been identified and are included in Managements Report on Internal Control Over Financial Reporting: The Companys accounting staff do not have sufficient technical accounting and financial reporting expertise as
it relates to specific and complex areas within income tax and United States generally accepted accounting principles. These material weaknesses were considered in determining the nature, timing, and



2



---

extent of audit tests applied in our audit of the 2007 consolidated financial statements, and this report does not affect our report dated March 26,
2008, which expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the aforementioned
material weaknesses on the achievement of the objectives of the control criteria, the Company has not maintained in all material respects effective internal control over financial reporting as of December 31, 2007, based on criteria established
in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



|                      
|----------------------
|/s/ BDO Dunwoody LLP  
|Chartered Accountants 
|Vancouver, B.C. Canada
|March 26, 2008        



3



---

Comments by the Auditors for U.S. Readers on Canada  U.S. Reporting Differences

Public Company Accounting Oversight Board (United States) reporting standards for auditors require the addition of an explanatory paragraph (following the opinion
paragraph) when the financial statements are affected by conditions and events that cast doubt on the Companys ability to continue as a going concern such as those described in Note 1 of the consolidated financial statements. Our report to the
shareholders dated March 26, 2008, is expressed in accordance with Canadian reporting standards, which do not permit a reference to such conditions and events in the auditors report when these are adequately disclosed in the financial
statements.



|                      
|----------------------
|/s/ BDO Dunwoody LLP  
|Chartered Accountants 
|Vancouver, B.C. Canada
|March 26, 2008        



4



---

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED BALANCE SHEETS

(U.S. Dollars)



|                                                                                        |  |                  |             |   |                  |   |             |  
|--------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                        |  | December 31,2007 |             |   | December 31,2006 |  
|Current:                                                                                |  |                  |             |   |                  |   |             |  
|Cash and cash equivalents (Note 3)                                                      |  | $                | 23,101,135  |   |                  | $ | 2,244,621   |  
|Receivables and prepaid expenses                                                        |  |                  | 340,674     |   |                  |   | 268,550     |  
|Current project loan receivable (Note 4 (b))                                            |  |                  | 6,860,000   |   |                  |   |            |  
|Project loan interest receivable                                                        |  |                  | 2,357,753   |   |                  |   | 48,330      |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|Total current assets                                                                    |  |                  | 32,659,562  |   |                  |   | 2,561,501   |  
|Mineral properties and deferred exploration costs (Note 4)                              |  |                  | 8,337,881   |   |                  |   | 5,605,148   |  
|Project loan receivable (Note 4 (b))                                                    |  |                  | 24,990,000  |   |                  |   | 9,800,000   |  
|Investment in Minera Santa Cruz (Note 4 (b))                                            |  |                  | 64,726,565  |   |                  |   | 30,963,692  |  
|Equipment, net (Note 5)                                                                 |  |                  | 40,931      |   |                  |   | 56,212      |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|Total assets                                                                            |  | $                | 130,754,939 |   |                  | $ | 48,986,553  |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|                                                                                        |  |                 
|LIABILITIES                                                                             |  |                  |             |   |                  |   |             |  
|Current:                                                                                |  |                  |             |   |                  |   |             |  
|Accounts payable and accruals                                                           |  | $                | 2,886,550   |   |                  | $ | 893,880     |  
|Current project loan payable (Note 4 (b))                                               |  |                  | 6,860,000   |   |                  |   |            |  
|Project loan interest payable                                                           |  |                  | 2,357,753   |   |                  |   | 48,330      |  
|Related party payable (Note 9 (h))                                                      |  |                  | 16,905,000  |   |                  |   |            |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                               |  |                  | 29,009,303  |   |                  |   | 942,210     |  
|Bank Loan (Note 6)                                                                      |  |                  | 14,591,830  |   |                  |   |            |  
|Project loan payable (Note 4 (b))                                                       |  |                  | 24,990,000  |   |                  |   | 9,800,000   |  
|Asset retirement obligation                                                             |  |                  | 90,000      |   |                  |   | 45,000      |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|Total liabilities                                                                       |  |                  | 68,681,133  |   |                  |   | 10,787,210  |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|Commitments and contingencies (Notes 1, 4 and 9)                                        |  |                  |             |   |                  |   |             |  
|                                                                                        |  |                 
|SHAREHOLDERS EQUITY                                                                    |  |                  |             |   |                  |   |             |  
|Share capital (Note 7):                                                                 |  |                  |             |   |                  |   |             |  
|Preferred shares, no par value, unlimited number authorized, none issued                |  |                  |             |   |                  |   |             |  
|Common shares, no par value, unlimited number authorized                                |  |                  |             |   |                  |   |             |  
|Issued December 31, 2007180,974,912 shares Issued December 31, 2006156,539,415 shares |  |                  | 88,512,349  |   |                  |   | 63,642,152  |  
|Contributed surplus  (Notes 2 and 8)                                                   |  |                  | 16,007,350  |   |                  |   | 8,440,457   |  
|Deficit accumulated during exploration stage                                            |  |                  | (42,445,893 | ) |                  |   | (33,883,266 | )
|                                                                                        |  |                  |             |   |                  |   |             |  
|Total shareholders equity                                                              |  |                  | 62,073,806  |   |                  |   | 38,199,343  |  
|                                                                                        |  |                  |             |   |                  |   |             |  
|Total liabilities and shareholders equity                                              |  | $                | 130,754,939 |   |                  | $ | 48,986,553  |  
|                                                                                        |  |                  |             |   |                  |   |             |  

Approved by the Board of Directors:



|                           |  |  |  |                          
|-------------------------- |  |  |  | -------------------------
|/s/ Allen V. Ambrose       |  |  |  | /s/ Allan J. Marter      
|Allen V. Ambrose, Director |  |  |  | Allan J. Marter, Director

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



5



---

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED
DEFICIT

(U.S. Dollars)



|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|-------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------------------------- | - | ----------- | ------------------------ |  | - | ---------- | -
|                                                                                 |  | Year Ended       |             |   | Period fromJuly 1, 1994(inception) |  
|                                                                                 |  | December 31,2007 |             |   | December 31,2006                   |   |             | throughDecember 31, 2007 | 
|Consulting fees (Note 7 (c))                                                     |  | $                | 426,742     |   |                                    | $ | 1,766,655   |                          |  | $ | 4,755,373  |  
|Depreciation                                                                     |  |                  | 8,200       |   |                                    |   | 9,157       |                          |  |   | 105,247    |  
|Equipment rental                                                                 |  |                  |            |   |                                    |   |            |                          |  |   | 21,522     |  
|Insurance                                                                        |  |                  | 149,049     |   |                                    |   | 75,987      |                          |  |   | 616,920    |  
|Legal, audit and accounting fees                                                 |  |                  | 812,699     |   |                                    |   | 619,729     |                          |  |   | 3,210,858  |  
|Materials, supplies and maintenance                                              |  |                  |            |   |                                    |   |            |                          |  |   | 49,260     |  
|Office overhead and administration fees                                          |  |                  | 499,228     |   |                                    |   | 382,595     |                          |  |   | 3,578,604  |  
|Telephone                                                                        |  |                  | 36,769      |   |                                    |   | 34,169      |                          |  |   | 523,861    |  
|Transfer agent                                                                   |  |                  | 22,219      |   |                                    |   | 19,728      |                          |  |   | 180,881    |  
|Travel                                                                           |  |                  | 144,437     |   |                                    |   | 79,491      |                          |  |   | 770,422    |  
|Wages and benefits (Note 7 (c))                                                  |  |                  | 736,764     |   |                                    |   | 4,064,959   |                          |  |   | 7,717,709  |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Expenses before under-noted                                                      |  |                  | 2,836,107   |   |                                    |   | 7,052,470   |                          |  |   | 21,530,657 |  
|Finance costs                                                                    |  |                  |            |   |                                    |   | 688,712     |                          |  |   | 688,712    |  
|Foreign exchange (gain) loss                                                     |  |                  | (699,459    | ) |                                    |   | 76,602      |                          |  |   | (443,929   | )
|Gain on sale of equipment                                                        |  |                  |            |   |                                    |   | (641        | )                        |  |   | (112,971   | )
|Gain on sale of mineral property                                                 |  |                  |            |   |                                    |   |            |                          |  |   | (898,241   | )
|Interest income                                                                  |  |                  | (225,810    | ) |                                    |   | (193,804    | )                        |  |   | (1,018,722 | )
|Interest expense                                                                 |  |                  | 240,130     |   |                                    |   |            |                          |  |   | 240,130    |  
|Loss on equity investment (Note 4 (b))                                           |  |                  | 4,665,885   |   |                                    |   | 1,436,468   |                          |  |   | 7,877,099  |  
|Project loan interest expense                                                    |  |                  | 2,309,423   |   |                                    |   | 48,330      |                          |  |   | 2,357,753  |  
|Project loan interest income                                                     |  |                  | (2,309,423  | ) |                                    |   | (48,330     | )                        |  |   | (2,357,753 | )
|Write-off of mineral properties and deferred exploration costs (Note 4 (c), (d)) |  |                  | 1,378,284   |   |                                    |   | 1,712,633   |                          |  |   | 11,631,152 |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Net loss for the period                                                          |  |                  | 8,195,137   |   |                                    |   | 10,772,440  |                          |  |   | 39,493,887 |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Adjustment for change in accounting for stock-based compensation (Note 2 (l))    |  |                  |            |   |                                    |   |            |                          |  |   | 678,569    |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Accumulated deficit, beginning of period                                         |  |                  | 33,883,266  |   |                                    |   | 22,935,359  |                          |  |   | 40,172,456 |  
|Adjustment on acquisition of royalty interest                                    |  |                  |            |   |                                    |   |            |                          |  |   | 500,000    |  
|Share issue costs (Note 2(g))                                                    |  |                  | 74,111      |   |                                    |   | 175,467     |                          |  |   | 1,462,843  |  
|Incentive warrant payment (Note 7(iii))                                          |  |                  | 293,379     |   |                                    |   |            |                          |  |   | 293,379    |  
|Deficiency on acquisition of subsidiary                                          |  |                  |            |   |                                    |   |            |                          |  |   | 17,215     |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Deficit accumulated during exploration stage, end of the period                  |  | $                | 42,445,893  |   |                                    | $ | 33,883,266  |                          |  | $ | 42,445,892 |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Basic and diluted loss per common share                                          |  | $                | 0.05        |   |                                    | $ | 0.08        |                          |  |   |            |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  
|Weighted average shares outstanding                                              |  |                  | 164,712,170 |   |                                    |   | 141,501,804 |                          |  |   |            |  
|                                                                                 |  |                  |             |   |                                    |   |             |                          |  |   |            |  

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



6



---

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF MINERAL PROPERTIES

AND DEFERRED EXPLORATION COSTS

(U.S. Dollars)



|                                        |  |                  |            |   |                                    |   |            |                          |  |   |             |  
|--------------------------------------- |  | ---------------- | ---------- | - | ---------------------------------- | - | ---------- | ------------------------ |  | - | ----------- | -
|                                        |  | Year Ended       |            |   | Period fromJuly 1, 1994(inception) |  
|                                        |  | December 31,2007 |            |   | December 31,2006                   |   |            | throughDecember 31, 2007 | 
|Administration fees                     |  | $                |           |   |                                    | $ |           |                          |  | $ | 392,837     |  
|Assays and analytical                   |  |                  | 63,723     |   |                                    |   | 79,624     |                          |  |   | 1,300,388   |  
|Asset retirement obligation             |  |                  | 45,000     |   |                                    |   | 45,000     |                          |  |   | 90,000      |  
|Construction and trenching              |  |                  | 187,109    |   |                                    |   | 36,265     |                          |  |   | 757,657     |  
|Consulting fees                         |  |                  | 158,709    |   |                                    |   | 163,333    |                          |  |   | 1,643,991   |  
|Depreciation                            |  |                  | 28,345     |   |                                    |   | 23,340     |                          |  |   | 273,919     |  
|Drilling                                |  |                  | 1,283,643  |   |                                    |   | 850,803    |                          |  |   | 3,723,839   |  
|Equipment rental                        |  |                  | 555,667    |   |                                    |   | 240,597    |                          |  |   | 1,301,516   |  
|Geology                                 |  |                  | 757,041    |   |                                    |   | 504,832    |                          |  |   | 5,328,861   |  
|Geophysics                              |  |                  |           |   |                                    |   |           |                          |  |   | 374,960     |  
|Insurance                               |  |                  | 3,687      |   |                                    |   | 2,951      |                          |  |   | 264,050     |  
|Legal                                   |  |                  | 183,676    |   |                                    |   | 125,012    |                          |  |   | 1,139,160   |  
|Maintenance                             |  |                  | 16,472     |   |                                    |   | 5,245      |                          |  |   | 209,671     |  
|Materials and supplies                  |  |                  | 193,559    |   |                                    |   | 82,572     |                          |  |   | 793,071     |  
|Project overhead                        |  |                  | 210,002    |   |                                    |   | 99,946     |                          |  |   | 749,483     |  
|Property and mineral rights             |  |                  | 45,921     |   |                                    |   | 221,334    |                          |  |   | 1,721,338   |  
|Telephone                               |  |                  | 37,597     |   |                                    |   | 31,447     |                          |  |   | 203,963     |  
|Travel                                  |  |                  | 268,130    |   |                                    |   | 215,540    |                          |  |   | 1,804,361   |  
|Wages and benefits                      |  |                  | 72,736     |   |                                    |   | 119,766    |                          |  |   | 1,619,710   |  
|                                        |  |                  |            |   |                                    |   |            |                          |  |   |             |  
|Costs incurred during the period        |  |                  | 4,111,017  |   |                                    |   | 2,847,607  |                          |  |   | 23,692,775  |  
|Deferred costs, beginning of the period |  |                  | 5,605,148  |   |                                    |   | 4,470,174  |                          |  |   |            |  
|Deferred costs, acquired                |  |                  |           |   |                                    |   |           |                          |  |   | 576,139     |  
|Deferred costs, contributed to MSC      |  |                  |           |   |                                    |   |           |                          |  |   | (2,320,980  | )
|Deferred costs written off              |  |                  | (1,378,284 | ) |                                    |   | (1,712,633 | )                        |  |   | (11,631,152 | )
|Mineral property option proceeds, net   |  |                  |           |   |                                    |   |           |                          |  |   | (1,978,901  | )
|                                        |  |                  |            |   |                                    |   |            |                          |  |   |             |  
|Deferred costs, end of the period       |  | $                | 8,337,881  |   |                                    | $ | 5,605,148  |                          |  | $ | 8,337,881   |  
|                                        |  |                  |            |   |                                    |   |            |                          |  |   |             |  

