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Western Silver Corporation(an exploration stage company)

Consolidated Financial Statements September 30, 2005, 2004, and 2003(expressed in Canadian dollars)

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Managements Responsibility for Financial Reporting

The accompanying consolidated financial statements of the company have been prepared by management in accordance with accounting principles generally accepted in Canada which have been reconciled to accounting principles generally accepted in the
United States as set out in note 13, and contain estimates based on managements judgment. Management maintains an appropriate system of internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded, and
proper records maintained.

The Audit Committee of the Board of Directors has met with the companys auditors to review the scope and results of the annual audit and to review the consolidated financial statements and related financial reporting matters prior to
submitting the consolidated financial statements to the Board of Directors for approval.

The companys auditors, PricewaterhouseCoopers LLP, are appointed by the shareholders to conduct an audit in accordance with Canadian and United States generally accepted auditing standards, and their report follows.

|R. Joseph Litnosky    | F. Dale Corman       
|----------------------- | -----------------------
|R. Joseph Litnosky      | F. Dale Corman         
|Vice President, Finance | Chief Executive Officer
|December 22, 2005       |                        

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| | PricewaterhouseCoopers LLP
      Chartered Accountants
      PricewaterhouseCoopers Place
      250 Howe Street, Suite 700
      Vancouver, British Columbia
      Canada V6C 3S7
      Telephone +1 (604) 806 7000
      Facsimile +1 (604) 806 7806
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

AUDITORS REPORT

To the Shareholders of Western Silver Corporation

We have audited the consolidated balance sheets of Western Silver Corporation (an exploration stage company) as at September 30, 2005 and 2004 and the consolidated statements of loss and deficit, cash flows and shareholders equity for the
years ended September 30, 2005, 2004 and 2003. These consolidated financial statements are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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 the company as at September 30, 2005 and 2004 and the results of its operations and its cash flows for the years ended
September 30, 2005, 2004 and 2003 in accordance with Canadian generally accepted accounting principles.

(signed) PricewaterhouseCoopers LLP

Chartered AccountantsVancouver, B.C. 
  November 14, 2005



PricewaterhouseCoopers refers to the Canadian
  firm of PricewaterhouseCoopers LLP and the other member firms of PricewaterhouseCoopers
  International Limited, each of which is a separate and independent legal entity.

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|Western Silver Corporation       
|---------------------------------
|(an exploration stage company)   
|Consolidated
      Balance Sheets

(expressed in Canadian dollars)

|As at September 30,                                                  |  | 2005        |   |  | 2004        |  
|-------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                     |  | $           |   |  | $           |  
|Assets                                                               |  |             |   |  |             |  
|Current assets                                                       |  |             |   |  |             |  
|Cash and cash equivalents (note 9)                                   |  | 60,513,188  |   |  | 13,528,534  |  
|Accounts receivable and prepaid expense                              |  | 1,093,748   |   |  | 693,521     |  
|                                                                     |  | 61,606,936  |   |  | 14,222,055  |  
|Long-term investment(note 3)                                         |  | 267,092     |   |  | 267,092     |  
|Property, plant and equipment- net of accumulated
      amortization |  |             |   |  |             |  
|of
      $17,313 (2004 - $4,537)                                     |  | 116,630     |   |  | 44,794      |  
|Mineral properties(note 4)                                           |  | 56,968,576  |   |  | 43,194,729  |  
|                                                                     |  | 118,959,234 |   |  | 57,728,670  |  
|                                                                     |  |             |   |  |             |  
|Liabilities                                                          |  |             |   |  |             |  
|Current liabilities                                                  |  |             |   |  |             |  
|Accounts payable and accrued liabilities                             |  | 2,924,940   |   |  | 1,509,410   |  
|                                                                     |  |             |   |  |             |  
|Shareholders Equity                                                 |  |             |   |  |             |  
|Capital stock(note 5)                                                |  |             |   |  |             |  
|Authorized                                                           |  |             |   |  |             |  
|Unlimited common
      shares                                        |  |             |   |  |             |  
|Issued and outstanding                                               |  |             |   |  |             |  
|48,298,581 (2004 
      41,241,581) common shares                   |  | 143,273,203 |   |  | 79,249,498  |  
|Value assigned to stock options and
      warrants(note 5)           |  | 5,805,078   |   |  | 3,853,483   |  
|Deficit                                                              |  | (33,043,987 | ) |  | (26,883,721 | )
|                                                                     |  | 116,034,294 |   |  | 56,219,260  |  
|                                                                     |  | 118,959,234 |   |  | 57,728,670  |  

Nature of operations(note 1)

Contract commitments(note 7)

Subsequent event(note 14)

Approved by the Board of Directors

|Robert J. Gayton | Director | Klaus Zeitler | Director
|------------------ | -------- | --------------- | --------

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

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|Western Silver Corporation                       
|-------------------------------------------------
|(an exploration stage company)                   
|Consolidated
      Statements of Loss and Deficit

(expressed in Canadian dollars)

|For the years ended September 30,             |  | 2005        |   |  | 2004        |   |  | 2003        |  
|--------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                              |  | $           |   |  | $           |   |  | $           |  
|General exploration expenditures              |  | 881,289     |   |  | 49,872      |   |  | 20,005      |  
|Impairment of mineral properties(note 4)      |  | 1,849,259   |   |  | 4,020,565   |   |  | 329,503     |  
|                                              |  | 2,730,548   |   |  | 4,070,437   |   |  | 349,508     |  
|Administrative expenses                       |  |             |   |  |             |   |  |             |  
|Accounting and legal                          |  | 307,601     |   |  | 212,645     |   |  | 159,735     |  
|Capital taxes                                 |  | -           |   |  | -           |   |  | 9,551       |  
|Consulting                                    |  | 750,235     |   |  | 387,840     |   |  | 381,046     |  
|Filing and transfer fees                      |  | 223,883     |   |  | 181,089     |   |  | 176,262     |  
|Foreign exchange                              |  | 121,426     |   |  | 23,741      |   |  | (26,569     | )
|Office and administration                     |  | 1,309,045   |   |  | 469,502     |   |  | 252,645     |  
|Shareholder communications and travel         |  | 585,567     |   |  | 534,359     |   |  | 350,644     |  
|Stock-based compensation (note 5(e))          |  | 1,486,405   |   |  | 3,698,659   |   |  | 269,257     |  
|                                              |  | 4,784,162   |   |  | 5,507,835   |   |  | 1,572,571   |  
|Loss before interest income                   |  | (7,514,710  | ) |  | (9,578,272  | ) |  | (1,922,079  | )
|Interest income                               |  | 1,354,444   |   |  | 244,988     |   |  | 82,098      |  
|Loss for the year                             |  | (6,160,266  | ) |  | (9,333,284  | ) |  | (1,839,981  | )
|Deficit - Beginning of year                   |  | (26,883,721 | ) |  | (17,550,437 | ) |  | (15,710,456 | )
|Deficit - End of year                         |  | (33,043,987 | ) |  | (26,883,721 | ) |  | (17,550,437 | )
|Basic and diluted loss per common
      share |  | (0.13       | ) |  | (0.24       | ) |  | (0.06       | )
|Weighted average number of common shares      |  |             |   |  |             |   |  |             |  
|outstanding                                   |  | 46,569,864  |   |  | 39,192,449  |   |  | 33,087,922  |  

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

---

|Western Silver Corporation                 
|-------------------------------------------
|(an exploration stage company)             
|Consolidated
      Statements of Cash Flows

