**Exhibit99.5**

** **

**MINERA ANDES INC.**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

This discussion and analysis of financial condition and results ofoperations (“MD&A”) is prepared as of March 29, 2010, and should be read inconjunction with our audited consolidated financial statements and notesthereto for the years ended December 31, 2009, and December 31, 2008,which have been prepared in accordance with Canadian Generally AcceptedAccounting Principles (“GAAP”) in Canada. Differences from United States Generally Accepted Accounting Principles(“U.S. GAAP”) are described in Note 13 to the audited consolidated financialstatements.  These statements, along withadditional information relating to Minera Andes Inc., including our AnnualInformation Form for the year ended December 31, 2009, are availableon SEDAR at www.sedar.com and on the United States Securities and ExchangeCommission (“SEC”)’s EDGAR system at www.sec.gov.  All amounts in this MD&A are in U.S.dollars unless otherwise indicated. Canadian dollars are shown as C$.

 

Unless the context otherwise requires or it is otherwise stated,references in this MD&A to “Minera Andes” the “Company” or “we” or “us” arereferences to Minera Andes Inc. (“MAI”) and its subsidiaries.

 

**Cautionary Note to U.S. Investors — InformationConcerning Preparation of Resource and Reserve Estimates**

 

The terms “mineral reserve”, “proven mineral reserve” and “probablemineral reserve” are Canadian mining terms defined in accordance with NationalInstrument 43-101 — “Standards of Disclosure for Mineral Projects” (“NI 43-101”)and by the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”)in the CIM Standards on Mineral Resources and Mineral Reserves, adopted by theCIM Council, as the same may be amended from time to time by the CIM.

 

The definitions of proven and probable reserves used in NI 43-101differ from the definitions in the SEC Industry Guide 7.  Under SECIndustry Guide 7 standards, a “Final” or “Bankable” feasibility study isrequired to report reserves, the three-year historical average precious metalsprices are used in any reserve or cash flow analysis to designate reserves andthe primary environmental analysis or report must be filed with the appropriategovernmental authority.

 

In addition, the terms “mineral resource”, “measured mineral resource”,“indicated mineral resource” and “inferred mineral resource” are defined in andrequired to be disclosed by NI 43-101; however, these terms are not definedterms under SEC Industry Guide 7 and normally are not permitted to be used inreports and registration statements filed with the SEC.  Investors arecautioned not to assume that any part or all of the mineral deposits in thesecategories will ever be converted into reserves. “Inferred mineral resources”have a great amount of uncertainty as to their existence, and great uncertaintyas to their economic and legal feasibility.  It cannot be assumed that allor any part of an inferred mineral resource will ever be upgraded to a highercategory.

 

Accordingly, information contained in this MD&A containingdescriptions of our mineral deposits may not be comparable to similarinformation made public by U.S. companies subject to the reporting anddisclosure requirements under U.S. federal securities laws and the rules andregulations thereunder.

 

**Overview**

 

Minera Andes Inc. was formed upon the amalgamation of Scotia PrimeMinerals, Incorporated, and Minera Andes Inc., pursuant to the BusinessCompanys Act (Alberta) on November 6, 1995.  Commencing on February 7, 2007, MineraAndes was listed on the Toronto Stock Exchange (“TSX”) (symbol: MAI).  Prior to February 7, 2007, Minera Andeswas listed on the TSX Venture Exchange having initially been listed 

 

1

----

 

thereon on December 20, 1995. MAI’s common shares are also quoted on the National Association ofSecurities Dealers, Over-the-Counter Bulletin Board, “NASD OTC Bulletin Board”(symbol: MNEAF).

 

Our head office is located at 99 George St, 3rd Floor, Toronto,Ontario, M5A 2N4, and our principal business address is Coronel Moldes 837/820,(5500) Mendoza, Argentina. Our registered address for service is 7415B 35thAve. N.W., Calgary, Alberta, T3B 1T4 Canada.

 

The principal business of Minera Andes is the exploration anddevelopment of mineral properties located primarily in the Republic ofArgentina with a focus on gold, silver and copper mineralized targets.  We carry on our business by acquiring,exploring and evaluating mineral properties through our ongoing explorationprogram.  Following exploration, weeither seek to develop on our own or enter joint ventures to further developthese properties or dispose of them if they do not meet our requirements.  Our investment income or losses, as the casemay be, consist of our 49% share of the net profit or net loss of theoperations of the San José Mine, owned by Minera Santa Cruz S.A. (“MSC”) andaccounted for on an equity basis.

 

We currently hold mineral rights and applications for mineral rightscovering approximately 304,221 acres (123,133 hectares) in Argentina. Ourprincipal assets currently consist of:

 
| (i)    | a  49% interest in MSC, which holds title to the San José Mine, an operating  silver and gold mine, which covers 50,491 hectares and is not included in the  acres noted above; and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                     |
| (ii)   | a  100% interest in mineral properties comprising our Los Azules Project, a  porphyry copper project.                                                                                    |
|   |                                                                                                                                                                                     |
| (iii)  | a  portfolio of exploration properties in the prospective Deseado Massif region  of Southern Argentina (in the Argentinean provinces of San Juan, Santa Cruz,  and Chubut).              |

 

**Highlights — Fourth Quarter and the full year 2009**

 

*The San José Mine*

 

The mine produced 1,032,000 ounces of silver and 19,960 ounces of goldin the fourth quarter of 2009 compared with 1,329,000 ounces of silver and22,470 ounces of gold in the fourth quarter 2008.  This represents production decreases of 22%and 11%, respectively, which is primarily attributable to the 23 days of lostmill production due to local strikes in the fourth quarter.  For the full year 2009, the San José mineproduced approximately 5,000,000 ounces of silver and 77,070 ounces of gold.Major milestones were achieved at the San José Mine when the Kospi vein wasfinally brought into production at the end of June 2009 and the expandedproduction rate of 1,500 tonnes per day was reached.   Other notable achievements during 2009included the connection of the power line to the national power grid,construction and commissioning of a small Merrill Crowe plant to capture silvercontained in the electrowinning circuit in the mill, and Level 4 DNV (DetNorske Veritas) industrial safety certification.

 

*LosAzules Copper Project*

 

TheLos Azules Copper Project is an advanced-stage exploration project located inSan Juan Province, Argentina (“Los Azules”). The project was previously subject to an Option Agreement dated November 2,2007 between the Company and Xstrata Copper. However, on October 1, 2009 Xstrata decided not to exercise itsone-time right to back-in to a 51% interest in the project, and it subsequentlytransferred its properties associated with the project to an Argentinesubsidiary of the Company.  Consequently,Xstrata no longer retains any ownership in or rights with respect to theproject and Minera Andes, through a wholly owned subsidiary, now owns 100% ofthe Project.  Also in the fourth quarter,the Company established a 

 

2

----

 

seasonalfield camp at the Los Azules site to support a drilling campaign during the2009-2010 field season which will close in mid- to late-April 2010.

 

*Corporate*

 

During the year, we completed two significantfinancings which allowed us to meet a cash call request from MSC, repay ourbank loan, and fund our exploration and development program through the end of2010. We raised C$40 million in February 2009as a result of a private placementwith our Chairman, Mr. Robert R. McEwen (“McEwen Financing”), for 40million common shares at a price of C$1.00 per share and closed a short form prospectus equity offering in August, 2009, whereby asyndicate of underwriters purchased for resale to the public30,705,000 units, each unit priced at C$0.75 consisting of one common share andone half of a warrant to buy one common share at a price of C$1.25 per unit (“theOffering”), on a “bought deal” basis, which raised net proceeds C$21.5 million.

 

**Overall Performance**

 

For the year ended December 31, 2009, net income was $4.1 million($0.02 per share basic and diluted) compared to a net loss of $4.0 million($0.02 per share) for the year ended December 31, 2008.

 

This increase was primarily due to an increase in the income recordedon our investment in MSC from $4.7 million in 2008 to $9.3 million and anincome tax recovery of $1.6 million in 2009. In addition, total expenses in2009 declined by $1.8 million.  This wasa result of:

 

·                  a decrease in interest and accretion expenseof $1.7 million as our bank loan was repaid during the first quarter of 2009

 

·                  a positive change in the foreign currencyexchange of $1.6 million due to the strengthening Canadian dollar, partiallyoffset by:

 

·                  a $0.4 million increase in professional feesdue to increased use of geological consultants

 

·                  a $0.3 million increase in general andadministrative expenses due to increases in legal, audit and accounting feesand the relocation of the corporate office to Toronto, Canada from Spokane,Washington

 

·                  a $0.3 million increase in wages andbenefits, due to $0.8 million in severance payments and partially offset byreduced headcount and our new CEO not receiving any salary

 

**Results of Operations - MSC**

 

The following discussion isrelated only to MSC, which the Company owns 49% of and is accounted for usingthe equity method. The following table sets out the operating cash costs of theSan José Mine for 2009 and 2008 on a quarterly and annual (100%) basis. MineraAndes considers “commercial production” to have started as of January 1,2008.