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



7



---

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. Dollars)



|                                                                                          |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|----------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------------------------- | - | ----------- | ------------------------ |  | - | ----------- | -
|                                                                                          |  | Year Ended       |             |   | Period fromJuly 1, 1994(inception) |  
|                                                                                          |  | December 31,2007 |             |   | December 31,2006                   |   |             | throughDecember 31, 2007 | 
|Operating Activities:                                                                     |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Net loss for the period                                                                   |  | $                | (8,195,137  | ) |                                    | $ | (10,772,440 | )                        |  | $ | (39,493,887 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Write-off of incorporation costs                                                          |  |                  |            |   |                                    |   |            |                          |  |   | 665         |  
|Write-off of deferred exploration costs                                                   |  |                  | 1,378,284   |   |                                    |   | 1,712,633   |                          |  |   | 11,631,152  |  
|Finance costs                                                                             |  |                  |            |   |                                    |   | 688,712     |                          |  |   | 688,712     |  
|Loss on equity investment                                                                 |  |                  | 4,665,885   |   |                                    |   | 1,436,468   |                          |  |   | 7,877,099   |  
|Depreciation                                                                              |  |                  | 8,200       |   |                                    |   | 9,157       |                          |  |   | 105,247     |  
|Stock option compensation (Note 7(c))                                                     |  |                  | 40,000      |   |                                    |   | 5,069,887   |                          |  |   | 6,557,888   |  
|Gain on sale of equipment                                                                 |  |                  |            |   |                                    |   | (641        | )                        |  |   | (112,971    | )
|Gain on sale of mineral properties                                                        |  |                  |            |   |                                    |   |            |                          |  |   | (898,241    | )
|Project loan interest expense                                                             |  |                  | 2,309,423   |   |                                    |   | 48,330      |                          |  |   | 2,357,753   |  
|Project loan interest income                                                              |  |                  | (2,309,423  | ) |                                    |   | (48,330     | )                        |  |   | (2,357,753  | )
|Change in:                                                                                |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Receivables and prepaid expenses                                                          |  |                  | (72,124     | ) |                                    |   | (172,773    | )                        |  |   | (340,674    | )
|Accounts payable and accruals                                                             |  |                  | 1,520,585   |   |                                    |   | 239,841     |                          |  |   | 2,020,232   |  
|                                                                                          |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Cash used in operating activities                                                         |  |                  | (654,307    | ) |                                    |   | (1,789,156  | )                        |  |   | (11,964,778 | )
|                                                                                          |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Investing Activities:                                                                     |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Incorporation costs                                                                       |  |                  |            |   |                                    |   |            |                          |  |   | (665        | )
|Purchase of equipment                                                                     |  |                  | (21,265     | ) |                                    |   | (24,071     | )                        |  |   | (350,948    | )
|Proceeds from sale of equipment                                                           |  |                  |            |   |                                    |   | 815         |                          |  |   | 15,040      |  
|Proceeds from sale of property                                                            |  |                  |            |   |                                    |   |            |                          |  |   | 898,241     |  
|Mineral properties and deferred exploration                                               |  |                  | (3,580,453  | ) |                                    |   | (2,777,701  | )                        |  |   | (22,870,071 | )
|Investment in Minera Santa Cruz                                                           |  |                  | (37,680,628 | ) |                                    |   | (14,128,624 | )                        |  |   | (69,246,257 | )

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



8



---

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWSContinued

(U.S. Dollars)



|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|---------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------------------------- | - | ----------- | ------------------------ |  | - | ----------- | -
|                                                           |  | Year Ended       |             |   | Period fromJuly 1, 1994(inception) |  
|                                                           |  | December 31,2007 |             |   | December 31,2006                   |   |             | throughDecember 31, 2007 | 
|Investing Activities- continued:                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Changes in due to related party                            |  |                  | 16,905,000  |   |                                    |   |            |                          |  |   | 16,905,000  |  
|Proceeds from sale of subsidiaries                         |  |                  |            |   |                                    |   |            |                          |  |   | 9,398       |  
|Acquisition of royalty interest                            |  |                  |            |   |                                    |   |            |                          |  |   | (500,000    | )
|Mineral property option proceeds                           |  |                  |            |   |                                    |   |            |                          |  |   | 2,778,901   |  
|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Cash used in investing activities                          |  |                  | (24,377,346 | ) |                                    |   | (16,929,581 | )                        |  |   | (72,361,361 | )
|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Financing Activities:                                      |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Shares and subscriptions issued for cash, less issue costs |  |                  | 28,373,300  |   |                                    |   | 21,732,863  |                          |  |   | 89,996,471  |  
|Bank loan proceeds received                                |  |                  | 17,500,000  |   |                                    |   |            |                          |  |   | 21,500,000  |  
|Repayment of bank loan                                     |  |                  |            |   |                                    |   | (4,000,000  | )                        |  |   | (4,000,000  | )
|Bank loan interest payable                                 |  |                  | 14,867      |   |                                    |   | (84,064     | )                        |  |   | (69,197     | )
|Project loan receivable                                    |  |                  | (22,050,000 | ) |                                    |   | (9,800,000  | )                        |  |   | (31,850,000 | )
|Project loan payable                                       |  |                  | 22,050,000  |   |                                    |   | 9,800,000   |                          |  |   | 31,850,000  |  
|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Cash provided by financing activities                      |  |                  | 45,888,167  |   |                                    |   | 17,648,799  |                          |  |   | 107,427,274 |  
|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Increase (decrease) in cash and cash equivalents           |  |                  | 20,856,514  |   |                                    |   | (1,069,938  | )                        |  |   | 23,101,135  |  
|Cash and cash equivalents, beginning of period             |  |                  | 2,244,621   |   |                                    |   | 3,314,559   |                          |  |   |            |  
|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  
|Cash and cash equivalents, end of period                   |  | $                | 23,101,135  |   |                                    | $ | 2,244,621   |                          |  | $ | 23,101,135  |  
|                                                           |  |                  |             |   |                                    |   |             |                          |  |   |             |  

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



9



---

MINERA ANDES INC.

An Exploration Stage Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWSContinued

(U.S. Dollars)



|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|----------------------------------------------------------------------------- |  | --------------- | -------- | - | ---------------------------------- | - | --------- | ------------------------ |  | - | --------- | -
|                                                                              |  | Year Ended      |          |   | Period fromJuly 1, 1994(inception) |  
|                                                                              |  | December 312007 |          |   | December 31,2006                   |   |           | throughDecember 31, 2007 | 
|Supplemental disclosure cash flow information:                                |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Capitalized interest paid                                                     |  | $               | (590,603 | ) |                                    | $ | (152,577  | )                        |  | $ | (911,588  | )
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Non-cash investing and financing activities and other information:            |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Stock option compensation (Note 7)                                            |  | $               | 40,000   |   |                                    | $ | 5,069,887 |                          |  | $ | 6,557,888 |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Capitalized accreted interest expense (Note 6)                                |  | $               | 748,130  |   |                                    | $ | 371,365   |                          |  | $ | 1,550,503 |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Depreciation capitalized to mineral properties                                |  | $               | 28,345   |   |                                    | $ | 23,340    |                          |  | $ | 287,073   |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Asset retirement obligation                                                   |  | $               | 45,000   |   |                                    | $ | 45,000    |                          |  | $ | 90,000    |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Accrual for finance costs related to MSC                                      |  | $               |         |   |                                    | $ | 394,233   |                          |  | $ | 394,233   |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Adjustment for change in accounting for stock-based compensation (Note 2 (l)) |  | $               |         |   |                                    | $ |          |                          |  | $ | 678,569   |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Deferred costs, acquired                                                      |  | $               |         |   |                                    | $ |          |                          |  | $ | 576,139   |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Deferred costs, contributed to MSC                                            |  | $               |         |   |                                    | $ |          |                          |  | $ | 2,320,980 |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  
|Shares issued for acquisition                                                 |  | $               |         |   |                                    | $ |          |                          |  | $ | 575,537   |  
|                                                                              |  |                 |          |   |                                    |   |           |                          |  |   |           |  

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



10



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(U.S. Dollars)



|1. | NATURE OF OPERATIONS AND ABILITY TO CONTINUE AS A GOING CONCERN
|-- | ---------------------------------------------------------------

We
are in the business of acquiring, exploring and evaluating mineral properties, and either entering into joint ventures, developing these properties further, or disposing of them when the evaluation is completed. At December 31, 2007, we were in
the exploration stage, had interests in properties in three provinces in the Republic of Argentina, and began production in the fourth quarter of 2007 at the San José project in Santa Cruz province, southern Argentina. We have a 49% interest
in the project and it is operated by our operating partner, Hochschild Mining plc (Hochschild) (HOC.L Reuters, HOC.LN Bloomberg, London Stock Exchange).

The recoverability of amounts shown as mineral properties and deferred exploration costs is dependent upon the existence of economically recoverable reserves, the ability to obtain necessary financing to complete our
development, and the future profitable production or disposition thereof. The accompanying consolidated financial statements have been prepared using Canadian generally accepted accounting principles (Canadian GAAP) applicable to a going
concern. The use of such principles may not be appropriate because, as of December 31, 2007, there was doubt that we would be able to continue as a going concern.

At December 31, 2007, we had a deficit accumulated during exploration stage of approximately $42.4 million. In addition, due to the nature of the mining business, the acquisition, exploration and development of
mineral properties require significant expenditures prior to the commencement of production. To date, we have financed our activities through the issuance of equity securities, debt financing, and joint venture arrangements. We expect to use similar
financing techniques in the future and are actively pursuing such additional sources of financing (see Note 7).

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

Although we have taken steps to verify title to mineral properties in which we have an interest, in accordance with industry standards for the current stage of
exploration of such properties, these procedures do not guarantee title. Property title may be subject to unregistered prior agreements and noncompliance with regulatory requirements.



|2. | SIGNIFICANT ACCOUNTING POLICIES
|-- | -------------------------------

The statements are expressed in
United States dollars because the majority of our exploration activities are incurred in U.S. dollars.



| | a. | Consolidation/Reporting
| | -- | -----------------------

These consolidated
financial statements include the accounts of Minera Andes Inc., an Alberta Corporation, and all its wholly-owned subsidiaries including its principal subsidiaries, Minera Andes S.A. (MASA) and Minera Andes (USA) Inc. (MUSA)
as well as other non-significant subsidiaries.

The Companys accounting policies are in accordance with Canadian generally accepted
accounting principles (GAAP) and are consistent with the accounting principles generally accepted in the United States in all material respects except as outlined in Note 13.

Our investment in Minera Santa Cruz S.A. (MSC), an Argentine corporation, is accounted for by the equity method, whereby the Company records
its investment and its 49% share of the earnings and losses of MSC. All significant intercompany transactions and balances have been eliminated from the consolidated financial statements.



11



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------



| | b. | Foreign Currency Translation
| | -- | ----------------------------

Our consolidated
operations are integrated and balances denominated in currencies other than U.S. dollars are translated into U.S. dollars using the temporal method. This method translates monetary balances at the rate of exchange at the balance sheet date,
non-monetary balances at historic exchange rates and revenues and expense items at average exchange rates except for amortization, which is translated at the historical exchange rate of the corresponding non-monetary assets. The resulting gains and
losses are included in the statement of operations in the reporting period.



| | c. | Cash and Cash Equivalents
| | -- | -------------------------

We consider cash and
cash equivalents to include amounts held in banks and highly liquid investments with remaining maturities at point of purchase of three months or less. We place our cash and cash equivalents with institutions of high credit worthiness.



| | d. | Mineral Properties and Deferred Exploration Costs
| | -- | -------------------------------------------------

Mineral properties consist of exploration and mining concessions, options and contracts. Acquisition and leasehold costs and exploration costs are capitalized and deferred until such time as the property is put into production or the
properties are disposed of either through sale or abandonment. If put into production, the costs of acquisition and exploration will be depreciated over the life of the property, based on estimated economic reserves. Proceeds received from the sale
of any interest in a property is first credited against the carrying value of the property, with any excess included in operations for the period. Where the Company enters into an option agreement for the acquisition of an interest in mining
properties which provides for periodic payments, such amounts are payable entirely at the Companys option. If a property is abandoned, the property and deferred exploration costs will be written off to operations. On a quarterly basis, we
evaluate the future recoverability of our mineral properties and deferred exploration costs. For the year ended December 31, 2007, based on managements assessment of the future recoverability of certain mineral properties and deferred
exploration costs, $1,378,284 (2006  $1,712,633) were written off.



| | e. | Investment
| | -- | ----------

Investments, over which we exert
significant influence, are accounted for using the equity method. Under this method, our share of the earnings and losses is included in operations and our investment therein is adjusted by a like amount. Where in managements opinion there has
been a loss in value that is other than a temporary decline, the carrying value is reduced to estimated realizable value. For the years ended December 31, 2007 and 2006, no impairment write-down of investment was required.



| | f. | Equipment and Depreciation
| | -- | --------------------------

Equipment is recorded
at cost, and depreciation is provided on a decliningbalance basis over estimated useful lives of up to five years to a residual value of 10%.



| | g. | Share Issue Costs
| | -- | -----------------

Commissions paid to underwriters
and agents on the issuance of our shares are charged directly to share capital. Other share issue costs, such as accounting, legal, auditing and printing costs, are charged to accumulated deficit.