(expressed in Canadian dollars)

|For the years ended September 30,              |  | 2005        |   |  | 2004       |   |  | 2003       |  
|---------------------------------------------- |  | ----------- | - |  | ---------- | - |  | ---------- | -
|                                               |  | $           |   |  | $          |   |  | $          |  
|                                               |  |             |   |  |            |   |  |            |  
|Cash flows provided by (used in)               |  |             |   |  |            |   |  |            |  
|                                               |  |             |   |  |            |   |  |            |  
|OPERATING ACTIVITIES                           |  |             |   |  |            |   |  |            |  
|Loss for the year                              |  | (6,160,266  | ) |  | (9,333,284 | ) |  | (1,839,981 | )
|                                               |  |             |   |  |            |   |  |            |  
|Items not affecting cash                       |  |             |   |  |            |   |  |            |  
|Impairment of mineral properties               |  | 1,849,259   |   |  | 4,020,565  |   |  | 329,503    |  
|Amortization                                   |  | 12,776      |   |  | 3,674      |   |  | 541        |  
|Stock-based compensation                       |  | 1,486,405   |   |  | 3,698,659  |   |  | 269,257    |  
|                                               |  | 3,348,440   |   |  | 7,722,898  |   |  | 599,301    |  
|                                               |  |             |   |  |            |   |  |            |  
|Change in non-cash working capital             |  | (112,196    | ) |  | (463,237   | ) |  | (98,795    | )
|                                               |  |             |   |  |            |   |  |            |  
|                                               |  | (2,924,022  | ) |  | (2,073,623 | ) |  | (1,339,475 | )
|                                               |  |             |   |  |            |   |  |            |  
|FINANCING ACTIVITIES                           |  |             |   |  |            |   |  |            |  
|Shares issued for
      cash  net of costs    |  | 63,323,646  |   |  | 20,071,050 |   |  | 7,603,438  |  
|                                               |  |             |   |  |            |   |  |            |  
|INVESTING ACTIVITIES                           |  |             |   |  |            |   |  |            |  
|Purchase of property, plant, and equipment     |  | (84,612     | ) |  | (46,629    | ) |  | -          |  
|Mineral properties
      expenditures          |  | (13,330,358 | ) |  | (7,166,302 | ) |  | (7,639,729 | )
|Exploration commitments                        |  | -           |   |  | -          |   |  | (348,821   | )
|Restricted cash
      and securities           |  | -           |   |  | -          |   |  | 348,821    |  
|                                               |  |             |   |  |            |   |  |            |  
|                                               |  | (13,414,970 | ) |  | (7,212,931 | ) |  | (7,639,729 | )
|                                               |  |             |   |  |            |   |  |            |  
|Increase (decrease) in cash and cash           |  |             |   |  |            |   |  |            |  
|equivalents                                    |  | 46,984,654  |   |  | 10,784,496 |   |  | (1,375,766 | )
|                                               |  |             |   |  |            |   |  |            |  
|Cash and cash equivalents - Beginning
      of |  |             |   |  |            |   |  |            |  
|year                                           |  | 13,528,534  |   |  | 2,744,038  |   |  | 4,119,804  |  
|                                               |  |             |   |  |            |   |  |            |  
|Cash and cash equivalents - End of year        |  | 60,513,188  |   |  | 13,528,534 |   |  | 2,744,038  |  
|                                               |  |             |   |  |            |   |  |            |  
|Supplemental cash flow information(note 9)     |  |             |   |  |            |   |  |            |  

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

---

|Western Silver Corporation                           
|-----------------------------------------------------
|(an exploration stage company)                       
|Consolidated
      Statements of Shareholders Equity

(expressed in Canadian dollars)

|                                                     |            |  |             |  |  |             |   | Value         |   |               |  
|---------------------------------------------------- | ---------- |  | ----------- |  |  | ----------- | - | ------------- | - | ------------- | -
|                                                     |            |  | Common      |  |  |             |   | assigned to   |   |               |  
|                                                     |            |  | shares      |  |  |             |   | stock options |   | Total         |  
|                                                     | Number of  |  |             |  |  | Cumulative  |   | and           |   | shareholders |  
|                                                     | shares     |  | Amount      |  |  | deficit     |   | warrants      |   | equity        |  
|                                                     |            |  | $           |  |  | $           |   | $             |   | $             |  
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Balance - September 30, 2002                         | 30,984,048 |  | 51,460,577  |  |  | (15,710,456 | ) | -             |   | 35,750,121    |  
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Issue of shares                                      |            |  |             |  |  |             |   |               |   |               |  
|Private placements                                   | 415,616    |  | 1,384,000   |  |  | -           |   | -             |   | 1,384,000     |  
|Exercise of warrants                                 | 2,303,417  |  | 3,367,636   |  |  | -           |   | -             |   | 3,367,636     |  
|Exercise of stock options                            | 1,481,000  |  | 2,851,802   |  |  | -           |   | -             |   | 2,851,802     |  
|Options granted to consultants                       | -          |  | -           |  |  | -           |   | 269,257       |   | 269,257       |  
|Loss for the year                                    | -          |  | -           |  |  | (1,839,981  | ) | -             |   | (1,839,981    | )
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Balance - September 30, 2003                         | 35,184,081 |  | 59,064,015  |  |  | (17,550,437 | ) | 269,257       |   | 41,782,835    |  
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Issue of shares                                      |            |  |             |  |  |             |   |               |   |               |  
|Private placements                                   | 2,400,000  |  | 11,268,930  |  |  | -           |   | -             |   | 11,268,930    |  
|Exercise of warrants                                 | 2,190,000  |  | 5,477,200   |  |  | -           |   | -             |   | 5,477,200     |  
|Exercise of stock options                            | 1,467,500  |  | 3,022,900   |  |  | -           |   | -             |   | 3,022,900     |  
|Stock options                                        | -          |  | -           |  |  | -           |   | 3,698,659     |   | 3,698,659     |  
|Value assigned to warrants issued to agents as stock |            |  |             |  |  |             |   |               |   |               |  
|issuance fees                                        | -          |  | -           |  |  | -           |   | 302,020       |   | 302,020       |  
|Transfer of value on exercise of stock               |            |  |             |  |  |             |   |               |   |               |  
|options/warrants                                     | -          |  | 416,453     |  |  | -           |   | (416,453      | ) | -             |  
|Loss for the year                                    | -          |  | -           |  |  | (9,333,284  | ) | -             |   | (9,333,284    | )
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Balance - September 30, 2004                         | 41,241,581 |  | 79,249,498  |  |  | (26,883,721 | ) | 3,853,483     |   | 56,219,260    |  
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Issue of shares                                      |            |  |             |  |  |             |   |               |   |               |  
|Private placements                                   | 6,325,000  |  | 60,414,626  |  |  | -           |   | -             |   | 60,414,626    |  
|Exercise of warrants                                 | 120,000    |  | 693,600     |  |  | -           |   | -             |   | 693,600       |  
|Exercise of stock options                            | 612,000    |  | 2,215,420   |  |  | -           |   | -             |   | 2,215,420     |  
|Stock options                                        | -          |  | -           |  |  | -           |   | 2,651,654     |   | 2,651,654     |  
|Transfer of value on exercise of stock               |            |  |             |  |  |             |   |               |   |               |  
|options/warrants                                     | -          |  | 700,059     |  |  | -           |   | (700,059      | ) | -             |  
|Loss for the year                                    | -          |  | -           |  |  | (6,160,266  | ) | -             |   | (6,160,266    | )
|                                                     |            |  |             |  |  |             |   |               |   |               |  
|Balance - September 30, 2005                         | 48,298,581 |  | 143,273,203 |  |  | (33,043,987 | ) | 5,805,078     |   | 116,034,294   |  

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

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|1 | Nature of operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | Western Silver Corporation (the Company) is an exploration stage company that is incorporated under the British Columbia Business Corporations Act and is engaged directly, and through joint ventures and subsidiaries, in exploring
the future development of mineral properties in Mexico and Canada. The recoverability of the amounts shown for mineral property assets is dependent upon the existence of economically recoverable reserves, securing and maintaining title and
beneficial interest in the properties, and the ability of the Company to obtain the necessary financing to continue the exploration and future development of its mining properties, or realizing the carrying amount through a sale.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2 | Significant accounting policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  | These consolidated financial statements include the
        accounts of Western Silver Corporation and its wholly owned subsidiaries,
        as listed below. All material intercompany transactions and balances have
        been eliminated.
      Western Copper International Ltd. (BVI) 
          WCI (Peñasquito) Limited (BVI) 
          Minera Peñasquito, S.A. de C.V. (Mexico) 
          WCI (Nicolas) Limited (BVI) 
          Minera Western Copper, S.A. de C.V. (Mexico) 
          Minera Faja de Plata Limited, (BVI) 
          Minera Faja de Plata, S.A. de C.V. (Mexico) 
          WCI (Geronimo) Limited (BVI) 
          WCI Jeronimo Mexico, S.A. de C.V. (Mexico) 
          Carmacks Copper Ltd.
      Western Silver Corporation has mineral properties that
        it operates through interests in joint ventures where the Company shares
        joint control. These joint ventures are accounted for using the proportionate
        consolidation method.
      Use of estimates
      The preparation of the consolidated financial statements
        in conformity with generally accepted accounting principles requires management
        to make estimates and assumptions that affect the amounts reported in
        the consolidated financial statements and the related notes. Significant
        areas where managements judgement is applied include the calculation
        of net present value of mineral properties, the realization of future
        income tax benefits, and the assumptions used to calculate stock-based
        compensation and the value assigned to warrants. Actual results could
        differ from those reported by a material amount.
      Cash and cash equivalents
      Cash and cash equivalents comprise cash and short-term
        investments at banks with original maturities of three months or less
        from the date of acquisition.

