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SECURITIES AND EXCHANGE COMMISSION   FORM 20-F [   ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 [   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from  to Commission file number 0-26854 METALLICA RESOURCES INC. 
  METALLICA RESOURCES INC. 
  Federally Incorporated in Canada 
  36 Toronto Street, Suite 1000, Toronto, Ontario, Canada M5C 2C5
Telephone: 1-888-933-0313 
  Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each
    
    Name of each exchangeClass
    
    on which registeredCOMMON SHARES WITHOUT PAR VALUE
    
    AMERICAN STOCK EXCHANGE
 Securities registered or to be registered pursuant to Section 12(g) of the Act.
 NONE 
  Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NONE 
  1




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The number of outstanding shares of the issuers Common Shares, no par value,
as of December 31, 2003 was 81,763,885. Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]
    
    No [   ]
 Indicate by check mark which financial statement item the registrant has elected to follow: Item 17 [X]
    
    Item 18 [   ]
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GLOSSARY advance royalty- The prepayment of a designated amount (the advance royalty)
prior to actual mine production. The advance royalty payments may be
deductible from future production royalties. assay- an analysis to determine the presence, absence, and quantity of one or
more metallic components. assessment report- reports on work performed on a property during a prior
period that is filed by companies and prospectors to keep claims in good
standing. bedding- means the layering of sediments preserved in sedimentary rocks. breccia- rock consisting of fragments, more or less angular, in a matrix of
finer-grained material or of cementing material. brecciation- the breaking up of rock by geological forces. buy-out- an option to the company to buy the prospectors interest in a
property for a specified sum of money or number of shares. Often a
prospectors retained interest is subject to a sizeable buy-out clause if the
property goes into production. cretaceous- a period of geological time ranging from approximately 150 to 95
million years before present. dacite- igneous rock which is fine grained or volcanic equivalent of
granodiorite and quartz diorite. diamond drill (or core hole)- a type of rotary drill in which the cutting is
done by abrasion rather than by percussion. The drill cuts a core of rock
which is recovered in long cylindrical sections. dore -A precious metals smelter product in bar or bullion form that is
subsequently refined to high purity gold and silver. dyke- a tabular intrusion, meaning it is sheet or slab-like, and which cuts
across or through the host rocks. Dykes vary from a few centimeters to many
tens of meters in thickness and may extend for several kilometers. ejido -an association of individuals who communally own and manage the rural
lands surrounding their village. Thousands of Ejidos were established in
Mexico in the 1920s as part of the Agrarian Reform Movement. epigenetic- late formed. exploration concession- a right granted by a governmental entity to explore a
prescribed area for minerals for a specified period. In the case of
exploration concessions granted by the Mexican Government, the grant is for a
non-extendable six-year term. exploitation concession- a right granted by a governmental entity to exploit
or develop a prescribed area for a specified period. In the case of
exploitation concessions granted by the Mexican Government, the grant is for a
fifty-year period, which can be extended for an additional fifty years. fault(s)- a break, or breaks in rocks with noticeable movement or displacement
of the rocks on either side of the break. fault breccia- refers to the crushed, angular rock fragments found in a fault
zone. 3




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feasibility study- detailed engineering study to determine if a property can
be mined at a profit and the best way to mine it. feldspar- a whitish mineral with a high aluminum and sodium or calcium
content, common in igneous and volcanic rocks. floating cone evaluation- A computer-aided means of designing an open pit mine
based on a given set of economic parameters which include metal price, metal
recoveries, and operating costs. folds- when forces are applied gradually to rocks over a long period of time,
the rocks fold instead of breaking or faulting. g/t- grams per tonne heap-leaching- a process whereby gold is recovered from ore by heaping broken
ore on sloping impermeable pads, repeatedly spraying the heaps with a diluted
cyanide solution which dissolves the gold content in the ore, collecting the
gold-laden solutions, and stripping the solution of gold. hectare- a square of 100 meters on each side, or 2.471 acres. igneous- means a rock formed by the cooling of molten material. Indicated Mineral Resource(1)- That part of a mineral resource for which
quantity, grade or quality, densities, shape and physical characteristics can
be estimated with confidence sufficient to allow the appropriate application of
technical and economic parameters, to support mine planning and evaluation of
the economic viability of the deposit. The estimate is based on detailed and
reliable exploration and testing information gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill
holes that are spaced closely enough for geological and grade continuity to be
reasonably assumed. Inferred Mineral Resource(1) -That part of a mineral resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited information
and sampling gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes. Measured Mineral Resource(1)- That part of a mineral resource for which
quantity, grade or quality, densities, shape and physical characteristics are
so well established that they can be estimated with confidence sufficient to
allow the appropriate application of technical and economic parameters, to
support production planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration, sampling
and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough to confirm both geological and grade continuity. intrusion- general term for a body of igneous rock formed below the surface. leach- the dissolution of soluble constituents from a rock or orebody by the
natural or artificial action of percolating solutions. limestone- sedimentary rock that is composed mostly of mineral calcite.
Limestones are commonly grey, white, or off-white, and less commonly brownish,
red or black. manto- a mineralized horizon controlled by and/or contained within the
sedimentary layering. massive- means the rock or mineral specimen is essentially a mass without
other particular characteristics. 4




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massive deposit- a deposit that contains a very high percentage of a mineral
or minerals and usually has an irregular to compact shape. mineralization- material containing minerals of value. mineralized deposit- a mineralized body which has been physically delineated
by drilling, underground work, surface trenching and other workings or drill
holes and found to contain a sufficient amount of mineralized material with an
average grade sufficient to warrant further evaluation. Such deposit does not
qualify as a commercially minable (or viable) ore body until technical,
economic and legal factors have been sufficiently satisfied to classify the
mineralized material as a reserve. monzonite and quartz monzonite- fairly common members of the granite family
defined as having certain proportions of quartz, orthoclase, and plagioclase. net profit interest- percent of profit earned after all costs to produce and
market the commodity. net smelter return (NSR)- a return based on the actual sale price received
less the cost of refining at an off-site refinery. NSR- net smelter return. open pit- a surface working open to daylight, such as a quarry. open pit mining- the process of mining an ore body from the surface in
progressively deeper steps. Sufficient waste rock adjacent to the ore body is
removed to maintain mining access and to maintain the stability of the
resulting pit. option agreement- an agreement with a company or another party who can
exercise certain options and increase their interest in a property by making
periodic payments to the optionor or by exploring, developing, or producing
from the optionors property. ordinary kriging- A mathematical calculation procedure for estimating the
metal content of certain areas based on a data base of metal values and their
location. ore- a natural aggregate of one or more minerals which, at a specified time
and place, may be mined and sold at a profit, or from which some part may be
profitably separated. ounce (troy)- 31.103 grams. ounces- troy ounces; in this report production figures refer to gold having a
fineness of at least 995 parts per 1,000 parts; other references to ounces in
this report do not refer to a specific fineness. outlier restricted kriging- A special type of kriging which limits the
influence of higher data base values. placer- a surficial mineral deposit (e.g., a gold deposit) formed by
mechanical concentration of mineral particles from weathered debris. porphyry- a common igneous rock type that contains relatively large crystals
in a fine-grained ground mass. probable ore- term used to describe ore where the mineralization has been
extensively explored and the size, shape, grade and tonnage are reasonably well
known. probable mineral reserve(1)- The economically mineable part of an indicated
and in some circumstances a measured mineral resource demonstrated by at least
a preliminary feasibility study. This 5




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study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction can be justified. proven/probable reserves(1)- reserves in which the difference in degree of
assurance between proven and probable cannot be reliably defined. proven mineral reserve(1)- The economically mineable part of a measured
mineral resource demonstrated by at least a preliminary feasibility study. This
study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction is justified. reclamation bond- usually required when mechanized work is contemplated. Used
to reclaim any workings or put right any damage, if the reclamation does not
satisfy applicable regulatory requirements. The amount of the bond is set
largely on the basis of the amount of surface disturbance proposed; the bond is
returned, plus accumulated interest, if the clean-up is satisfactory. reserve- the estimated quantity of ore that can be economically mined and
legally extracted. reverse circulation drill- a rotary percussion drill in which the drilling mud
and cuttings return to the surface through the interior of the drill pipe. royalty interest- generally, a percentage interest that is tied to some
production unit such as tonne of concentrate or ounce of gold produced. A
common form of royalty interest is based on the net smelter return. run-of-mine- a mining method whereby ore is placed on the heap leach pads
without being crushed. sample- small amount of material that is supposed to be typical or
representative of the object being sampled. sedimentary- a rock formed from cemented or compacted sediments. sediments- the debris resulting from the weathering and breakup of
pre-existing rocks. shale- a sedimentary rock consisting of silt or clay-sized particles cemented
together. stock- an intrusion which has an exposed surface area of less than 100 square
kilometers (40 square miles). stockworks- a large number of cross-cutting veins and veinlets. strip ratio- the ratio of waste removed to ore processed. tons- dry short tons (2,000 pounds). Tonne- 1.102 tons (2,204 pounds). tuff- a finer grained pyroclastic rock made up mostly of ashes. variography study- A statistical evaluation of drill assay data to determine
the variability of assay results by their spatial relationships. vein- generally, a fissure in the earth containing a body of minerals. (1) Please refer to Use of Mineral Reserve and Resource Terminology on page
10 of this document. 6




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TABLE OF CONTENTS PAGEPART IITEM 1
    
    Identity of Directors, Senior Management and Advisors
    
    
    9ITEM 2
    
    Offer Statistics and Expected Timetable
    
    
    9ITEM 3
    
    Key Information
    
    
    9ITEM 4
    
    Information on the Company
    
    
    14ITEM 5
    
    Operating and Financial Review and Prospects
    
    
    47ITEM 6
    
    Directors, Senior Management and Employees
    
    
    56ITEM 7
    
    Major Shareholders and Related Party Transactions
    
    
    63ITEM 8
    
    Financial Information
    
    
    64ITEM 9
    
    The Offer and Listing
    
    
    65ITEM 10
    
    Additional Information
    
    
    67ITEM 11
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    78ITEM 12
    
    Description of Securities Other than Equity Securities
    
    
    78PART IIITEM 13
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    78ITEM 14
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    78ITEM 15
    
    Controls and Procedures
    
    
    79ITEM 16A
    
    Audit Committee Financial Expert
    
    
    79ITEM 16B
    
    Code of Ethics
    
    
    79ITEM 16C
    
    Principal Accountant Fees and Services
    
    
    79ITEM 16D
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    80ITEM 16E
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    80PART IIIITEM 17
    
    Financial Statements
    
    
    81ITEM 18
    
    Financial Statements
    
    
    81ITEM 19
    
    Exhibits
    
    
    81Consolidated Financial Statements
    
    
    F-1Signatures
    
    
    83Mining Contract Dated December 30, 2003Contract for Construction Dated March 3, 2004Agreement Dated March 24, 2004Lease - Ejido Cerro de San Pedro/Minera San XavierSubsidiaries of the CompanyCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
  7




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PART I Forward-Looking Statements This document contains statements, which, to the extent that they are not
recitations of historical fact, constitute forward-looking statements within
the meaning of Section 27A of the United States Securities Act of 1933 and
Section 21E of the United States Securities Exchange Act of 1934, and are
intended to be subject to the safe harbor protection of those provisions. Such
statements include, but are not limited to, projections of production, cash
costs, start-up of any new project, results of exploration efforts and any
other information about the future business and prospects of the Company. In
certain cases, forward-looking statements can be identified by the use of words
such as could, expect, believe, will, estimate, anticipate,
project and similar expressions and statements relating to matters that are
not historical facts. All forward-looking statements in this document involve
risks and uncertainties and other factors, including those described under
Item 3. Key Information D. Risk Factors in this Annual Report on Form 20-F,
which may cause the actual results or performance of the Company to be
materially different from any future results or performance expressed or
implied by such forward-looking statements. These factors include, among
others, risks related to the Companys properties being at the exploration or
development stage; uncertainty of obtaining additional funding; effects on the
Companys operations of current and prospective regulations governing, among
others, prospecting, development, environmental protection and labor matters;
permitting requirements applicable to the Companys Cerro San Pedro project;
risks of liability for environmental damage; risks relating to legal
proceedings; and risks associated with international business operations.
Although the Company has attempted to identify important factors that could
cause actual actions, events or results to differ materially from those
described in forward-looking statements, there may be other factors that cause
actions, results or events not to be as anticipated, estimated or intended.
There can be no assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. Use of Mineral Reserve and Resource Terminology The Company is federally incorporated in Canada. The mineral reserves and
resources described in this Form 20-F are estimates and have been prepared in
compliance with National Instrument 43-101 of the Canadian Securities
Administrators. The definitions of proven and probable reserves used in
National Instrument 43-101 differ from the definitions in SEC Industry Guide 7.
In addition, the terms mineral resource, measured mineral resource,
indicated mineral resource and inferred mineral resource are defined in and
required to be disclosed by National Instrument 43-101; however, these terms
are not defined terms under SEC Industry Guide 7 and normally are not permitted
to be used in reports and registration statements filed with the SEC.
Accordingly, information contained in this Form 20-F containing descriptions of
the Companys mineral deposits may not be comparable to similar information
made public by U.S. companies subject to the reporting and disclosure
requirements under the United States federal securities laws and the rules and
regulations thereunder. Cautionary Note to U.S. Investors concerning estimates of Measured and
Indicated Resources:This document uses the terms measured and indicated
resources. The Company advises U.S. investors that while these terms are
recognized and required by Canadian regulations, the U.S. Securities and
Exchange Commission does not recognize them. U.S. investors are cautioned not
to assume that any part or all of mineral deposits in this category will ever
be converted into reserves. Cautionary Note to U.S. Investors concerning estimates of Inferred Resources:
This document uses the term inferred resources. The Company advises U.S.
investors that while this term is recognized and required by Canadian
regulations, the U.S. Securities and Exchange Commission does not recognize it.
Inferred resources have a great amount of uncertainty as to their existence,
and great uncertainty as to their economic and legal feasibility. It cannot be
assumed that all or any part of an inferred mineral resource will ever be
upgraded to a higher category. Under Canadian rules, estimates of inferred
mineral resources may not form the basis of a feasibility or other economic
study. U.S. investors 8