12



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------





| | h. | Accounting for Income Taxes
| | -- | ---------------------------

Income taxes are
calculated using the asset and liability method of accounting. Temporary differences arising from the difference between the tax basis of an asset or liability and its carrying amount on the balance sheet are used to calculate future income tax
liabilities or assets. Future income tax assets and liabilities are measured using tax rates and laws that are expected to apply when the temporary differences are expected to reverse to the extent that the Company does not consider it more likely
than not that a future tax asset will be recovered, a valuation allowance will be applied.



| | i. | Basic and Diluted Loss Per Common Share
| | -- | ---------------------------------------

Basic loss
per share is calculated by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding for the year.

For the years ended December 31, 2007 and 2006, potentially dilutive common shares (relating to options and warrants outstanding at year end) totaling 29,554,140 (2006  22,982,892) were not included in the
computation of loss per share because their effect was anti-dilutive. Therefore, diluted loss per share is the same as basic loss per share.



| | j. | Estimates
| | -- | ---------

The preparation of financial statements
in conformity with generally accepted accounting principles of Canada requires management to make estimates based on information available at the time, and assumptions that affect the reported amount of assets, particularly the recoverability of
mineral properties and deferred exploration expenses, investment, and long-lived assets, variable interest entities (VIE), asset retirement obligation, stock-based compensation, income taxes, the recording of liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from managements best estimates.



| | k. | Fair Value of Financial Instruments
| | -- | -----------------------------------

Financial
instruments include cash and cash equivalents, receivables, project loan and interest receivables, accounts payable and accruals, project loan payable, bank loan, related party payable and interest payable. Unless otherwise noted, fair values
approximate carrying values for these financial instruments due to the short term nature of the instruments. The fair value of the loan and interest receivable, project loan and interest payable, approximate carrying value because the stated
interest rates reflect recent market conditions or because the rates are variable in nature. Unless otherwise stated, it is managements opinion that the Company is not exposed to significant interest or credit risk from these financial
instruments. The Company through its subsidiary, MASA, is operating in Argentina which may give rise to foreign currency risks from fluctuations and the degree of volatility of exchange rates between the United States Dollar and the Argentina Peso.



| | l. | Stock-Based Compensation
| | -- | ------------------------

The Company has a stock
option plan as described in Note 7. The fair value method is used to determine the expense for stock-based awards granted to employees and non-employees. Under the fair value method, compensation cost is measured at fair value at the date of grant
using the Black-Scholes option pricing model with assumptions described in Note 7. The compensation cost is expensed over the vesting period with a corresponding credit to contributed surplus. Consideration paid on the exercise of stock options plus
the amount of previously recognized expense is credited to share capital when the options are exercised.



13



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------



| | l. | Stock-Based Compensation - continued
| | -- | ------------------------------------



Effective January 1, 2004 we adopted on a retroactive basis without restatement, the new
recommendations of CICA Handbook Section 3870, Stock-Based Compensation and Other Stock-Based Payments, which requires companies to adopt the fair value method for all stock-based awards granted on or after January 1, 2002.
Previously we used the intrinsic value method of accounting for stock options granted to employees and directors (for services rendered as a director) whereby we were only required to disclose the pro forma effect of stock options granted to the
above noted parties in the notes to the financial statements. The effect of this change in accounting policy was to increase the accumulated deficit at January 1, 2004 by $678,569 with a corresponding increase to contributed surplus.



| | m. | Asset Retirement Obligations
| | -- | ----------------------------

Effective
January 1, 2004, we adopted CICA 3110, Asset Retirement Obligations which requires us to record the fair value of an asset retirement obligation as a liability in the period in which it incurred a legal obligation associated with
the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. The obligation is measured initially at fair value using present value methodology, and the resulting costs
are capitalized into the carrying amount of the related asset. In subsequent periods, the liability will be adjusted for any changes in the amount or timing of the underlying future cash flows. Capitalized asset retirement costs are depreciated on
the same basis as the related asset and the discounted accretion of the liability is included in determining the results of operations. Although the timing and the amount of the actual expenditures are uncertain, the Company has estimated the
present value of the future reclamation obligation arising from its activities to December 31, 2007 to be $90,000. The present value of the future reclamation obligation assumes a discount rate of 0% due to the uncertainty regarding timing of
completion of the reclamation activities.



| | n. | Long-lived asset impairment
| | -- | ---------------------------

Long-lived assets,
including mineral properties and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the
amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount and the fair value.



| | o. | Changes in accounting policies
| | -- | ------------------------------

Financial
Instruments

Effective January 1, 2007, the Company prospectively adopted the Canadian Institute of Chartered Accountants
(CICA) Handbook Section 3855, Financial Instruments- Recognition and Measurement; Section 1530, Comprehensive Income; Section 3865, Hedges and Section 3861, Financial Instruments- Disclosure and Presentation. The CICA
Handbook section 3865 Hedges is also effective January 1, 2007, however, the Company has no hedges in place at this time. These new Handbook sections provide comprehensive requirements for the recognition and measurement of financial
instruments, and introduce a new component of equity referred to as accumulated other comprehensive income (AOCI). Under these new standards, all financial instruments, including



14



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------



| | o. | Changes in accounting policies - continued
| | -- | ------------------------------------------



Financial Instruments - continued



derivatives, are recognized on the Companys Consolidated Balance Sheet. Derivatives are measured at fair value with unrealized gains and losses
reported in net income. Short-term investments are measured at fair value with unrealized gains and losses reported in AOCI. The Companys other financial instruments (accounts receivable, accounts payable and accrued liabilities, and bank
loan) are measured at fair value initially and then the costs are amortized in net income. No adjustments to the Companys consolidated financial statements were required upon transition to the new financial instruments

Comprehensive income (loss)

Section 1530 introduces a new requirement to present certain temporary gains and losses from changes in fair value outside net income. It includes unrealized gains and losses, such as: changes in the currency translation adjustment
relating to self-sustaining foreign operations; unrealized gains or losses on available-for-sale investments; and the effective portion of gains or losses on derivatives designated as cash flow hedges or hedges of the net investment in
self-sustaining foreign operations. The implementation of this guidance did not have a material impact on the Companys consolidated financial statements.

Hedges

Section 3865 provides alternative treatments to Section 3855 for entities which
choose to designate qualifying transactions as hedges for accounting purposes. It replaces and expands on Accounting Guideline 13 Hedging Relationships, and the hedging guidance in Section 1650 Foreign Currency
Translation by specifying how hedge accounting is applied and what disclosures are necessary when it is applied. The implementation of this guidance did not have a material impact on the Companys consolidated financial statements.



| | p. | Recent accounting pronouncements
| | -- | --------------------------------

Determining
the Variability to be Considered in Applying the Variable Interest Entity Standards

In September 2006, The Emerging Issues Committee
issued Abstract No. 163, Determining the Variability to be Considered in Applying AcG-15 (EIC-163). This guidance provides additional clarification on how to analyze and consolidate a variable interest entity
(VIE). EIC-163 concludes that the by-design approach should be the method used to assess variability (that is created by risks the entity is designed to create and pass along to its interest holders) when applying the VIE
standards. The by-design approach focuses on the substance of the risks created over the form of the relationship. The guidance may be applied to all entities (including newly created entities) with which an enterprise first becomes
involved, and to all entities previously required to be analyzed under the VIE standards when a reconsideration event has occurred, effective January 1, 2007. The implementation of this guidance did not have a material impact on the
Companys consolidated financial statements.



15



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|2. | SIGNIFICANT ACCOUNTING POLICIES - continued
|-- | -------------------------------------------



| | p. | Recent accounting pronouncements - continued
| | -- | --------------------------------------------



Capital Disclosures

In December 2006, the Canadian Institute of Chartered Accountants (CICA) issued Section 1535, Capital Disclosures. This
Section establishes standards for disclosing information about an entitys capital and how it is managed. This Section applies to interim and annual financial statements relating to fiscal years beginning on of after October 1, 2007, and
is not expected to have a material impact on the Companys consolidated financial statements.

Financial Instruments

In December 2006, the CICA issued Section 3863, Financial Instruments  Presentation, to enhance financial
statement users understanding of the significance of financial instruments to an entitys financial position, performance and cash flows. This Section establishes standards for presentation of financial instruments and non-financial
derivatives. It deals with the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and the circumstances in which financial
assets and financial liabilities are offset. This standard harmonizes disclosures with International Financial Reporting Standards. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after
October 1, 2007, and is not expected to have a material impact on the Companys financial statements.

In March 2007, the CICA
issued Section 3862 Financial Instruments  Disclosures, which replaces Section 3861 and provides expanded disclosure requirements that provide additional detail by financial asset and liability categories. This standard
harmonizes disclosures with International Financial Reporting Standards. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007 and is not expected to have a material
impact on the Companys financial statements.

Inventories

In June 2007, the CICA issued Section 3031, Inventories, which replaces Section 3030 and harmonizes the Canadian standard related to
inventories with International Financial Reporting Standards. This Section provides more extensive guidance on the determination of cost, including allocation of overhead; narrows the permitted cost formulas; requires impairment testing; and expands
the disclosure requirements to increase transparency. This Section applies to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2008, and is not expected to have a material impact on the
Companys consolidated financial statements.

International Financial Reporting Standards

In May 2007, the CICA published an updated version of its Implementation Plan for Incorporating International Financial Reporting Standards
(IFRS) into Canadian GAAP. This plan includes an outline of the key decisions that the CICA will need to make as it implements the Strategic Plan for publicly accountable enterprises that will converge Canadian generally accepted
accounting principles with IFRS. The changeover date from Canadian GAAP to IFRS is for annual and interim financial statements relating to fiscal years beginning on or after January 1, 2011.



16



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|3. | CASH AND CASH EQUIVALENTS
|-- | -------------------------

Cash and cash
equivalents are comprised of the following in U.S. Dollars:



|                                                        |  |      |            |      |   |          
|------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------
|                                                        |  | 2007 |            | 2006
|Cash on hand  U.S. dollar denominated bank accounts    |  | $    | 18,026,454 |      | $ | 39,317   
|Cash on hand  Canadian dollar denominated bank account |  |      | 4,662,456  |      |   | 2,171,293
|Cash on hand  Argentina Peso denominated bank accounts |  |      | 412,225    |      |   | 34,011   
|                                                        |  |      |            |      |   |          
|                                                        |  | $    | 23,101,135 |      | $ | 2,244,621
|                                                        |  |      |            |      |   |          



|4. | MINERAL PROPERTIES, DEFERRED EXPLORATION COSTS AND INVESTMENT IN MINERA SANTA CRUZ
|-- | ----------------------------------------------------------------------------------

At December 31, 2007, we, through our subsidiaries and investment, hold interests in a total of approximately 304,221 acres (123,133 hectares (ha)) of mineral rights and mining lands in three
Argentine provinces. Under our present acquisition and exploration programs, we are continually acquiring additional mineral property interests and exploring and evaluating our properties. If, after evaluation, a property does not meet our
requirements, then the property and deferred exploration costs are written off to operations. All properties in Argentina are subject to royalty agreements as disclosed in Note 9. Mineral property costs and deferred exploration costs, net of mineral
property option proceeds, are as follows: See proceeding pages.



17



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



2007 COSTS BY PROPERTY



|                            |  |                |           |                  |   |            |              |  |   |                    |   |  |       |          |   |  |   |            |  
|--------------------------- |  | -------------- | --------- | ---------------- | - | ---------- | ------------ |  | - | ------------------ | - |  | ----- | -------- | - |  | - | ---------- | -
|Description                 |  | San JuanCateos |           | Santa CruzCateos |   |            | ChubutCateos |  |   | GeneralExploration |   |  | Total |         
|Balance, beginning of year  |  | $              | 3,118,093 |                  | $ | 2,234,259  |              |  | $ | 252,796            |   |  | $     |         |   |  | $ | 5,605,148  |  
|Assays and analytical       |  |                | 55,567    |                  |   | 8,156      |              |  |   |                   |   |  |       |         |   |  |   | 63,723     |  
|Asset retirement obligation |  |                | 35,000    |                  |   | 10,000     |              |  |   |                   |   |  |       |         |   |  |   | 45,000     |  
|Construction and trenching  |  |                | 146,528   |                  |   | 40,581     |              |  |   |                   |   |  |       |         |   |  |   | 187,109    |  
|Consulting fees             |  |                | 933       |                  |   | 13,224     |              |  |   | 3,025              |   |  |       | 141,527  |   |  |   | 158,709    |  
|Depreciation                |  |                |          |                  |   |           |              |  |   |                   |   |  |       | 28,345   |   |  |   | 28,345     |  
|Drilling                    |  |                | 1,088,606 |                  |   | 195,037    |              |  |   |                   |   |  |       |         |   |  |   | 1,283,643  |  
|Equipment Rental            |  |                | 496,901   |                  |   | 58,683     |              |  |   |                   |   |  |       | 83       |   |  |   | 555,667    |  
|Geology                     |  |                | 551,055   |                  |   | 172,931    |              |  |   | 2,360              |   |  |       | 30,695   |   |  |   | 757,041    |  
|Insurance                   |  |                |          |                  |   |           |              |  |   |                   |   |  |       | 3,687    |   |  |   | 3,687      |  
|Legal                       |  |                | 1,120     |                  |   |           |              |  |   |                   |   |  |       | 182,556  |   |  |   | 183,676    |  
|Maintenance                 |  |                | 5,022     |                  |   | 1,563      |              |  |   |                   |   |  |       | 9,887    |   |  |   | 16,472     |  
|Materials and supplies      |  |                | 149,566   |                  |   | 28,029     |              |  |   |                   |   |  |       | 15,964   |   |  |   | 193,559    |  
|Project overhead            |  |                | 34,829    |                  |   | 7,004      |              |  |   | 129                |   |  |       | 168,040  |   |  |   | 210,002    |  
|Property and mineral rights |  |                | 13,887    |                  |   | 31,700     |              |  |   | 334                |   |  |       |         |   |  |   | 45,921     |  
|Telephone                   |  |                | 3,336     |                  |   | 14,417     |              |  |   |                   |   |  |       | 19,844   |   |  |   | 37,597     |  
|Travel                      |  |                | 192,283   |                  |   | 27,499     |              |  |   |                   |   |  |       | 48,348   |   |  |   | 268,130    |  
|Wages and benefits          |  |                | 12,134    |                  |   | 6,066      |              |  |   |                   |   |  |       | 54,536   |   |  |   | 72,736     |  
|Overhead allocation         |  |                | 471,084   |                  |   | 230,075    |              |  |   | 2,353              |   |  |       | (703,512 | ) |  |   |           |  
|Write-off of deferred costs |  |                |          |                  |   | (1,127,287 | )            |  |   | (250,997           | ) |  |       |         |   |  |   | (1,378,284 | )
|Balance, end of year        |  | $              | 6,375,944 |                  | $ | 1,951,937  |              |  | $ | 10,000             |   |  | $     |         |   |  | $ | 8,337,881  |  