 

3

----

 
| ** **                                  | ** ** | **Year  2009** | ** ** | **Q4 2009** | ** ** | **Q3 2009** | ** ** | **Q2 2009** | ** ** | **Q1 2009** | ** ** | **Year 2008** | ** ** | **Q4 2008** | ** ** | **Q3 2008** | ** ** | **Q2 2008** | ** ** | **Q1 2008** | ** ** | **Year  2007** | ** ** |
|---------------------------------------------|------------|----------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|---------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|----------------|------------|
| Tonnes processed ('000)                     | ** ** | **461**        |       | 100         |       | 122         |       | 119         |       | 119         | ** ** | **296**       |       | 108         |       | 68          |       | 61          |       | 60          | ** ** | **93**         | ** ** |
|                                        | ** ** | ** **     |       |        |       |        |       |        |       |        | ** ** | ** **    |       |        |       |        |       |        |       |        | ** ** | ** **     | ** ** |
| Ounces gold produced ('000)                 | ** ** | **77**         |       | 20          |       | 22          |       | 18          |       | 17          | ** ** | **54**        |       | 17          |       | 12          |       | 12          |       | 12          | ** ** | **15**         | ** ** |
| Ounces silver produced ('000)               | ** ** | **4,998**      |       | 1,032       |       | 1,402       |       | 1,265       |       | 1,299       | ** ** | **4,380**     |       | 1,329       |       | 990         |       | 1,093       |       | 968         | ** ** | **958**        | ** ** |
| Total Operating cash cost ('000$)           | ** ** | **51,333**     |       | 13,189      |       | 13,549      |       | 12,376      |       | 12,219      | ** ** | **48,503**    |       | 16,987      |       | 12,070      |       | 10,728      |       | 8,719       | ** ** | **18,105**     | ** ** |
| Op.cash cost/tonne ($/t)                    | ** ** | **119**        |       | 139         |       | 113         |       | 113         |       | 112         | ** ** | **166**       |       | 157         |       | 179         |       | 177         |       | 146         | ** ** | **195**        | ** ** |
| ** **                                  | ** ** | ** **     | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **    | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** | ** **     | ** ** |
| Operating cash cost/oz Au ($/oz) (See pg 5) | ** ** | **343**        |       | 368         |       | 313         |       | 335         |       | 357         | ** ** | **375**       |       | 494         |       | 404         |       | 322         |       | 286         | ** ** | **542**        | ** ** |
| Operating cash cost/oz Ag ($/oz) (See pg 5) | ** ** | **5.08**       |       | 5.84        |       | 4.75        |       | 5.00        |       | 4.99        | ** ** | **6.42**      |       | 6.32        |       | 7.16        |       | 6.16        |       | 5.45        | ** ** | **10.43**      | ** ** |

 

*Production*

 

During 2009, ore production at the San José Mine increased to 460,972tonnes compared to 295,964 tonnes in 2008, a 56% increase. Silver productionwas 4,998,000 ounces in 2009, compared to 4,380,000 ounces in the 2008 and goldproduction was 77,070 ounces in 2009 compared to 54,260 ounces in 2008. On apercentage basis, silver production was 14% higher and gold production was 42%higher (see non-GAAP measures, page 18).

 

2009 operations at the San José Mine were impacted by labour unrestduring the second, third and fourth quarter.  A total of 23 days ofmilling operations were lost during the year due to work stoppages.  Thestoppages arose from a dispute between two different unions regardingrepresentation of certain workers at the mine, and they were not focused on MSC,which operates the mine.  A total of 25 workers were terminated as aresult of the labour actions.  Operations resumed in October 2009,and operations have since returned to normal.

 

The increase in silverand gold production during 2009 compared to 2008 was due to the increased processed tonnage,partially offset by a lower head grade and the strike.  In June 2009, the Kospi veinwas brought into production and the expanded production rate of 1,500 tonnesper day was reached

 

*Sales*

 

Net proceeds realized by MSC from the sale of silver and gold for the2009 financial year totaled $147.1 million as compared to $111.2 million forthe 2008 Financial Year.

 
| ** ** | ** ** | ** **           | ** ** | ** ** | ** ** | **Ounces (thousands)** | ** ** |
|------------|------------|----------------------|------------|------------|------------|------------------------|------------|
| ** ** | ** ** | **US$ million** | ** ** | **2009**   | ** ** | **2008**               | ** ** |
| **Sales**  | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Ag**                 | ** ** | **Au** | ** ** | **Ag** | ** ** | **Au** | ** ** |
| Q1         |       | 21.1                 |       | 9.9        |       | 838                    |       | 11 |   | 323 |   | 5 |   |
| Q2         |       | 41.0                 |       | 63.2       |       | 1,709                  |       | 22 |   | 2,284 |   | 29 |   |
| Q3         |       | 46.1                 |       | 18.5       |       | 1,536                  |       | 25 |   | 846 |   | 10 |   |
| Q4         |       | 38.9                 |       | 19.6       |       | 989                    |       | 19 |   | 1,135 |   | 14 |   |
| Total      |       | 147.1                |       | 111.2      |       | 5,072                  |       | 77 |   | 4,588 |   | 58 |   |

 

Sales in 2009 were higher than in 2008 due to a combination ofincreased production as discussed above and higher realized metal prices forboth gold and silver.

 

4

----

 

The average weighted gross sale price for silver sold in 2009 was$14.83 per ounce, an increase of 4% compared to the average price of $14.25 perounce received in 2008. The average weighted gross sale price for gold sold in2009 was $1,002 per ounce, an increase of 16%, compared to the average price of$865 per ounce realized in 2008.  Incomparison, the average London P.M. fix price for silver was $14.67 perounce for 2009 compared to $14.99 per ounce for 2008, a 2% decrease.  The average London P.M. fix price forgold was $972 per ounce in 2009 compared to $872 per ounce in 2008, an 11%increase.

 

The average weighted gross sale price for silver sold in the fourthquarter of 2009 was $17.72 per ounce, an increase of 93% compared to theaverage price of $9.20 per ounce received in the fourth quarter 2008. The averageweighted gross sale price for gold sold in the fourth quarter 2009 was $1,175per ounce, an increase of 50%, compared to the average price of $783 per ouncerealized in the fourth quarter 2008.

 

*Operating Costs*

 

The terms operating cash cost or production cash costs used in thissection are for the reporting of the MSC operations only, and they areconsidered to be non-GAAP measures (see non-GAAP measures, page 18)*.*Total operating cash costs were $13.2 million for thefourth quarter of 2009.  Operating cashcosts consist of geology, mining, processing plant, general and administrationand royalty costs.  Operating cash costs include royalties, refining andtreatment charges and sales costs applied to doré but do not include refining,treatment charges and sales costs applied to concentrates or exporttaxes which some mining companies include in accordance with the Gold InstituteStandard for calculating cash costs.  Wehave provided a reconciliation between the two methods.  Depreciation is excluded in operating cashcosts.

 
| **Gold**                                                | ** ** | **2009**   | ** ** | **4Q09**   | ** ** | **3Q09** | ** ** | **2Q09** | ** ** | **1Q09**   | ** ** | **2008**   | ** ** | **4Q08** | ** ** | **3Q08**   | ** ** | **2Q08** | ** ** | **1Q08** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|----------|------------|----------|------------|------------|------------|------------|------------|----------|------------|------------|------------|----------|------------|----------|------------|
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| **Co-product cash cost - Au - MAI’s Methodology**  | ** ** | **$**      | **343**    | ** ** | **$**      | **368**  | ** ** | **$**    | **313**    | ** ** | **$**      | **335**    | ** ** | **$**    | **357**    | ** ** | **$**      | **375**  | ** ** | **$**    | **494**    | ** ** | **$** | **404** | ** ** | **$** | **322** | ** ** | **$** | **284** | ** ** |
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| Commercial  Discounts                                   | ** ** | **90**     |       | 92         |       | 101      |       | 87       |       | 29         | ** ** | **22**     |       | 35       |       | 18         |       | 9        |       | 27       |       |
|                                                    | ** ** | ** ** |       |       |       |     |       |     |       |       | ** ** | ** ** |       |     |       |       |       |     |       |     |       |
| Selling  Expenses (includes Export Taxes)               | ** ** | **81**     |       | 92         |       | 85       |       | 75       |       | 92         | ** ** | **55**     |       | 58       |       | 54         |       | 44       |       | 65       |       |
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| **Co-product cash cost - Au - Gold Institute Standard** | ** ** | **$**      | **477**    | ** ** | **$**      | **521**  | ** ** | **$**    | **450**    | ** ** | **$**      | **459**    | ** ** | **$**    | **478**    | ** ** | **$**      | **452**  | ** ** | **$**    | **587**    | ** ** | **$** | **476** | ** ** | **$** | **375** | ** ** | **$** | **375** | ** ** |
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| %  Increase - GIS Vs. MAI                               |       | 39         | %          | 42         | %          | 44       | %          | 37       | %          | 34         | %          | 21         | %          | 19       | %          | 18         | %          | 17       | %          | 32       | %          |