---

| | Long-term investments
      Long-term investments are categorized as available for
        sale and valued at cost unless there has been an other than temporary
        impairment in value, in which case they are written down to net realizable
        value.
      Property, plant, and equipment
      Plant, property and equipment are carried at cost less
        accumulated amortization. Amortization is provided on a straight-line
        basis over the estimated useful lives of the assets.
      Mineral properties
      The Company records its interest in mineral properties
        at cost. Exploration and development expenditures relating to properties
        that have indicated economically recoverable reserves or significant mineralization
        requiring additional exploration, as well as interest and costs to finance
        those expenditures, are deferred and will be amortized against future
        production following commencement of commercial production, or written
        off if the properties are sold, allowed to lapse, abandoned, or become
        impaired.
      Option payments are made at the discretion of the optionee
        and, accordingly, are accounted for on a cash basis.
      Management of the Company reviews the net carrying value
        of each mineral property when events or changes in circumstances indicate
        that the carrying amount may not be recoverable. Where information is
        available and conditions suggest impairment, estimated future net cash
        flows from each property are calculated using estimated future prices,
        reserves and resources, and operating, capital and reclamation costs on
        an undiscounted basis. If the net carrying value of the property exceeds
        the estimated future net cash flows, the property will be written down
        to the fair value as determined by using discounted cash flows.
      Where estimates of future net cash flows are not available
        and where other conditions suggest impairment, management assesses whether
        carrying value can be recovered. This assessment may be estimated by using
        quantifiable evidence of a geological resource or reserve or the Companys
        assessment of its ability to sell the property for an amount greater than
        the carrying value.
      Managements estimates of mineral prices, recoverable
        proven and probable reserves and resources, and operating, capital and
        reclamation costs are subject to certain risks and uncertainties which
        may affect the assessment of recoverability of mineral property costs.
        Although management has made its best estimate of these factors, it is
        possible that changes could occur in the near term which could have a
        material adverse effect on the estimate of future net cash flows to be
        generated from the properties.
      The acquisition of title to mineral properties is a
        detailed and time-consuming process. The Company has taken steps, in accordance
        with industry standards, to verify title to mineral properties in which
        it has an interest. Although the Company has taken reasonable precautions
        to ensure that legal title to its properties is properly recorded in the
        name of the Company, there can be no assurance that such title will ultimately
        be secured.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | Loss per common share
      Loss per share is calculated based on the weighted average
        number of common shares issued and outstanding during the year. The effect
        of potential issuances of shares under options and warrants would be anti-dilutive,
        and therefore basic and diluted losses per share are the same.
      Translation of foreign currency
      The accounts of certain of the Companys subsidiaries
        are translated into Canadian dollars using the temporal method of translating
        integrated operations. The temporal method is consistent with the method
        used by the Canadian operation to translate its foreign currency transactions.
      Monetary assets and liabilities are translated into
        Canadian dollars using year-end exchange rates. Non-monetary items are
        translated at rates prevailing at acquisition or transaction date. Expense
        items are translated into Canadian dollars at the rate of exchange in
        effect at the date of the related transaction. All exchange gains or losses
        arising on translation are included in results of operations for the year.
      Stock-based compensation
      Effective October 1, 2003, pursuant to the amendments
        to the CICA standard on accounting for stock-based compensation, the fair
        value of all stock options granted by the Company to employees, and non-employees,
        are treated as compensation costs. These costs are charged to the statement
        of loss, or are capitalized, over the vesting period of the stock options
        granted. The Companys allocation of stock-based compensation is
        consistent with its treatment of other types of compensation. The value
        of stock-based compensation awards is determined by using the Black-Scholes
        option pricing model. The standard was adopted on a prospective basis
        in 2004.
      Prior to 2004, stock options granted to employees and
        directors were shown on a pro-forma basis only. The granting of stock
        options to non-employees was required to be accounted for using the fair
        value method.
      Income taxes
      The Company uses the liability method of accounting
        for income taxes. Under this method, future income tax assets and liabilities
        are recognized for temporary differences between tax and accounting basis
        of assets and liabilities. Future income tax assets or liabilities are
        calculated using the tax rates anticipated to apply in the periods that
        the temporary differences are expected to reverse. Future income tax assets
        are recognized to the extent that they are considered more likely than
        not to be realized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|3 | Long-term investment
|- | --------------------

| |                         |  |           |  |  |          |  |  | 2005         | 
| | ----------------------- |  | --------- |  |  | -------- |  |  | ------------ | 
| |                         |  | Number of |  |  | Net book |  |  |              | 
| |                         |  | shares    |  |  | value    |  |  | Market value | 
| |                         |  |           |  |  | $        |  |  | $            | 
| |                         |  |           |  |  |          |  |  |              | 
| | Quaterra Resources Inc. |  |           |  |  |          |  |  |              | 
| | Common
      shares     |  | 1,498,460 |  |  | 267,092  |  |  | 516,969      | 
| |                         |  |           |  |  |          |  |  |              | 
| |                         |  |           |  |  |          |  |  | 2004         | 
| |                         |  | Number of |  |  | Net book |  |  |              | 
| |                         |  | shares    |  |  | value    |  |  | Market value | 
| |                         |  |           |  |  | $        |  |  | $            | 
| |                         |  |           |  |  |          |  |  |              | 
| | Quaterra Resources Inc. |  |           |  |  |          |  |  |              | 
| | Common
      shares     |  | 1,498,460 |  |  | 267,092  |  |  | 644,338      | 

The Company has officers and directors in common with Quaterra
  Resources Inc.