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are cautioned not to assume that any part or all of an inferred resource exists
or is economically or legally minable. 
 ITEM 1 Identity of Directors, Senior Management and Advisors This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. 
 ITEM 2 Offer Statistics and Expected Timetable This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. 
 ITEM 3 Key Information A) Selected Financial Data The following financial information has been extracted from the Companys
consolidated financial statements for the periods indicated and is expressed in
U.S. dollars. The information should be read in conjunction with Item 5.
Operating and Financial Review and Prospects  A. Results of Operations and 
 B. Liquidity and Capital Resources, and the consolidated financial
statements of the Company filed herewith. Year Ended December 31,(in thousands, except per share data)2003
    
    2002
    
    2001
    
    2000
    
    1999Working capital
    
    $
    59,738
    
    
    $
    4,403
    
    
    $
    2,318
    
    
    $
    2,125
    
    
    $
    3,208Mineral properties and
deferred exploration
    
    
    26,574
    
    
    
    12,587
    
    
    
    11,787
    
    
    
    14,551
    
    
    
    23,607Fixed assets, net
    
    
    235
    
    
    
    92
    
    
    
    93
    
    
    
    199
    
    
    
    234Total assets
    
    
    93,354
    
    
    
    17,491
    
    
    
    14,769
    
    
    
    17,475
    
    
    
    27,606Net assets
    
    
    86,566
    
    
    
    17,088
    
    
    
    14,304
    
    
    
    16,911
    
    
    
    24,411Share capital
    
    
    106,786
    
    
    
    43,068
    
    
    
    38,964
    
    
    
    37,745
    
    
    
    37,646Warrants
    
    
    7,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deficit
    
    
    (27,696
    )
    
    
    (25,980
    )
    
    
    (24,660
    )
    
    
    (20,834
    )
    
    
    (13,235
    )Interest income
    
    
    158
    
    
    
    65
    
    
    
    70
    
    
    
    153
    
    
    
    177Income from option payments
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and
administrative expenses
    
    
    1,252
    
    
    
    924
    
    
    
    743
    
    
    
    722
    
    
    
    1,013Exploration expense
    
    
    219
    
    
    
    247
    
    
    
    199
    
    
    
    214
    
    
    
    249Reclamation and property
closure costs
    
    
    17
    
    
    
    199
    
    
    
    51
    
    
    
    
    
    
    
    Write-down of mineral
properties and deferred
exploration
expenditures
    
    
    704
    
    
    
    21
    
    
    
    2,892
    
    
    
    6,670
    
    
    
    21Foreign exchange (gain) loss
    
    
    (610
    )
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    Loss for the year
    
    
    (1,716
    )
    
    
    (1,320
    )
    
    
    (3,826
    )
    
    
    (7,599
    )
    
    
    (2,413
    )Basic and diluted loss per share
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (0.14
    )
    
    
    (0.28
    )
    
    
    (0.10
    )Dividends per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average number of
shares outstanding
    
    
    42,865
    
    
    
    31,295
    
    
    
    27,291
    
    
    
    27,016
    
    
    
    24,685
 9




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The consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP), which differ in
certain respects from those principles that the Company would have followed had
its consolidated financial statements been prepared in accordance with United
States GAAP. For information about significant differences between Canadian
and United States GAAP as applicable to the Companys financial statements, see
Note 13 to the consolidated financial statements.  
    
    Canadian GAAP allows for the deferral of exploration expenditures.
For United States GAAP, the Company expenses, as incurred, costs
relating to unproven mineral properties. When proven and probable
reserves are determined for a property and a feasibility study has been
prepared, then subsequent exploration and development costs of the
property would be capitalized. The capitalized costs of such
properties would then be measured periodically for recoverability of
carrying values under Statement of Financial Accounting Standard (SFAS)
144.
    
    Canadian GAAP provides for investments in jointly controlled
entities to be accounted for using proportionate consolidation. Under
United States GAAP, investments in incorporated joint ventures are to
be accounted for using the equity method. Under an accommodation of
the United States Securities and Exchange Commission, the accounting
for joint ventures need not be reconciled from Canadian to United
States GAAP. The different accounting treatment affects only the
display and classification of financial statement items and not net
income or shareholders equity. MSX became a wholly owned subsidiary
of the Company on February 12, 2003. Had the Company followed United States GAAP, certain items in the statements of
operations and deficit and balance sheets would have been reported as follows: Year Ended December 31,(in thousands, except per share data)2003
    
    2002
    
    2001
    
    2000
    
    1999Mineral properties and
deferred exploration
expenditures
    
    $
    18,173
    
    
    $
    3,689
    
    
    $
    3,476
    
    
    $
    4,589
    
    
    $
    19,023Shareholders equity
    
    
    78,165
    
    
    
    8,190
    
    
    
    5,849
    
    
    
    6,804
    
    
    
    19,827Write-down of mineral
properties and deferred
exploration expenditures
    
    
    
    
    
    
    8
    
    
    
    927
    
    
    
    12,071
    
    
    
    Exploration expense
    
    
    426
    
    
    
    848
    
    
    
    564
    
    
    
    335
    
    
    
    1,260Loss for the year
    
    
    (1,219
    )
    
    
    (1,908
    )
    
    
    (2,175
    )
    
    
    (13,121
    )
    
    
    (3,424
    )Loss per share
    
    
    ($0.03
    )
    
    
    ($0.06
    )
    
    
    ($0.08
    )
    
    
    ($0.49
    )
    
    
    ($0.14
    )
 Currency and Exchange Rates All dollar amounts set forth in this report are in United States dollars,
except where otherwise indicated. The following tables set forth (i) the high
and low exchange rate for the Canadian dollar, expressed in U.S. dollars, for
each of the six months ended December 2003 based on the noon buying rate in New
York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York; and (ii) the average exchange
rate for the Canadian dollar, expressed in U.S. dollars, during each of the
periods indicated based on the rates in effect on the last day of each month
during such periods. April
    
    March
    
    February
    
    January
    
    December
    
    November2004
    
    2004
    
    2004
    
    2004
    
    2003
    
    2003High Rate
    
    
    .7637
    
    
    
    .7645
    
    
    
    .7629
    
    
    
    .7480
    
    
    
    .7738
    
    
    
    .7708Low Rate
    
    
    .7293
    
    
    
    .7418
    
    
    
    .7439
    
    
    
    .7496
    
    
    
    .7460
    
    
    
    .7484
 10




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2003
    
    2002
    
    2001
    
    2000
    
    1999Average Rate During Period
    
    
    .7452
    
    
    
    .6369
    
    
    
    .6462
    
    
    
    .6732
    
    
    
    .6833
 On May 10, 2004 the noon exchange rate in New York City for cable transfer in
United States dollars as certified for customs purposes by the Federal Reserve
Bank of New York was $0.7177 U.S. = $1.00 Canadian. B) Capitalization and Indebtedness This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. C) Reasons for the Offer and Use of Proceeds This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. D) Risk Factors The discovery, development and acquisition of mineral properties are in many
instances unpredictable events and involve numerous risks. A summary of
significant risks is presented below: No Current Production of Mining Properties; Possible Inability to Obtain
Additional Funding.Exploration for minerals is a speculative business
necessarily involving a high degree of risk. Few properties that are explored
are ultimately developed into producing mines. There is no assurance that the
expenditures made by the Company on its mineral properties will result in
discoveries of commercial quantities of ore or that such properties will become
future mines. If the Companys exploration efforts are not successful at
individual properties, the expenditures at those properties will be written
off. If the Companys programs are successful, additional funds may be
required for the development of an economic ore body and to place it into
commercial production. There is no assurance that the Company will be
successful in obtaining the required financing. Failure to obtain such
financing would result in the delay or indefinite postponement of exploration
and future development work on the Companys properties, as well as the
possible loss of the properties. The Company has no history of producing gold, silver or other metals. The
development of the Cerro San Pedro project in Mexico will require the
construction and operation of a mine, processing plant and related
infrastructure. As a result, the Company is subject to all of the risks
associated with establishing a new mining operation and business enterprise.
There can be no assurance that the Company will successfully establish mining
operations or profitably produce gold and silver at the Cerro San Pedro
project. Although the Company believes that it has sufficient cash balances to complete
construction of its Cerro San Pedro project and to cover projected cash flow
deficiencies during the initial months of project operations, the Company may
incur construction cost overruns or other cost overruns during mine start-up.
There can be no assurance that the Company will have enough funds to cover
these costs or that the Company would be able to obtain alternative sources of
financing to cover these costs. Mine Development.Feasibility studies are used to determine the economic
viability of a deposit. Many factors are involved in the determination of the
economic viability of a deposit, including the achievement of satisfactory
mineral reserve estimates, the level of estimated metallurgical recoveries,
capital and operating cost estimates and the estimate of future gold prices.
Capital and operating cost estimates are based upon many factors, including
anticipated tonnage and grades of ore to be mined and processed, the
configuration of the ore body, ground and mining conditions, expected recovery
rates of the gold from the ore and anticipated environmental and regulatory
compliance costs. Each of these factors involves uncertainties and as a result,
the Company cannot give any assurance that its development or exploration
projects will become operating mines. If a mine is developed, actual operating
results may differ from those anticipated in a feasibility study. 11




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Mineral Reserves and Resources Estimates.The definitions of proven and
probable mineral reserves, and measured, indicated and inferred mineral
resources are set forth in National Instrument 43-101, Standards of Disclosure
for Mineral Projects of the Canadian securities regulators which contains the
parameters of disclosure for issuers engaged in significant mining operations.
A reader in the United States should be aware that the definition standards
enunciated in National Instrument 43-101 differ in certain respects from those
set forth in SEC Industry Guide 7. The figures presented for both mineral
reserves and mineral resources herein are only estimates. The estimating of
mineral reserves and mineral resources is a subjective process and the accuracy
of reserve and resource estimates is a function of the quantity and quality of
available data and the assumptions used and judgments made in interpreting
engineering and geological information. There is significant uncertainty in any
reserve or resource estimate, and the actual deposits encountered and the
economic viability of mining a deposit may differ materially from the Companys
estimates. Estimated mineral reserves or mineral resources may have to be recalculated
based on changes in gold or silver prices, further exploration or development
activity or actual production experience. This could materially and adversely
affect estimates of the volume or grade of mineralization, estimated recovery
rates or other important factors that influence reserve or resource estimates.
Market price fluctuations for gold or silver, increased production costs or
reduced recovery rates, or other factors may render the present proven and
probable mineral reserves of the Company uneconomical or unprofitable to
develop at a particular site or sites. A reduction in estimated reserves could
require material writedowns in the Companys investment in the affected mining
properties and increased amortization, reclamation and closure charges. Regulation.Mining operations and exploration activities are subject to
various federal, state, provincial and local laws and regulations governing
prospecting, development, mining, production, importing and exporting of
minerals; taxes; labor standards; occupational health; waste disposal;
protection of the environment; mine safety; toxic substances; and other
matters. In many cases, licenses and permits are required to conduct mining
operations and are subject to periodic renewal. There is no assurance that
such permits will be granted or that they will be renewed in a timely manner.
Furthermore, once a permit is granted, compliance with the permit requirements
must be maintained, otherwise the permit could be revoked. The application
process for such permits can take from months to years, depending upon the
backlog of applications and other conditions affecting the regulatory agencies
in countries where the Company conducts operations, i.e., Mexico and Chile.
Environmental legislation is evolving in a manner which will require stricter
standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed properties and a
heightened degree of responsibility for companies and their officers, directors
and employees. Amendments to such legislation, as well as other laws and
regulations governing operations and activities of mining companies or more
stringent implementation thereof could have a material adverse impact on the
Companys operations. The Company believes that it is substantially in
compliance with all applicable laws and regulations affecting its activities
and operations. Under certain circumstances, the Company may be required to
close an operation until a particular problem is remedied or to undertake other
remedial actions. The above regulatory requirements to which the Company is subject include
certain operating and other permits at its Cerro San Pedro project that require
periodic or annual renewal with governmental and regulatory authorities. In
addition, the Company is required to comply with existing permit conditions and
to obtain additional permits during mine construction and operations at Cerro
San Pedro. These permits include, but are not limited to, annual renewal of
the local municipal construction permit, receipt of a blasting operations
permit and annual renewals thereafter, annual renewal of titles to water rights
and receipt of an environmental license that is issued at commencement of
operations. Although the Company is currently in full compliance with its
existing permits, and although its permits have been renewed by governmental
and regulatory authorities in the past, there are no assurances that the
applicable governmental and regulatory authorities will renew the permits as
they expire, or that pending or future permit applications will be granted. In
the event that the required permits are not granted or renewed in a timely
manner, or in the event that governmental and regulatory authorities determine
that 12