 
| **Silver**                                              | ** ** | **2009**   | ** ** | **4Q09**   | ** ** | **3Q09** | ** ** | **2Q09** | ** ** | **1Q09**   | ** ** | **2008**   | ** ** | **4Q08** | ** ** | **3Q08**   | ** ** | **2Q08** | ** ** | **1Q08** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------|------------|----------|------------|----------|------------|------------|------------|------------|------------|----------|------------|------------|------------|----------|------------|----------|------------|
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| **Co-product cash cost - Ag - MAI’s Methodology**  | ** ** | **$**      | **5.08**   | ** ** | **$**      | **5.84** | ** ** | **$**    | **4.75**   | ** ** | **$**      | **5.00**   | ** ** | **$**    | **4.99**   | ** ** | **$**      | **6.42** | ** ** | **$**    | **6.32**   | ** ** | **$** | **7.16** | ** ** | **$** | **6.16** | ** ** | **$** | **5.45** | ** ** |
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| Commercial  Discounts                                   | ** ** | **1.34**   |       | 1.46       |       | 1.54     |       | 1.29     |       | 0.04       | ** ** | **0.38**   |       | 0.46     |       | 0.32       |       | 0.17     |       | 0.51     |       |
|                                                    | ** ** | ** ** |       |       |       |     |       |     |       |       | ** ** | ** ** |       |     |       |       |       |     |       |     |       |
| Selling  Expenses (includes Export Taxes)               | ** ** | **1.20**   |       | 1.46       |       | 1.29     |       | 1.12     |       | 1.29       | ** ** | **0.94**   |       | 0.73     |       | 0.96       |       | 0.85     |       | 1.26     |       |
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| **Co-product cash cost - Ag - Gold Institute Standard** | ** ** | **$**      | **7.08**   | ** ** | **$**      | **8.28** | ** ** | **$**    | **6.83**   | ** ** | **$**      | **6.85**   | ** ** | **$**    | **6.68**   | ** ** | **$**      | **7.74** | ** ** | **$**    | **7.51**   | ** ** | **$** | **8.44** | ** ** | **$** | **7.19** | ** ** | **$** | **7.22** | ** ** |
|                                                    |       |       |       |       |       |     |       |     |       |       |       |       |       |     |       |       |       |     |       |     |       |
| %  Increase - GIS Vs. MAI                               |       | 39         | %          | 42         | %          | 44       | %          | 37       | %          | 34         | %          | 21         | %          | 19       | %          | 18         | %          | 17       | %          | 32       | %          |

 

Average operating cash costs were $139 per tonne of processed ore forthe fourth quarter 2009.  On a per ounceco-product basis the average operating cash cost was $368 per ounce of gold and$5.84 per ounce of silver.  Co-productoperating cash costs are calculated by dividing the respective proportionateshare of the total costs for each metal for the period by the ounces of eachrespective metal produced.  Theproportionate

 

5

----

 

share of the total costs is calculated by multiplying the totaloperating cash costs by the percentage of total production value that therespective metal represents. As explained above, approximately 45% of the valueof the fourth quarter 2009 production was derived from silver and 55% wasderived from gold.

 

In comparison to the same quarter of 2008, the fourth quarter 2009 cash cost per ounce of silver decreased 8%, mainly due to productivity gains derived from the economies of scale benefits associated with the mine and plant expansions and by a change in the production mix (silver represented 49% of the total production value in the fourth quarter of 2008 versus 45% in the fourth quarter 2009), all of which was partially offset by the lower grade milled.

 

During the fourth quarter 2009, the cash cost per ounce of gold decreased by 26% compared to the same period in 2008, mainly due to productivity gains derived from the economics of scale benefits associated with the mine and plant expansions, partially offset by a change in the production mix (gold represented 51% of the total production value in fourth quarter 2008 versus 55% in the fourth quarter 2009).

 

For the year ended December 31, 2009, the average operating cashcosts were $119 per tonne of processed ore. On a per ounce co-product basis, the average operating cost was $343 perounce of gold and $5.08 per ounce of silver. Approximately 49% of the value of 2009 production was derived fromsilver and 51% was derived from gold.

 

Totaloperating cash costs in 2009 were at slightly higher levels compared to 2008mainly due to the increased production, partially offset by efficienciesderived from the higher production scale and by lower energy costs. Cash costper tonne decreased, in comparison to 2008, due to the higher level of tonnesextracted from the mine and processed at the plant.

 

Cash cost per ounce of silver, on a co-product basis, decreased 21% in 2009 compared to 2008 mainly explained by productivity gains derived from the economies of scale associated with the mine and plant expansions, partially offset by lower grade milled.  Also, there was a change in the production mix (silver represented a 49% of the total production value in 2009 versus a 58% in 2008). As a result, a lower portion of the total cash costs was attributed to the ounces of silver produced.

 

Cash cost per ounce of gold, on a co-product basis, decreased by 9% in 2009 compared to 2008 mainly explained by productivity gains derived from the economies of scale associated with the mine and plant expansions, partially offset by slightly lower grade milled. Also, there was a change in the production mix (gold represented 51% of the total production value in 2009 versus 42% in 2008). As a result, a higher portion of the total cash costs were attributed to the ounces of gold produced.

 

*Other Developments at the San José Mine*

 

In March 2009, the San Joséprocessing facility was connected to the national power grid through theconstruction of a 130 kilometre 132 kV electric transmission line,approximately four months behind schedule at a capital cost approximately 70%over budget. The existing diesel generators remain on site for back-up powersupply.

 

MSC has purchased theequipment necessary to expand the concentrate leaching and electrowinningcircuit in the processing plant so that 100% of the concentrates produced bythe operation can be converted to doré on site. The engineering process wascompleted during the fourth quarter of 2009. However, construction of theproject has been suspended due to the high capital costs required to completethe expansion and also because of improvements in the market conditions forconcentrates. Construction and commissioning of a small MerrillCrowe plant to capture silver contained in the electrowinning circuit in themill was completed

 

6

----

 

during the first quarter of 2009, and Level 4 DNV (Det Norske Veritas)industrial safety certification was achieved during the year.

 

From an exploration standpoint, approximately 24,700 metres of coredrilling totaling 104 drill holes were completed during 2009 at the San JoséMine.  Drilling focused primarily on theFrea, Odin and Ayelén veins and consisted of infill and step-out drilling.Drilling was also carried out on the Ramal Ayelén,Huevos Verdes Oesteveins and the Cerro Portugués, Cerro Alto and Sorpresa areas to explore for newresources.

 

*Investment in MSC*

 

The following table shows the reconciliation of MSC’s net income asreported under Canadian GAAP (unaudited) compared to the equity pickup that isreported on our financial statements:

 
| ** **                                                                              | ** ** | **Year Ended**        | ** **  |
|-----------------------------------------------------------------------------------------|------------|-----------------------|-------------|
| ** **                                                                              | ** ** | ** **            | ** **  | **December 31,** | ** ** |
| ** **                                                                              | ** ** | **December 31,** | ** **  | **2008** | ** ** |
|                                                                                    |       | **2009**              | ** **  | **(restated)** | ** ** |
|                                                                                    |       | ** **            | ** **  | ** ** | ** ** |
| Summary of MSC’s financial information from  operations:                           |       |                  | ** **  | ** ** | ** ** |
| Sales                                                                                   |       | $                     | 147,103,219 |   | $ | 111,255,558 |   |
| Net income - MSC                                                                        |       | 13,511,735            |        | 4,010,689 |   |
| Minera Andes Inc. portion (MAI) - 49%                                                   |       | 6,620,750             |        | 1,965,238 |   |
| Equity adjustments:                                                                     |       |                  |        |   |   |
| Interest expensed by MSC and included in the  equity method pickup, net of income taxes |       | 2,645,555             |        | 2,652,813 |   |
| Amortization of pre 2008 capitalized interest on  MSC loans                             |       | 1,320,992             |        | 798,000 |   |
|                                                                                    |       |                  |        |   |   |
| Income on Investment in MSC                                                             |       | 10,587,297            |        | 5,416,051 |   |
| Less amortization of MAI deferred capitalized  costs                                    |       | (1,238,674            | )           | (720,000 | ) |
|                                                                                    |       |                  |        |   |   |
| Net income on investment in MSC                                                         |       | $                     | 9,348,623   |   | $ | 4,696,051 |   |

 

**Los Azules**

 

As of December 31, 2009, the Company has expended a total of $15.1million on exploration activities at the Los Azules Project and on thepreparation of a preliminary assessment/scoping study.  Of this total, $1.8 million was spent during2009, principally on geological analysis and in establishing a seasonal fieldcamp at the Los Azules site to support a drilling campaign for the upcoming2009-2010 field season. These costs were capitalized in mineral properties anddeferred exploration.