18



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



2006 COSTS BY PROPERTY



|                            |  |                |           |                  |   |            |              |  |                    |         |  |       |          |   |  |   |            |  
|--------------------------- |  | -------------- | --------- | ---------------- | - | ---------- | ------------ |  | ------------------ | ------- |  | ----- | -------- | - |  | - | ---------- | -
|Description                 |  | San JuanCateos |           | Santa CruzCateos |   |            | ChubutCateos |  | GeneralExploration |         |  | Total |         
|Balance, beginning of year  |  | $              | 1,149,286 |                  | $ | 3,099,502  |              |  | $                  | 221,386 |  | $     |         |   |  | $ | 4,470,174  |  
|Assays and analytical       |  |                | 44,649    |                  |   | 30,380     |              |  |                    | 1,363   |  |       | 3,232    |   |  |   | 79,624     |  
|Asset retirement obligation |  |                | 35,000    |                  |   | 10,000     |              |  |                    |        |  |       |         |   |  |   | 45,000     |  
|Construction and trenching  |  |                | 36,265    |                  |   |           |              |  |                    |        |  |       |         |   |  |   | 36,265     |  
|Consulting fees             |  |                | 8,930     |                  |   | 28,537     |              |  |                    | 11,326  |  |       | 114,540  |   |  |   | 163,333    |  
|Depreciation                |  |                |          |                  |   |           |              |  |                    |        |  |       | 23,340   |   |  |   | 23,340     |  
|Drilling                    |  |                | 507,081   |                  |   | 343,722    |              |  |                    |        |  |       |         |   |  |   | 850,803    |  
|Equipment Rental            |  |                | 161,817   |                  |   | 78,780     |              |  |                    |        |  |       |         |   |  |   | 240,597    |  
|Geology                     |  |                | 352,226   |                  |   | 100,432    |              |  |                    | 3,464   |  |       | 48,710   |   |  |   | 504,832    |  
|Insurance                   |  |                |          |                  |   |           |              |  |                    |        |  |       | 2,951    |   |  |   | 2,951      |  
|Legal                       |  |                | 2,821     |                  |   |           |              |  |                    |        |  |       | 122,191  |   |  |   | 125,012    |  
|Maintenance                 |  |                | 4,051     |                  |   | 390        |              |  |                    |        |  |       | 804      |   |  |   | 5,245      |  
|Materials and supplies      |  |                | 46,286    |                  |   | 20,984     |              |  |                    | 4,326   |  |       | 10,976   |   |  |   | 82,572     |  
|Project overhead            |  |                | 10,130    |                  |   | 1,408      |              |  |                    | 2,213   |  |       | 86,195   |   |  |   | 99,946     |  
|Property and mineral rights |  |                | 192,501   |                  |   | 26,367     |              |  |                    | 2,466   |  |       |         |   |  |   | 221,334    |  
|Telephone                   |  |                | 3,910     |                  |   | 4,268      |              |  |                    | 22      |  |       | 23,247   |   |  |   | 31,447     |  
|Travel                      |  |                | 135,765   |                  |   | 24,813     |              |  |                    | 467     |  |       | 54,495   |   |  |   | 215,540    |  
|Wages and benefits          |  |                | 23,319    |                  |   | 8,824      |              |  |                    |        |  |       | 87,623   |   |  |   | 119,766    |  
|Overhead allocation         |  |                | 404,056   |                  |   | 168,485    |              |  |                    | 5,763   |  |       | (578,304 | ) |  |   |           |  
|Write-off of deferred costs |  |                |          |                  |   | (1,712,633 | )            |  |                    |        |  |       |         |   |  |   | (1,712,633 | )
|Balance, end of year        |  | $              | 3,118,093 |                  | $ | 2,234,259  |              |  | $                  | 252,796 |  | $     |         |   |  | $ | 5,605,148  |  



19



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|4. | MINERAL PROPERTIES, DEFERRED EXPLORATION COSTS AND INVESTMENT IN MINERA SANTA CRUZ - continued
|-- | ----------------------------------------------------------------------------------------------



| | a. | San Juan Project
| | -- | ----------------

The San Juan Province project
comprises four properties totaling 48,547 ha (2006  35,856 ha) in southwestern San Juan province. At present, these lands are not subject to a royalty; however, the government of San Juan has not waived its rights to retain up to a 3%
mouth of mine royalty from production. Land holding costs for 2008 are estimated at $6,600.

Expenditures in 2007, as in 2006,
were primarily for an exploration program at the Los Azules project. In November 2007, Minera Andes signed a definitive Option Agreement over the Los Azules porphyry copper project with Xstrata Copper (Xstrata). Xstrata and Minera Andes
own separate, adjoining properties that straddle a large copper porphyry system. The letter of intent consolidates these properties and gives us a right to earn a 100% interest in Xstratas property by spending at least $1.0 million on the
property over the next four years, making payments to keep the property in good standing and producing a preliminary economic assessment (to National Instrument (NI) 43-101 standards). If the preliminary assessment shows the project to
be potentially economically viable and can be expected to produce 100,000 tonnes of copper per year for 10 years then Xstrata Copper will have a one time back-in right to earn a 51% interest in the combined properties by making a cash payment to
Minera Andes of three times its expenditures on the property, completing a bankable feasibility study within five years and assuming underlying property commitments. In the event that the preliminary assessment does not meet the size criterion
contemplated above, Xstrata Copper would retain a first right of refusal on any subsequent sale of the property.



| | b. | Investment in Minera Santa Cruz  the San José Project
| | -- | ------------------------------------------------------

The investment in Minera Santa Cruz S.A. (MSC) is comprised of the following:



|                                     |  |      |            |   |      |   |            |  
|------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                     |  | 2007 |            |   | 2006 |  
|Investment in MSC, beginning of year |  | $    | 30,963,692 |   |      | $ | 17,505,938 |  
|Plus:                                |  |      |            |   |      |   |            |  
|Deferred costs incurred              |  |      | 2,217,758  |   |      |   | 1,272,222  |  
|Advances during the year             |  |      | 36,211,000 |   |      |   | 13,622,000 |  
|Loss from equity investment (i)      |  |      | (4,665,885 | ) |      |   | (1,436,468 | )
|                                     |  |      |            |   |      |   |            |  
|Investment in MSC, end of year       |  | $    | 64,726,565 |   |      | $ | 30,963,692 |  
|                                     |  |      |            |   |      |   |            |  



| | (i) | Loss from equity investment is the Companys 49% share in the loss from operations in MSC.
| | --- | ------------------------------------------------------------------------------------------

The San José project area is made up of one cateo and 46 manifestations of discovery totaling 40,499 ha. The cateos are located in the western half
of the province of Santa Cruz. All of the cateos are controlled 100% by MSC a holding and operating company set up under the terms of an agreement with Hochschild (formerly Mauricio Hochschild & Cia. Ltda. (MHC) through October
2006). Any production from these lands may be subject to a provincial royalty.

In October of 2000, following completion of a 30-day due
diligence period under a memorandum of understanding, MHC exercised an option to enter into a joint venture (JV) on the project.



20



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|4. | MINERAL PROPERTIES, DEFERRED EXPLORATION COSTS AND INVESTMENT IN MINERA SANTA CRUZ - continued
|-- | ----------------------------------------------------------------------------------------------



On March 15, 2001, Minera Andes signed an option and joint venture agreement with MHC for the
exploration and possible development of Minera Andes epithermal gold-silver exploration land package at El Pluma/Cerro Saavedra (now referred to as San José), including Huevos Verdes.

Under the agreement, in July 2003 MHC earned a 51% ownership in the JV by spending a total of $3 million, including a minimum of $100,000 per year on
exploration targets within the JV, other than Huevos Verdes. In addition, MHC was to make semiannual payments totaling $400,000 per year until pilot plant production was achieved. In September 2004, an amendment to the agreement stated such payments
should be made until a positive feasibility study for the development of a mine on the property was obtained by MSC and the board of MSC made a decision to construct the mine. In October 2005, MSC completed a positive feasibility study for the
development of a mine on the property and in December 2005, the board of MSC made a decision to construct the mine such that the semiannual payments totaling $400,000 per year are no longer payable by MHC.

Following MHCs vesting at 51% ownership, Minera Andes opted to participate in the development of the project on a pro-rata basis.

In the fourth quarter of 2003, Minera Andes notified MHC of our intent to subscribe for additional equity in MSC, so as to maintain a 49% interest. Minera
Andes made investments of $16.9 million, (payments of $13.6 million and $11.3 million) in 2007, 2006 and 2005, respectively, to fund our 49% interest in the project. The $16.9 million was paid subsequent to year end.

Expenditures in 2005 consisted of drilling, detailed topographic surveys, detailed mapping and sampling, and development work. Development work included
completion of the shafts and additional work related to pre-feasibility and feasibility studies. Expenditures in 2007 and 2006 were primarily for construction of the mine plus a 28,000 and 20,000-meter drilling programs to increase reserves,
respectively.

During 2006, the project loan with Standard Bank Plc. and Bayerische Hypo-und Vereinsbank AG to fund the San José
project was terminated and a new facility was structured with Macquarie Bank Limited (Macquarie) in February 2006. Minera Andes agreed to pay break fees of $572,000 of which $200,000 had been paid and the balance accrued as at
December 31, 2006.

In October 2006, Minera Andes signed a letter of intent to provide project financing with an affiliate of
Hochschild and to terminate the Macquarie project financing offered in February 2006 and the $20 million Macquarie bridge loan offered in August 2006 subject to a successful public offer by Hochschild. Hochschild agreed to pay the break fees to
Standard Bank Plc. and other costs related to the Macquarie financing. In November 2006, Hochschild successfully completed a public offering on the London Stock Exchange.

The Hochschild financing includes a binding $20 million bridge loan with MSC, which will be replaced, as soon as reasonably practical, with a permanent financing of $65 million or such higher amount as agreed to by
Minera Andes and Hochschild. The project financing will be made substantially on the same terms as the Macquarie financing except that:



| | (a) | MSC will not be required to hedge any of its production.
| | --- | --------------------------------------------------------



21



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|4. | MINERAL PROPERTIES, DEFERRED EXPLORATION COSTS AND INVESTMENT IN MINERA SANTA CRUZ - continued
|-- | ----------------------------------------------------------------------------------------------



| | (b) | The project financing will be unsecured, except for a security interest in certain collection and escrow accounts and the funds deposited and the rights to the funds deposited. The
shareholders of MSC will not be required to pledge their shares in MSC as security for the loans to MSC.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Events of default will basically be limited to events outside the control of Hochschild and MSC.
| | --- | ------------------------------------------------------------------------------------------------



| | (d) | Future project expansions will be financed from cash flow from the project.
| | --- | ---------------------------------------------------------------------------

Under terms of the financing, a subsidiary of Hochschild will lend 51% of the bridge loan and permanent financing directly to MSC and 49% of the loan will be lent to Minera Andes which in turn will lend the funds to
MSC. The interest rate of the bridge loan is LIBOR plus 2.5%. Final documentation for the permanent financing has not been completed, but the terms include, amongst other items, an interest rate of LIBOR plus 2.85% and a minimum term of three years.
Repayment of the loan payable is contingent on the operating cash flows of MSC.

As at December 31, 2006, the $20 million bridge loan
had been lent to MSC. The Companys 49% share of the $20 million bridge loan is $9.8 million. Therefore, the Company has recorded the note payable to Hochschild along with a note receivable from MSC for the same amount.

As at December 31, 2007, the $20 million bridge loan plus $45 million in advances on the permanent financing, a total of $65 million, had been lent
on the project. The Companys 49% share of the project was $31.8 million.

The future minimum payments for the next three years are:



|     |  |   |           
|---- |  | - | ----------
|2008 |  | $ | 6,860,000 
|2009 |  |   | 17,150,000
|2010 |  |   | 7,840,000 
|     |  |   |           
|     |  | $ | 31,850,000
|     |  |   |           



| | c. | Chubut Projects
| | -- | ---------------

We hold 1 (2006  1)
manifestation of discovery in the Precordilleran region of Chubut, totaling 1,480 ha (2006  1,480 ha). Expenditures in 2007 and 2006 relate primarily to land maintenance costs. As at December 31, 2007, based on managements
assessment of the future recoverability of certain mineral properties and deferred exploration costs, $250,997 (2006  $nil) were written-off.



| | d. | Santa Cruz Projects
| | -- | -------------------

We currently control 15 (2006
 15) cateos and 29 (2006  40) manifestations of discovery totaling 73,195 ha (2006  102,789 ha) in the Santa Cruz province. Land holding costs for 2008 are estimated at $3,600. We have been actively exploring in the region since
1997. The properties have been acquired on the basis of geologic and geochemical reconnaissance. Expenditures in 2007 relate to land acquisition and reconnaissance geologic surveys on the acquired properties. Geologic evaluation of these targets is
ongoing. As at December 31, 2007, based on managements assessment of the future recoverability of certain mineral properties and deferred exploration costs, $1,127,287 (2006  $1,712,633) were written-off.