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the Company is not in compliance with its existing permits, the Company may be
forced to suspend project construction or operations. Operational and Environmental Risks; Reclamation Obligations.Mining
operations generally involve a high degree of risk. Hazards such as
environmental exposures, industrial accidents, labor disruptions and unusual or
unexpected geological formations and other conditions may be encountered. Such
risks could result in damage to or destruction of mineral properties or
producing facilities, personal injury, environmental damage, delays in mining,
monetary losses and possible legal liability. The Company may become subject
to liability for environmental pollution, cave-ins or hazards against which it
cannot insure or against which it may elect not to insure because of high
premium costs or other reasons. The payment of such liabilities may have a
material adverse effect on the Companys financial position. The Company does
not currently carry any liability insurance relating to these types of risks. Reclamation requirements vary depending on the location and the managing
regulatory agency, but they are similar in that they aim to minimize long-term
effects of exploration and mining disturbance by requiring the operating
company to control possible deleterious effluents and to re-establish to some
degree predisturbance landforms and vegetation. Legal proceedings.The Company is directly and indirectly involved in various
lawsuits that relate to its Cerro San Pedro project in Mexico. These include a
lawsuit relating to the validity of its lease agreement for access to surface
rights at the proposed mine site. In the event of an adverse outcome from
certain of these lawsuits, the Companys ability to complete construction and
operate this mine could be impaired. The Company is a party to various other
litigation or other adversary proceedings in both Mexico and Chile. The cost
of defending such claims may take away from management time and effort and if
determined adversely to the Company, may have a material and adverse effect on
its cash flows, results of operations and financial condition. Refer to Item
8. Consolidated Financial Statements and Other Financial Information  Legal
Proceedings and Item 4. D  Property, Plant and Equipment for details of
current actions pending. Market Factors and Volatility.The marketability of mineralized material which
may be acquired or discovered by the Company will be affected by numerous
factors beyond the control of the Company. These factors include market
fluctuations in the prices of minerals sought, which are highly volatile, the
proximity and capacity of natural resource markets and processing equipment,
and government regulations, including regulations relating to prices, taxes,
royalties, land tenure, land use, importing and exporting of minerals and
environmental protection. The effect of these factors cannot be accurately
predicted, but may result in the Company not receiving an adequate return on
invested capital. Prices of certain minerals have fluctuated widely,
particularly in recent years, and are affected by numerous factors beyond the
control of the Company. Future mineral prices cannot be accurately predicted.
A severe decline in the price of a mineral being produced or expected to be
produced by the Company would have a material adverse effect on the Company,
and could result in the suspension of mining operations by the Company. Title to Properties.While the Company has verified title to its properties
according to usual industry standards for the stage of exploration of such
properties, these procedures do not guarantee the Companys title. Such
properties may be subject to prior unregistered agreements or transfers, and
title may be affected by undetected defects which could be material and adverse
to the Company. The Company has received notice that an Agrarian Court in
Mexico has nullified a lease agreement for surface rights at its Cerro San
Pedro project in Mexico. Refer to Item 8. Consolidated Statements and Other
Financial Information  Legal Proceedings for details of current actions
pending. International Business Risks.The Companys present activities are in Mexico
and Chile. As with all types of international business operations, currency
fluctuations, exchange controls, restrictions on foreign investment, changes to
tax regimes, civil unrest or political action could impair the value of the
Companys investments. 13




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Most of the Companys activities are transacted in U.S. dollars. On the other
hand, most of the Companys fund raising activities are in Canadian dollars.
Fluctuations in relative currency values between the Canadian dollar and the
U.S. dollar may adversely affect the Companys financial position and results
of operations. The Company presently maintains most of its cash balances in
Canadian dollars. The Cerro San Pedro project is located in Mexico and the Companys other
property interests are located in Chile. The Companys mineral exploration and
development and mining activities may be affected in varying degrees by
political stability and governmental regulations relating to the mining
industry. Any changes in regulations or shifts in political attitudes in
Mexico or the other countries where the Companys properties are located are
beyond the control of the Company and may adversely affect its business.
Operations may be affected in varying degrees by government regulations with
respect to, among other things, the restrictions on production, price controls,
export controls, income and withholding taxes, expropriation of property,
environmental legislation, land use, water use and mine safety. A
deterioration in economic conditions or other factors could result in a change
in government policies. Moreover, if social unrest develops in the future,
this could have a material adverse effect on the Companys activities. Competition. Significant and increasing competition exists for the limited
number of mineral acquisition opportunities available in North and South
America. As a result of this competition, some of which is with large,
established mining companies with substantial capabilities and greater
financial and technical resources than the Company, the Company may be unable
to acquire potential mineral properties on terms it considers acceptable. The
Company also competes with other mining companies in the recruitment and
retention of qualified employees. Limited Operating History.The Company has limited operating history in the
mineral exploration and development business. Investors must rely upon the
ability, expertise, judgment, discretion and integrity of management of the
Company. Reliance on Management.The Company is heavily reliant on the experience and
expertise of its senior officers, specifically Richard J. Hall, President and
Chief Executive Officer, Fred H. Lightner, Senior Vice President and Chief
Operating Officer, and Bradley J. Blacketor, Vice President, Chief Financial
Officer and Secretary. If any of these individuals should cease to be
available to manage the affairs of the Company, its activities and operations
could be adversely affected. Conflicts of Interest.Certain directors and officers of the Company are
associated with other companies which may acquire interests in mineral
properties. Craig J. Nelsen, Chairman of the board of directors, is the
Executive Vice President of Exploration for Gold Fields Ltd., a gold mining
company. Dennis M. Marsh, a director of the Company, is the Senior Vice
President of Beutel, Goodman & Company Ltd., an investment counseling firm. J.
Alan Spence, a director of the Company, is President of Spence Resource
Management Inc., a mineral resource consulting firm. Ian A. Shaw, a director
of the Company, is an independent financial consultant to the mining industry
and is an executive officer or director to various companies in the mining
industry. Oliver Lennox-King, a director of the Company, is Chairman of
Southern Cross Resources Inc., a uranium mining company, and is a director of
various other companies in the mining industry. Such associations may in the
future give rise to conflicts of interest from time to time. 
 ITEM 4 Information on the Company A) History and Development of the Company Metallica Resources Inc. (Metallica or the Company) is a mineral
exploration company with core areas of activity in Mexico and South America. The Company was incorporated in Canada under the Business Corporations Act
(Ontario) on June 23, 1977 under the name Temple Explorations Inc. On July 10,
1987, the Company reorganized and changed 14




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its name to Burgess Point Resources Inc. On January 14, 1994, the Company
reorganized and changed its name to Metallica Resources Inc. Both Temple
Explorations Inc. and Burgess Point Resources Inc. were in the business of oil
and gas exploration. Following the change of the Companys name to Metallica
Resources Inc., the Company disposed of its oil and gas interests and has since
been engaged in mineral exploration and development activities. On July 16,
2002, the Company was continued from the provincial Business Corporations Act
(Ontario) to the federal Canada Business Corporations Act. On February 12, 2003, the Company acquired Glamis Gold Ltd.s (Glamis) 50%
equity interest in Minera San Xavier, S.A. de C.V. (MSX) for $18 million,
less certain adjustments. As a result of the purchase, the Company owns 100%
of the issued and outstanding shares of MSX, the owner of the Cerro San Pedro
gold and silver project in Mexico. The registered office of the Company is located at 36 Toronto Street, Suite
1000, Toronto, Ontario M5C 2C5. The Companys U.S. subsidiary, Metallica
Management Inc., has agreements in place to provide management services to the
Company and various subsidiaries at arms-length rates. Metallica Management
Inc.s offices are located at 12200 East Briarwood Avenue, Suite 165,
Centennial, Colorado 80112, tel. (303) 796-0229. Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years In the past three fiscal years, the Company has had four principal exploration
projects that have required capital expenditures by the Company totaling $15.6
million (Cerro San Pedro, Mexico - $14.5 million; El Morro, Chile - $0.1
million; MIMK and other projects, Chile - $0.7 million and Mara Rosa, Brazil -
$0.3 million). The majority of capital expenditures made over the past three
fiscal years on the Companys El Morro project have been incurred by the
Companys joint venture partner, Noranda Inc. (Noranda), pursuant to earn-in
requirements. In addition, the majority of capital expenditures made in 2001
and 2002 on the Cerro San Pedro project were made by the Companys former joint
venture partner, Glamis, pursuant to earn-in requirements. The Company has
funded 100% of project development costs on the Cerro San Pedro project since
its acquisition of Glamis 50% interest in the project on February 12, 2003.
For further information about this acquisition, please see  D. Property,
Plant and Equipment - The Cerro San Pedro Project, Mexico. At December 31,
2001 the Company wrote-off its $2.9 million investment in its Mara Rosa project
in Brazil. Current and Planned Capital Expenditures/Divestitures Pursuant to an exploration agreement, Noranda is obligated to fund all
exploration costs on the El Morro project through September 14, 2005 until it
either makes a $10 million payment to the Company, that is due on or before
September 14, 2005, or forfeits its option to earn a 70% interest in the
project. The exploration agreement with Noranda provides that Noranda must
spend $10 million on exploration and development expenditures, in addition to
other requirements, in order to earn a 70% interest in the El Morro project.
For further information about this exploration agreement, please see   D.
Property, Plant and Equipment - The El Morro Project, Chile. Noranda has
informed the Company that it had met the required $10 million expenditure on
exploration and project development as required under the exploration
agreement. Noranda continues to be obligated to maintain the El Morro project
in good standing and fund all holding and exploration costs until it makes the
$10 million payment to the Company or forfeits its option. If and when Noranda
makes the $10 million payment to the Company, the Company will be required to
fund its 30% share of future exploration costs on the El Morro project. In the
event that Noranda elects to terminate its option to earn a 70% interest in the
El Morro project, the Company will be required to fund any future exploration
costs associated with the project. Noranda has informed the Company that it
intends to spend approximately $1.7 million on the El Morro project in 2004.
Norandas 2004 budget includes an estimated 8,000 meters of core drilling
directed principally at the La Fortuna area of the El Morro project. On February 12, 2003, the Company acquired Glamis 50% interest in the Cerro
San Pedro project. The Company now owns 100% of the Cerro San Pedro project
and is responsible for 100% of project development costs. The project
feasibility study estimates an initial capital requirement of $28.2 million
plus 15




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$3 million for working capital. Project construction began in February 2004
and it is anticipated that project construction will be completed in 2004. The Company has budged $0.5 million for exploration expenditures on its MIMK
and other Chilean projects for 2004. The Company may have further capital requirements to the extent it decides to
develop other properties or to take advantage of opportunities for
acquisitions, joint ventures or other business opportunities that may be
presented to it. In addition, the Company may incur major unanticipated
liabilities or expenses. As of March 31, 2004, the Company had working capital of $47.6 million and no
long-term debt. The Company believes its current working capital is sufficient
for it to complete development of the Cerro San Pedro project and to continue
its planned exploration and development activities for at least the next twelve
months. The Companys ability to continue its planned exploration and
development activities also depends in part on its ability to complete
construction, commence operations and generate free cash flow from its Cerro
San Pedro mine. The Company may be required to obtain additional financing in
the future to fund future exploration and development activities or
acquisitions of additional properties or other interests that may be
appropriate to enhance the Companys financial or operating interests. The
Company has historically raised capital through equity financing and in the
future may raise capital through equity or debt financing, joint ventures,
production sharing arrangements or other means. There can be no assurance that
the Company will be able to obtain necessary financing in a timely manner on
acceptable terms, if at all. In November 2003, the Company entered into an option agreement to sell its 100%
interest in the Mara Rosa project for $450,000. The Company has received
$350,000 of non-refundable option payments pursuant to the option agreement as
of May 10, 2004. The final $100,000 payment is due by July 20, 2004. Public Takeover Offers During the current and previous fiscal year, the Company has not received any
public takeover offers from third parties nor has the Company made any such
takeover offers. B) Business Overview The Company, through its subsidiaries, is presently engaged in the business of
exploring for precious and base metals in North and South America, principally
Mexico and Chile. Through its subsidiaries, the Company has held interests in
mineral exploration projects in Mexico, Chile and Brazil during the past three
years. The Companys mineral development and exploration activities are
currently focused on the Cerro San Pedro gold/silver project in Mexico, the El
Morro copper/gold project in Chile and the MIMK copper/gold project in Chile
and other preliminary stage gold projects in Chile. See   D. Property,
Plant and Equipment for further information about these projects. The Company is focused on acquiring quality projects that have generally
undergone at least one stage of exploration, and therefore would be able to be
rapidly evaluated by the Company. If acquired, these properties effectively
would serve as anchor projects from which the Company could expand into new
mineral districts either through acquisition or early-stage project generation. The Companys business strategy is to acquire, explore and evaluate mineral
properties and either develop these properties or dispose of them when the
evaluation is completed. Potential prospects are examined by the Company
and/or by independent consultants. In most instances in which a decision is
made to acquire a property, preliminary exploration activities are conducted
directly by the Company and/or by persons specifically engaged for a particular
activity. Subcontractors, under the supervision of the Companys management,
or the Companys joint venture partners, are usually engaged to carry out the
more specialized aspects of the Companys exploration program such as drilling. 16