 

Two diamond drills arrived atthe Project in December and initiated drilling. A third diamond drillarrived the first week of January 2010. Drilling will continue until the field season closes in mid-tolate-April. The objective of the drilling program is to expand the known limitsof the mineralization, look for extensions of high-grade mineralization, and toincrease the confidence level of the current inferred resource.  The Company plans to drill approximately8,800 meters during the field season. More geological mapping and geophysical work will be conducted duringthe field season to target possible extensions of the mineralization. Planningand organization for a preliminary feasibility study also commenced during thefourth quarter of 2009.

 

7

----

 

**Financial Highlights**

 

*Bank Loan*

 

The Bank Loan of $17.5 million outstanding at thebeginning of the year was paid in full in March 2009, which included theaccumulated amortization of the accretion of the debt discount of $3.0 millionto the repayment date and $0.6 million of accretion on the early settlement ofdebt.

 

*Shareholders’ Equity*

 

In 2009, shareholders’ equity increased by $55million mainly due to two separate financing events.

 

In February 2009, the issuance of 40,000,000shares pursuant to the McEwen Financing, raised gross proceeds of $32 million(C$40 million).

 

On August 19,****the Company announced the issuance 26,700,000 units, on a “bought deal”basis, at a price of C$0.75 per unit (the “Offering”) equivalent to C$20million ($18.3 million).  In addition,the Company agreed to grant the Lead Underwriter an option (the “Over-AllotmentOption”) to purchase additional units of Minera Andes to raise additional grossproceeds of up to 15% of the Offering (4,005,000 units), on the same terms andconditions as the Offering, exercisable any time, in whole or in part, up to 48hours prior to the closing date of the Offering.  The Over-Allotment Option was exercised infull and the total gross proceeds to Minera Andes were C$23 million ($21.0million). Each unit consisted of one (1) common share and one half of onecommon share purchase warrant, each whole warrant is exercisable at C$1.25 fora period of 5 years after closing. In the event that the volume weightedaverage trading price of the Company’s common shares on the TSX (or such otherstock exchange or quotation system on which the Company’s shares are listed andwhere a majority of the trading volume occurs), for a period of 20 consecutivetrading days exceeds C$2.50, the Company may, within five days after such anevent, provide notice to the warrant holders of early expiry and thereafter,the warrants will expire on the date which is 30 days after the date of thenotice to the warrant holders.

 

**Summary of Quarterly Results - MAI**

 
| ** **                    | ** ** | ** **    | ** ** | ** **    | ** ** | ** **    | ** ** | ** **    | ** ** | **December**   | ** ** | **September**  | ** ** | **June 30,** | ** ** | **March 31,** | ** ** |
|-------------------------------|------------|---------------|------------|---------------|------------|---------------|------------|---------------|------------|----------------|------------|----------------|------------|-------------------|------------|--------------------|------------|
| **Quarter**                   | ** ** | **December**  | ** ** | **September** | ** ** | **June**      | ** ** | **March**     | ** ** | **31,  2008**  | ** ** | **30,  2008**  | ** ** | **2008**          | ** ** | **2008**           | ** ** |
| **Ended**                     | ** ** | **31,  2009** | ** ** | **30,  2009** | ** ** | **30,  2009** | ** ** | **31,  2009** | ** ** | **(restated)** | ** ** | **(restated)** | ** ** | **(restated)**    | ** ** | **(restated)**     | ** ** |
|                          |       |          |       |          |       |          |       |          |       |           |       |           |       |              |       |               |       |
| Net  income (loss)            |       | $             | 2,440,736  |          | $          | 5,145,137     |       | $             | 919,040    |           | $          | (4,390,141     | )          | $                 | (9,116,684 | )                  | $          | (3,003,149 | ) | $ | 9,424,635 |   | $ | (1,280,276 | ) |
| Net  income (loss) per share: |       |          |       |          |       |          |       |          |       |           |       |           |       |              |       |               |       |
| Basic                         |       | $             | 0.01       |          | $          | 0.02          |       | $             | 0.01       |           | $          | (0.02          | )          | $                 | (0.05      | )                  | $          | (0.01 | ) | $ | 0.05 |   | $ | (0.01 | ) |
| Diluted                       |       | $             | 0.01       |          | $          | 0.02          |       | $             | 0.01       |           | $          | (0.02          | )          | $                 | (0.05      | )                  | $          | (0.01 | ) | $ | 0.05 |   | $ | (0.01 | ) |

 

The changes in the quarterly net income or loss areprimarily a result of the change in the reported quarterly income or loss fromMSC.  Although the mine enteredcommercial production at the beginning of 2008, reporting income has beeninconsistent due to sales commencing in second quarter 2008 after a significantinventory buildup following the mine commencing operations in 2007.  This heavily weighted period was thenfollowed by quarterly sales levels which reflected the normal 3 monthproduction periods in 2008.

 

8

----

 

More recently, net income for the fourth quarter of 2009 wassignificantly lower than the third quarter of 2009 due to work stoppages whichcontinued after commencing in the third quarter of 2009.

 

The increase in net income for the full year of 2009compared to 2008 is a result of increased sales which is attributable to theincreased processing capacity and improved power supply which both came intoeffect at the beginning of 2009 offset by the various work stoppages during2009.

 

**Liquidity and Capital Resources**

 

As at December 31,2009, the Company had an accumulated deficit of $44.0 million and workingcapital of $16.4 million (compared with a $48.1 million deficit and $27.2million negative working capital, in 2008).  At December 31, 2009, Minera Andes hadcash and cash equivalents of $18.9 million, compared to cash and cashequivalents of $3.4 million as of December 31, 2008.  Project financing for the San José Mine hasbeen provided pursuant to the Project Loan Letter Agreement between MineraAndes, MSC and by assignment, the Hochschild Lender.  The entire amount available ($65 million)under the Project Loan letter Agreement has been advanced, of which the Company’sshare is $31.9 million.

 

The operation of the SanJosé Mine is subject to a number of risks, including the risk that the price ofgold and silver may decline.  If, and tothe extent that cash from operations is insufficient for any reason includingcost-overruns and/or lower than expected sales or production, additionalinvestment by the shareholders of MSC (including the Company) may be required.As a result, there can be no assurance that cash from operations at the SanJosé Mine will be sufficient for these purposes, that additional cash callswill not be made or that the Company will be able to satisfy any such cashcall, as and when required.

 

With the exception of its interest in the San José Mine, the Company isin the process of exploring its other properties and has not yet determinedwhether these properties, other than the San José Mine, contain reserves thatare economically recoverable, although an independent positive PreliminaryEconomic Assessment was completed in March 2009 on the Los Azulesproperty, which is an advanced stage exploration project.  The amountsshown on the Company’s balance sheet as mineral properties and deferred explorationcosts represent net costs incurred to date, less amounts recovered from thirdparties and/or written off, and do not necessarily represent present or futurevalues. The recoverability of amounts shown on the balance sheet for mineralproperties and deferred exploration costs depend upon the existence ofeconomically recoverable reserves, securing and maintaining title andbeneficial interest in the properties, obtaining the financing required toexplore and develop the properties, entering into agreements with others toexplore and develop the mineral properties, and upon future profitableproduction or proceeds from disposition of the mineral properties. In thefuture, the Company’s ability to continue its exploration activities, if any,will depend in part on the Company’s ability to generate material revenues orto obtain financing through issuance of equity securities, debt financing,joint venture arrangements or other means.

 

The Company has been successful in fundingthe repayment of its debt obligations and working capital requirements throughthe issuance of stock for gross proceeds of a C$40 million private placementand the C$23 million common share offering. The Company is currentlyinvestigating all financing options available to it in order to raisesufficient amounts, in the short term and the long term, to maintain theCompany’s ability to meet its planned growth and to fund its development andexploration activities. Although we have been successful in securing financingin the past, current global financial conditions, including volatility in theprices for all commodities, combined with our current financing condition maymake it difficult for us to secure the required financing on reasonable terms,if at all.  If the Company would be unableto meet its ongoing obligations on a timely basis, it could result in the lossor substantial dilution of the Company’s interests in its properties.