22



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|5. | EQUIPMENT
|-- | ---------



|                 |      |                   |                         |                   |     |         |      |   |                         |  |     |         |  |   |         |  |   |       
|---------------- | ---- | ----------------- | ----------------------- | ----------------- | --- | ------- | ---- | - | ----------------------- |  | --- | ------- |  | - | ------- |  | - | ------
|                 |      | December 31, 2007 |                         | December 31, 2006
|                 | Cost |                   | AccumulatedDepreciation |                   | Net |         | Cost |   | AccumulatedDepreciation |  | Net
|Field Equipment  |      | $                 | 100,952                 |                   | $   | 88,099  |      | $ | 12,853                  |  | $   | 94,309  |  | $ | 70,791  |  | $ | 23,518
|Office Equipment |      |                   | 120,320                 |                   |     | 92,242  |      |   | 28,078                  |  |     | 105,698 |  |   | 73,004  |  |   | 32,694
|                 |      |                   |                         |                   |     |         |      |   |                         |  |     |         |  |   |         |  |   |       
|Total            |      | $                 | 221,272                 |                   | $   | 180,341 |      | $ | 40,931                  |  | $   | 200,007 |  | $ | 143,795 |  | $ | 56,212
|                 |      |                   |                         |                   |     |         |      |   |                         |  |     |         |  |   |         |  |   |       



|6. | BANK LOAN
|-- | ---------

In December 2004, we secured a two-year
loan facility of up to $4 million from Macquarie Bank Ltd. (Macquarie). All amounts advanced were due in December 2006. This facility was provided in two tranches to fund our 49% portion of the costs of completing a bankable feasibility
study and related development work for the San José project.

The commercial terms of the first two tranches of the loan include a
facility fee of 1.5% of the principal amount of each tranche at the time of the advance and interest of LIBOR plus 2% per year. In addition, as further explained below, we issued share purchase warrants for each tranche. The warrants exercise
price was calculated at a 20% premium to the volume weighted average of our common stock determined from the ten business days prior to acceptance of the loan facility. Each warrant is exercisable for two years. The loan is collateralized by our
interest in MASA, our 49% interest in MSC, and personal property.

We received $1,000,000 of the first tranche in December 2004 and the
remaining $1,000,000 of the first tranche in February 2005. In connection with the first tranche, we issued share purchase warrants to acquire 2,738,700 of our common stock at an exercise price of Cdn $0.91 per share. The fair value of the warrants
was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  3.53%; expected volatility of 62% and an expected life of 24 months. The difference between the
allocated fair value and the face value of the debt of $346,200 was initially recorded as a debt discount with a corresponding entry to contributed surplus. The debt discount is being accreted to interest expense over the term of the debt using the
effective interest rate method. No amount of the discount was accreted in 2004 since the debt agreement only became effective in December 2004. The accretion of the debt discount began in January 2005.

In July 2005, we received the second tranche of $2,000,000. For the second tranche, we issued share purchase warrants to acquire 3,987,742 of our Common
Shares at an exercise price of Cdn$0.62 per share. The fair value of the warrants was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  3.99%; expected
volatility of 55.8% and an expected life of 24 months. The difference between the allocated fair value and the face value of the debt of $263,800 was initially recorded as a debt discount with a corresponding entry to contributed capital. Total debt
discount for both tranches was $610,000.



23



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|6. | BANK LOAN - continued
|-- | ---------------------



In March 2006, Macquarie exercised its warrants from the second tranche to acquire 3,987,742 of our
Common Shares at an exercise price of Cdn $0.62 per share for proceeds of Cdn$2,472,400 ($ 2,060,333). We used part of the proceeds to repay principal and interest outstanding in the amount of $2,000,000 and $18,926, respectively, related to the
second tranche.

In December 2006, Macquarie exercised its warrants from the first tranche to acquire 2,738,700 of our Common Shares at an
exercise price of Cdn $0.91 per share for proceeds of Cdn$2,492,217 ($ 2,171,299). We used part of the proceeds to repay the principal balance of the loan and interest outstanding in the amounts of $2,000,000 and $9,021, respectively, related to the
first tranche.

The debt discount was accreted and capitalized to our investment in MSC (Note 4) over the term of the debt using the
effective interest rate method.

In March 2007, we received a third tranche of $7,500,000 from Macquarie of which $5,880,000 was for the
development of the San José project and $1,620,000 was for general purposes. The commercial terms of this debt include a facility fee of 1.5% of the principal amount, interest of LIBOR plus 2% p.a., currently totaling approximately 7.36%
p.a., and a two-year loan term. In addition, Minera Andes provided share purchase warrants to acquire 4,227,669 Common Shares of Minera Andes at an exercise price of Cdn$2.06 per share. The warrant exercise price was calculated at a 25% premium to
the volume weighted average of Minera Andes common stock determined from the twenty business days prior to February 21, 2007. Each warrant is to be exercisable for two years. The fair value of the warrants was calculated using the
Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  3.87%; expected volatility of 59.18% and an expected life of 24 months. The difference between the allocated fair value and
the face value of the debt of $1,731,100 was initially recorded as a debt discount with a corresponding entry to contributed surplus. A success fee of $75,000, being 1% of the principal amount of the facility, was paid to Xystus Limited for
assisting with the structuring and negotiation of the loan facility.

In October 2007, we received a fourth tranche of $10,000,000 from
Macquarie bank of which $8,526,000 was for the development of the San José project and $1,474,000 was for general purposes. The commercial terms of the fourth tranche include a facility fee of 1.5% of the principal amount, interest of LIBOR
plus 2.75% p.a. and mature on September 30, 2009. In addition, Minera Andes provided share purchase warrants to acquire 4,066,390 Common Shares of Minera Andes at an exercise price of Cdn$2.41 per share. The warrant exercise price was
calculated at a 20% premium to the volume weighted average of Minera Andes common stock determined from the twenty business days prior to October 22, 2007. Each warrant is to be exercisable for two years. The fair value of the warrants
was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  4.12%; expected volatility of 62.35% and an expected life of 24 months. The difference between the
allocated fair value and the face value of the debt of $1,925,200 was initially recorded as a debt discount with a corresponding entry to contributed surplus. The warrants and the underlying common shares will have a hold period until
February 25, 2008. A success fee of $100,000, being 1% of the principal amount of the facility, was paid to Xystus Limited for assisting with the structuring and negotiation of the loan facility.



24



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|6. | BANK LOAN - continued
|-- | ---------------------



The bank loan and debt discount are summarized as follows:



|                                                                              |  |            |            |   |          |   |           |               |  |   |            |  
|----------------------------------------------------------------------------- |  | ---------- | ---------- | - | -------- | - | --------- | ------------- |  | - | ---------- | -
|                                                                              |  | FaceAmount |            |   | Discount |   |           | CarryingValue | 
|Bank loan, initial and second tranche, being the balance at December 31, 2005 |  | $          | 4,000,000  |   |          | $ | 371,365   |               |  | $ | 3,628,635  |  
|Accretion of debt discount                                                    |  |            |           |   |          |   | (371,365  | )             |  |   | 371,365    |  
|Repayment of bank loan                                                        |  |            | (4,000,000 | ) |          |   |          |               |  |   | (4,000,000 | )
|                                                                              |  |            |            |   |          |   |           |               |  |   |            |  
|Bank loan at December 31, 2006                                                |  | $          |           |   |          | $ |          |               |  | $ |           |  
|                                                                              |  |            |            |   |          |   |           |               |  |   |            |  
|Issuance of Bank loan, third and fourth tranche                               |  | $          | 17,500,000 |   |          | $ | 3,656,300 |               |  | $ | 13,843,700 |  
|Accretion of debt discount                                                    |  |            |           |   |          |   | (748,130  | )             |  |   | 748,130    |  
|Repayment of bank loan                                                        |  |            |           |   |          |   |          |               |  |   |           |  
|                                                                              |  |            |            |   |          |   |           |               |  |   |            |  
|Bank loan at December 31, 2007                                                |  | $          | 17,500,000 |   |          | $ | 2,908,170 |               |  | $ | 14,591,830 |  
|                                                                              |  |            |            |   |          |   |           |               |  |   |            |  

As at December 31, 2007, interest expense incurred of $479,974 (2006$152,377), and
accreted interest expense related to the debt discount of $627,459 (2006  $371,365) were capitalized to the Investment in MSC (Note 4 (b)). Interest expense of $119,459 (2006$nil) and accreted interest expense of $120,671
(2006$nil) for general purposes were expensed into net loss during the year ending December 31, 2007.



25



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|7. | SHARE CAPITAL
|-- | -------------



| | a. | Authorized
| | -- | ----------

We have authorized capital of an
unlimited number of Common Shares, with no par value, and an unlimited number of preferred shares, with no par value.



| | b. | Issued, Allotted and/or Subscribed:
| | -- | -----------------------------------



|                                                                                                                                                   |  |             |  |       |            |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ----- | ---------- | -
|                                                                                                                                                   |  | Shares      |  | Value |           
|Balance, December 31, 2005*                                                                                                                        |  | 108,484,137 |  | $     | 41,679,110 |  
|Issued for cash on exercise of options (ii)                                                                                                        |  | 860,000     |  |       | 379,163    |  
|Issued for cash on exercise of warrants (ii)                                                                                                       |  | 32,065,957  |  |       | 16,706,597 |  
|Issued for cash on exercise of broker warrants (ii)                                                                                                |  | 1,972,632   |  |       | 1,111,282  |  
|Issued for cash (i)                                                                                                                                |  | 13,156,689  |  |       | 3,766,000  |  
|                                                                                                                                                   |  |             |  |       |            |  
|Balance, December 31, 2006                                                                                                                         |  | 156,539,415 |  | $     | 63,642,152 |  
|Issued for cash on exercise of options                                                                                                             |  | 1,650,0000  |  |       | 789,237    |  
|Issued for cash on exercise of warrants (iii)                                                                                                      |  | 8,904,852   |  |       | 7,106,556  |  
|Issued for cash on exercise of broker warrants                                                                                                     |  |            |  |       |           |  
|Fair value of warrants granted for private placement (Note 8)                                                                                      |  |            |  |       | (3,058,362 | )
|Fair value of warrants granted to agents (Note 8)                                                                                                  |  |            |  |       | (152,918   | )
|Fair value of options granted to agents (Note 8)                                                                                                   |  |            |  |       | (365,934   | )
|Issued for cash (Dec07 private placement Cdn$1.55 each) (iv)                                                                                       |  | 13,880,645  |  |       | 20,551,618 |  
|                                                                                                                                                   |  |             |  |       |            |  
|Balance, December 31, 2007                                                                                                                         |  | 180,974,912 |  | $     | 88,512,349 |  
|                                                                                                                                                   |  |             |  |       |            |  
|*refer to Note 7(b) in the December 31, 2006 Consolidated Financial Statements for a full continuity of share capital transactions since inception | 



| | i. | On March 8, 2006, we completed the second private placement with Mr. McEwen and sold 13,156,689 units at a price of Cdn$0.35 per unit for net of commission proceeds of
Cdn$4,367,430 ($3,766,000). Each unit consists of one common share and one-half of one common share purchase warrant. One whole common share purchase warrant entitles the holder to purchase one additional common share at an exercise price of
Cdn$0.55 per share at any time prior to the earlier of: a) the date which is the 15th trading day after receiving notice from Minera Andes that the weighted average price of the common shares on the TSX Venture Exchange has been equal to or greater
than Cdn$1.00 for a period of 20 consecutive trading days commencing 120 days after the date of issuance of the warrants, and b) March 8, 2008. The 6,578,345 purchase warrants issued with the second private placement were exercised on
May 5, 2006.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The agents received a cash commission of 5% of the gross proceeds of the financing and 322,339 broker
warrants, equal to 2.45% of the aggregate number of units sold. Each broker warrant upon exercise will entitle the holder to acquire one common share at an exercise price of Cdn$0.55 per



26



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|7. | SHARE CAPITAL  continued
|-- | -------------------------



common share at any time prior to the earlier of: a) the date which is the 15th trading day after receiving notice from Minera Andes that the weighted
average price of the common shares on the TSX Venture Exchange has been equal to or greater than Cdn$1.00 for a period of 20 consecutive trading days commencing 120 days after the date of issuance of the warrants, and b) March 8, 2008. All of
the 322,339 broker warrants were exercised by the end of 2006.



| | ii. | During 2006, we issued 860,000 shares for the exercise of stock options at weighted average exercise price of Cdn$0.51 per share; 32,065,957 shares for the exercise of purchase
warrants at weighted average exercise price of $0.59 and 1,972,632 shares for the exercise of broker warrants at weighted average exercise price of $0.65 for total proceeds of $18,197,042.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iii. | In February 2007, the shareholders approved a warrant exercise incentive program. The Corporation received gross proceeds of Cdn$3.9 million through the early exercise of 6,006,758
warrants, under the incentive program for the early exercise of three series of common share purchase warrants of the Corporation.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The early exercise incentive program pertains to three private placements listed in the table below. Notices regarding the early exercise incentive were delivered to holders of the affected private placements advising the holders of the
incentive exercise program. Holders of these warrants had until March 19, 2007 to exercise their warrants to receive the incentive. The following table sets forth the number of warrants exercised pursuant to the incentive program, the funds
received and the number of warrants still outstanding:



|                     |  |             |  |                              |  |                                                            |  |                                                          
|-------------------- |  | ----------- |  | ---------------------------- |  | ---------------------------------------------------------- |  | ---------------------------------------------------------
|Warrant price (Cdn$) |  | Expiry date |  | Number of warrants exercised |  | Value of warrants exercised under incentive program (Cdn$) |  | Number of warrants still outstanding after early exercise
|0.50                 |  | 11/13/2008  |  | 851,500                      |  | $425,750                                                   |  | 878,725                                                  
|0.55                 |  | 12/1/2007   |  | 935,714                      |  | 514,643                                                    |  |                                                         
|0.70                 |  | 3/22/2010   |  | 4,219,544                    |  | 2,953,680                                                  |  | 2,012,409                                                
|Total                |  |             |  | 6,006,758                    |  | $3,894,073                                                 |  | 2,891,134                                                

Under the incentive program, a total of 600,673 New Warrants were issued to those warrant holders
taking part in the early exercise incentive. Each New Warrant entitles the holder to acquire a common share of the Corporation at the price of Cdn$1.75 per share until September 19, 2008. The New Warrants and common shares issuable upon
exercise of the New Warrants will be subject to a four-month and one-day hold period. The fair value of the warrants was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free
interest rate  3.87%; expected volatility of 62.36% and an expected life of 18 months. The fair value calculated to be $293,379 was recorded as a capital transaction with a corresponding entry to contributed surplus as an incentive warrant
payment.