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The Company does not have any properties in production and has never generated
any revenue from the sale of metals. There is no assurance that any of the
Companys projects will ever achieve the production stage or generate any metal
revenues. A discussion of government regulation in Mexico relating to the Companys most
advanced stage project, the Cerro San Pedro project, is presented below: Concessions in Mexico. In accordance with the Mexican constitution, the
subsoil and minerals found therein are the inalienable property of the nation.
All mining activity requires a concession from the federal government. A new
mining law liberalizing the mining industry was enacted and became effective on
September 25, 1992. The most important changes in this law are 1) exploration
concessions will be granted for a nonextendable six-year period; 2)
exploitation concessions have a 50-year term and are renewable for another
50-year term with 5 years prior notice; 3) concessions will not be granted
within areas that have been incorporated into the National Mining Reserves; and
4) regulations under the former law will remain in effect if they do not
conflict with the provisions of the new law and until new regulations are
issued. Environmental Regulation in Mexico. The current environmental issues Mexico
faces include the scarcity of natural fresh water resources; water pollution;
raw sewage and industrial effluents polluting rivers in urban areas;
deforestation; widespread erosion; desertification; and air pollution. The protection of the environment is currently a priority for the government of
Mexico. Although several environmental protection laws and regulations had
been issued since 1946, it was not until enactment of the General Law on
Ecological Equilibrium and Protection of the Environment in 1992 that important
steps were taken in this regard. The Ministry of Social Development and the
Ministry of Agriculture and Water Resources are mainly responsible for the
protection and preservation of the environment in Mexico. A number of permits
and authorizations with regard to environmental protection are required for
mining and exploration-related activities. The Ministry of Social
Developments authorization is required for all major exploration activities.
Permits required for mining and plant operation include the following: annual
municipal construction and operating license, annual blasting permit, road
crossing permit, environmental license due at commencement of operations, radio
frequency permit, septic tank permit, water rights usage permit, power line
permit and a hazardous materials handling permit. In addition, there are
regulations concerning noise, gas and dust emission, dumps, oil and fuel
storage, and electrical transformers. Please see  D. Property, Plant and
Equipment  The Cerro San Pedro Project, Mexico  Environmental for
information about environmental permitting in Mexico. The Companys El Morro copper/gold project, and MIMK copper/gold project and
other preliminary stage exploration projects are located in Chile. Information
about governmental regulation, including environmental regulation, in Chile is
included in  D. Property, Plant and Equipment  The El Morro Project,
Chile  Mineral Property Summary and   Environmental Permitting. 17




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C) Organizational Structure The following chart illustrates the inter-corporate relationships among the
Company and its subsidiaries. (FLOW CHART) D) Property, Plant and Equipment Mineral Reserves and Resources The Company is federally incorporated in Canada. The mineral reserves and
resources described in this Form 20-F are estimates and have been prepared in
compliance with National Instrument 43-101 of the Canadian Securities
Administrators. The definitions of proven and probable reserves used in
National Instrument 43-101 differ from the definitions in SEC Industry Guide 7.
In addition, the terms mineral resource, measured mineral resource,
indicated mineral resource and inferred mineral resource are defined in and
required to be disclosed by National Instrument 43-101; however, these terms
are not defined terms under SEC Industry Guide 7 and normally are not permitted
to be used in reports and registration statements filed with the SEC.
Accordingly, information contained in this Form 20-F containing descriptions of
the Companys mineral deposits may not be comparable to similar information
made public by U.S. companies subject to the reporting and disclosure
requirements under the United States federal securities laws and the rules and
regulations thereunder. The Cerro San Pedro Project, Mexico 18




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Project Location The Companys most advanced stage project is the Cerro San Pedro gold and
silver project, located approximately 20 km (12 miles) east-northeast of the
city of San Luis Potosi. The city of San Luis Potosi is located within the
state of San Luis Potosi, Mexico. The Cerro San Pedro project is owned by the Companys indirect wholly owned subsidiary, Minera San Xavier, S.A. de C.V.
(MSX). See Figure 1 for the project location map. (CERRO SAN PEDRO PROJECT MAP) 19




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Project History The Cerro San Pedro district has seen many production campaigns since its
discovery over four hundred years ago. There have been two major periods of
mining activity punctuated by long periods of intermittent, low-level activity.
There are no reliable records of production during the first period (1575 to
1660) of mining activity in the district. The second major period began in
1870 and continued through the early 1950s. By the early 1950s it is
estimated that approximately 2.5 million ounces of gold and 40 million ounces
of silver had been produced from the Cerro San Pedro district. Renewed
interest in the Cerro San Pedro district began in the 1970s with evaluations
by various companies to determine the districts potential as a large tonnage,
low-grade, bulk mineable deposit. In 1995, the Company acquired an option to purchase Cerro San Pedro project and
began an exploration program to expand the work of recent exploration programs
conducted by other companies. MSX completed 11,970 meters of reverse
circulation drilling in 1995 and an additional 29,463 meters of core and
reverse circulation drilling in 1996. This data, along with 9,794 meters of
reverse circulation drilling performed by its predecessors, formed the basis
for a February 1997 feasibility study prepared by Kilborn International Inc.
The February 1997 feasibility study included a proven and probable reserve
estimate of 77.3 million tonnes averaging 0.60 g/t gold and 24.8 g/t silver,
with an overall waste to ore ratio of 1.51:1. The reserve estimate was prepared
by Mine Reserve Associates, Inc. and was calculated using a gold price of
$400/ounce and a silver price of $5.00/ounce. The Company elected to seek a joint venture partner to develop the property in
late 1997, and in January 1998 entered into an agreement with Cambior, Inc. to
acquire a 50% interest in MSX. The agreement resulted in the issuance of
additional MSX shares to Cambior such that it would own 50% of the issued and
outstanding shares of MSX. Cambiors ability to retain its 50% interest in MSX
was contingent upon it spending $20 million on project development by December
31, 2000. Cambior completed an additional 66 core drill holes totaling 7,612 meters
during 1998, and during its due diligence period in late 1997. This drill hole
data, along with the drill hole data used in the Kilborn feasibility study, was
the basis for a revised feasibility study released by Cambior in November 1999.
The Cambior feasibility study included a proven and probable reserve estimate
of 63.5 million tonnes grading 0.62 g/t gold and 24.5 g/t silver, with an
overall waste to ore ratio of 1.57:1. The reserve estimate was prepared by
Cambior, Inc. and was calculated using a gold price of $300/ounce and a silver
price of $5.50/ounce. Mine development, working capital and mine equipment
costs were estimated at $68 million. In May 2000, Cambior sold its 50% interest in the Cerro San Pedro project to
Glamis Gold Ltd. In November 2000, Glamis published a revised feasibility
study for the project that eliminated the three-stage crushing circuit proposed
by Cambior, and instead utilized run-of-mine (ROM) leaching of ore. Under
ROM leaching, ore is mined and transported to the leach pad without being
crushed. The Glamis feasibility study included a proven and probable reserve
estimate of 49.2 million tonnes grading 0.57 g/t gold and 23.0 g/t silver, with
an overall waste to ore ratio of 1.45:1. The reserve estimate was prepared by
Mine Reserve Associates, Inc. and was calculated using a gold price of
$275/ounce and a silver price of $5.25/ounce. Mine development, working
capital and mine equipment costs were estimated at $45 million. On February 4, 2003, WLR Consulting, Inc. (WLR) prepared a technical report
on the Cerro San Pedro project that was based on the assumptions and
information included in the Glamis feasibility study with the following
exceptions:  
    
    Proven and probable reserves were calculated using a $325/ounce
gold price and a $4.62/ounce silver price.
    
    The addition of certain rock types into the definition of ore, due
to different prices used to calculate the reserve estimate.
    
    Higher mine operating costs were used to calculate the reserves due
to an anticipated change from owner mining to contract mining. 20




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The WLR technical report included a proven and probable reserve estimate of
61.1 million tonnes grading 0.59 g/t gold and 24.0 g/t silver, with an overall
waste to ore ratio of 1.21:1. The reserve estimate was prepared by William L.
Rose of WLR and was calculated using a gold price of $325/ounce and a silver
price of $4.62/ounce. Mr. Rose is a Qualified Person, as that term is defined
in Canada National Instrument 43-101. The WLR technical report is discussed in
further detail below. On February 12, 2003, the Company purchased Glamis 50% interest in the Cerro
San Pedro project for $18 million plus a sliding scale net smelter returns
royalty when monthly average gold prices equal or exceed $325/ounce. The
payment terms are as follows:  
    
    $2.0 million paid at closing.
    
    50% of MSX working capital deficit totaling $58,000 paid to the Company.
    
    $5.0 million due on or before August 12, 2003 (paid on August 12, 2004).
    
    $6.0 million in cash or in the Companys common shares due on
February 12, 2004 (paid on February 10, 2004).
    
    $2.5 million due at commencement of commercial production.
    
    $2.5 million due one year from commencement of commercial production Royalties are due and payable based on the following monthly average gold prices:  Below $325/ounce
    
    
    0.0
    % $325 to $350/ounce
    
    
    0.5
    % $350 to $375/ounce
    
    
    1.0
    % $375 to $400/ounce
    
    
    1.5
    % Over $400/ounce
    
    
    2.0
    %
 On March 24, 2004, the Company acquired from Glamis the aforementioned
sliding scale net smelter returns royalty for $2.25 million, and agreed to
prepay the remaining $5.0 million of contingent production payments owed to
Glamis pursuant to the February 12, 2003 purchase agreement. The Company has
completed all of its payment obligations to Glamis resulting from its
acquisition of Glamis 50% interest in MSX in February 2003. In September 2003, Washington Group International released a mine development
plan for the Cerro San Pedro project. The Washington Group mine
development plan was reformatted to comply with Canadian Securities
Administrators National Instrument 43-101, Standards of Disclosure
for Mineral Projects, and released by Washington Group as a Technical
Report in December 2003. Collectively, the mine development plan and
the Technical Report are referred to in this document as the
Development Plan. The engineering, procurement and
construction management cost estimates for the Development Plan were
prepared by The Industrial Company (TIC) of Steamboat
Springs, Colorado, and represent an update to Glamis' November 2000
ROM feasibility study. Washington Group International of Boise, Idaho
provided the Development Plan estimates for contract mining and
earthworks associated with construction of the mine. The Development
Plan capital cost estimate to develop the mine is $28.2 million,
plus $3 million for working capital. The Development Plan is
discussed in further detail below. In December 2003, MSX entered into a contract with a subsidiary of Washington
Group International to provide site development and contract mining services
for the Cerro San Pedro project. The estimated value of the contract, over the
pre-production period and estimated mine life of approximately 10 years, is
approximately $105 million. The contract provides that MSX may terminate the
contract at any time prior to the end of the ten-year term; however, MSX will
be obligated to pay the following early termination and mobilization to
Washington Group as follows: 21




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TerminationTermination Period
    
    FeesPre-production
    
    $
    11,560,000Year 1
    
    $
    10,160,000Year 2
    
    $
    7,460,000Year 3
    
    $
    4,760,000Year 4
    
    $
    2,960,000Year 5
    
    $
    2,360,000Year 6
    
    $
    2,060,000Year 7
    
    $
    1,660,000Year 8
    
    $
    1,360,000Year 9
    
    
    
 The Washington Group contract is filed with this Annual Report on Form 20-F as
an exhibit. In February 2004, MSX commenced construction of the Cerro San Pedro project.
It is anticipated that the project will be completed by the end of 2004, with
commercial production occurring during 2005. In March 2004, MSX entered into a contract with a subsidiary of TIC to provide
procurement, engineering and construction services for the Cerro San Pedro
project. The estimated value of the contract is $18.6 million, all of which is
expected to be incurred by the Company in 2004. A copy of the contract is
filed with this Annual Report on Form 20-F as an exhibit. Mineral Property Summary The mineral rights at the Cerro San Pedro project consist of 48 mineral
concessions, covering an area of 2,975 hectares or 7,348 acres. The details of
the mineral concessions and related groupings comprising the Cerro San Pedro
project are as follows in Table A: TABLE A
CERRO SAN PEDRO MINERAL PROPERTY SUMMARY
Cerro San Pedro Mineral Concessions Concession
    
    TitleGroup
    
    Concession Name
    
    Type
    
    Number
    
    HectaresLa Princesa: 100% Minera San Xavier1
    
    La Princesa
    
    Exploitation
    
    
    180298
    
    
    
    5.59162
    
    La Princesa Poniente
    
    Exploitation
    
    
    180366
    
    
    
    0.00763
    
    Begonia
    
    Exploitation
    
    
    181179
    
    
    
    10.00004
    
    Santa Ana
    
    Exploitation
    
    
    180598
    
    
    
    8.00005
    
    Santa Ana Sur
    
    Exploitation
    
    
    180597
    
    
    
    1.50766
    
    Los Blancos
    
    Exploitation
    
    
    181180
    
    
    
    9.03947
    
    Gogorron
    
    Exploitation
    
    
    180300
    
    
    
    9.62508
    
    San Nicolás
    
    Exploitation
    
    
    180608
    
    
    
    6.97889
    
    San Nicolás Sur
    
    Exploitation
    
    
    180610
    
    
    
    1.489610
    
    San Nicolás Suroeste
    
    Exploitation
    
    
    180609
    
    
    
    0.192311
    
    Los Riscos
    
    Exploitation
    
    
    182282
    
    
    
    4.347412
    
    La Concepción
    
    Exploitation
    
    
    182281
    
    
    
    4.000013
    
    Cristina 2
    
    Exploitation
    
    
    180938
    
    
    
    0.553714
    
    Cristina
    
    Exploitation
    
    
    186321
    
    
    
    93.622815
    
    Gama
    
    Exploitation
    
    
    179256
    
    
    
    41.639116
    
    La Canoa
    
    Exploitation
    
    
    186370
    
    
    