---

|4 | Mineral properties
|- | ------------------

| |               |                |  | Costs     |  | Disposition/ |   |                |  | Costs      |  | Disposition/ |   |                | 
| | ------------- | -------------- |  | --------- |  | ------------ | - | -------------- |  | ---------- |  | ------------ | - | -------------- | 
| |               | Total costs to |  | incurred  |  | write-offs   |   | Total costs to |  | incurred   |  | write-offs   |   | Total costs to | 
| |               | September 30,  |  | during    |  | during       |   | September 30,  |  | during     |  | during,      |   | September 30,  | 
| |               | 2003           |  | 2004      |  | 2004         |   | 2004           |  | 2005       |  | 2005         |   | 2005           | 
| |               | $              |  | $         |  | $            |   | $              |  | $          |  | $            |   | $              | 
| | Mexico        |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Faja de Plata |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Peñasquito    |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Acquisition   | 13,872,012     |  | 241,966   |  | -            |   | 14,113,978     |  | 592,100    |  | -            |   | 14,706,078     | 
| | Exploration   | 6,707,198      |  | 5,963,778 |  | -            |   | 12,670,976     |  | 9,975,647  |  | -            |   | 22,646,623     | 
| | Feasibility   |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | studies       | 323,702        |  | 1,245,878 |  | -            |   | 1,569,580      |  | 4,690,852  |  | -            |   | 6,260,432      | 
| | San Jeronimo  | 1,701,243      |  | 24,646    |  | (1,725,889   | ) | -              |  | -          |  | -            |   | -              | 
| | Ramos         | 2,268,173      |  | 26,503    |  | (2,294,676   | ) | -              |  | -          |  | -            |   | -              | 
| |               |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| |               | 24,872,328     |  | 7,502,771 |  | (4,020,565   | ) | 28,354,534     |  | 15,258,599 |  | -            |   | 43,613,133     | 
| |               |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | El Salvador   |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Acquisition   | 1,889,672      |  | -         |  | -            |   | 1,889,672      |  | -          |  | -            |   | 1,889,672      | 
| | Exploration   |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | El Salvador   | 2,424,236      |  | 39        |  |              |   | 2,424,275      |  | -          |  | -            |   | 2,424,275      | 
| | San Nicolas   | 4,312,095      |  | 198,730   |  |              |   | 4,510,825      |  | 181,922    |  | -            |   | 4,692,747      | 
| | Tamara        | 1,849,259      |  | -         |  |              |   | 1,849,259      |  | -          |  | (1,849,259   | ) | -              | 
| |               |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| |               | 10,475,262     |  | 198,769   |  | -            |   | 10,674,031     |  | 181,922    |  | (1,849,259   | ) | 9,006,694      | 
| | Almoloya      |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Acquisition   | 25,443         |  | 57,283    |  | -            |   | 82,726         |  | 53,431     |  | -            |   | 136,157        | 
| | Exploration   | 40,020         |  | 2,132     |  | -            |   | 42,152         |  | 14,346     |  | -            |   | 56,498         | 
| |               | 65,463         |  | 59,415    |  | -            |   | 124,878        |  | 67,777     |  | -            |   | 192,655        | 
| | Bacanora      |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Acquisition   | 3,555          |  | 7,104     |  | -            |   | 10,659         |  | 6,432      |  | -            |   | 17,091         | 
| | Exploration   | 30,627         |  | -         |  | -            |   | 30,627         |  | 8,376      |  | -            |   | 39,003         | 
| |               | 34,182         |  | 7,104     |  | -            |   | 41,286         |  | 14,808     |  | -            |   | 56,094         | 
| | Canada        |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Carmacks      |                |  |           |  |              |   |                |  |            |  |              |   |                | 
| | Acquisition   | 4,000,000      |  | -         |  | -            |   | 4,000,000      |  | 100,000    |  | -            |   | 4,100,000      | 
| |               | 39,447,235     |  | 7,768,059 |  | (4,020,565   | ) | 43,194,729     |  | 15,623,106 |  | (1,849,259   | ) | 56,968,576     | 

---

| | a) | Faja de Plata
| | -- | -------------
| |    |              
| |    | i)           
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    | ii)          
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              
| |    |              

---

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Kennecott retains an uncapped royalty on San Jeronimo of 2%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | Ramos                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | Minera Teck S.A. de C.V. (Minera Teck) and Minera
        Western Copper, S.A. de C.V. (Minera Western) formed a joint venture in
        fiscal 1999 with each having a 55% and 45% interest, respectively, by
        merging their respective land positions adjacent to the El Salvador joint
        venture area. During fiscal 2003, Minera Teck agreed to drop its interest
        in Ramos. Minera Western dropped a portion of Ramos, but retained the
        most promising portion of the property. After reviewing the results of
        a drilling program carried out in December 2004, the Company decided to
        write off the costs associated with the property in fiscal 2004.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | b) | El Salvador, San Nicolas and Tamara                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The El Salvador, San Nicolas and Tamara
        properties are located in the state of Zacatecas, Mexico. The Company,
        through its subsidiary Minera Western, holds the properties as a joint
        venture with Minera Teck (a subsidiary of Teck Cominco Ltd.), pursuant
        to a July 1, 1997 agreement. The joint venture has no other significant
        assets. Minera Westerns proportionate share of the mineral properties
        is disclosed.                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Under this agreement, Minera Western held
        a 45% interest and Minera Teck held a 55% interest in the joint venture,
        with each Company being responsible for its share of the exploration costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | As a result of amendments to the agreement
        in 1999 and 2000, Minera Teck holds 65% of the shares of Minera Tama,
        a Mexican corporation formed to hold the properties, and Minera Western
        holds the remaining 35%. Within the El Salvador project, approximately
        one-third of the property, including the San Nicolas deposit area, is
        held 60% by Minera Tama (participating interest) and 40% by Teck Cominco
        Limited (Teck Cominco) through its acquisition of Sanluis Corporacion,
        S.A. de C.V. (the Sanluis Interest) in the form of a carried interest.
        On completion of a positive feasibility study, Teck Cominco has the right
        to elect to convert the Sanluis Interest to a 15% carried interest or
        a 25% participating interest. The balance of the El Salvador project is
        held by Minera Tama.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Future funding will be on a Minera Teck
        65% - Minera Western 35% basis. Minera Teck retains the right to elect
        to acquire an additional 10% participating interest by arranging 100%
        of the financing required to put San Nicolas into production. Depending
        on the options Minera Teck and Teck Cominco elect to exercise, Minera
        Western will retain an interest in San Nicolas ranging from 19% to 30%.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The San Nicolas massive sulphide deposit,
        along with the adjoining El Salvador and Tamara properties, has been on
        care and maintenance status since 2002. Costs incurred include tenure
        holding costs, limited drilling and acquisition of small parcels of land.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | During 2005, the Company reevaluated its
        long-term plan for the El Salvador properties and concluded that the Tamara
        property does not contain economic mineral deposits. The Company does
        not expect there to be any future cash flow from the property. As a result,
        all costs associated with the Tamara property were written off.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

---

| | c) | Almoloya                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company staked claims at the Almoloya silver prospect,
        about 45 kilometres northeast of Parral, state of Chihuahua, Mexico.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Pursuant to a letter agreement dated May 22, 2002,
        the Company and Anglo American Exploration (Canada) Ltd. (Anglo) agreed
        to combine certain properties held by each company into a single joint
        venture. During fiscal 2003, Anglo decided to abandon the project. The
        Company therefore controls all the property formerly included in the joint
        venture.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | On July 28, 2005, the Company and Queenston Mining
        Inc. signed a letter of intent. Under the agreement Queenston Mining Inc.
        can earn a 60% interest in the property through staged exploration expenditures
        of US$1.5 million over a four year period, with minimum expenditures
        of US$200,000 in the first year. Queenston can earn an additional
        15% interest by completing a feasibility study and making a production
        decision at which time the Company can either elect to contribute 25%
        of capital expenditures required to achieve production or convert its
        participating interest to a 15% net profits interest.                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | d) | Bacanora                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | In fiscal 2003, the Company entered into an agreement
        to acquire 100% of the Bacanora property located in the state of Sonora.
        Further exploration is anticipated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | e) | Carmacks Copper Project                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | In 1989, the Company acquired 50% of the Carmacks
        Copper Project, which consists of 232 unpatented mineral claims in the
        Whitehorse Mining district of the Yukon Territory, Canada. Under an arrangement
        dated September 30, 1996, the Company acquired the remaining 50% of the
        Carmacks Copper Project. At the time, the Company was in the process of
        obtaining the necessary permits to commence commercial production. This
        process was suspended when copper prices fell below the break-even point
        for the project and remained at levels for which the project was not economic.
        Accordingly, in the year ended September 30, 2001, the property was written
        down to its estimated realizable value of $4,000,000. Deferred acquisition
        and exploration costs and a deferred gain, totalling $7,902,556, were
        written off.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The previous owners of the property shall, at the
        Companys election, retain either a 15% net profits royalty or a
        3% net smelter royalty. The Company is required to make an advance royalty
        payment of $100,000 for any year in which the average daily copper
        price reported by the London Metal Exchange is US$1.10 per pound or
        greater. A payment of $100,000 was made by the Company on December
        31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company has signed a project agreement with the
        Yukon Government and has recommenced the permitting process. An updated
        project description has been accepted by the Yukon Government and the
        assessment process is in progress.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