For those warrant holders who did not take part in the incentive program, the existing warrants held will continue to be
exercisable for common shares under the original terms of the private placement. However, the holder is not entitled to receive any new incentive warrants.



27



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|7. | SHARE CAPITAL - continued
|-- | -------------------------



| | iv. | On December 19, 2007, we announced proposed financing for a brokered private placement of units for gross proceeds of up to Cdn$35.0 million.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------

On December 21, 2007 the first closing was completed. The first closing was completed for Cdn$21.515 million by issuing 13,880,645 units at a price
of Cdn$1.55 per unit.

Each unit consists of one common share and one-half of one common share purchase warrant. One whole common share
purchase warrant entitles the holder to purchase one additional common share at

an exercise price of Cdn$2.00 per share until
December 21, 2009. The securities are subject to a four-month hold period. Scotia Capital Inc. (Scotia) acted as agent on the brokered private placement in Canada while Shoreline Pacific LLC acted in the U.S. (together the
Agents).

The Finders received a cash commission of 5% of the gross proceeds or $1,075,781. The Finders also received
agents compensation options (Agents Options) equal to 5% of the aggregate number of units sold pursuant to the offering. Each Agents Option upon exercise will entitle the holder to acquire one unit at an exercise price
of Cdn$1.70 per unit until December 21, 2009. The fair value of the agent options was calculated using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  3.85%;
expected volatility of 58.79% and an expected life of 24 months. The fair value calculated to be $365,934 was recorded with a corresponding entry to contributed surplus. A total of 13,880,645 common shares have been issued pursuant to the final
closing of the private placement, and 6,940,322 common shares will be reserved for issuance on the exercise of the warrants and the 694,032 units for exercise of the Agents Options.



| | v. | Subsequent to year end on January 29, 2008, the second closing was completed. The second closing was completed for Cdn$12.079 million by issuing 7,778,023 units at a price of
Cdn$1.55 per unit.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each unit consists of one common share and one-half of one common share purchase warrant. One whole
common share purchase warrant entitles the holder to purchase one additional common share at an exercise price of Cdn$2.00 per share until December 21, 2009. The securities are subject to a four-month hold period. Scotia Capital Inc.
(Scotia) acted as agent on the brokered private placement in Canada while Shoreline Pacific LLC acted in the U.S. (together the Agents). The non-brokered private placement was completed with Canaccord Capital Corporation
(Finders).

The Agents and Finders received a 5% commission. The Agents and Finders also received Agents compensation
options (Agents Options) equal to 5% of the aggregate number of units sold pursuant to the offering. Each Agents Option upon exercise will entitle the holder to acquire one unit at an exercise price of Cdn$1.70 per unit until
December 21, 2009. A total of 7,778,023 common shares have been issued pursuant to the second closing of the private placement, and 3,896,511 common shares will be reserved for issuance on exercise of the warrants and 389,651 units for issuance
on the exercise of the Agents Options.



| | vi. | During 2007, we issued 1,650,000 shares for the exercise of stock options at weighted average exercise price of Cdn$0.52 ($0.48) per share and 8,904,852 shares for the exercise of
purchase warrants at weighted average exercise price of Cdn$0.91 ($0.80).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|7. | SHARE CAPITAL - continued
|-- | -------------------------



| | vii. | The third and final closing of the private placement was completed on February 11, 2008 and sold 427,000 units at a price of Cdn$1.55 per unit for gross proceeds of
Cdn$661,850. The final closing was non brokered private placement. Each unit consists of one common share and one-half of one common share purchase warrant. One whole common share purchase warrant entitles the holder to purchase one additional
common share at an exercise price of Cdn$2.00 per share until December 21, 2009. The securities are subject to a four month hold period. The non-brokered private placement was completed with Canaccord Capital Corporation (Finders).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Finders received a cash commission of 5% of the gross proceeds. The Finders also received agents compensation
options (Agents Options) equal to 5% of the aggregate number of units sold pursuant to the offering. Each Agents Option upon exercise will entitle the holder to acquire one unit at an exercise price of Cdn$1.70 per unit until
December 21, 2009. A total of 427,000 common shares have been issued pursuant to the final closing of the private placement, and 213,500 common shares will be reserved for issuance on the exercise of the warrants and the 21,350 units for
exercise of the Agents Options.



| | c. | Stock Options
| | -- | -------------

The aggregate number of shares to be
delivered upon exercise of all options granted under our stock option plan (the Plan) shall not exceed 10% of our issued and outstanding Common Shares up to a maximum of 15,169,643 (2006  15,169,643) shares. No participant may be
granted an option under the Plan which exceeds the number of shares permitted to be granted pursuant to rules or policies of any stock exchange on which the Common Shares is then listed.

Under the Plan, the exercise price of the shares covered by each option shall be determined by the directors and shall not be less than the closing price
of our Common Shares on the stock exchange or stock exchanges on which the shares are listed on the last trading day immediately preceding the day on which the stock exchange is notified of the proposed issuance of option, less any discounts
permitted by the policy or policies of such stock exchange or stock exchanges. If an option is granted within six months of a public distribution of our Common Shares by way of prospectus, then the minimum exercise price of such option shall, if the
policy of such stock exchange or stock exchanges requires, be the greater of the price determined pursuant to the provisions of the Plan and the price per share paid by the investing public for our Common Shares acquired by the public during such
public distribution, determined in accordance with the policy of such stock exchange or stock exchanges.

Options granted under the Plan
will not be transferable and, if they are not exercised, will expire one (1) year following the date the optionee ceases to be a director, officer, employee or consultant of the Company by reason of death, or ninety (90) days after ceasing
to be a director, officer, employee or consultant of the Company for any reason other than death.

At December 31, 2007, 1,198,643
(2006  1,448,643) options were available for grant under the Plan.



29



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|7. | SHARE CAPITAL - continued
|-- | -------------------------



A summary of the status of the Plan as of December 31, 2007 and 2006, and changes during the
years ended on those dates is:



|                                                                          |  |            |   |  |                                  |            |   |         |            |   |                                  |        |            |  
|------------------------------------------------------------------------- |  | ---------- | - |  | -------------------------------- | ---------- | - | ------- | ---------- | - | -------------------------------- | ------ | ---------- | -
|                                                                          |  | 2007       |   |  | 2006                             |            |   |         |           
|                                                                          |  | Options    |   |  | (Cdn)Weighted Avg.Exercise Price |            |   | Options |            |   | (Cdn)Weighted Avg.Exercise Price |       
|Outstanding at beginning of year                                          |  | 11,615,000 |   |  | $                                | 1.03       |   |         | 6,745,000  |   |                                  | $      | 0.54       |  
|Granted                                                                   |  | 250,000    |   |  | $                                | 1.73       |   |         | 5,825,000  |   |                                  | $      | 1.51       |  
|Exercised                                                                 |  | (1,650,000 | ) |  | $                                | 0.52       |   |         | (860,000   | ) |                                  | $      | 0.51       |  
|Expired                                                                   |  |           |   |  | $                                |           |   |         | (95,000    | ) |                                  | $      | 0.56       |  
|                                                                          |  |            |   |  |                                  |            |   |         |            |   |                                  |        |            |  
|Outstanding at end of year                                                |  | 10,215,000 |   |  | $                                | 1.13       |   |         | 11,615,000 |   |                                  | $      | 1.03       |  
|                                                                          |  |            |   |  |                                  |            |   |         |            |   |                                  |        |            |  
|Exercisable at end of year                                                |  | 9,965,000  |   |  | $                                | 1.13       |   |         | 11,615,000 |   |                                  | $      | 1.03       |  
|                                                                          |  |            |   |  |                                  |            |   |         |            |   |                                  |        |            |  
|Weighted average grant-date fair value of options granted during the year |  |            |   |  | Cdn$ $                           | 0.16 (0.15 | ) |         |            |   |                                  | Cdn$ $ | 0.90 (0.87 | )
|                                                                          |  |            |   |  |                                  |            |   |         |            |   |                                  |        |            |  

The weighted average remaining contractual life of outstanding options is 3.4 years at
December 31, 2007 (2006  4.0 years).

At December 31, 2007 there were options held by directors, officers, employees and
non-employees for the purchase of our Common Shares as follows:



| |  |                  |  |                |  |                    |  | 
| |  | ---------------- |  | -------------- |  | ------------------ |  | 
| |  | Number of Shares |  | Exercise Price |  | Expiry Date        |  | 
| |  | 990,000          |  | Cdn$0.59       |  | December 5, 2008   |  | 
| |  | 1,055,000        |  | Cdn$0.55       |  | September 10, 2009 |  | 
| |  | 20,000           |  | Cdn$0.61       |  | December 14, 2009  |  | 
| |  | 1,635,000        |  | Cdn$0.60       |  | December 28, 2010  |  | 
| |  | 5,825,000        |  | Cdn$1.51       |  | December 27, 2011  |  | 
| |  | 250,000          |  | Cdn$1.73       |  | September 12, 2012 |  | 
| |  | 440,000          |  | Cdn$0.31       |  | March 21, 2013     |  | 
| |  |                  |  |                |  |                    |  | 
| |  | 10,215,000       |  |                |  |                    |  | 
| |  |                  |  |                |  |                    |  | 



30



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|7. | SHARE CAPITAL - continued
|-- | -------------------------



During 2007 and 2006, the fair value of each option granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average assumptions used for grants.



|                             |  |      |  |     
|---------------------------- |  | ---- |  | ----
|                             |  | 2007 |  | 2006
|Dividend yield (%)           |  |     |  |    
|Expected volatility (%)      |  | 59.6 |  | 77.4
|Risk-free interest rates (%) |  | 4.4  |  | 4.0 
|Expected lives (years)       |  | 5.0  |  | 5.0 

In connection with the vesting of certain non-employees, employees and directors stock options, we
have recorded stock option compensation of $40,000 ($40,000 to wages and benefits and $nil to consulting fees) and $5,069,887 ($3,662,838 to wages and benefits and $1,407,049 to consulting fees) during the years ended December 31, 2007 and
2006, respectively.



| | d. | Warrants
| | -- | --------



|                                                 |  |            |   |      |                              |      |          |             |   |                              |   |     
|------------------------------------------------ |  | ---------- | - | ---- | ---------------------------- | ---- | -------- | ----------- | - | ---------------------------- | - | ----
|                                                 |  | 2007       |   | 2006
|                                                 |  | Warrants   |   |      | (Cdn)Wgt. Avg.Exercise Price |      | Warrants |             |   | (Cdn)Wgt. Avg.Exercise Price
|Outstanding and exercisable at beginning of year |  | 11,367,892 |   |      | $                            | 0.85 |          | 36,505,798  |   |                              | $ | 0.61
|Purchase warrants                                |  | 15,835,054 |   |      | $                            | 2.11 |          | 8,578,344   |   |                              | $ | 0.84
|Brokers warrants                                |  |           |   |      |                              |     |          | 322,339     |   |                              | $ | 0.55
|Exercised                                        |  | (8,904,852 | ) |      | $                            | 0.91 |          | (34,038,589 | ) |                              | $ | 0.59
|                                                 |  |            |   |      |                              |      |          |             |   |                              |   |     
|Outstanding and exercisable at end of year       |  | 18,298,094 |   |      | $                            | 1.91 |          | 11,367,892  |   |                              | $ | 0.85
|                                                 |  |            |   |      |                              |      |          |             |   |                              |   |     

The range of exercise prices on outstanding warrants is Cdn$0.50 to Cdn$2.41 (2006  Cdn$0.50
to Cdn$1.80) with a weighted average contractual life of 1.68 years at December 31, 2007 (2006  2.32 years).



31



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|8. | CONTRIBUTED SURPLUS
|-- | -------------------

During 2007, the Company
adopted prospectively, the fair value method of accounting for private placement and brokers warrants. Under this method, the Company charged $7,537,750 in 2007 of private warrant expense to share capital with an offset credit to contributed
surplus.