    3.479917
    
    La Canoa 2
    
    Exploitation
    
    
    180948
    
    
    
    0.664918
    
    La Canoa 3
    
    Exploitation
    
    
    184906
    
    
    
    0.0051
 22




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##### Table of Contents



Cerro San Pedro Mineral Concessions Concession
    
    TitleGroup
    
    Concession Name
    
    Type
    
    Number
    
    HectaresLa Princesa: 100% Minera San Xavier19
    
    Omega
    
    Exploitation
    
    
    193390
    
    
    
    2.057620
    
    Omega 2
    
    Exploitation
    
    
    180958
    
    
    
    0.168721
    
    San Salvador
    
    Exploitation
    
    
    186268
    
    
    
    12.939922
    
    Triblin
    
    Exploitation
    
    
    187088
    
    
    
    18.280823
    
    La Victoria
    
    Exploitation
    
    
    185387
    
    
    
    10.379724
    
    El Barreno
    
    Exploitation
    
    
    179603
    
    
    
    11.235925
    
    La Lotería
    
    Exploitation
    
    
    184377
    
    
    
    3.880926
    
    San Fausto
    
    Exploitation
    
    
    179722
    
    
    
    1.500027
    
    Maria del Pilar
    
    Exploitation
    
    
    179259
    
    
    
    0.004928
    
    El Campeón
    
    Exploitation
    
    
    179257
    
    
    
    0.207229
    
    Toro de Oro
    
    Exploitation
    
    
    206548
    
    
    
    99.518730
    
    Gumercinda
    
    Exploitation
    
    
    205211
    
    
    
    20.0000Subtotal
    
    
    380.9191La Princesa Optionor: Antonio Álvarez Ruiz31
    
    Porvenir I
    
    Exploitation
    
    
    183925
    
    
    
    12.000032
    
    Porvenir II
    
    Exploitation
    
    
    186269
    
    
    
    2.9981Subtotal
    
    
    14.9981Not Grouped Exploitation 100% Minera San Xavier33
    
    Gabriel
    
    Exploitation
    
    
    211849
    
    
    
    18.000034
    
    Pedro
    
    Exploitation
    
    
    217859
    
    
    
    1,969.507035
    
    Pedro 2
    
    Exploitation
    
    
    219079
    
    
    
    421.833336
    
    Gitano
    
    Exploitation
    
    
    219000
    
    
    
    64.000037
    
    Porvenir IV Fracc.A
    
    Exploitation
    
    
    220628
    
    
    
    55.095738
    
    Porvenir IV Fracc.B
    
    Exploitation
    
    
    216926
    
    
    
    1.3237Subtotal
    
    
    2529.7600Not Grouped Exploitation. Optionor: Antonio Álvarez Ruiz39
    
    Porvenir
    
    Exploitation
    
    
    214835
    
    
    
    4.424140
    
    Porvenir III
    
    Exploitation
    
    
    212189
    
    
    
    11.990241
    
    Porvenir V
    
    Exploitation
    
    
    218428
    
    
    
    11.7876Subtotal
    
    
    28.2019Pedro. 100% Minera San Xavier42
    
    La Virgen 2004
    
    Exploration
    
    
    208466
    
    
    
    10.0000Subtotal
    
    
    10.0000Not Grouped Exploration. 100% Minera San Xavier43
    
    Mark 2005
    
    Exploration
    
    
    210667
    
    
    
    0.052944
    
    Aracely 2005
    
    Exploration
    
    
    210668
    
    
    
    9.339645
    
    Davide 2006
    
    Exploration
    
    
    211606
    
    
    
    0.078846
    
    Laura Maria 2008
    
    Exploration
    
    
    215499
    
    
    
    1.097647
    
    Tania 2008
    
    Exploration
    
    
    215896
    
    
    
    0.686048
    
    Maria Sofia 2008
    
    Exploration
    
    
    215378
    
    
    
    0.0247Subtotal
    
    
    11.2796Total
    
    
    2,975.1584
 All of the mining concessions have been acquired primarily through purchase
agreements and to a lesser extent through staking. Approximately $5.3 million
has been spent to acquire the aforementioned mining concessions and other
concessions that have subsequently been dropped due to their limited strategic
value. The exploration concessions #42 through #48 are valid through various dates
from October 2004 through 23




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##### Table of Contents



March 2008. MSX intends to submit applications to the Mexican regulatory
authority, the Director General of Mines (DGM), to convert the exploration
concessions into exploitation concessions prior to their expiry. All of the aforementioned exploitation concessions begin to expire in December
2036 through February 2053, subject to the timely filing periodic reports and
the timely payment of taxes. The exploitation concessions may be extended for
an additional 50-years period upon five years notice. The Company does not
anticipate that the extensions to the exploitation concessions will be
required. All the exploitation and exploration concessions are held by MSX
without any encumbrances except for the following:  1)
    
    The exploitation concessions optioned from Antonio Alvarez
Ruiz (#31, #32, #39, #40 and #41) are subject to a 2.5% royalty on
the net smelting income, subject to maximum cumulative payments
totaling $1 million. Minimum annual royalties in the amount of
$50,000 are due and payable on April 1st of each year beginning in
2003. The Company made minimum royalty payments of $50,000 on April
1st of 2003 and 2004.2)
    
    Concessions #13 to #20 were subject to a amended note
agreement totaling $200,100 dated February 18, 2003. The note was
paid in full in January 2004. Although the Company has investigated title to its exploration and exploitation
concessions at the Cerro San Pedro project, there is no guarantee that title to
such concessions will not be challenged. In addition, certain environmental
permitting requirements must be satisfied prior to commencing mining operations
under an exploitation concession. Environmental Environmental Permitting Requirements Mexican environmental regulations addressing permitting and operation of mines
have been subject to significant changes in recent years with new standards and
policies continuing to be developed. The General Law on Ecological Equilibrium
and Protection of the Environment requires certain types of projects, including
mining operations, to complete a Manifestacion de Impacto Ambiental [Manifest
of Environmental Impact] (MIA), if the project has the potential to cause an
ecological imbalance or to exceed limits and conditions in applicable
environmental regulations. Although not required for any previously permitted
mining project in Mexico, an expanded MIA level does exist and can, in certain
situations, be mandated. A major objective of the MIA process is to demonstrate that the project impacts
will be in compliance with principal environmental regulations for prevention
of water and air pollution, noise limits, hazardous waste use and transport,
and in compliance with the Normas Oficiales Mexicanas [Official Mexican
Standards]. Environmental and Other Permit Status The MIA for the development of the Cerro San Pedro Project was submitted to the
Mexican Federal agency, Secretaria de Medio Ambiente y Recursos Naturales
[Secretary of Environment and Natural Resources] (SEMARNAT) in October of
1997. An MIA approval resolution was issued in March 1999 by SEMARNAT. The MIA
approval order from SEMARNAT lists 100 terms and conditions and 9
recommendations which MSX is required to observe with respect to its operations
at the Cerro San Pedro Project. Many of these items are normal business
activities associated with the running of a mine. The conditions considered by
the Corporation to be most important are: i) stabilization and monitoring of
the CSP Church; (ii) offer to relocate several families in the village of Cerro
de San Pedro who are located within the immediate vicinity of the mine; (iii)
establishing reclamation funding/bonding requirements for the project; and (iv)
rescue and relocation of certain cactus species located in the area of the
planned mine and leach pad. These items are discussed below under
Environmental Permitting Compliance. The MIA is the primary federal permit
required for the approval of the proposed mine. The issuance of the MIA is a
precondition for the issuance of related state and local permits necessary for
mine construction. 24




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In May 2000 MSX received the Land Use License for the Cerro San Pedro Project
from the State of San Luis Potosi, Mexico and in July 2000, MSX received the
Construction License from the Cerro de San Pedro municipality. In August 2000,
MSX received the Change of Land Use License from SEMARNAT and with this
approval, MSX obtained the last significant milestone in the project permitting
process for the Cerro San Pedro Project. As a result of the change in planned mine development from a three-stage
crushing circuit to the ROM scenario as proposed in the Glamis Feasibility
Study, amendments to the previously granted MIA and the Construction License
were required. After filing the modification request in early 2001, MSX
received approval for the Construction License modification in October 2001 and
approval for the MIA modification in April 2002. The MIA that was issued on February 26, 1999 is valid for a twelve-year period
and includes eight years for project exploitation and four years for
reclamation. MSX will be required to apply for an extension within 60 days of
the February 26, 2011 MIA expiration date in order to extend the MIA term to
adequately cover the proposed mining and reclamation period of approximately 11
years. The municipal construction license must be renewed annually on July
1st. In the event that the MIA or the municipal construction licenses are not
renewed when they expire, MSX may be required to cease project construction or
mining operations. The Land Use License is valid over the life of the mining
operation and will not require any renewals or extensions. MSX is required to comply with existing permit conditions and obtain additional
permits and licenses from various regulatory and governmental authorities
during mine construction and mine operations at Cerro San Pedro. These permits
and licenses include, but are not limited to, receipt of a blasting operations
permit and annual renewals thereafter, annual renewal of titles to water
rights, a power line permit, septic tank permits and receipt of an
environmental license that is issued at commencement of operations. Although
MSX is currently in full compliance with its existing permits, and although its
permits have been renewed by governmental and regulatory authorities in the
past, there are no assurances that the applicable governmental and regulatory
authorities will renew the permits as they expire, or that pending or future
permit applications will be granted. In the event that the required permits are
not granted or renewed in a timely manner, or in the event that governmental
and regulatory authorities determine that MSX is not in compliance with its
existing permits, MSX may be forced to suspend project construction or mine
operations. The most important of MSXs permits and licenses that must be received or
renewed within the next couple of months are the blasting operations permit and
the July 1st renewal of the municipal construction license. The project
construction schedule requires that the blasting permit must be received by the
end of May 2004. In the event that the blasting permit is not received by
then, suspension of construction activities at the Cerro San Pedro project will
begin. MSX is working with various governmental and regulatory authorities to
secure this permit; however, there are no assurances that this permit will be
granted in a timely manner, if at all. Environmental Permitting Compliance The MIA includes certain conditions that must be met and ongoing compliance
that must be performed in order to maintain the permit in good standing. The
most significant conditions that must be met during mine construction or prior
to mine operations are: i) stabilization and monitoring of the CSP Church; (ii)
offer to relocate several families in the village of Cerro de San Pedro who are
located within the immediate vicinity of the mine; (iii) establishing
reclamation funding/bonding requirements for the project; and (iv) rescue and
relocation of certain cactus species located in the area of the planned mine
and leach pad. The CSP Church is over 200 years old and is located approximately 50 meters
from the proposed open pit for the Cerro San Pedro mine. Numerous historical
underground workings from prior mining activity in the area have raised issues
regarding the stability of the CSP Church, particularly during blasting periods 25




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at the mine. MSX submitted a proposal in early 2003 to the Mexican
governmental agency responsible for historic structures and to the priest at
the CSP Church, to stabilize the CSP Church and install blast-monitoring
equipment. In October 2003, the relevant governmental agency and the
Archdiocese of San Luis Potosi authorized the structural stabilization and
installation of blast monitoring equipment at the CSP Church. This
authorization represented the final compliance issue which required approval
prior to commencing mine construction. The work will be accomplished by a
trust fund managed by an independent technical committee and other interested
parties, and will be funded by MSX. Various studies made by architectural and
engineering experts have estimated the cost of the work to be $230,000. In
March 2004, MSX made a $230,000 deposit to the trust fund to cover the
estimated work commitment. MSX has applied for release of this permit
condition with the relevant governmental agency. Receipt of the release is
currently pending. The mining permits require that MSX offer to relocate all full-time residents
living within a defined buffer zone of the immediate mine area that wish to
move; however, MSX has agreed to relocate all full-time residents who feel that
they may be impacted by the mine. Those residents who choose to relocate will
be given title to a new home located approximately 500 meters to the east of
the mine area, and will retain ownership of and access to their existing home
in the town of Cerro de San Pedro. For the residents who choose to relocate,
the permits require that the relocation be completed prior to commencement of
mine operations. MSX has offered each of the 24 permanent families that live
in the village of Cerro de San Pedro a choice of any one of the following
relocation and/or financial support options: a) A new house located a distance
further away from the mine area, or b) A cash payment for repairs and/or
upgrades to their existing house, along with a monthly cash payment for the
inconvenience of the mining operations, or c) A larger monthly cash payment for
the inconvenience of the mining operations. In the event that the all of the 24
families accept the offer, the maximum cost of the relocation/financial support
payments is estimated to be $850,000. MSX has executed an agreement with the
state and municipal authorities to use a joint effort to ensure that the proper
safety precautions are taken to protect the public, especially during blasting
operations. MSX is not required, and does not intend, to obtain control of all
the property located within the safety buffer zone; however, MSX will continue
to acquire property within the safety buffer zone from owners that choose to
engage in private negotiations. In January 2003, an archeological survey commenced in the area of the proposed
leach pads. The objective of the survey was to catalog any artifacts of
historical significance in the area. The survey was completed in late 2003 and
resulted in certain areas in the proposed leach pad being restricted from use.
MSX has completed a re-design of the leach pad which avoids the restricted
area. The closure and reclamation strategy for the Cerro San Pedro Project has been
developed by the Company with the assistance of independent consultants with
the specific objective of leaving the land in a useful, safe and stable
configuration capable of supporting native plant life, wildlife habitat,
watershed functions, and limited livestock grazing. MSX submitted the
Reclamation and Closure Plan to SEMARNAT on April 28, 2000. In February 2004,
SEMARNAT agreed to allow MSX to fund its reclamation obligation in stages over
the planned 8.3-year mine life. The details of how the periodic funding
amounts will be calculated and the timing of the payments have not yet been
determined. The schedule for completing the closure activities is controlled
by the requirements contained in the MIA, specifically that site reclamation is
required to be completed within four years of final processing. In the
Development Plan, the total closure and reclamation costs are estimated at $4.3
million. In addition MSX has relocated certain cactus species which grow throughout the
project area and are considered endangered, rare, and subject to special
protection by SEMARNAT. A botanical garden has been established to provide an
area to transplant and protect vegetation that has been removed from the areas
that are impacted by the construction of the mine site facilities. A nursery
has been built to provide an environment where vegetation that will be used
during reclamation can be grown from seed. The cactus relocation program was
completed in April 2004. MSX has committed to mitigating impacts associated with previous mining
operations at Cerro San Pedro. The mitigating measures include the removal of
historical waste rock along the Cerro San Pedro streambed and placement of such
waste material within the planned waste dumps as well as the removal 26