 

9

----

 

There is no assurance that the Company willbe successful in these financing activities. Our ability to continue in operation is dependent on our ability toreceive cash flow from operations and/or secure financing.  If the Company does not receive cash flowfrom operations or secure financing, there would be doubt about our ability tocontinue as a going concern.  The Company’sfinancial statements do not include the adjustments that would be necessaryshould the Company be unable to continue as a going concern.

 

As of December 31, 2009, the amount outstandingunder the Project Loan Payable and the Project Loan Receivable is $31.9million, plus accrued interest. The Company’s contractual obligations as at December 31,2009 are as follows:

 
| ** **                                | ** ** | ** ** | ** ** | **Payments Due by Period Ending** | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------------|------------|
| **Contractual  Obligations**              | ** ** | **Total**  | ** ** | **31-Dec-10**                     | ** ** | **31-Dec-11** | ** ** | **31-Dec-12** | ** ** | **31-Dec-13** | ** ** |
| Long-Term Debt - Project Loan Payable (1) |       | $          | 31,850,000 |                              | Nil        |   | $ | 10,616,667 |   | $ | 10,616,667 |   | $ | 10,616,667 |   |
| Project loan interest payable (1)         |       | 7,599,982  |       | 7,599,982                         |       | Nil |   | Nil |   | Nil |   |
| Operating Lease Obligations (2)           |       | 41,136     |       | 36,781                            |       | 4,355 |   | Nil |   | Nil |   |
| Purchase Obligations (3)                  |       | 180,000    |       | 180,000                           |       | Nil |   | Nil |   | Nil |   |
| Capital Lease Obligations                 |       | Nil        |       | Nil                               |       | Nil |   | Nil |   | Nil |   |
| Other Long-Term Liabilities               |       | Nil        |       | Nil                               |       | Nil |   | Nil |   | Nil |   |
| Total                                     |       | $          | 32,071,136 |                              | $          | 216,781 |   | $ | 10,621,022 |   | $ | 10,616,667 |   | $ | 10,616,667 |   |
|                                           |            |            |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |

 

----

Notes:
| (1) | The  Company’s obligations under the Project Loan Payable are offset by  corresponding obligations under the Project Loan Receivable, including  repayment and interest. Terms of payment have not yet been finalized and  interest accrues but is not payable until the terms are finalized. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Consists of various lease agreements for office and  storage space in Spokane, United States, Vancouver, Canada and Mendoza,  Argentina.                                                                                                                                                           |
| (3) | Management Services Agreement with 2083089 Ontario Inc.  for office operating costs.                                                                                                                                                                                                               |

 

In addition, on December 2, 2003, the Company signedan agreement that obligates it to pay N.A. Degerstrom, Inc. (the vendor ofthe original exploration properties), a royalty of $250,000, if any of theproperties owned at the date of signing the agreement, other than theproperties comprising the San José Mine, meet certain conditions such asbankable feasibility or commercial production prior to December 2,2013.  As at March 29,2010, no payments are required to be made under this agreement.

 

The operation of the San José Mine is subject to a number of risks,including the risk that the price of gold and silver may decline and thatproduction is less than expected. Although MSC has advised the Company that going forward it expects thatcash from operations will provide sufficient funds to finance operating costsand capital expenditures at the San José Mine, there remains a risk that shouldcash from operations be insufficient for any reasonincluding cost-overruns and/or lower than expected sales or production,additional investment by the shareholders of MSC (including the Company) may berequired to finance future operations and capital investments at the San JoséMine.

 

10

----

 

**Outstanding Share Data**

 

Our outstanding share data, as of March 29,2010, is set out below:

 
| **Class and Series of Security** | ** ** | **Number  Outstanding** | ** ** | **Value in US$** | ** ** | **Expiry Date of Convertible  Securities** | ** **                                                   | **Relevant Terms** | ** **                                                 |
|--------------------------------------------|------------|-------------------------|------------|------------------|------------|--------------------------------------------|--------------------------------------------------------------|--------------------|------------------------------------------------------------|
| Common shares                              |       | 264,741,621             |       |             |       |                                       |                                                         |               |                                                       |
| Stock options                              |       | 6,515,000               |       | $                | 7,849,281  |                                       | Various  (December 28, 2010 to September 30, 2014) |               | Exercisable  for one common share each at C$0.31 to C$1.73 |   |
| Purchase warrants                          |       | 15,352,500              |       | $                | 18,659,045 |                                       | August 19,2014                                          |               | Exercisable  for one common share each at C$1.25           |   |

 

**Financial Instruments**

 

During the year ended December 31, 2009,the Company retired its bank indebtedness and has no long term debt outstandingother than the project loan payable as discussed previously.  The Company believes its capital structure isappropriate to ensure sufficient liquidity to meet the needs of the business.The Company has not executed any derivative financial instruments to manage therisks associated with its operations and, therefore, in the normal course ofbusiness the Company is inherently exposed to a number of risks related tochanges in foreign currency exchange rates, interest rates, credit risk,liquidity risk and commodity price fluctuations.

 

The Company holds certain financialinstruments such as cash and cash equivalents, receivables, the Project LoanReceivable, the Project Loan Payable and related interest receivable andpayable, accounts payable and accruals, bank loan and related partypayable. All financial instruments are classified into one of five categories: held-for-trading, held-to-maturity investments, loans and receivables,available-for-sale financial assets or other financial liabilities.  Allfinancial instruments are recorded in the balance sheet either at fair value orat amortized cost. Subsequent measurement and changes in fair value will dependon their initial classification, as follows:

 

·                                          Held-for-trading financial assets aremeasured at fair value and changes in fair value are recognized in netearnings.

·                                          Available-for-sale financial instrumentsare measured at fair value with change in fair value recorded in othercomprehensive income until the instrument is derecognized. The Company hasclassified its cash and cash equivalents as held-for-trading.

·                                          Receivables and project loan and interestreceivable were classified as loans and receivables.

·                                          Accounts payable and accruals, project loanand interest payable, bank loan and related party payable were classified asother financial liabilities.

 

The carrying value and fair value of the Company’sfinancial assets and liabilities as at December 31, 2009, and December 31,2008, is summarized as follows:

 
| ** **            | ** ** | **December 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|-----------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **            | ** ** | **Carrying Value**         | ** ** | **Fair Value**             | ** ** | **Carrying Value** | ** ** | **Fair Value** | ** ** |
| Held-for-trading      |       | $                          | 18,872,312 |                       | $          | 18,872,312 |   | $ | 3,409,593 |   | $ | 3,409,593 |   |
| Loans and receivables |       | $                          | 39,500,262 |                       | $          | 39,500,262 |   | $ | 36,847,761 |   | $ | 36,847,761 |   |
| Other liabilities     |       | $                          | 42,063,857 |                       | $          | 42,063,857 |   | $ | 67,679,960 |   | $ | 67,679,960 |   |

 

The fair value of the cash and cash equivalents,receivables, current Project Loan interest receivable, accounts payable andaccruals, and current Project Loan interest payable, and related party payable

 

11

----

 

approximate their fair values due to their short termnature.  The fair value of the non-current debt approximates the amortizedcost as the interest rates reflect the estimated market rates.

 

**Risk Management**

 

*Foreign currency exchange risk*

 

The Company is exposed to foreign currency risk onfluctuations in our Canadian denominated cash, accounts payable and accruedliabilities. The net asset amount of Canadian dollars subject to foreigncurrency fluctuations as at December 31, 2009, was $16.3 million dollars.As a result, every percentage change in the U.S./Canada exchange rate willaffect our income by approximately $0.2 million on a per annum basis. As at December 31,2009, the Company also had cash, accounts payable, and accrued liabilities inArgentinean pesos. However, these amounts are typically only held (in the caseof cash) or outstanding (in the case of accounts payable and accruedliabilities) for a short period of time so the foreign exchange risk isminimal.  The Company does not usederivative instruments to mitigate such risks.

 

*Interest rate risk*

 

Interest rate risk is the risk that the fair value orfuture cash flows of a financial instrument will fluctuate because of changesin market interest rates. The Company has an outstanding balance of $31.9million under the Project Loan Payable, plus accrued interest. The Project Loancurrently bears fixed interest at LIBOR plus 2.50% as of the inception of theloan. The interest rates are 7.86% on $9.8 million and 8.21% on $22.1 million.It has been agreed that once the definitive agreements are finalized, interestwill increase to LIBOR plus 2.85% and will be subject to interest ratefluctuations.