---

|5 | Capital stock
      Authorized
      Unlimited common shares without par value
      Issued
|- | -------------------------------------------------------------------------------------------

| |                                                                   | Number     |  | Amount      | 
| | ----------------------------------------------------------------- | ---------- |  | ----------- | 
| |                                                                   | Of shares  |  | $           | 
| |                                                                   |            |  |             | 
| | Balance at September 30, 2002                                     | 30,984,048 |  | 51,460,577  | 
| |                                                                   |            |  |             | 
| | Pursuant to a private placement at $3.33 per
      share          | 415,616    |  | 1,384,000   | 
| | Pursuant to the exercise of warrants                              | 2,303,417  |  | 3,367,636   | 
| | Pursuant to the exercise of stock options                         | 1,481,000  |  | 2,851,802   | 
| |                                                                   |            |  |             | 
| | Balance at September 30, 2003                                     | 35,184,081 |  | 59,064,015  | 
| |                                                                   |            |  |             | 
| | Pursuant to a private placement at $5.15 per
      share          | 2,400,000  |  | 11,268,930  | 
| | Pursuant to the exercise of warrants                              | 2,190,000  |  | 5,477,200   | 
| | Pursuant to the exercise of stock options                         | 1,467,500  |  | 3,022,900   | 
| | Transfer of value on exercise of stock options and warrants       | -          |  | 416,453     | 
| |                                                                   |            |  |             | 
| | Balance at September 30, 2004                                     | 41,241,581 |  | 79,249,498  | 
| |                                                                   |            |  |             | 
| | Pursuant to a financing at $10.25 per share                       | 6,325,000  |  | 60,414,626  | 
| | Pursuant to the exercise of warrants                              | 120,000    |  | 693,600     | 
| | Pursuant to the exercise of stock options                         | 612,000    |  | 2,215,420   | 
| | Transfer of value on exercise of stock options
      and warrants | -          |  | 700,059     | 
| |                                                                   |            |  |             | 
| | Balance at September 30, 2005                                     | 48,298,581 |  | 143,273,203 | 

| | a) | The following summarizes the issuances of
        capital stock during the year ended September 30, 2005:
| | -- | ---------------------------------------------------------------------------------------------------------
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          

---

| | b) | The following summarizes the issuances of
        capital stock during the year ended September 30, 2004:
| | -- | ---------------------------------------------------------------------------------------------------------
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| | c) | The following summarizes the issuances of
        capital stock during the year ended September 30, 2003:
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          
| |    |                                                                                                          

---

| | d) | Warrants                                                                                                                                                                                                                                            
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                     
| |    | During the year ended September 30, 2004, 240,000 warrants
        were granted at an average value per warrant of $1.26. The fair value
        of warrants that were issued in 2004 was $302,020, which was charged against
        share capital.
| |    |                                                                                                                                                                                                                                                     
| |    | A summary of the Companys warrants outstanding
        at September 30, 2005, 2004 and 2003, and the changes for the years then
        ended, is presented below:                                                                                 

| |  |                       |               |   | Weighted |  |               |   | Weighted |  |               |   | Weighted | 
| |  | --------------------- | ------------- | - | -------- |  | ------------- | - | -------- |  | ------------- | - | -------- | 
| |  |                       |               |   | average  |  |               |   | average  |  |               |   | average  | 
| |  |                       | September 30, |   | exercise |  | September 30, |   | exercise |  | September 30, |   | exercise | 
| |  |                       | 2005          |   | price    |  | 2004          |   | price    |  | 2003          |   | price    | 
| |  |                       |               |   | $        |  |               |   | $        |  |               |   | $        | 
| |  |                       |               |   |          |  |               |   |          |  |               |   |          | 
| |  | Balance outstanding - |               |   |          |  |               |   |          |  |               |   |          | 
| |  | Beginning of year     | 120,000       |   | 5.78     |  | 2,070,000     |   | 2.31     |  | 4,350,340     |   | 1.80     | 
| |  | Issued                | -             |   | -        |  | 240,000       |   | 5.78     |  | 23,077        |   | 0.80     | 
| |  | Exercised             | (120,000      | ) | 5.78     |  | (2,190,000    | ) | 2.50     |  | (2,303,417    | ) | 1.43     | 
| |  | Balance outstanding   |               |   |          |  |               |   |          |  |               |   |          | 
| |  | and exercisable -     |               |   |          |  |               |   |          |  |               |   |          | 
| |  | End of year           | -             |   | -        |  | 120,000       |   | 5.78     |  | 2,070,000     |   | 2.31     | 

There are no warrants outstanding and exercisable as
  of September 30, 2005.

The value of warrants was based on the following assumptions:

| |  |                                 | 2004  | 
| |  | ------------------------------- | ----- | 
| |  |                                 |       | 
| |  | Average risk-free interest rate | 3.30% | 
| |  | Expected dividend yield         | -     | 
| |  | Expected stock price volatility | 70%   | 
| |  |                                 |       | 
| |  | Expected warrant life in years  | 1.00  | 

Pricing models require the input of
  highly subjective assumptions including the expected price volatility. Changes
  in the subjective input assumptions can materially affect the fair value estimate,
  and therefore the existing models do not necessarily provide a reliable single
  measure of the fair value of the warrants issued by the Company during the year.

---

| | e) | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Effective April 4, 2005, the shareholders adopted a
        10% rolling stock option plan (Rolling Plan). All previously
        existing plans and stock options were incorporated into the Rolling Plan.
        At any point in time, the Company may issue stock options for the purchase
        of up to 10% of issued capital. The exercise price of the stock options
        shall be not less than the market value of the common shares on the last
        trading day immediately preceding the date of grant. Stock options are
        fully vested and exercisable in full at the date of grant unless otherwise
        determined by the directors. The maximum stock option term is 10 years.
        As at September 30, 2005, the Company can issue an additional 1,868,858
        stock options.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | A summary of the Companys stock options outstanding
        at September 30, 2005, 2004 and 2003, and the changes for the years then
        ended, is presented below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| |  |                       |  |               |   |  | Weighted |  |  |               |   |  | Weighted |  |  |               |   |  | Weighted | 
| |  | --------------------- |  | ------------- | - |  | -------- |  |  | ------------- | - |  | -------- |  |  | ------------- | - |  | -------- | 
| |  |                       |  |               |   |  | average  |  |  |               |   |  | average  |  |  |               |   |  | average  | 
| |  |                       |  | September 30, |   |  | exercise |  |  | September 30, |   |  | exercise |  |  | September 30, |   |  | exercise | 
| |  |                       |  | 2005          |   |  | price    |  |  | 2004          |   |  | price    |  |  | 2003          |   |  | price    | 
| |  |                       |  |               |   |  | $        |  |  |               |   |  | $        |  |  |               |   |  | $        | 
| |  |                       |  |               |   |  |          |  |  |               |   |  |          |  |  |               |   |  |          | 
| |  | Balance outstanding - |  |               |   |  |          |  |  |               |   |  |          |  |  |               |   |  |          | 
| |  | Beginning of year     |  | 2,713,000     |   |  | 4.19     |  |  | 3,205,500     |   |  | 1.92     |  |  | 4,111,500     |   |  | 1.68     | 
| |  | Granted               |  | 860,000       |   |  | 10.25    |  |  | 975,000       |   |  | 8.47     |  |  | 575,000       |   |  | 3.64     | 
| |  | Exercised             |  | (612,000      | ) |  | 3.62     |  |  | (1,467,500    | ) |  | 2.06     |  |  | (1,481,000    | ) |  | 1.93     | 
| |  |                       |  |               |   |  |          |  |  |               |   |  |          |  |  |               |   |  |          | 
| |  | Balance outstanding - |  |               |   |  |          |  |  |               |   |  |          |  |  |               |   |  |          | 
| |  | End of year           |  | 2,961,000     |   |  | 6.07     |  |  | 2,713,000     |   |  | 4.19     |  |  | 3,205,500     |   |  | 1.92     | 

As at September 30, 2005, 2,387,667
  of the 2,961,000 outstanding stock options were exercisable at a weighted average
  exercise price of $5.07. As at September 30, 2004, 2,415,500 of the 2,713,000
  outstanding stock options were exercisable at a weighted average exercise price
  of $3.53. All stock options outstanding as at September 30, 2003 were exercisable.

| |  |                |  |  | Options        |  |                  |  |                   | 
| |  | -------------- |  |  | -------------- |  | ---------------- |  | ----------------- | 
| |  |                |  |  | outstanding at |  |                  |  |                   | 
| |  |                |  |  | September 30,  |  | Weighted average |  | Average remaining | 
| |  | Exercise price |  |  | 2005           |  | exercise price   |  | contractual life  | 
| |  | $              |  |  |                |  | $                |  | (years)           | 
| |  |                |  |  |                |  |                  |  |                   | 
| |  | 1.00 - 1.50    |  |  | 917,500        |  | 1.27             |  | 1.42              | 
| |  | 2.00           |  |  | 300,000        |  | 2.00             |  | 0.35              | 
| |  | 3.28           |  |  | 38,500         |  | 3.28             |  | 2.19              | 
| |  | 6.00  7.30    |  |  | 280,000        |  | 6.70             |  | 3.29              | 
| |  | 9.54  10.25   |  |  | 1,425,000      |  | 9.97             |  | 4.18              | 
| |  |                |  |  |                |  |                  |  |                   | 
| |  |                |  |  | 2,961,000      |  | 6.07             |  | 2.83              | 

During the year ended September 30,
  2005, 860,000 options were granted at an average value per option of $4.82.
  The fair value of options that vested during 2005 was $2,651,654. Of this amount
  $1,486,405 was charged to the statement of loss and $1,165,249 was allocated
  to mineral properties.