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of the cyanide leached material from the recent vat leach operation conducted
by a previous small operator at Cerro San Pedro. This material will be
relocated to the lined leach pad. Surface and Water Rights Acquisition In order to commence construction of the Cerro San Pedro mine, surface rights
agreements were required to be in place for all land to be disturbed by, or
immediately adjacent to, the proposed mine operation. MSX began acquiring
surface rights in 1996 from titled landowners, possessionary rights holders,
and from the three local Ejidos (Cuesta de Campa, Palma de la Cruz and Cerro
San Pedro). (An Ejido is an association of individuals who communally own and
manage the rural lands surrounding their village.) In the case of the Ejidos,
MSX has obtained surface occupation lease agreements with all three Ejidos that
own property in the Cerro San Pedro area. A total of 470 hectares are under
lease agreements with annual aggregate lease payments of approximately $24,000.
The leases grant MSX temporary occupancy for a period of 15 years (through
January 2011), and may be extended by MSX for an additional 15 years at the
Mexican peso-denominated lease rate, adjusted for the percentage increase in
the Mexican minimum wage from February 1997 through February 2011. The
increase is expected to approximate the rate of inflation in Mexico. The
leases may be terminated by MSX at any time, but with a penalty equal to one
years lease payment. On August 7, 2002, a lawsuit was filed in the Mexican Agrarian Court in which a
contesting group claimed to be the rightful representatives of the Ejido Cerro
San Pedro communal farmland. The contesting group claim states that the Ejido
Cerro San Pedro lease agreement with MSX for 290 hectares of surface rights,
which was executed in February 1997, is not valid because the individuals who
executed the agreement were not the legal representatives of Ejido Cerro San
Pedro. In December 2002, the Agrarian Court ruled in favor of the individuals
who signed the lease agreement with MSX, which allowed these individuals to
prove that they were the legal representatives of Ejido Cerro San Pedro. In
February 2004, the Agrarian Court declared the Ejido Cerro San Pedro lease
agreement with MSX to be null and void. The Agrarian Court did not rule that
MSX had to either cease construction of the project or vacate the land, nor did
it rule that the original ejido members were not the legal representatives of
Ejido Cerro San Pedro. The Agrarian Court issued MSX a stay of execution in
April 2004, which has the effect of continuing MSXs legal access to the ground
pending the ruling in a Federal Court of an appeal of the Agrarian Courts
decision filed by both MSX and the original ejido members. Once the appeal in
the Federal Court has been heard, it will then proceed to issue a ruling. It
is expected this ruling will occur no later than October 2004; however, between
now and the time of the ruling, the stay of execution will remain in place. In
addition to the legal appeal, MSX is pursuing all other means available to it
in order to establish secure land tenure. In the event that the Agrarian Court
decision is confirmed by the Federal Court, and in the event that MSX is
unsuccessful in its other efforts to secure land tenure, MSX may be required to
cease project construction activities or mine operations. In May 2001, MSX relocated 20 families from the village of La Zapatilla to a
new village approximately two kilometers to the southwest of Cerro San Pedro
mine site. The cost to acquire the surface rights at the old village of La
Zapatilla and the cost to construct the new village of La Zapatilla totaled
approximately $1.6 million. Water rights are federally-owned in Mexico and administered by an agency of the
federal government; the Comision Nacional de Agua (CNA). CNA has granted
water concessions to private parties throughout the defined San Luis Potosi
Hydrologic Basin (Basin). As no new water rights are being issued in the
Basin, new users of water must purchase rights from private parties. The Cerro
San Pedro project is forecast to use an average of approximately one million
cubic meters of water per year. MSX has acquired pumping rights for 866,000
cubic meters per year, which includes 234,000 cubic meters that were purchased
in 2003. MSX has applications pending with CNA to acquire an additional
144,234 cubic meters of water rights. Included in the 866,000 cubic meters are
250,000 cubic meters that are subject to a lease agreement. The lease
agreement provides that 100,000 cubic meters must be returned to the lessor
upon the lessors request, whereas the remaining 150,000 cubic meters have a
lease term that is valid until November 2008. In the event that MSX is
required to return the 100,000 cubic meters of water rights, MSX will be
required to purchase additional water rights from private parties. 27




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In 2002, a lawsuit was filed against MSX alleging that water rights for 360,000
cubic meters per year were sold to MSX by individuals who did not legally own
the water rights. These water rights are in addition to the 866,000 cubic
meters that MSX currently owns or leases, and are not subject to any disputes.
A judge is expected to rule on the lawsuit in 2004. In the event that the
ruling is ultimately in favor of MSX, MSX will likely have excess water rights
that may be sold. To the extent that MSX has not used its water rights within three years of
being acquired, it must apply for three-year extensions with CNA in order to
retain the water rights. MSXs water rights began to expire in October 2003.
All of MSXs water rights that were scheduled to expire in 2003 and through
April 2004 have been granted three-year extensions by CNA. MSX intends to
continue to apply for three-year extensions for all of its water rights as they
approach expiration. In the event that MSX begins mine operations within three
years of the date of the extensions, MSX will not be required to apply for any
additional extensions through the end of the mine life. However, upon
commencement of mine operations, MSX must renew its water rights titles at
various intervals during the mine operations. In the event that the water
rights title renewals are not granted, MSX may be required to purchase or lease
additional water rights from private parties. The 1.01 million cubic meters of water rights that are owned or leased by MSX
have been acquired from eleven wells throughout the Basin. All of these water
rights have been, or will be, transferred to a well at La Zapatilla. The La
Zapatilla well was constructed in July 1999 and has a total pumping capacity of
approximately two million cubic meters of water per year. The La Zapatilla
well is located 1.5 kilometers west of the proposed leach pad, which is where
most of the Cerro San Pedro project water consumption will take place.
Approximately $903,000 has been spent to date on the acquisition of water
rights. Access; Infrastructure Access to the project area is by paved and improved gravel roads from the city
of San Luis Potosi (SLP), a distance of approximately 20 kilometers. The
city of SLP has a population of approximately one million and has an adequate
airport with frequent flights to Mexico City, Monterrey, Houston and other
major cities. A 115 kv power line will need to be constructed to supply the project with
electricity. The power line will be 11.3 kilometers in length and will run
from an existing substation to a location near the leach pad. The right of way
for the new power line will follow next to an existing power line, but a
separate right-of-way had to be negotiated with the affected landowners.
Approximately 98% of the 25.35 hectares of required right-of-way has been
acquired at a cost of $203,000. In 2002, MSX was notified by Mexican
authorities that it will not be required to purchase the remaining 2% of the
right-of-way. In the event that MSX elects to acquire the remaining 2%
right-of-way, the cost is not expected to be material. The cost to install the
115 kv power line and build the power substation is estimated at $1.9 million. Glamis Feasibility Study (November 2001) In November 2000 Glamis issued a revision to the Cambior feasibility study
entitled Cerro San Pedro Project Feasibility Study (the Glamis Feasibility
Study). The Glamis Feasibility Study provides for the elimination of the
crushing plant from the process flow sheet resulting in the use of run-of-mine
(ROM) leaching to extract gold and silver from the mined ore. Under ROM
leaching, the mined ore is transported and deposited on the heap leach pads
without being processed through a crushing circuit. Metal recoveries from ore
processed under a ROM scenario are lower than if the ore is crushed; however, a
ROM scenario will also result in lower operating and capital costs. In September 2003, Washington Group International prepared a Development Plan
for the Cerro San Pedro project. The Development Plan updated the cost
estimates used in the Glamis Feasibility Study and re-examined the project
economics using contract mining. The capital cost estimates for the
Development Plan were prepared by TIC and represent an update to Glamis
November 2000 ROM feasibility study. The Development Plan also incorporated
the updated mineral reserve estimate from the 28




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February 2003 WLR Consulting Technical Report. Both the WLR Consulting Inc.
Technical Report and the Development Plan are discussed in more detail below: WLR Consulting Inc. Technical Report The following is a summary of information contained in the WLR Consulting Inc.
dated February 4, 2003: It should be noted that the geological model and the metallurgical recoveries
for the Glamis Feasibility Study has not been revised or amended. The only
revisions have been the metal prices, the addition of certain rock types into
the definition of ore, and the mine operating cost estimates used to calculate
the mineral reserves. The mineable reserves of the Glamis Feasibility Study
were based on a $275 per ounce gold price and a $5.25 per ounce silver price.
The mineral reserves have been recalculated in this technical report with
revised prices of $325 per ounce gold and $4.62 per ounce silver. Mineral Resources The mineral resource estimate uses the results of 36 reverse circulation holes
from exploration prior to MSX and 219 drill holes completed by MSX, 125 of
which are reverse circulation and 94 are core holes. The deposit has been
drilled overall on a 50-meter by 50-meter grid with a closer spacing in some
areas. Assay intervals, typically of 2 meters in length, which had less than 30
percent recovery were not used for grade estimation. In addition, a total of
2,153 channel samples representing about 4,600 meters were collected from
numerous accessible underground workings. The geological block model for Cerro San Pedro was constructed with respect to
both structural and lithological (rock type) control. The assay results from
drill holes and channel samples were composited to 5-meter lengths by
respecting these rock and structural domain boundaries. Cambior used standard
industry practice to limit or cap the high-grade outliers and to develop
indicators to reflect the boundary between low-grade mineralization and
unmineralized or barren materials. Validation of the geological and assay
database was done using software tools, plots on sections and plan view maps to
ensure information stored in the database occurs in the correct position and
conforms with the geological interpretation. Verification of assay results
used in the database was also performed. The mineral resource was evaluated using various estimation methods. The RK
method was determined to be the best at characterizing the grade distribution
and was therefore used to calculate the mineral resource. The mineral resource
is presented by resource classification and cut-off grades in Table B. The
mineral resource estimate was established by William L. Rose, the author of the
WLR Technical Report, which is dated February 4, 2003. The resource estimate is classified on the basis of these parameters:  
    
    Measured: All estimated blocks that had a minimum of two
drillholes within one-half of the variogram range from the block
center.
    
    Indicated: All estimated blocks that had a minimum of two
drillholes within the variogram range from the block center.
    
    Inferred: All other estimated blocks. TABLE B
CERRO SAN PEDRO MINERAL RESOURCE ESTIMATE 0.20 g/t Au
    
    0.30 g/t Au
    
    0.40 g/t AuRock Type
    
    Ktonnes
    
    Au
    
    Ag
    
    Ktonnes
    
    Au
    
    Ag
    
    Ktonnes
    
    Au
    
    AgMeasured
    
    
    154,953
    
    
    
    0.50
    
    
    
    17.82
    
    
    
    114,173
    
    
    
    0.59
    
    
    
    20.18
    
    
    
    79,433
    
    
    
    0.69
    
    
    
    23.13Indicated
    
    
    61,849
    
    
    
    0.38
    
    
    
    10.12
    
    
    
    33,866
    
    
    
    0.49
    
    
    
    12.55
    
    
    
    18,546
    
    
    
    0.61
    
    
    
    14.84Total Measured and
Indicated
    
    
    216,802
    
    
    
    0.47
    
    
    
    15.62
    
    
    
    148,039
    
    
    
    0.57
    
    
    
    18.43
    
    
    
    97,979
    
    
    
    0.67
    
    
    
    21.56Inferred
    
    
    21,584
    
    
    
    0.37
    
    
    
    8.20
    
    
    
    11,649
    
    
    
    0.48
    
    
    
    9.07
    
    
    
    6,917
    
    
    
    0.57
    
    
    
    10.18
 29




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These resources do not reflect economic pit designs, but rather are limited to
reporting a geologic resource. Pit limit evaluations of the Cerro San Pedro deposit employed the
Lerchs-Grossmann algorithm to determine the extent of economic open pit mining
based on run-of-mine ore. Process recoveries and processing costs used in
these pit limit evaluations are summarized in Table C. Other operating costs,
including mining costs and general and administrative costs, used in these pit
limit evaluations are summarized in Table C. TABLE C
PIT LIMIT INPUT PARAMETERS Able
    
    Gold
    
    Silver
    
    ProcessingRock Type
    
    Recovery (%)
    
    Recovery (%)
    
    Cost ($/t ore)Porphyry Oxide
    
    75
    
    40
    
    1.01Porphyry Mixed
    
    30
    
    40
    
    1.80Porphyry Sulfide
    
    20
    
    30
    
    1.80Begoñia Limestone
    
    55
    
    25
    
    1.01Hospital Limestone
    
    35
    
    10
    
    1.01Barrano Limestones & MnOx
    
    20
    
    5
    
    1.01All other rock types (waste)
    