 

The terms including the interest rate of the ProjectLoan Receivable however are the same as the terms of the Project Loan Payable.As a result, interest rate changes affecting the Project Loan Receivable areoffset by the effect of the same fluctuations on the Project Loan Payable.

 

The Company has not used any derivative instrumentsto mitigate interest-rate risks.

 

*Credit risk*

 

Credit risk is the risk of financial loss to theCompany if a counterparty to a financial instrument fails to meet itscontractual obligations. Financial instruments that potentially subject theCompany to concentrations of credit risk consist of cash and cash equivalents,and the Project Loan Receivable and interest due thereon.

 

The Company’s cash and cash equivalents consist ofdeposit instruments that are held with major financial institutions in Canadaand are not considered a material credit risk to the Company.  The Company also holds U.S. dollars in anaccount at a United States financial institution and pesos in an internationalbank in Argentina. Funds held in the U.S. and Argentina are held for thepurposes of meeting existing accounts payable and current payroll. The creditrisk of cash and cash equivalents held outside of Canada is not considered amaterial credit risk to the Company.

 

Management has determined that the credit risk associatedwith the Project Loan Receivable is mitigated by positive cash flowsanticipated from MSC, frequent receipt of financial information regarding theoperations of MSC, MSC’s proven and probable reserve report, the present value of silver andgold, and financial support by its majority shareholder, Hochschild. Moreover,the Project Loan Receivable will not be collected until the Project LoanPayable is paid and vice versa. Management does notbelieve that the Project Loan Payable and Project Loan Receivable presentsignificant credit risks, however, should MSC be unable to settle amounts due,the impact on the Company could be significant. The maximum exposure to a

 

12

----

 

loss arising from Project Loan Receivable is equal toits total carrying value on the balance sheet. The Company has not usedderivative instruments to mitigate such risks.

 

*Liquidity risk*

 

The Company’s approach tomanaging the liquidity risk is to provide reasonable assurance that it canprovide sufficient capital to meet liabilities when due.  The Company’s ability to settle short-termand long-term liabilities when due is dependent on future liquidity fromcapital sources or positive cash flows from its projects. At December 31,2009, the Company’s accounts payables and accrued liabilities were $2.7million,****all of which are due for paymentwithin normal terms of trade, which is generally 30 to 60 days. The Companyregularly reviews its receivable balances and follows up on amounts past due.Should sufficient cash not be available to settle liabilities, the Company alsorelies on equity, third-party and related party financing to manage itsliquidity and the settlement of liabilities. The Company has not used anyderivative or other financial instruments to mitigate this risk.

 

*Commodity pricerisk*

 

The Company’s profitability depends on metal pricesfor gold and silver and, if other projects enter into production, on copperprices and other base metals. Gold, silver and copper prices are affected bynumerous factors such as the sale or purchase of gold and silver by variouscentral banks and financial institutions, interest rates, exchange rates,inflation or deflation, fluctuations in the value of the U.S. dollar andforeign currencies, global and regional supply and demand, and political andeconomic conditions of major gold, silver and copper-producing countriesthroughout the world.

 

The Company does not hedge its exposure to gold andsilver sales arising from its equity investment in MSC, and MSC does not hedgeits sales. In the event that one of the Company’s exploration projects entersinto production and revenue contracts are entered into in respect of othercommodities and metals, the Company would be exposed to fluctuations in theprices of those commodities and metals at that time.

 

**Related PartyTransactions**

 

As previously stated, underthe terms of the Project Loan Letter Agreement among the Company, theHochschild Lender and MSC, the San José Mine has been financed by Project Loans made thereunder by the Hochschild Lender. Forthe purposes of CICA Handbook section 3840, MSC is a related party to theCompany.

 

As at March 29, 2010,the total principal amount of the Project Loan Receivable (owing to the Companyby MSC) is $31.9 million and the total principal amount of the Project LoanPayable (owing by the Company to the Hochschild Lender) is $31.9 million, ineach case, plus accrued interest.

 

On February 17, 2009, the Company entered intoan amended and restated private placement agreement with Mr. McEwen inrespect of the McEwen Financing. As previously stated, pursuant to the McEwenFinancing, Mr. McEwen purchased an aggregate of 40 million common sharesat a purchase price of C$1.00 per share.

 

In connection with the McEwen Financing, Mr. McEwenwas granted the right to nominate an additional two directors to the Company’sboard. Messrs. Richard Brissenden and Michael Stein were appointed asdirectors of Minera Andes on February 23, 2009, pursuant to the exerciseof this right. In addition, the Company agreed to use all reasonable efforts tocause its board of directors to pass such resolutions and to take such otheractions as may be required in order to maintain the number of members of theboard of directors of the Company at not more than seven.

 

13

----

 

On February 23, 2009, Mr. McEwen wasappointed Executive Chairman of Minera Andes Inc. and on June 18, 2009, Mr. McEwenbecame the President and Chief Executive Officer replacing Allen V. Ambrose.

 

The Company pays a management service fee to a related party, 2083089Ontario Inc. (“208”) under the terms of a management services agreement.  208 is a company controlled by Mr. McEwen,the chairman and chief executive officer of the Company and beneficial owner ofmore than 5% of our voting securities. Mr. McEwen is also the chiefexecutive officer and director of 208, which provides management services to anumber of entities in which Mr. McEwen has significant equity interests.The management service fees cover inter-alia, rent, personnel, office expenses,and other administrative services on a cost recovery basis. During the yearsended December 31, 2009, and 2008, the Company paid $50,252 and $2,092,respectively, to 208.  Mr. McEwenreceives no compensation from 208.

 

**Outlook**

 

*General*

 

The2010 exploration program at San José consists of a compilation andinterpretation of project data over the entire San José district, comprisingapproximately 115 km(2) (28,400 acres), to identify new targets and followup on existing targets through exploration drilling. The drilling program,which is well underway, totals approximately 22,000 metres consisting of 17,000metres of surface core drilling and 5,000 metres of underground drilling. The surface drilling is focusing on the Kospi, Ayelén, Odin, and splitsoff of the Frea and Kospi veins. The underground drilling will explore for newveins by drilling from the underground access ramps. In addition to discoveringnew mineralized veins, the goal of this year’s exploration program will be toreplace reserves depleted during 2009 and add to the existing resources at SanJosé and to potentially discover new mineralized veins (new resources) on theSan José property, comprising of approximately 115 km(2) (28,400 acres).

 

In February 2009 thepayment by the Company and Hochschild of the December 2008Cash Call was to remedy a working capital deficiencyat MSC existing as at December 31, 2008. MSC has since then advised the Company that going forward it expectsthat cash from operations will provide sufficient funds to finance operatingcosts and capital expenditures at the San José Mine. If such is not the case, theCompany may be required to raise additional funds in response to an additionalcash call.

 

At Los Azules, drilling is currently underway during the Austral summerfield season that extends from December through mid-April. The objectiveof the drilling program is to expand the known limits of the mineralization,look for extensions of high-grade mineralization, and to increase theconfidence level of the current inferred resource.  The Company plans to drill approximately8,800 meters of diamond drilling during the field season.  More geological mapping and geophysical workis also being conducted during the field season to target possible extensionsof the mineralization.  The Company plansto announce an updated resource estimate at mid-year.  Initial engineering work is underway tosupport a preliminary feasibility study that is scheduled to be completed bythe end of 2011.  Drilling will alsocontinue in the 2010-2011 field season. The Company will need to raise additional financing in order to competethe 2010-2011 drilling program and the preliminary feasibility study should itnot receive any cash flow from MSC during 2010.

 

*Subsequent Event*

 

OnMarch 17, 2010, the Company received a Summons and Complaint in connectionwith a lawsuit commenced by affiliates of Hochschild Mining plc against MAI anda subsidiary in the State of New York.

 

14

----

 

Thelawsuit pertains to the project finance loans made by Hochschild to MSC, asdisclosed in Note 5 to the consolidated financial statements. Hochschild, amongother claims, claims the Company refused to sign formal project loandocumentation and caused undue delay of the same.  Hochschild has demandedthat the Court order Minera Andes to sign formal loan documents for the projectfinance loans, enjoin Minera Andes from interfering with the making of paymentsby Minera Santa Cruz in relation to the project finance loans, require MineraAndes to repay to Hochschild the benefits that Minera Andes has received fromthe project finance loans and establish the priority of other shareholder loansowed by Minera Santa Cruz to Hochschild and Minera Andes.

 

TheCompany is reviewing in detail the claim by Hochschild with its legal advisorsand will respond accordingly.  This lawsuit does not impact the Company’sfinancial statements for the year ended December 31, 2009.  At thistime, the Company is not able to estimate the impact of this claim.