---

During the year ended September 30,
  2004, 975,000 options were granted at an average value per option of $4.39.
  The fair value of options that vested in 2004 was $3,698,659. This amount was
  charged to the statement of loss.

During the year ended September 30,
  2003, the fair value, as determined by the Black-Scholes option pricing model,
  of options granted to directors and employees that vested was $835,819. The
  total amount was disclosed as pro forma information only, and was not charged
  to the statement of loss. Had the fair value of the options been charged to
  the statement of loss, the pro forma net loss for the year would have been $2,675,800
  and the basic and diluted loss per share would have been $0.08.

During the year ended September 30,
  2003, the Company also granted options to non-employees. The fair value of these
  options was $269,257. This amount was charged to the statement loss.

The fair value of stock options granted
  was based on the following assumptions:

| |                                 |  | 2005  |  |  | 2004  |  |  | 2003  | 
| | ------------------------------- |  | ----- |  |  | ----- |  |  | ----- | 
| |                                 |  |       |  |  |       |  |  |       | 
| | Average risk-free interest rate |  | 3.27% |  |  | 3.28% |  |  | 3.70% | 
| | Expected dividend yield         |  | -     |  |  | -     |  |  | -     | 
| | Expected stock price volatility |  | 65%   |  |  | 70%   |  |  | 75%   | 
| | Expected option life in years   |  | 3.58  |  |  | 3.50  |  |  | 3.50  | 

Option pricing models require the input
  of highly subjective assumptions including the expected price volatility. Changes
  in the subjective input assumptions can materially affect the fair value estimate,
  and therefore the existing models do not necessarily provide a reliable single
  measure of the fair value of the Companys stock options granted and/or
  vested during the year.

|6 | Related party transactions
|- | --------------------------
|  |                           
|  | a)                        
|  |                           
|  | b)                        
|  |                           
|  | c)                        
|  |                           
|  |                           
|  |                           
|  |                           
|  |                           
|  | d)                        

---

| | e) | All other related party transactions are disclosed elsewhere in these
      consolidated financial statements.
| | -- | --------------------------------------------------------------------------------------------------------------

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | Related party transactions are measured at the exchange amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|7 | Contract commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  | On May 4, 2005, the Company entered into an
        agreement to sublease office space. The agreement expires October 29,
        2009. The total amount of payments remaining during the course of the
        agreement is $979,128, of which $239,787 is due during the 2006 fiscal
        year. The remaining $739,341 is due between October 1, 2006 and October
        29, 2009.                                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|8 | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  | As at September 30, 2005, the Company has
        accumulated non-capital losses available for carry-forward of approximately
        $6,800,000, which will expire between 2006 and 2012. The Company also
        has available Canadian and foreign Exploration and Development Expenditures
        of approximately $9,000,000, which are available to reduce future taxable
        income. In addition, the Companys Mexican subsidiaries have accumulated
        tax balances that may give rise to future tax benefits. No future tax
        benefit has been recognized in the accounts for these losses or accumulated
        tax balances.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                                            |  | 2005       |   |  | 2004       |  
| | ---------------------------------------------------------- |  | ---------- | - |  | ---------- | -
| |                                                            |  |            |   |  |            |  
| | Statutory tax rate                                         |  | 35.62%     |   |  | 35.62%     |  
| |                                                            |  |            |   |  |            |  
| |                                                            |  | $          |   |  | $          |  
| |                                                            |  |            |   |  |            |  
| | Loss for the year                                          |  | 6,160,266  |   |  | 9,333,284  |  
| |                                                            |  |            |   |  |            |  
| | Recovery of income taxes based on statutory
      Canadian |  |            |   |  |            |  
| | combined federal
      and provincial income tax rates     |  | 2,194,287  |   |  | 3,324,516  |  
| | Non-deductible items                                       |  | (534,279   | ) |  | (1,339,784 | )
| | Difference between Canadian and foreign tax rates          |  | (178,973   | ) |  | (16,669    | )
| | Losses for which no income tax benefit has
      been      |  |            |   |  |            |  
| | recognized                                                 |  | (1,481,035 | ) |  | (1,968,063 | )
| |                                                            |  |            |   |  |            |  
| |                                                            |  | -          |   |  | -          |  

---

| | b) | The significant components of the Companys future
        tax assets are as follows:
| | -- | -------------------------------------------------------------------------------------

| |  |                                           |  | 2005       |   |  | 2004       |  
| |  | ----------------------------------------- |  | ---------- | - |  | ---------- | -
| |  |                                           |  | $          |   |  | $          |  
| |  |                                           |  |            |   |  |            |  
| |  | Future income tax assets                  |  |            |   |  |            |  
| |  | Mineral property interests                |  | 1,425,340  |   |  | 1,683,199  |  
| |  | Operating loss carry-forward              |  | 2,428,710  |   |  | 1,740,317  |  
| |  | Other                                     |  |            |   |  | 15,040     |  
| |  |                                           |  |            |   |  |            |  
| |  | Benefit from losses                       |  | 3,895,649  |   |  | 3,438,556  |  
| |  | Valuation allowance for future tax assets |  | (3,895,649 | ) |  | (3,438,556 | )
| |  |                                           |  |            |   |  |            |  
| |  |                                           |  | -          |   |  | -          |  

|  |                                    |                                                                                                                                                                                                                                                                
|- | ---------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                    | The realization of income tax benefits related to
        these future potential tax deductions is uncertain and cannot be viewed
        as more likely than not. Accordingly, no future income tax asset has been
        recognized for accounting purposes.
|  |                                    |                                                                                                                                                                                                                                                                
|9 | Supplemental cash flow information
|  |                                   
|  | a)                                 | Cash and cash equivalents                                                                                                                                                                                                                                      

| |  | As at September 30,          |  | 2005       |  |  | 2004       |  |  | 2003      | 
| |  | ---------------------------- |  | ---------- |  |  | ---------- |  |  | --------- | 
| |  |                              |  | $          |  |  | $          |  |  | $         | 
| |  |                              |  |            |  |  |            |  |  |           | 
| |  | Cash on hand held with banks |  | 6,827,704  |  |  | 2,478,336  |  |  | 2,744,038 | 
| |  | Short-term deposits          |  | 53,685,484 |  |  | 11,050,198 |  |  | -         | 
| |  |                              |  |            |  |  |            |  |  |           | 
| |  |                              |  | 60,513,188 |  |  | 13,528,534 |  |  | 2,744,038 | 

| |    |                                                                            
| | -- | ---------------------------------------------------------------------------
| | b) | Changes in non-cash working capital related to operating
        activities
| |    |                                                                            

| |  | For the years ended September 30,        |  | 2005     |   |  | 2004     |   |  | 2003     |  
| |  | ---------------------------------------- |  | -------- | - |  | -------- | - |  | -------- | -
| |  |                                          |  | $        |   |  | $        |   |  | $        |  
| |  | Accounts receivable and prepaid expense  |  | (400,227 | ) |  | (499,323 | ) |  | (143,538 | )
| |  | Accounts payable and accrued liabilities |  | 288,031  |   |  | 36,086   |   |  | 44,743   |  
| |  |                                          |  | (112,196 | ) |  | (463,237 | ) |  | (98,795  | )