    0
    
    0
    
    n/a
 Other economic and overall slope angle parameters are summarized in Table D. TABLE D
PIT LIMIT ECONOMIC INPUT PARAMETERS(1) Parameter
    
    ValueGold price
    
    $
    325
    / ozSilver price
    
    $
    4.62
    / ozRefining recovery for gold
    
    
    99.5
    %Refining recovery for silver
    
    
    98.0
    %Freight and refining cost for gold
    
    $
    3.00
    / ozFreight and refining cost for silver
    
    $
    0.15
    / ozGross receipts royalty
    
    
    1.95
    %Mining cost  ore
    
    $
    0.97
    / tMining cost  waste
    
    $
    0.85
    / tGeneral and administration cost
    
    $
    0.20
    / t oreSlope angles on NW, N & NE walls (no ramps)
    
    
    55
    degreesSlope angles on E, SE, SW and W walls
    
    
    45
    degrees
  (1)
    
    The economic parameters presented above have been estimated by the
Company and have provisions for possible contract mining at Cerro San
Pedro. Mineral Reserves Total mineral reserves at prices of $325/oz Au and $4.62/oz Ag are estimated at
61.1 million tonnes grading 0.59 g/t Au and 24.0 g/t Ag. Waste stripping is
estimated at 74 million tonnes, resulting in a strip ratio of 1.21 tonnes of
waste per tonne of ore. The total material tonnage for the designed ultimate
pit is 135 million tonnes. 30




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Table E shows the breakdown of the mineral reserves by classification. These
reserve estimates include both proven and probable material, which correspond
to measured and indicated resources within the designed economic (ultimate) pit
limits. All inferred material was treated as waste. TABLE E
Mineral Reserve Summary by Classification
@ $325/ounce Gold and $4.62/ounce Silver Ore
    
    Au
    
    Ag
    
    Waste
    
    TotalClassification
    
    ktonnes
    
    (g/t)
    
    (g/t)
    
    ktonnes
    
    ktonnesProven
    
    58,857
    
    0.59
    
    23.9
    
    46,154
    
    105,011Probable
    
    2,199
    
    0.61
    
    26.6
    
    14,763
    
    16,962Inferred
    
    
    
    
    
    
    
    13,071
    
    13,071Total
    
    61,056
    
    0.59
    
    24.0
    
    73,988
    
    135,044
 Conclusion The results of this Technical Report illustrate that the use of a higher gold
price will result in an increase in mineral reserves for the Cerro San Pedro
deposit. The Glamis Feasibility Study used metal prices of $275 per ounce for
gold and $5.25 per ounce of silver and reported a mineral reserve of 49.2
million tonnes grading 0.57 g/t Au and 23.0 g/t Ag, with a strip ratio of 1.46
tonnes of waste per tonne of ore. At a gold price of $325 per ounce and a
silver price of $4.62 per ounce, the mineral reserves were increased to 61.1
million tonnes grading 0.59 g/t Au and 24.0 g/t Ag with a strip ratio of 1.21
tonnes of waste per tonne of ore. Washington Group International Development Plan The following is a summary of information contained in the Washington Group
International Development Plan dated September 2003: Background The Washington Group International Development Dlan (the Development Plan)
for the Cerro San Project updated the cost estimates of the Glamis Feasibility
Study to 2003 and re-examined the project economics using contract mining. The
Development Plan was prepared to present the current project design, operating
philosophy, capital and operating costs, and economics for the Cerro San Pedro
gold/silver project located in the State of San Luis Potosi, Mexico. The
project will be developed as an open pit mine producing ROM ore that will be
heap leached with precious metal recovery using a Merrill-Crowe plant to
produce gold/silver doré on site. Four feasibility studies have been prepared for the project to date. Welsh
Engineering Science & Technology, Inc. (Westec) produced the first feasibility
study. Kilborn International, Inc. (Kilborn) produced a feasibility study for
Metallica in 1997; Cambior prepared a feasibility study in December 1999; and
the Glamis Feasibility Study was prepared in November 2000. This Development
Plan utilizes reports that were generated from the previous feasibility
studies, as well as more recent work, to support the current design and
operating concepts. Areas of study and primary sources of geologic and mining information contained
in the Development Plan are summarized in Table F. 31




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TABLE F Sources of Information for Geology and Mining Sections of the Development Plan Area
    
    Services Provided
    
    Name of Company/ConsultantGeology
    
    Management
    
    Minera San XavierAssaying
    
    Bondar CleggModeling, Resource Estimation
    
    Minera San XavierDeposit Geology
    
    Mark Petersen, ConsultantMineralogy/Petrography
    
    Petrographic Consultants, Intl.Mining
    
    Ore Reserves/Mine Design
    
    Glamis / Mine Reserves AssociatesModel Verification
    
    Independent Mining Consultants, Inc.GeoSight, Inc.Glamis / Mine Reserves AssociatesWLR Consulting Inc.Previous Reserve Evaluations
    
    CambiorSlope Stability
    
    Brawner & Associates
 Geology and Mineralization The Cerro San Pedro district lies along the boundary between the Sierra Madre
Oriental (Eastern Sierra Madre) fold belt and the Mesa Central volcanic plateau
physiographic provinces. Current exploration in this historic district has
resulted in the delineation of a large body of low-grade gold-silver
mineralization amenable to modern bulk mining and heap leach extraction
methods. A complex deformation history, including of pre-mineral folding, thrusting,
normal, reverse, and wrench faulting, accompanied by porphyry dike intrusion
are considered to be the primary factors behind the localization of
mineralization at Cerro San Pedro. District geology is characterized by
complexly folded and faulted Cretaceous limestones that have been intruded by a
large dike or plug of diorite to quartz diorite porphyry of late Cretaceous to
early Tertiary age. Gold-silver mineralization occurs in association with
disseminated iron oxides and sulfides hosted within the porphyry intrusive
(Porphyry Oxide, Mixed and Sulfide) and its surrounding limestone host rocks
(from oldest to youngest  the Begonia, Hospital, and Barreno Limestones).
Porphyry Oxide-hosted mineralization is distributed in a well-developed zone of
stockwork fracturing and pervasive hydrothermal alteration developed around the
intersection between several systems of cross-cutting north, east, northeast,
and northwest trending shear zones. These structures extend into the
surrounding limestone country rocks as higher-grade veins, chimneys, and
mantos. A large body of Porphyry Mixed and Porphyry Sulfide-hosted Au-Ag-Zn
sulfide mineralization also underlies the main zone of Au-Ag Porphyry Oxide
mineralization. The bulk of the potentially economic mineralization is hosted
within the porphyry diorite rock type. Mineral Reserves The mineral reserves presented in the Development Plan were prepared by WLR
Consulting, Inc. of Lakewood, Colorado, and are presented above in the summary
of the WLR Consulting Inc. Technical Report. Mine Tonnage and Grades: The Development Plan assumes a total of 135.1 million tonnes of material will
be mined and 61.1 million tonnes of ore will be processed at Cerro San Pedro
over a mine life of 8.3 years, at an average of approximately 7.4 million
tonnes per year. A summary of the annual mine production schedule is presented
in Table G. 32




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TABLE G
MINE PRODUCTION SCHEDULE Ore
    
    Gold Grade g
    
    Silver Grade g
    
    Waste
    
    Total
    
    StripProject Period
    
    ktonnes
    
    Au/t
    
    Ag/ t
    
    ktonnes
    
    ktonnes
    
    RatioPre-production
    
    
    551
    
    
    
    0.94
    
    
    
    45.20
    
    
    
    6,701
    
    
    
    7,252
    
    
    
    12.16Year 1
    
    
    5,501
    
    
    
    0.66
    
    
    
    24.97
    
    
    
    14,700
    
    
    
    20,201
    
    
    
    2.67Year 2
    
    
    7,502
    
    
    
    0.60
    
    
    
    31.21
    
    
    
    12,700
    
    
    
    20,202
    
    
    
    1.69Year 3
    
    
    7,498
    
    
    
    0.56
    
    
    
    24.07
    
    
    
    12,700
    
    
    
    20,198
    
    
    
    1.69Year 4
    
    
    7,501
    
    
    
    0.57
    
    
    
    21.55
    
    
    
    12,700
    
    
    
    20,201
    
    
    
    1.69Year 5
    
    
    7,498
    
    
    
    0.50
    
    
    
    22.84
    
    
    
    10,400
    
    
    
    17,898
    
    
    
    1.39Year 6
    
    
    7,501
    
    
    
    0.59
    
    
    
    24.63
    
    
    
    2,250
    
    
    
    9,751
    
    
    
    0.30Year 7
    
    
    7,502
    
    
    
    0.74
    
    
    
    27.49
    
    
    
    800
    
    
    
    8,302
    
    
    
    0.11Year 8
    
    
    7,500
    
    
    
    0.54
    
    
    
    17.87
    
    
    
    925
    
    
    
    8,425
    
    
    
    0.12Year 9
    
    
    2,521
    
    
    
    0.33
    
    
    
    12.10
    
    
    
    198
    
    
    
    2,719
    
    
    
    0.08Total
    
    
    61,075
    
    
    
    0.59
    
    
    
    23.99
    
    
    
    74,074
    
    
    
    135,149
    
    
    
    1.21
 Gold and Silver Production: A summary of annual estimated gold and silver production from the Development
Plan is presented in Table H. Estimated life-of-mine recovered ounces total
721,946 ounces of gold and 16.9 million ounces of silver. TABLE H
SUMMARY OF ANNUAL PRECIOUS METAL PRODUCTION SilverGold
    
    OuncesOunces
    
    (thousands)Estimated Annual ProductionYear 1
    
    
    63,779
    
    
    
    1,580Year 2
    
    
    87,519
    
    
    
    2,091Year 3
    
    
    91,831
    
    
    
    2,076Year 4
    
    
    93,309
    
    
    
    1,938Year 5
    
    
    83,897
    
    
    
    2,008Year 6
    
    
    95,502
    
    
    
    2,167Year 7
    
    
    108,541
    
    
    
    2,466Year 8
    
    
    72,633
    
    
    
    1,833Year 9
    
    
    23,126
    
    
    
    645Year 10
    
    
    1,809
    
    
    
    78Total
    
    
    721,946
    
    
    
    16,882
 A general layout of the Cerro San Pedro mine facilities as proposed under the
Development Plan is presented in Figure 2. 33




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Figure 2. General Layout of the Mine and Facilities (CERRO SAN PEDRO PROJECT) 34




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Mining Operations The Cerro San Pedro Project will be developed as an open pit mine producing
run-of-mine ore that will be heap leached with precious metal recovery using a
Merrill-Crowe plant to produce gold/silver doré on site. Ore will be hauled
directly from the pit to the leach pad via a 2 kilometre haul road. The leach
pad will have the capacity for 61 million tonnes of ore and the precious metals
are recovered from the pregnant heap leach solution using a typical
Merrill-Crowe zinc precipitation plant. Metal production is expected to be
about 63,800 ounces of gold and 1.6 million ounces of silver in the first year
and then average 90,400 ounces of gold and 2.1 million ounces of silver for
Years 2 through 8 with production tapering off in years 9 and 10. A summary of the major production, cost, and economic projections are presented
in Table I TABLE I
SUMMARY OF PRODUCTION, AND COST PROJECTIONS Open Pit Mining /FLOWSHEET
    
    ROM LeachingORE RESERVES(1)Tonnes of Ore
    
    
    61,100,000Grade of Gold (g/t)
    
    
    0.59Grade of Silver (g/t)
    
    
    24.0 g/tWaste to Ore Ratio
    
    
    1.21Contained Gold (oz)
    
    
    1,150,295Contained Silver (oz)
    
    
    47,112,000PRODUCTION DATAMining Life (years)
    
    
    8.3Operating Life (years)
    
    
    10 to 11Total Recovered Au (oz)
    
    
    722,000Total Recovered Ag (oz)
    
    
    16,900,000Average Au Recovery (%)
    
    
    62.8Average Ag Recovery (%)
    
    
    35.8Average Annual Gold Production (oz)
    
    
    90,500Average Annual Silver Production (oz)
    
    
    2,082,000COST DATA (2)Initial Capital Cost (to production)
    
    $
    28,200,000Total Capital Cost (over project life)
    
    $
    32,200,000Mining Cost per tonne of ore
    
    $
    2.11Processing Cost per tonne of ore
    
    $
    0.98G & A Cost per tonne of ore
    
    $
    0.38Total Cost per tonne of ore
    
    $
    3.47G. I.(3) Total Cash Costs per oz. of gold
    
    $
    163G.I. Total Production Costs(4) per oz. of gold
    
    $
    215
  (1)
    
    at a $325 /oz gold price and a $4.62 / oz silver price(2)
    
    at a $350 /oz gold price and a $5.00 / oz silver price(3)
    
    G. I. Total Cash Costs means cash operating costs as defined by the Gold
Institute. The cash operating cost as defined by the Gold Institue is
calculated by using all direct mining expenses, transportation, refining,
and all royalties as the cost basis. From the cost basis, silver revenues
are subtracted and the resultant cost is divided by the actual number of
gold ounces produced. Cash operating costs do not include depreciation,
amortization or reclamation costs.(4)
    