Contributed surplus transactions for the respective years are as follows:



|                                                                   |  |      |            |      |   |          
|------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------
|                                                                   |  | 2007 |            | 2006
|Balance, beginning of year                                         |  | $    | 8,440,457  |      | $ | 2,736,570
|Stock-based compensation                                           |  |      | 40,000     |      |   | 5,069,887
|Debt discount - Tranche 3                                          |  |      | 1,731,100  |      |   |         
|Debt discount - Tranche 4                                          |  |      | 1,925,200  |      |   |         
|Early incentive exercise of warrants                               |  |      | 293,379    |      |   |         
|Fair value of warrants granted to McEwen                           |  |      |           |      |   | 634,000  
|Fair value of warrants granted for private placement - 1st closing |  |      | 3,029,219  |      |   |         
|Fair value of warrants granted to agents                           |  |      | 152,918    |      |   |         
|Fair value of options granted to agents                            |  |      | 365,934    |      |   |         
|                                                                   |  |      |            |      |   |          
|Balance, end of year                                               |  | $    | 15,978,207 |      | $ | 8,440,457
|                                                                   |  |      |            |      |   |          



|9. | AGREEMENTS, COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------------------



| | a. | Mineral rights in Argentina are owned by the federal government and administered by the provinces. The provinces can levy a maximum 3% mouth of mine (gross
proceeds) royalty. The provinces of Mendoza and Neuquén have waived their right to a royalty. The provinces of Río Negro, San Juan, Santa Clara and Chubut have not yet established a policy regarding the royalty.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b. | We rent office space in Spokane, Washington for $2,150 per month with a commitment through December 2007, with option to renew for $2,150 per month through June 2009.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c. | We rent office space in Vancouver, British Columbia, Canada for Cdn$900($889) per month, without a commitment.
| | -- | --------------------------------------------------------------------------------------------------------------



| | d. | We rent office space in Argentina for $1,089 per month with a commitment through August 2008.
| | -- | ---------------------------------------------------------------------------------------------



| | e. | We rent storage space in Argentina for $2,700 per month consisting of one $1,500/month commitment through June 2010 and another $1,200/month commitment through December 2009.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | f. | On December 2, 2003, we signed an agreement that obligated us to pay N.A. Degerstrom a royalty of $250,000 if any of the current properties, other than the properties
comprising the San José project, meet certain conditions such as bankable feasibility or commercial production prior to December 2, 2013.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|9. | AGREEMENTS, COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------------------



| | g. | On November 8, 2007, we entered into an agreement with a consultant that requires the payment of $30,000 per month for the term of the agreement. The term is unspecified
and can be cancelled at any time after February 2008.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | h. | We are obligated to fund our 49% of the costs at San Jose that are not funded by project financing as well as 49% of capital contributions or our ownership will be diluted.
In December 2007, the shareholders of MSC agreed to increase the share capital of MSC by $34,500,000, of which $16,905,000 represented Minera Andes portion, which was accrued as a liability at December 31, 2007. The Company paid this
amount in January 2008. As of December 31, 2007, we do not expect to have further cash calls as the Company is now operating and plant expansion costs are to be paid from cash flow of the operation.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During 2007, MSC signed agreements with third party providers relating to the development of the San Jose/ Huevos Verdes project. Our 49% portion of these
commitments is approximately $16 million.



|10. | RELATED PARTY TRANSACTIONS
|--- | --------------------------

During 2007, we incurred the following
transaction with a related party: legal fees to a director totaling $62,344 (2006$55,839). The above noted transaction was in the normal course of operations and was measured at the exchange amount, which is the amount of consideration
established and agreed to by the related party.



|11. | INCOME TAXES
|--- | ------------

The tax effects of the temporary differences that
give rise to our future tax assets and liabilities are as follows:



|                                |  |      |            |   |      |   |            |  
|------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                |  | 2007 |            |   | 2006 |  
|Net operating losses            |  | $    | 6,306,400  |   |      | $ | 6,452,400  |  
|Equipment                       |  |      | 4,400      |   |      |   | 5,300      |  
|Undeducted financing costs      |  |      | 681,200    |   |      |   | 423,400    |  
|Deferred exploration costs      |  |      | 114,800    |   |      |   | 45,800     |  
|Valuation allowance             |  |      | (7,106,800 | ) |      |   | (6,926,900 | )
|                                |  |      |            |   |      |   |            |  
|Future tax assets (liabilities) |  | $    |           |   |      | $ |           |  
|                                |  |      |            |   |      |   |            |  

The provision for income taxes differ from the amount established using the statutory income tax rate as follows:



|                                                      |  |      |            |   |      |   |            |  
|----------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                      |  | 2007 |            |   | 2006 |  
|Income benefit at Cdn statutory rate                  |  | $    | (2,796,200 | ) |      | $ | (3,621,800 | )
|Foreign income taxes at other than Cdn statutory rate |  |      | 31,500     |   |      |   | 64,100     |  
|Non-deductible equity pickup                          |  |      | 1,633,100  |   |      |   | 502,800    |  
|Permanent difference                                  |  |      | 33,800     |   |      |   |           |  
|Non-deductible stock option compensation              |  |      | 11,200     |   |      |   | 1,874,000  |  
|Effect in statutory rate change                       |  |      | (257,300   | ) |      |   | (61,600    | )
|Increase in valuation allowance                       |  |      | 1,343,900  |   |      |   | 1,242,500  |  
|                                                      |  |      |            |   |      |   |            |  
|Future income tax recovery                            |  | $    |           |   |      | $ |           |  
|                                                      |  |      |            |   |      |   |            |  



33



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|11. | INCOME TAXES - continued
|--- | ------------------------



The Companys future tax assets include approximately $2,430,000 (2006$1,260,000) related to
deductions for share issue costs in excess of amounts deducted for financial reporting purposes. If and when the valuation allowance related to these amounts is reversed, the Company will recognize this benefit as an adjustment to share capital as
opposed to income tax expense in the Statement of Operations.

The valuation allowance as at December 31, 2007 was decreased by $1,164,000 (December
31, 2006$447,500), representing the tax effect of the share issuance costs incurred in the period and the expiry of loss carry forwards.

The Company
evaluates its valuation allowance requirements based on projected future operations. When circumstances change and this causes a change in managements judgment about the recoverability of future tax assets, the impact of the change on the
valuation allowance is reflected in current income. As management of the Company does not currently believe that it is more likely than not that the Company will receive the benefit of this asset, a valuation allowance equal to the future tax asset
has been established at both December 31, 2007 and December 31, 2006.

As at December 31, 2007, the Company had estimated net operating loss
carry-forwards available to reduce taxable income in future years as follows:



|          |  |        |           |                  |           
|--------- |  | ------ | --------- | ---------------- | ----------
|Country   |  | Amount |           | Expiration Dates
|Argentina |  | $      | 8,600,000 |                  | 2008 -2012
|Canada    |  | $      | 7,800,000 |                  | 2008 -2027

These consolidated financial statements do not reflect the potential effect on future income taxes of the
application of these losses.



|12. | COMPARATIVE FIGURES
|--- | -------------------

Certain financial statement line items from
prior years have been reclassified to conform with the current years presentation. These reclassifications had no effect on the net loss and accumulated deficit as previously reported.



34



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
|--- | ---------------------------------------------------------------------------------------

As discussed in Note 2, these financial statements are prepared in accordance with Canadian GAAP. Differences between Canadian GAAP and United States generally accepted accounting principles (U.S. GAAP) as
they apply to these financial statements are summarized as follows:



| | a. | Compensation Expense Associated with Release of Shares from Escrow
| | -- | ------------------------------------------------------------------

Under U.S. GAAP, stock compensation expense is recorded as shares held in escrow based upon the number of shares eligible for release and the market value of the shares at that time. Under Canadian GAAP, no value is
attributed to such shares released and no compensation expense is recorded. Shares become eligible for release from escrow based on deferred exploration expenditure in accordance with the Escrow Agreement and with the consent of the TSX Venture
Exchange (the Company became listed on the TSX Exchange in 2007). During the years ended December 31, 2007 and 2006 and for the period from July 1, 1994 (inception) through December 31, 2007, we would have recorded compensation
expense of $nil, $nil and $6,324,914, respectively, under U.S. GAAP.



| | b. | Mineral Properties and Deferred Exploration Costs
| | -- | -------------------------------------------------

The U.S. Securities and Exchange Commission staff has taken the position that a U.S. registrant without proven and probable economic reserves, in most cases, could not support the recovery of the carrying value of deferred exploration
costs. Our investment in MSC has proven and probable reserves but MSC did not receive government approval of the Environmental Impact Assessment (EIA) until the first quarter of 2006. Therefore, we presented the effect of expensing all deferred
exploration costs through December 31, 2005 as a reconciling item between U.S. and Canadian GAAP.



| | c. | Stock-Based Compensation
| | -- | ------------------------

In December 2004, the
Financial Accounting Standards Board (FASB) issued Statement No. 123R, Share-Based Payment, which requires companies to expense the fair value of employee stock options and other forms of stock-based compensation. This
requirement represents a significant change because share-based stock option awards to employees, a predominate form of stock compensation for us, were not recognized as compensation expense under APB 25.

Statement 123R requires the cost of the award, as determined on the date of grant at fair value, to be recognized over the period during which an employee
is required to provide service in exchange for the award, usually the vesting period. The grant-date fair value of the award will be estimated using an option-pricing model. The Company adopted the statement using the modified-prospective method on
January 1, 2006. The Company currently discloses the effect of expensing stock options under a fair value approach using the Black-Scholes pricing model in Note 7(c) to these Condensed Consolidated Financial Statements.

For U.S. GAAP, prior to the adoption of Statement 123R, the Company continued to follow Accounting Principle Board Opinion No. 25 Accounting
for stock issued to employees and related interpretations to account for stock options issued to employees. In accordance with Emerging Issues Task Force (EITF) 00-23 Issue 31, variable accounting was required since options issued
with an exercise price denominated in a currency other then its functional currency is not considered fixed. Under variable accounting, the intrinsic value of the options issued to employees was measured on each balance sheet date, with the
adjustment charged to the Statement of Operations.



35



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



| | d. | Warrants
| | -- | --------

In connection with the private placements
of 13,880,645 units which were issued in December 2007. No such warrants were issued in 2006. Under U.S. GAAP, the warrants were valued on the closing date of the private placements, respectively, using the Black-Scholes option pricing model with
the following weighted average assumptions:



|                                                                              |  |               |           |  
|----------------------------------------------------------------------------- |  | ------------- | --------- | -
|                                                                              |  | AgentWarrants |          
|                                                                              |  | 2007          |          
|Number of Warrants                                                            |  |               | 6,940,322 |  
|Risk-free rate                                                                |  |               | 3.85      | %
|Dividend yield                                                                |  |               | Nil       | %
|Volatility factor of the expected market price of the Companys common shares |  |               | 59        | %
|Weighted average expected life of the warrants (months)                       |  |               | 24        |  
|Value of warrants                                                             |  | $             | 3,029,219 |  

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



| | e. | Bank Loan
| | -- | ---------

Under Canadian GAAP, the corresponding
entry to record the debt discount of $1,731,000 related to the third tranche warrants and $1,925,200 related to the fourth tranche warrants granted to Macquarie in connection with a credit facility (Note 6) was charged to contributed surplus.

In December 2006, the FASB issued FASB Staff Position EITF 00-19-2 Accounting for Registration Payment Arrangements(FSP EITF
00-19-2), which states that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement shall be recognized and measured separately in accordance with SFAS No. 5,
Accounting for Contingencies and SFAS No. 14, Reasonable Estimation of the Amount of a Loss. Prior to FSP EITF 00-19-2, under US GAAP, as the Company is required to maintain its listed company status as part of the loan
covenant, in accordance with Emerging Issues Task Force (EITF) 00-19, the fair value of the first and second tranche warrants was recorded as a liability. Subsequent to the initial measurement, the value of the warrants is remeasured on
each balance sheet date or upon exercise of the warrants, based on the fair value of the warrants with the adjustment charged to the Statement of Operations and Accumulated Deficit.

For the year ended December 31, 2007, the accounting treatment for the third and fourth tranche warrants was consistent with Canadian GAAP
(classified in equity rather than in liability) as a result of the application of FSP EITF 00-19-2 and the Companys change from a domestic filer to a foreign private issuer.

Under U.S. GAAP, the fair value of the warrants is recognized on the Consolidated Balance Sheet as deferred financing costs and is amortized on a straight
line basis over the term of the debt. This would result in a net increase of $2,908,170 (2006$nil) as at December 31, 2007 in total assets under U.S. GAAP as compared to Canadian GAAP. Total assets under U.S. GAAP purposes were
$96,450,070 as at December 31, 2007 (2006  $24,618,463).



36



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



For 2006, under Canadian GAAP, the corresponding entry to record the debt discount of $346,200
related to the first tranche warrants and $263,800 related to the second tranche warrants granted to Macquarie in connection with a credit facility (Note 5) was charged to contributed surplus. Under U.S. GAAP, as the Company is required to maintain
its listed company status as part of the loan covenant, in accordance with Emerging Issues Task Force (EITF) 00-19, the fair value of the warrants was recorded as a liability. Subsequent to the initial measurement, the value of the
warrants is remeasured on each balance sheet date or upon exercise of the warrants, based on the fair value of the warrants with the adjustment charged to the Statement of Operations and Accumulated Deficit. Both the first and second tranche
warrants were exercised during 2006 so no liability was associated with the warrants as at December 31, 2006. For the year ended December 31, 2006, the effect of remeasurement was to increase the fair value of the liabilities associated
with the warrants by $1,754,639 (2005$704,892) which was debited to the Statement of Operations and Accumulated Deficit. On March 2, 2006, Macquarie exercised all of the second tranche warrants. The fair value of the liability
associated with the second tranche warrants as at March 2, 2006 was $1,451,623. On December 8, 2006, Macquarie exercised all of the first tranche warrants. The fair value of the liability associated with the first tranche warrants as at
December 8, 2006 was $1,617,908. Upon exercise of the warrants, the associated liability was transferred to shareholders equity. Under U.S. GAAP, the fair value of the warrants is recognized on the Consolidated Balance Sheet as deferred
financing costs and is amortized on a straight line basis over the term of the debt.

This would result in a net increase of $nil as at
December 31, 2006 in total assets under U.S. GAAP as compared to Canadian GAAP. Total assets under U.S. GAAP purposes were $24,618,463 as at December 31, 2006. For the year ended December 31, 2006, these GAAP differences related to
the valuation and classification of warrants and differences in accounting treatment of deferred financing costs would result in total liabilities under U.S. GAAP purposes to have no difference from liabilities under Canadian GAAP of $10,787,210.
Total assets and liabilities under U.S. GAAP as at December 31, 2006 were not affected by these adjustments as the warrants were exercised by this date.