---

| | c) | Non-cash financing and investing activities
| | -- | -------------------------------------------

| |  | For the years ended September 30,          |  | 2005      |  |  | 2004     |   |  | 2003       |  
| |  | ------------------------------------------ |  | --------- |  |  | -------- | - |  | ---------- | -
| |  |                                            |  | $         |  |  | $        |   |  | $          |  
| |  | Value assigned to warrants issued to agent |  |           |  |  |          |   |  |            |  
| |  | as stock issuance costs                    |  | -         |  |  | (302,020 | ) |  | -          |  
| |  | Change in accounts payable relating to     |  |           |  |  |          |   |  |            |  
| |  | property, plant, and equipment             |  | 48,234    |  |  | -        |   |  | -          |  
| |  | Change in accounts payable relating to     |  |           |  |  |          |   |  |            |  
| |  | mineral properties                         |  | 1,127,499 |  |  | 601,757  |   |  | (1,848,700 | )
| |  | Stock-based compensation capitalized to    |  |           |  |  |          |   |  |            |  
| |  | mineral properties                         |  | 1,165,249 |  |  | -        |   |  | -          |  

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10 | Segmented information
      Industry information
      The Company operates in one reportable operating segment,
        being the acquisition, exploration and future development of resource
        properties.
      Geographic information
      Interest income in the years ended September 30, 2005,
        2004 and 2003 was earned in Canada.
      The Companys non-current assets by geographic location
        are as follows:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |  |        |  | 2005       |  |  | 2004       | 
| |  | ------ |  | ---------- |  |  | ---------- | 
| |  |        |  | $          |  |  | $          | 
| |  |        |  |            |  |  |            | 
| |  | Canada |  | 4,483,722  |  |  | 4,311,886  | 
| |  | Mexico |  | 52,868,576 |  |  | 39,194,729 | 
| |  |        |  |            |  |  |            | 
| |  |        |  | 57,352,298 |  |  | 43,506,615 | 

---

|11 | Financial instruments                                                                                                                                                                                                                                                                                                                                                                           
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   | a)                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   | b)                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   | c)                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|12 | Shareholder rights plan                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On December 11, 2003, the board of directors of the Company adopted a shareholder rights plan (the Plan) which is designed to encourage the fair treatment of the Companys shareholders in connection with any take-over offer
and, in particular, any unsolicited take-over bid for the Company. The Plan was approved by the shareholders on March 4, 2004.                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Pursuant to the Plan, rights have been created and attached to the common shares of the Company. If a person (the Bidder) acquires 20% or more of the outstanding voting shares of the Company without complying with the Plan, each
right, other than the rights held by the Bidder, will entitle the holder to purchase, for $100, common shares of the Company having a market value of $200.

---

|13 | Material differences between Canadian
        and United States generally accepted accounting principles (GAAP)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company prepares its consolidated financial
        statements in accordance with accounting principles generally accepted
        in Canada (Canadian GAAP), which differ in certain material respects from
        those principles that the Company would have followed had its consolidated
        financial statements been prepared in accordance with accounting principles
        generally accepted in the United States (U.S. GAAP). The major measurement
        differences between Canadian and U.S. GAAP are described below, and their
        effect on the consolidated financial statements is summarized as follows:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |  | As at September 30,                    |  | 2005        |   |  | 2004        |   |  | 2003        |  
| |  | -------------------------------------- |  | ----------- | - |  | ----------- | - |  | ----------- | -
| |  |                                        |  | $           |   |  | $           |   |  | $           |  
| |  |                                        |  |             |   |  |             |   |  |             |  
| |  | Long-term investment - under Canadian  |  |             |   |  |             |   |  |             |  
| |  | GAAP                                   |  | 267,092     |   |  | 267,092     |   |  | 267,092     |  
| |  | Unrealized gain (e)                    |  | 249,877     |   |  | 377,246     |   |  | 85,046      |  
| |  |                                        |  |             |   |  |             |   |  |             |  
| |  | Long-term investment - under U.S. GAAP |  | 516,969     |   |  | 644,338     |   |  | 352,138     |  
| |  |                                        |  |             |   |  |             |   |  |             |  
| |  | Mineral properties - under Canadian    |  |             |   |  |             |   |  |             |  
| |  | GAAP                                   |  | 56,968,576  |   |  | 43,194,729  |   |  | 39,447,235  |  
| |  | Cumulative exploration expenditures    |  |             |   |  |             |   |  |             |  
| |  | written off under
      U.S. GAAP (d)  |  | (50,057,104 | ) |  | (36,283,257 | ) |  | (32,777,729 | )
| |  |                                        |  |             |   |  |             |   |  |             |  
| |  | Mineral properties - under U.S. GAAP   |  | 6,911,472   |   |  | 6,911,472   |   |  | 6,669,506   |  
| |  |                                        |  |             |   |  |             |   |  |             |  
| |  | Shareholders equity - under Canadian  |  |             |   |  |             |   |  |             |  
| |  | GAAP                                   |  | 116,034,294 |   |  | 56,219,260  |   |  | 41,782,835  |  
| |  | Measurement differences                |  |             |   |  |             |   |  |             |  
| |  | Deficit
      - under Canadian GAAP    |  | 33,043,987  |   |  | 26,883,721  |   |  | 17,550,437  |  
| |  | Deficit - under U.S.
      GAAP        |  | (83,101,091 | ) |  | (63,166,978 | ) |  | (50,328,166 | )
| |  | Accumulated
      other comprehensive  |  |             |   |  |             |   |  |             |  
| |  | gain                                   |  | 249,877     |   |  | 377,246     |   |  | 85,046      |  
| |  |                                        |  |             |   |  |             |   |  |             |  
| |  | Shareholders equity - under U.S. GAAP |  | 66,227,067  |   |  | 20,313,249  |   |  | 9,090,152   |  

---

| | b) | Consolidated Statements of Loss and Deficit
| | -- | -------------------------------------------

| |  | For the years ended September 30,            |  | 2005       |   |  | 2004       |   |  | 2003       |  
| |  | -------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
| |  |                                              |  | $          |   |  | $          |   |  | $          |  
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Loss for the year - under Canadian GAAP      |  | 6,160,266  |   |  | 9,333,284  |   |  | 1,839,981  |  
| |  | Exploration expenditures for the year (d)    |  | 15,623,106 |   |  | 7,526,093  |   |  | 4,549,783  |  
| |  | Exploration costs written off during the     |  |            |   |  |            |   |  |            |  
| |  | year
      that would have been expensed     |  |            |   |  |            |   |  |            |  
| |  | in the year incurred                         |  | (1,849,259 | ) |  | (4,020,565 | ) |  | (329,503   | )
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Loss for the year - under U.S. GAAP          |  | 19,934,113 |   |  | 12,838,812 |   |  | 6,060,261  |  
| |  | Unrealized (gain) loss on available-for-sale |  |            |   |  |            |   |  |            |  
| |  | securities (e)                               |  | 127,369    |   |  | (292,200   | ) |  | (262,230   | )
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Comprehensive loss - under U.S. GAAP         |  | 20,061,482 |   |  | 12,546,612 |   |  | 5,798,031  |  
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Loss per common share before                 |  |            |   |  |            |   |  |            |  
| |  | comprehensive
      income - under U.S.      |  |            |   |  |            |   |  |            |  
| |  | GAAP                                         |  | 0.43       |   |  | 0.32       |   |  | 0.18       |  
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Deficit - under U.S. GAAP - Beginning of     |  |            |   |  |            |   |  |            |  
| |  | year                                         |  | 63,166,978 |   |  | 50,328,166 |   |  | 44,267,905 |  
| |  | Loss for the year - under U.S. GAAP          |  | 19,934,113 |   |  | 12,838,812 |   |  | 6,060,261  |  
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Deficit - under U.S. GAAP - End of year      |  | 83,101,091 |   |  | 63,166,978 |   |  | 50,328,166 |  
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | Accumulated other comprehensive              |  |            |   |  |            |   |  |            |  
| |  | loss
      (gain)                            |  |            |   |  |            |   |  |            |  
| |  | Beginning of year - under U.S. GAAP          |  | (377,246   | ) |  | (85,046    | ) |  | 177,184    |  
| |  | Other comprehensive (gain) loss              |  | 127,369    |   |  | (292,200   | ) |  | (262,230   | )
| |  |                                              |  |            |   |  |            |   |  |            |  
| |  | End of year - under U.S. GAAP                |  | (249,877   | ) |  | (377,246   | ) |  | (85,046    | )

The consolidated statements of loss
  and deficit include a subtotal before interest income. No similar subtotal would
  be presented under US GAAP.