 

**Critical Accounting Estimates**

 

The preparation of financial statements in conformitywith Generally Accepted Accounting Principles requires management to make awide variety of estimates and assumptions that affect (a) the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities as of the date of the financial statements, and (b) thereported amounts of revenues and expenses during the reporting periods coveredby the financial statements. Our management routinely makes judgments andestimates about the effect of matters that are inherently uncertain. As thenumber of variables and assumptions affecting the future resolution of theuncertainties increases, these judgments become even more subjective andcomplex.

 

The accounting policies that are most critical to theportrayal of our current financial condition and results of operations are setout below:

 

*Investment in MSC*

 

Our investment in MSC is accounted for using theequity method. Under this method, our share of earnings and losses is includedin the statement of operations and the balance of the investment is adjusted byan equal amount. Our investment is reviewed for impairment onan annual basis or whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. Impairment isconsidered to exist if the total estimated future undiscounted cash flows areless than the carrying amount of the asset. Impairment is measured and recordedbased on discounted estimated future cash flows. Future cash flows areestimated based on expected future production, commodity prices, operatingcosts and capital costs.

 

*Mineralization and Deferred DevelopmentCosts*

 

Mineral properties consistof exploration and mining concessions, options and contracts. Acquisition andleasehold costs and exploration costs are capitalized and deferred until suchtime as the property is put into production or the property is disposed ofeither through sale or abandonment. If put into production, the costs ofacquisition and exploration will be depreciated over the life of the property,based on estimated economic resources and reserves.  Proceeds received from the sale of anyinterest in a property are first credited against the carrying value of theproperty, with any excess included in operations for the period. Where the Company enters into an option agreement for the acquisition ofan interest in a mining property which provides for periodic payments, suchamounts are payable entirely at the Company’s option. If a propertyis abandoned, the property and deferred exploration costs will be written offto operations. On a quarterly basis, we evaluate the future recoverability ofour mineral properties and deferred exploration costs. Long-lived assets,including mineral properties and equipment are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable.

 

15

----

 

Impairment is considered toexist if the total estimated future undiscounted cash flows are less than thecarrying amount of the asset. Impairment is measured and recorded based ondiscounted estimated future cash flows. Future cash flows are estimated basedon expected future production, commodity prices, operating costs and capitalcosts.

 

*Stock-Based Compensation*

 

The Company applies the fair value method ofaccounting for all stock option awards. Under this method, the Companyrecognizes a compensation expense for all stock options awarded to employeesand non-employees based on the fair value of the options on the date of grant,which is determined by using the Black-Scholes option pricing mode. Insituations where stock options are granted in exchange for services directlyrelated to specific mineral properties, the expense is capitalized against themineral property. The value assigned to stock options in contributed surplus issubsequently reduced if the options are exercised and the amount so reduced isthen credited to share capital.

 

*Project Loan Receivable and Project LoanPayable*

 

Under the terms of the Project Loan Letter Agreement,the Company accounts for the Project Loan Receivable and Project Loan Payableusing estimates provided by MSC on a monthly basis detailing actualexpenditures and associated cash flows as well as forecasted future cashflows.  Classification between thelong-term and short-term portion of the Project Loan Receivable and Project LoanPayable are dependent on the reliability of the estimates provided to theCompany by MSC. As the Company does not exertcontrol over the financial reporting processes of MSC these estimates aresubject to material uncertainties. To the extent possible management mitigatessuch uncertainty by reviewing such estimates including the appropriateness ofsignificant assumptions in a timely and thorough fashion. To this end, theCompany has engaged personnel in Argentina to deal directly with MSC (on site)so that information provided by MSC can be verified immediately and directlywith MSC. Significant assumptions by MSC, which affect the Company’s accountingfor the Project Loan Receivable and Project Loan Payable, include the futureprice of gold and silver, capital and operating costs, accuracy of capitalbudgets, interest rates and production and recovery rates.  The Company uses an undiscounted cash flowapproach for the evaluation for impairment of the MSC investment.  Discussions are held with management andgeologists, and based on the results to date, anticipates the value of thisinvestment being in excess of the amount capitalized.

 

**Changes in Accounting Policies includingInitial Adoption**

 

*EIC 173 — Credit Risk and Fair Value of Financial Assets andLiabilities*

 

InJanuary 2009, the CICA issued Emerging Issues Committee (“EIC”) Abstract 173 —Credit Risk and the Fair Value of Financial Assets and Financial Liabilities (“EIC-173”).EIC-173 provides guidance on how to take into account credit risk of an entityand counterparty when determining the fair value of financial assets andfinancial liabilities. EIC-173 is applicable to interim and annual financialstatements for the year ended December 31, 2009, with retroactive application.Adoption of this guideline did not have any impact on the financial statements.

 

*Financial instruments*

 

In June 2009, the CICA amended Handbook Section 3862 —Financial Instruments — Disclosures to include additional disclosurerequirements about fair value measurements of financial instruments and toenhance liquidity risk disclosure requirements for publicly accountableenterprises. The amendments are applicable for the Company’s annualconsolidated financial statements for its fiscal year ending December 31, 2009.

 

16

----

 

In June 2009, the CICA amended Section 3855 to clarify theapplication of the effective interest method after a debt instrument has beenimpaired and when an embedded prepayment option is separated from its host debtinstrument at initial recognition for accounting purposes. The amendments areapplicable for the Company’s interim and annual financial statements for itsfiscal year beginning January 1, 2011. Earlier adoption is permitted.

 

On July 1, 2009 the Company adopted amendments to Handbook Section3855 — Financial Instruments — Recognition and Measurement which providesadditional guidance on the classification of embedded derivatives. The adoptionof this amendment did not result in a material impact on the Company’sconsolidated financial statements.

 

*Goodwill and Intangible Assets*

 

In February 2008, the CICA issued Section 3064, “Goodwilland Intangible Assets”, which establishes revised standards for recognition,measurement, presentation and disclosure of goodwill and intangible assets, otherthan the initial recognition of goodwill or intangible assets acquired in abusiness combination. Concurrent with the introduction of this standard, theCICA withdrew EIC-27, “Revenues and Expenses During the Pre-operating Period”.  As a result of the withdrawal of EIC-27,companies will no longer be able to defer costs and revenues incurred prior tocommercial production at new mine operations. The changes are effectivefor interim and annual financial statements beginning January 1, 2009.  The adoption of this accounting policy didnot have any impact on the Company’s consolidated financial statements for theyears December 31, 2009, and 2008.

 

*Future Accounting Changes*

 

In January 2009, the Accounting Standards Board (AcSB)issued the following new Handbook sections: 1582 — Business Combinations, 1601 —Consolidations, and 1602 — Non-Controlling Interests. These standards are to beapplied prospectively to business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning onor after January 1, 2011. The Company has not yet determined the impact of theadoption of these standards on its consolidated financial statements.

 

*InternationalFinancial Reporting Standards*

 

In February 2008, the Canadian Accounting StandardsBoard confirmed that publicly accountable enterprises will be required to adoptIFRS for fiscal years beginning on or after January 1, 2011, with earlieradoption permitted. Adoption of IFRS will impact the Company’s accountingpolicies, information technology and data systems, internal control overfinancial reporting, and disclosure controls and procedures.

 

Inearly 2009, the Company developed an IFRS project plan assigningresponsibilities and outlining the proposed timing of execution of key IFRSconversion projects. The Company’s IFRS project plan stipulates several projectphases.

 

During the first quarter 2009, the Company commenced the scoping andplanning phase of its changeover plan (“phase 1”). The Company has designatedthe appropriate resources to the project to develop an effective plan and willcontinue to assess resource and training requirements as the projectprogresses. The Company has identified the following four phases of itsconversion plan: scoping and planning, detailed assessment, operationsimplementation and post implementation. Phase 1 involves establishing a projectmanagement team, mobilizing organizational support for the conversion plan,obtaining stakeholder support for the project, identifying major areas affectedand developing a project charter, implementation plan and communicationstrategy. The Company completed phase 1 in the fourth quarter of 2009.

 

17

----

 

In fourth quarter 2009, the Company completed a preliminary IFRSdiagnostic (“phase 2”) which highlighted several key areas of differencebetween existing Canadian GAAP and IFRS, such as Property, Plant, andEquipment, borrowing costs, business combinations, share based payments,decommissioning costs, foreign exchange, exploration and evaluation costs, andjoint ventures. The diagnostic identified that the key area of potentialdifference for the Company is accounting for functional and reportingcurrencies.