37



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



The fair value of the first tranche warrants, as at December 8, 2006, was calculated to be
$1,617,908 using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  4.89%; expected volatility of 99.55% and an expected life of 23 days. The fair value of the second
tranche warrants, as at March 2, 2006, was calculated to be $1,451,623 using the Black-Scholes option pricing model with the following assumptions: dividend yield  Nil; risk free interest rate  3.53%; expected volatility of 57.34%
and an expected life of 17 months. Upon exercise of the warrants, the fair value was transferred to shareholders equity.



| | f. | Derivative instruments and hedging activities:
| | -- | ----------------------------------------------

Prior to January 1, 2007 under Canadian GAAP, the Company did not have any qualified derivative instruments and hedging activities. During the year, the Companys equity investment in MSC had a forward contract on metal prices
against the London Bullion Exchange embedded into their revenue contracts. There is currently no difference in accounting between Canadian GAAP and US GAAP in respect of derivatives held by the Company that do not qualify for hedge accounting.
Unlike Canadian GAAP, however, the Company recognized all of its derivative instruments (whether designated in hedging relationships or not, or embedded within hybrid instruments) at fair value on the Consolidated Balance Sheet for US GAAP
purposes. Under US GAAP, the accounting for changes in the fair value (ie. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as fair value hedges, the effective portion of the change in the fair
value of the derivative is offset in income against the change in fair value, attributed to the risk being hedged, of the underlying hedged asset, liability or form commitment. For cash flow hedges, the effective portion of the changes in the fair
value of the derivative is accumulated in Other Comprehensive Income until the variability in cash flows being hedged is recognized in earnings in future accounting periods.



| | g. | Income taxes related to the above adjustments:
| | -- | ----------------------------------------------

The
income tax adjustment reflects the impact on income taxes on the US GAAP adjustments described above. Accounting for income taxes under Canadian GAAP and US GAAP is similar, except that income tax rates of enacted of substantively enacted
tax law must be used to calculate future income tax assets and liabilities under Canadian GAAP, whereas only income tax rates of enacted tax law can be used under US GAAP.



| | h. | Income tax consequences of stock-based employee compensation:
| | -- | -------------------------------------------------------------

Under Canadian GAAP, the income tax benefit attributable to stock-based compensation that is deductible in computing taxable income but is not recorded in the consolidated financial statements as an expense of any
period (the excess benefit) is considered to be a permanent difference. Accordingly, such amount is treated as in item that reconciles the statutory income tax rate to the Companys effective income tax rate. Under US GAAP, the
excess benefit is recognized as additional paid-in capital.



38



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



| | i. | New Accounting Pronouncements
| | -- | -----------------------------

Recently issued
United States accounting pronouncements have been outlined below.

FSP FIN 48-1, Definition of Settlement in FASB Interpretation
No. 48, amends Financial Accounting Standard Board (FASB) interpretation No.48, Accounting for Uncertainty in Income Tax, to provide guidance on how an enterprise should determine whether a tax position is effectively settled for the
purpose of recognizing previously unrecognized tax benefits. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are
to be applied to all tax positions upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of retained earnings. The FSP is to be adopted upon initial adoption of FIN 48 with retroactive
treatment if required.

The Company adopted FIN 48 on January 1, 2007, consistent with the provisions of the FSP, with no cumulative
effect adjustment recorded at adoption. Accordingly, there is no impact on the Companys December 31, 2007 consolidated financial statements resulting from the adoption of FIN 48. FIN 48 requires that interest expense and penalties related
to unrecognized tax benefits be recognized in the Statement of Operations. FIN 48 allows recognized interest and penalties to be classified as either income tax expense or another appropriate expense calculation. If the Company recognizes interest
expense or penalties on future unrecognized tax benefits, they will be classified as income tax expense.

In September 2006, FASB issued
Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally
accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 are effective for the fiscal year beginning November 15, 2007. The Company expects that adoption of SFAS 157 will not have a
material effect on its financial condition or results of operation.

In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB Statement No. 87, 88, 106 and 132R (SFAS 158). This Statement requires an employer to
recognize in its statement of financial position an asset of a plans over funded status or a liability for a plans under funded status, measure a plans assets and its obligations that determine its funded status as of the end of
the employers fiscal year (with limited exceptions), and recognize changes in the funded status of a defined benefit postretirement plan in the year changes occur. The Company expects that adoption of SFAS 158 will have no impact on its
financial condition or results of operations.

In September 2006, the FASB issued FSP No. AUG AIR-1, Accounting for Planned Major
Maintenance Activities. The guidance in this FSP is applicable to entities in all industries. The FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial
reporting periods. The implementation of FSP No. AUG AIR-1, effective January 1, 2007, did not have a material impact on the Companys consolidated financial statements.

In February 2007 the FASB issued SFAS No.159, Fair Value Option for Financial Assets and Financial Liabilitiesincluding an
amendment to FAS 115. This standard permits a company to choose to measure certain financial assets, financial liabilities and firm commitments at fair value. The standard is effective for fiscal years beginning after November 15, 2007. The
Company is currently evaluating the impact SFAS No.159 will have on its financial condition and results of operations.



39



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. The
standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets
acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. The Company is currently
reviewing the guidance, which is effective for fiscal years beginning after December 15, 2008, to determine the potential impact, if any, on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. The standard
requires all entities to report noncontrolling (minority) interests as equity in consolidated financial statements. SFAS No. 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling
interests by requiring they be treated as equity transactions. The Company is currently reviewing the guidance, which is effective for fiscal years beginning after December 15, 2008, to determine the potential impact, if any, on its
consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities An Amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of SFAS 161 on its consolidated financial statements.



| | j. | Impact on Consolidated Financial Statements
| | -- | -------------------------------------------

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



|                                                                                    |  |               |             |   |               |   |             |  
|----------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                    |  | Dec. 31, 2007 |             |   | Dec. 31, 2006 |  
|Shareholders equity, end of year, per Canadian GAAP                                |  | $             | 62,073,806  |   |               | $ | 38,199,343  |  
|Adjustment for mineral properties and deferred exploration costs                    |  |               | (8,337,881  | ) |               |   | (5,605,148  | )
|Adjustment for mineral property and deferred exploration cost portion of investment |  |               | (28,875,158 | ) |               |   | (18,762,942 | )
|Loss on revaluation of liability for warrants subject to registration rights        |  |               |            |   |               |   | (2,459,531  | )
|Adjustment arising upon exercise of warrants subject to registration rights         |  |               |            |   |               |   | 3,069,531   |  
|Adjustment for the debt discount                                                    |  |               |            |   |               |   | (610,000    | )
|                                                                                    |  |               |             |   |               |   |             |  
|Shareholders equity (Capital Deficit), end of year, per U.S. GAAP                  |  | $             | 24,860,767  |   |               | $ | 13,831,253  |  
|                                                                                    |  |               |             |   |               |   |             |  



40



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



|                                                                                    |  |              |             |   |                                    |   |             |                          |  |   |             |  
|----------------------------------------------------------------------------------- |  | ------------ | ----------- | - | ---------------------------------- | - | ----------- | ------------------------ |  | - | ----------- | -
|                                                                                    |  | Year Ended   |             |   | Period fromJuly 1, 1994(inception) |  
|                                                                                    |  | Dec. 31,2007 |             |   | Dec. 31,2006                       |   |             | throughDecember 31, 2007 | 
|Net loss for the period, per Canadian GAAP                                          |  | $            | (8,195,137  | ) |                                    | $ | (10,772,440 | )                        |  | $ | (39,493,887 | )
|Adjustment for acquisition of Scotia                                                |  |              |            |   |                                    |   |            |                          |  |   | (248,590    | )
|Adjustment for compensation expense                                                 |  |              |            |   |                                    |   |            |                          |  |   | (5,453,160  | )
|Gain (Loss) on revaluation of liability for warrants subject to registration rights |  |              |            |   |                                    |   | (1,754,639  | )                        |  |   | (2,459,531  | )
|Adjustment for deferred exploration costs, net                                      |  |              | (2,732,733  | ) |                                    |   | (1,134,974  | )                        |  |   | (8,337,881  | )
|Adjustment for investment                                                           |  |              | (10,112,216 | ) |                                    |   | (1,257,004  | )                        |  |   | (28,875,158 | )
|Adjustment for variable intrinsic value                                             |  |              |            |   |                                    |   |            |                          |  |   | (304,925    | )
|                                                                                    |  |              |             |   |                                    |   |             |                          |  |   |             |  
|Net loss for the period, per U.S. GAAP                                              |  | $            | (21,040,086 | ) |                                    | $ | (14,919,057 | )                        |  | $ | (85,173,132 | )
|                                                                                    |  |              |             |   |                                    |   |             |                          |  |   |             |  
|Basic and diluted net loss per common share, per U.S. GAAP                          |  | $            | (0.13       | ) |                                    | $ | (0.11       | )                        |  |   |             |  
|                                                                                    |  |              |             |   |                                    |   |             |                          |  |   |             |  



|                                                                             |  |               |            |   |               |   |            |  
|---------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                                             |  | Dec. 31, 2007 |            |   | Dec. 31, 2006 |  
|Total liabilities, per Canadian GAAP                                         |  | $             | 68,681,133 |   |               | $ | 10,787,210 |  
|Adjustment for the debt discount                                             |  |               | 3,656,300  |   |               |   | 610,000    |  
|Adjustment for amortization of debt discount                                 |  |               | (748,130   | ) |               |   | (610,000   | )
|Adjustment to recognize warrant liability                                    |  |               |           |   |               |   | 610,000    |  
|Loss on revaluation of liability for warrants subject to registration rights |  |               |           |   |               |   | 2,459,531  |  
|Adjustment arising upon exercise of warrants subject to registration rights  |  |               |           |   |               |   | (3,069,531 | )
|                                                                             |  |               |            |   |               |   |            |  
|Total liabilities, per U.S. GAAP                                             |  | $             | 71,589,303 |   |               | $ | 10,787,210 |  
|                                                                             |  |               |            |   |               |   |            |  



41



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|13. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES - continued
|--- | ---------------------------------------------------------------------------------------------------



|                                                                                    |  |               |             |   |               |   |             |  
|----------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | -
|                                                                                    |  | Dec. 31, 2007 |             |   | Dec. 31, 2006 |  
|Total assets, per Canadian GAAP                                                     |  | $             | 130,754,939 |   |               | $ | 48,986,553  |  
|Adjustment for mineral properties and deferred exploration costs                    |  |               | (8,337,881  | ) |               |   | (5,605,148  | )
|Adjustment for mineral property and deferred exploration cost portion of investment |  |               | (28,875,158 | ) |               |   | (18,762,942 | )
|Adjustment for deferred financing costs                                             |  |               | 3,656,300   |   |               |   | 610,000     |  
|Amortization of deferred financing costs                                            |  |               | (748,130    | ) |               |   | (610,000    | )
|                                                                                    |  |               |             |   |               |   |             |  
|Total assets, per U.S. GAAP                                                         |  | $             | 96,450,070  |   |               | $ | 24,618,463  |  
|                                                                                    |  |               |             |   |               |   |             |  



|                                                                            |  |               |             |   |               |   |             |                                                             |  |   |             |  
|--------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | - | ----------- | ----------------------------------------------------------- |  | - | ----------- | -
|                                                                            |  | Dec. 31, 2007 |             |   | Dec. 31, 2006 |   |             | Period from July 1,1994 (inception)throughDecember 31, 2007 | 
|Cash flows used in operating activities under Canadian GAAP                 |  | $             | (654,307    | ) |               | $ | (1,789,156  | )                                                           |  | $ | (11,964,778 | )
|Adjustment related to investment                                            |  |               | (9,364,086  | ) |               |   | (885,639    | )                                                           |  |   | (27,686,730 | )
|Adjustment arising from exercise of warrants subject to registration rights |  |               | (3,580,453  | ) |               |   | (2,777,701  | )                                                           |  |   | (22,870,071 | )
|                                                                            |  |               |             |   |               |   |             |                                                             |  |   |             |  
|Cash flows used in operating activities under U.S. GAAP                     |  | $             | (13,598,846 | ) |               | $ | (5,452,496  | )                                                           |  | $ | (62,521,579 | )
|                                                                            |  |               |             |   |               |   |             |                                                             |  |   |             |  
|Cash flows used in investing activities under Canadian GAAP                 |  | $             | (24,377,346 | ) |               | $ | (16,929,581 | )                                                           |  | $ | (72,361,361 | )
|Adjustment related to mineral properties                                    |  |               | 9,364,086   |   |               |   | 885,639     |                                                             |  |   | 27,686,730  |  
|Adjustment related to mineral properties                                    |  |               | 3,580,453   |   |               |   | 2,777,701   |                                                             |  |   | 22,870,071  |  
|                                                                            |  |               |             |   |               |   |             |                                                             |  |   |             |  
|Cash flows used in investing activities under U.S. GAAP                     |  | $             | (11,432,807 | ) |               | $ | (13,266,241 | )                                                           |  | $ | (21,804,560 | )
|                                                                            |  |               |             |   |               |   |             |                                                             |  |   |             |  



42



---

MINERA ANDES INC.

An Exploration Stage Corporation

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(U.S. Dollars)



|14. | SUBSEQUENT EVENTS
|--- | -----------------

Subsequent events not disclosed elsewhere in the
consolidated financial statements are as follows:



| | a. | Investment in Minera Santa Cruz S.A. (MSC joint venture)  the San José Project
| | -- | -------------------------------------------------------------------------------

Subsequent to year end, the San Jose Project has begun production. During the fiscal year 2007, the expenses related to the construction of the operations
and related interest expense on the debt has been capitalized as the plant had not been placed in mine operations. In 2008, expenses related to the operations of the plant and the interest expense will be expensed as incurred.



| | b. | Issuance of stock options
| | -- | -------------------------

On February 14,
2008, 100,000 stock options were granted to an employee at a share price of Cdn$1.35. The options will vest every six months from the February 14, 2008 grant date to February 14, 2010.



43