---

For US GAAP purposes, stock-based compensation
  on the consolidated statements of loss and deficit would be allocated in the
  following manner:

| |  | For the years ended September 30,    |  | 2005      |  |  | 2004      |  |  | 2003    | 
| |  | ------------------------------------ |  | --------- |  |  | --------- |  |  | ------- | 
| |  |                                      |  | $         |  |  | $         |  |  | $       | 
| |  | Consulting                           |  | 10,597    |  |  | 70,133    |  |  | 212,985 | 
| |  | General and administration           |  | 1,465,211 |  |  | 2,647,814 |  |  | -       | 
| |  | General exploration expenditures     |  | -         |  |  | 908,927   |  |  | -       | 
| |  | Shareholder communication and travel |  | 10,597    |  |  | 71,785    |  |  | 56,272  | 
| |  |                                      |  |           |  |  |           |  |  |         | 
| |  | Total stock-based compensation       |  | 1,486,405 |  |  | 3,698,659 |  |  | 269,257 | 

| |    |                                      
| | -- | -------------------------------------
| | c) | Consolidated Statements of Cash Flows
| |    |                                      

| |  | For the years ended September 30,     |  | 2005        |   |  | 2004       |   |  | 2003       |  
| |  | ------------------------------------- |  | ----------- | - |  | ---------- | - |  | ---------- | -
| |  |                                       |  | $           |   |  | $          |   |  | $          |  
| |  | Cash provided by (used in) operating  |  |             |   |  |            |   |  |            |  
| |  | activities, under Canadian GAAP       |  | (2,924,022  | ) |  | (2,073,623 | ) |  | (1,339,475 | )
| |  | Adjustment for mineral properties and |  |             |   |  |            |   |  |            |  
| |  | deferred exploration                  |  | (13,330,358 | ) |  | (6,924,336 | ) |  | (6,398,483 | )
| |  | Cash provided by (used in) operating  |  |             |   |  |            |   |  |            |  
| |  | activities, under US GAAP             |  | (16,254,380 | ) |  | (8,997,959 | ) |  | (7,737,958 | )

| |  | For the years ended September 30,     |  | 2005        |   |  | 2004       |   |  | 2003       |  
| |  | ------------------------------------- |  | ----------- | - |  | ---------- | - |  | ---------- | -
| |  |                                       |  | $           |   |  | $          |   |  | $          |  
| |  | Cash provided by (used in) investing  |  |             |   |  |            |   |  |            |  
| |  | activities, under Canadian GAAP       |  | (13,414,970 | ) |  | (7,212,931 | ) |  | (7,639,729 | )
| |  | Adjustment for mineral properties and |  |             |   |  |            |   |  |            |  
| |  | deferred exploration                  |  | 13,330,358  |   |  | 6,924,336  |   |  | 6,398,483  |  
| |  | Cash provided by (used in) investing  |  |             |   |  |            |   |  |            |  
| |  | activities, under US GAAP             |  | (84,612     | ) |  | (288,595   | ) |  | (1,241,246 | )

| |    | The consolidated statements of cash flows include a
        subtotal before changes in non-cash working capital items under operating
        activities. No such subtotal would be presented under US GAAP.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                             
| | d) | Mineral property exploration expenditures                                                                                                                                                                   
| |    |                                                                                                                                                                                                             
| |    | Mineral property exploration expenditures are accounted
        for in accordance with Canadian GAAP as disclosed in note 2.                                                                                

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| |    | For U.S. GAAP purposes, the amounts shown for mineral
        properties represent acquisition costs, less recoveries, incurred to date
        and do not necessarily reflect present or future values. The Company capitalizes
        all acquisition costs on a property-by-property basis. Mineral property
        acquisition costs include the cash consideration and the fair value of
        common shares and warrants issued for mineral property interests, pursuant
        to the terms of the relevant agreement. Mineral properties are written
        off if the property is sold, allowed to lapse or abandoned, or when impairment
        in value has been determined to have occurred. Mineral property sales
        proceeds or option payments received for exploration rights are treated
        as cost recoveries. Mineral property exploration expenditures, periodic
        option payments relating to mineral properties for which commercial feasibility
        has not yet been established, and administrative expenditures are expensed
        as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Mineral property acquisition costs and development
        expenditures incurred subsequent to the determination of the feasibility
        of mining operations are deferred until the property to which they relate
        is placed into production, sold, allowed to lapse or abandoned, or when
        impairment in value has been determined to have occurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The accumulated costs of properties that are developed
        to the stage of commercial production will be amortized to operations
        by unit-of-production depletion.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | e) | Available-for-sale securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Under U.S. GAAP, securities that are available-for-sale
        are recorded at fair value and unrealized gains or losses are excluded
        from earnings and recorded in Other Comprehensive Income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | f) | Recent accounting developments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | In December 2004, the FASB issued FAS No. 123 (revised
        2004) (FAS 123R), Share-Based Payment, which is
        a revision of FAS No. 123, Accounting for Stock-based Compensation.
        FAS 123R requires all share-based payments to employees, including grants
        of employee stock options, to be recognized in the financial statements
        based on their fair values and does not allow the previously permitted
        pro forma disclosure as an alternative to financial statement recognition.
        Liability classified awards are remeasured to fair value at each balance
        sheet date until the award is settled. FAS 123R supersedes Accounting
        Principles Board (APB) Opinion No. 25 Accounting for
        Stock Issued to Employees, and related interpretations and amends
        FAS No. 95 Statement of Cash Flows. FAS 123R is scheduled
        to be effective beginning fiscal 2006 for the Company. On August 31, 2005,
        the FASB issued FSP FAS 123R-1 to defer the requirement that a freestanding
        financial instrument originally subject to FAS 123R becomes subject to
        the recognition and measurement requirements of other applicable generally
        accepted accounting principles when the rights conveyed by the instrument
        to the holder are no longer dependent on the holder being an employee
        of the entity. On October 18, 2005, the FASB issued FSP FAS 123R-2 to
        provide further guidance on the application of grant date as defined in
        FAS 123R. The Company is currently assessing the impact of FAS 123R and
        related FSPs on its consolidated financial statements.

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In December 2004, the FASB issued FAS
  No. 153 Exchanges of Non-monetary Assets, which amends APB Opinion
  No. 20, Accounting for Non-monetary Transactions to require that
  all non-monetary exchanges be accounted for at fair value except for exchanges
  of non-monetary assets that do not have commercial substance. An exchange is
  considered to have commercial substance if the future cash flows of the entity
  are expected to change significantly as a result of the exchange. FAS 153 is
  effective for non-monetary asset exchanges occurring in periods beginning after
  June 15, 2005.

In May 2005, the FASB issued FAS No.
  154 Accounting Changes and Error Corrections  a replacement of APB
  Opinion No. 20 and FAS Statement No. 3. FAS 154 requires an entity to
  account for the adoption of a new accounting policy by applying the new principle
  to prior accounting periods as if the principle had always been adopted, or
  retrospective application. Under existing GAAP, a new principle
  is not applied to prior periods; rather, the cumulative effect of the change
  is recognized in earnings in the period of the change. FAS 154 also carries
  forward without change the guidance from Opinion No. 20 for reporting the correction
  of an error in previously issued financial statements and the accounting for
  changes in estimate. The provisions of FAS 154 will be effective for accounting
  changes and corrections of errors made in fiscal years beginning after December
  15, 2005.

|14 | Subsequent event
|-- | ----------------

On November 11, 2005, the Company announced
  that an independent feasibility study has concluded that the Peñasco
  and Chile Colorado deposits contained within its wholly owned Peñasquito
  property in Central Mexico can be developed economically.

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