 

The detailed assessment phase (“phase 3”) will result in new or revisedaccounting policies and transitional exemptions decisions, quantification offinancial statement impact, preparation of shell financial statements andidentification of business processes and resources impacted. The operationsimplementation phase (“phase 4”) includes the design of business, reporting andsystem processes to support the compilation of IFRS compliant financial datafor the opening balance sheet at January 1, 2010, fiscal 2010 and thereafter.Phase 4 also includes ongoing training, testing of the internal controlenvironment and updated processes for disclosure controls and procedures. Theseanticipated phases will be completed over the course of 2010. Phases 3 and 4are expected to be completed in the second and fourth quarters of 2010,respectively.

 

Post implementation (“phase 5”) will include sustainable IFRS compliantfinancial data and processes for fiscal 2011 and beyond. The Company willcontinue to monitor changes in IFRS throughout the duration of theimplementation process and assess their impacts on the Company and itsreporting.

 

**Risks and Uncertainties**

 

The Company’s operations and results are subject to anumber of different risks: the Company does not control (jointly or otherwise)the San José Mine and has no control over the timing or amount of future cashcalls; any cost overruns or cash shortfall at the San José Mine could requirefurther investment; the Company has no operational cash flow and is dependenton external financing;  a substantial orprolonged decline in metal prices, particularly gold, silver, or copper, wouldhave a material adverse effect on the Company; global economic conditionscombined with the Company’s financial position could make financing itsoperations and business strategy more difficult; the Company anticipates thatthe Project Loan will be subject to interest rate fluctuations upon theexecution of the Draft Loan Documents; the Company is subject to interest ratefluctuations; the Company is subject to fluctuations in currency exchangerates, which could materially adversely affect the Company’s financialposition; the Company is subject to risks relating to economic and politicalinstability in Argentina; estimates of mineral reserves and mineral resourcescould be inaccurate. A thorough analysis of the Company’s risk factors can befound in the Company’s annual information form dated March 30, 2010, which isavailable on SEDAR (www.sedar.com) and should be reviewed in conjunction withthis document.

 

**Non-GAAP Measures**

 

In this MD&A, we use the term “operating orproduction cash cost”.  Production cashcosts are calculated on a co-product basis and by dividing the respectiveproportionate share of the total production cash costs for the periodattributable to each metal by the ounces of each respective metal produced.  Total production cash costs are the sum of the geology, mining, processing plant, general andadministration costs divided by the number of ounces ofgold and silver produced at the mine. Production cash costs include royalties, refining and treatment chargesand sales costs applied to doré but do not include refining, treatment chargesand sales costs applied to concentrates. Export taxes and depreciation are notincluded in the calculation of production cash costs.

 

We use production cash cost per ounce as an operatingperformance indicator. We provide this measure to provide additionalinformation regarding operational efficiencies at the San José Mine.  Production cash cost per ounce should beconsidered as a non-GAAP performance measure and should not be considered inisolation or as a substitute for measures of performance prepared in accordancewith GAAP.  Cash cost per

 

18

----

 

ounce is based on information from MSC and does notimpact the Company’s consolidated financial statements. There are materiallimitations associated with the use of such non-GAAP measures. Since thesemeasures do not incorporate revenues, changes in working capital andnon-operating cash costs, they are not necessarily indicative of operatingprofit or cash flow from operations as determined in accordance with GAAP.Changes in numerous factors including, but not limited to, mining rates,milling rates, gold grade, gold recovery, and the costs of labour, consumablesand mine site operations general and administrative activities can cause thesemeasures to increase or decrease.

 

Furthermore the foregoing non-GAAP measures are notstandardized and therefore may not be comparable to similar measures disclosedby other issuers.

 

**Additional Information**

 

Additional information relating to Minera Andes,including our annual information form, is available under our profile at SEDARat www.sedar.com.

 

**Management’s Report on Internal Control overFinancial Reporting**

 

***Disclosure Controls andProcedures***

 

The Company’s Chief Executive Officer (CEO) and ChiefFinancial Officer (CFO) are responsible for establishing and maintainingdisclosure controls and procedures and internal control over financialreporting.

 

The Company’s management, together with the CEO andCFO, has evaluated the effectiveness of the Company’s disclosure controls andprocedures.  Based upon the results ofthat evaluation, the Company’s CEO and CFO have concluded that, as of the endof the period covered by this report, the Company’s disclosure controls andprocedures were effective to provide reasonable assurance that (i) materialinformation relating to the Company is made known to them by othersparticularly during the period covered by this MD&A; and (ii) informationrequired to be disclosed by the Company in its annual filings, interim filingsor other reports filed or submitted by it under securities legislation isrecorded, processed, summarized and reported, within the time periods specifiedin securities legislation.

 

***Internal Controls over FinancialReporting***

 

The Company’s internal control over financialreporting is a process designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance GAAP. The Company’s controls and proceduresinclude policies and procedures that:

 

·                  pertain tothe maintenance of records that, in reasonable detail, accurately reflect thetransactions and dispositions of the assets of the Company;

 

·                  providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with GAAP; and

 

·                  providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the Company’s assets that could have amaterial effect on the annual financial statements or interim financialstatements.

 

19

----

 

Therewere no changes in our internal control over financial reporting for the yearended December 31, 2009, that has materially affected, or is reasonably likelyto materially affect, our internal control over financial reporting.

 

Asat December 31, 2009, management assessed the effectiveness of our internalcontrol over financial reporting using the criteria established in InternalControl — integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and concluded that such internalcontrol over financial reporting is effective and that there are no materialweaknesses.

 

***Limitations of Controls andProcedures***

 

The Company’s CEO and CFO believe that any disclosurecontrols and procedures or internal controls over financial reporting, nomatter how well conceived and operated, can provide only reasonable, notabsolute, assurance that the objectives of the control system are met.  Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to their costs. Because of the inherentlimitations in all control systems, they cannot provide absolute assurance thatall control issues and instances of fraud, if any, within the Company have beenprevented or detected. These inherent limitations include the realities thatjudgments in decision-making can be faulty, and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people, orby unauthorized override of the control. The design of any systems of controlsalso is based in part upon certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions. Accordingly, because ofthe inherent limitations in a cost effective control system, misstatements dueto error or fraud may not be detected.

 

***Cautionary Statement onForward-Looking Information***

 

Certain statements and information in this MD&A,including all statements that are not historical facts, contain forward-lookingstatements and forward-looking information within the meaning of applicableU.S. and Canadian securities laws.  Suchforward-looking statements or information include, but are not limited to,statements or information with respect to the cash from operations at the SanJosé Mine and the future cash requirements of MSC, the estimated operating andcapital costs of the San José Mine,  theCompany’s intention to complete a further financing in the near term, theCompany’s interest in the San José Mine being maintained at 49%,  the future price of gold, silver, copper andother base metals, production estimates, estimation of mineral reserves,exploration and development capital requirements, and our goals andstrategies.  Often, these statementsinclude words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”,“scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does notanticipate” or “believes” or variations of such words and phrases or statementsthat certain actions, events or results “may”, “could”, “would”, or “might” betaken, occur or be achieved.

 

In making the forward-looking statements andproviding the forward-looking information included in this MD&A, we havemade numerous assumptions.  Theseassumptions include among other things, assumptions about the price of gold,silver, copper and other base metals, decisions to be made by our joint venturepartner in respect of the management and operation of the San José Mine,anticipated costs and expenditures, future production and recovery, that thesupply and demand for gold, silver and copper develop as expected, that thereis no unanticipated fluctuation in interest rates and foreign exchange rates,that there is no further material deterioration in general economic conditionsand that we are able to obtain the financing, as and when, required to, amongother things, maintain our interest in the San José Mine. Although ourmanagement believes that the assumptions made and the expectations representedby such statements or information are reasonable, there can be no assurancethat the forward-looking statements will

 

20

----

 

prove to be accurate.  By theirnature, forward-looking statements and information are based on assumptions andinvolve known and unknown risks, uncertainties and other factors that may causeour actual results, performance or achievements, or industry results, to bematerially different from future results, performance or achievements expressedor implied by such forward-looking information. Such risks, uncertainties and other factors include among other thingsthe following: actions by, and our relationship with, our joint venturepartner, including decisions regarding the amount and timing of future cashcalls, that any cost overruns or cash shortfalls at the San José Mine mayresult in a requirement for additional investment by us, our lack of operatingcash flow and dependence on external financing, availability of financing, asand when, required to meet any future cash calls in respect of the San JoséMine (to maintain our interest therein), and to finance our day-to-dayoperations and planned growth and development, any decline in the prices ofgold, silver, copper and other base metals, changes in general economic andbusiness conditions, economic and political instability in Argentina,discrepancies between actual and estimated production and mineral reserves andresources; operational and development risk; the speculative nature of mineralexploration and regulatory risks.

 

21

----