    G.I. Total Production Costs are calculated in a similar manner to cash
operating costs but depreciation, amortization and reclamation costs are
included in the cost basis. The Washington Group Cerro San Pedro Project economic model at metal prices of
US$350/oz gold and US$5.00/oz silver indicates a Net Present Value of US$35.7
million at a 5 percent discount rate with an 23.6 percent Internal Rate of
Return. A fixed gold to silver ratio of 70:1 has been used. 35




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##### Table of Contents



2004 Work Program The Companys focus for 2004 will continue to be the construction of its Cerro
San Pedro heap-leach gold and silver project in central Mexico. Construction
began in February 2004 and is expected to take approximately nine months to
complete at a total cost of approximately $28.2 million, plus $3.0 million for
project working capital. The mine is currently on schedule to make its first
gold pour by the end of 2004 with commercial production commencing in 2005. The Company has initiated an exploration program to explore the deep
polymetallic and porphyry sulfide potential in the southern part of the Cerro
San Pedro district. Four drill targets in this area have been identified. MSX
has budgeted $450,000 in 2004 to further evaluate the area and conduct a deep
three-hole drilling program. Successful execution of the planned exploration
program will depend, in part, on the Companys ability to acquire certain land
holdings that surround its holdings in the district, and a favorable resolution
of MSXs appeal of the Ejido Cerro San Pedro judgement discussed under Surface
and Water Rights Acquisition. The El Morro Project, Chile Project Location The El Morro Project comprises 21,999 ha and is located in the Municipality of
Alto del Carmen, Huasco Province, Third Region of Atacama in northern Chile
(see Figure 3 below). The project is about 650 Km north of Santiago and some 80
Km east of the city of Vallenar. FIGURE 3: EL MORRO PROJECT LOCATION MAP (EL MORRO PROJECT MAP) 36




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The Company entered into an exploration agreement (the Exploration Agreement)
with Noranda to conduct an exploration program on the El Morro project in
September 1999. In February 2000 the agreement was amended and provides for
Noranda to earn up to a 70% interest in the project by making aggregate
exploration and development expenditures of $10 million over a five-year period
beginning September 1999 and a payment to the Company by September 14, 2005 of
$10 million. Noranda is also required to complete a bankable feasibility study
for the project by September 2007. Furthermore, if requested by the Company,
Noranda has the obligation to finance 70% of the Companys 30% of the capital
required to develop the project at one percentage point over Norandas cost of
financing. Noranda has advised the Company that as of December 31, 2003, it had incurred
exploration and development costs on the project totaling approximately $11
million. Noranda continues to be obligated to maintain the property in good
standing and fund all holding and exploration costs until it either it makes
the $10 million payment to the Company that is due on or before September 14,
2005, or forfeits its option to earn a 70% interest in the project. Mineral Property Summary In Chile, mineral rights are granted by ordinary courts of justice in the form
of mining concessions. Any person, whether a Chilean national or a foreigner,
may apply for the granting of mining concessions subject to compliance with the
requirements provided for under Chilean law. The holder of a mining concession
is protected by the ownership right on such concession. The right over the
concession, which is independent from the ownership right on the surface land,
is transferable and may be subject to mortgage. The mining concession entitles
its holder to dispose of all mineral resources contained within its boundaries. Mining concessions are of two types: (i) An Exploration Concession, whereby the holder is legally entitled to
explore for mineral substances in a certain area for a period of two years, at
the expiration of which the concession may be extended for an additional two
year period if the area covered by the concession is reduced by half and
provided the applicable annual tax is paid. (ii) An Exploitation Concession, whereby the holder is legally entitled to
exploit mineral substances contained therein for an indefinite period of time
subject to payment of the annual tax. The holder of an Exploration Concession has the exclusive right to initiate the
procedure to obtain an Exploitation Concession within the boundaries and during
the time period of the Exploration Concession. The holder of each type of
mining concession is entitled by law to impose easements on the surface land in
order to facilitate mining exploration or exploitation activities. Any
compensation to be paid to the owner of the surface land for the easement is to
be determined by mutual agreement or, failing such agreement, by the court. The
acquisition of mineral interests in Chile is normally initiated either through
the filing of an application to the courts to obtain the granting of new mining
concessions or by acquiring existing mining concessions through option to
purchase agreements or other means. The legal procedure to obtain the granting of a new mining concession is
regulated in detail in the Chilean Mining Code. A special characteristic of
this judicial procedure is that the applicant is required to be active and to
expedite the proceeding in order to comply with deadlines established in the
Chilean Mining Code for the performance of certain tasks to be fulfilled in
order to obtain the grant of the concession. The judge has an active role, and
the proceeding may become contentious in some cases (i.e., in the event of
third party opposition to the survey petition). Of the total El Morro project area of 21,999 ha, mining concessions cover
16,549 ha at the following stage of the permit granting process: 
    
    Mining Exploitation Concessions:
    
    Metallica 1,160 ha
 37




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##### Table of Contents




    
    Mining Exploitation Concessions:
    
    Acquired 366.01 ha under Purchase Options
    
    Mining Exploitation Concessions:
    
    BHP 1,849 ha
    
    Exploration Concessions:
    
    13,400 ha
    
    Mining Exploitation Concessions:
    
    12,700 ha
    
    Mining Exploitation Concessions:
    
    300 ha
 Some of these groups of concessions form various protection layers that
overlap. Surface rights at the El Morro project are held by the Los Huasco Altinos, a
grazing and livestock cooperative. Los Huasco Altinos has granted Noranda an
easement and right-of-way to conduct exploration work at the El Morro project. 2,215 Hectares at the El Morro project are controlled through five option to
purchase agreements, two of which were executed by the Company and three of
which were executed by Noranda. Since September 1999, all payments pursuant to
the option to purchase agreements have been made by Noranda pursuant to its
earn-in requirement under the Exploration Agreement. The option to purchase
agreements are summarized as follows: 1) Minera Metallica Limitada and Rene Martin Jure Option to Purchase Agreement Parties Minera Metallica Limitada, a wholly-owned subsidiary of the Company, and Rene
Martin Jure on behalf of Legal Mining Companies Cantarito Uno de la Sierra
Juntas de Cantarito de la Estancia Huasco Alto and Tronquito uno de la Sierra
Portezuelo de Cantarito de la Estancia Huasco Alto (Martin) Properties The concessions comprising the Cantarito and Tronquito mining properties have a
combined area of approximately 305 hectares. Term On June 4, 1998, Metallica and Martin executed an option to purchase contract
whereby Martin agreed irrevocably, to sell, assign or transfer the mining
properties to Metallica. Price The total purchase price amounts to $1,500,000, payable in five installments,
according to the following schedule: $20,000, paid upon deed execution
$30,000, paid on June 4, 1999
$75,000, paid on June 4, 2000
$150,000, paid on June 4, 2001
$1,225,000, paid on December 28, 2001 Of the total purchase price of $1,500,000, $1,450,000 has been paid by Noranda
pursuant to its earn-in requirement under the Exploration Agreement and $50,000
has been paid by Metallica. Rene Martin Jure has retained a 2% NSR royalty on any mining that occurs on the
Cantarito and Tronquito mining concessions 2) Minera Metallica Limitada and BHP Chile Inc. Option to Purchase Agreement Parties Minera Metallica Limitada and BHP Chile Inc. Properties The concessions comprising the BHP Chile Inc. (BHP) properties have a
combined area of approximately 1,849 hectares. 38




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##### Table of Contents



Term On September 2, 1999, Metallica and BHP executed an option to purchase contract
whereby BHP agreed irrevocably, to sell, assign or transfer the mining
properties to Metallica. The option was exercised when Noranda made the final
$500,000 purchase price payment to BHP in July 2003. Price The total purchase price amounts to $1,690,000, payable in five installments,
according to the following schedule: $40,000, paid upon deed execution
$150,000, paid on July 31, 2000
$500,000, paid on July 31, 2001
$500,000, paid on July 31, 2002
$500,000, paid on July 31, 2003 Of the total purchase price of $1,500,000, $1,650,000 has been paid by Noranda
pursuant to its earn-in requirement under the Exploration Agreement and $40,000
has been paid by Metallica. BHP Chile Inc. has retained a 2% NSR royalty on any mining that occurs on the
BHP Chile mining concessions. 3) Noranda Chile S.A. and Santiago del Carmen Cayo Salinas Option to Purchase
Agreement Parties Noranda Chile S.A. and Santiago del Carmen Cayo Properties Mr. Santiago del Carmen Cayo Salinas (Santiago Cayo) currently owns eleven
shares (representing a 33 1/3% ownership interest) of Legal Mining Company,
Santa Julia Uno de la Sierra Fortuna, which is the owner of the exploitation
concession Santa Julia 13 that has a combined area of approximately 61
hectares. Term On October 20, 2000, Santiago Cayo and Noranda executed an option to purchase
contract whereby Santiago Cayo agreed irrevocably, to sell, assign or transfer
one hundred percent of the eleven shares Santiago Cayo currently holds and
those it might acquire in the future in Legal Mining Company, Santa Julia Uno
de la Sierra Fortuna. Price The total purchase price amounts to $30,000 for the shares, payable according
to the following schedule: $5,000, paid upon deed execution
$5,000, paid on October 19, 2001
$20,000, paid on October 19, 2001 The $30,000 purchase price has been paid and the option exercised by Noranda. Santiago Cayo will receive a production bonus equal to $133,333 within two
years of commencement of mining on the Santa Julia concessions 1-3. 4) Noranda Chile S.A. and Luis Alberto Cayo Salinas Option to Purchase
Agreement Parties Noranda Chile S.A. and Luis Alberto Cayo Salinas Properties Mr. Luis Alberto Cayo Salinas (Luis Cayo) currently owns eleven shares
(representing a 33 1/3% ownership interest) in Legal Mining Company, Santa
Julia Uno de la Sierra Fortuna, which is the owner of the exploitation
concession Santa Julia 1-3 that has a combined area of approximately 61
hectares. 39




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##### Table of Contents



Term On October 20, 2000, Luis Cayo and Noranda executed an option to purchase
contract whereby Luis Cayo agreed irrevocably, to sell, assign or transfer the
one hundred percent of the eleven shares Luis Cayo currently holds and those it
might acquire in the future in Legal Mining Company, Santa Julia Uno de la
Sierra Fortuna. Price The total purchase price offer amounts to $30,000 for the shares, payable
according to the following schedule: $5,000, paid upon deed execution
$5,000, paid on October 19, 2001
$20,000, payable as of October 20, 2002, was paid on October 19, 2001. The $30,000 purchase price has been paid and the option exercised by Noranda. Luis Cayo will receive a production bonus equal to $133,333 within two years
of commencement of mining on the Santa Julia concessions 1-3. 5) Noranda Chile S.A. and Johnny Cayo Salinas and Others Option to Purchase
Agreement Parties Noranda Chile S.A. and Johnny Cayo Salinas and Others Properties Mr. Johnny Cayo Salinas and others (Cayo Villalba Brothers) currently own
eleven shares (representing a 33 1/3% ownership interest) in Legal Mining
Company, Santa Julia Uno de la Sierra Fortuna, which is the owner of the
exploitation concession Santa Julia 1-3 that has a combined area of
approximately 61 hectares. Term On February 5, 2001, Johnny Cayo Salinas and Noranda executed an option to
purchase contract whereby Johnny Cayo Salinas agreed irrevocably, to sell,
assign or transfer the one hundred percent of the eleven shares Cayo Villalba
Brothers currently hold and those it might acquire in the future in Legal
Mining Company, Santa Julia Uno de la Sierra Fortuna. Price The total purchase price offer amounts to $25,000 for the shares, payable
according to the following schedule: $4,000, paid upon deed execution
$3,000, payable as of February 5, 2002
$18,000, payable as of October 20, 2002 The $25,000 purchase price has been paid and the option exercised by Noranda. Cayo Villalba Brothers will receive a production bonus equal to $133,333
within two years of commencement of mining on the Santa Julia concessions 1-3. Mineral Property Legal Issues Ownership of nine concessions within the El Morro land package were in dispute
with Compañía Minera Hornitos (Hornitos). The Company filed five separate
lawsuits in August 2000 covering five concessions alleging that Hornitos
furnished false survey records in its court filings, and landmarks or boundary
stones were never constructed. All five lawsuits were ultimately resolved in
favor of the Company with Hornitos alleged rights to the concessions being
revoked in November 2001. The Company filed four lawsuits in 2001 to annul Hornitos alleged ownership
claims to the four disputed concessions that were not covered in the original
lawsuits. During May and June 2002, the 1st Court of First Instance of
Vallenar disallowed the Companys four petitions for annulment. These
judgments were 40




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##### Table of Contents



appealed by the Company, and in March 2003, the Court of Appeals of Copiapó
ruled in favor of the annulment lawsuits filed by the Company. Hornitos
subsequently filed an appeal to the Supreme Court in Santiago. In October
2003, one of the appeals filed by Hornitos was rejected by the Supreme Court.
The remaining three appeals are pending and a ruling is expected in 2004. The
area of conflict does not affect any of the known mineralized zones at the El
Morro project. On April 2002, a number of non-authorized independent miners (pirquineros)
commenced small-scale mining operations in the project area. Norandas
representatives submitted a claim before the Public Ministry to remove the
pirquineros from the area. In August 2002, the police visited the area,
gathering information, and subsequently detained 19 pick-up trucks and minerals
at a treatment plant in Copiapó. Noranda and the attorney of the miners held
several meetings with the local authorities in order to obtain a solution
granting Norandas rights. In October, an agreement between Noranda and 64
miners was executed before the local authorities, setting the following
conditions:  
    
    Noranda would suspend the criminal process against miners who
subscribed to the agreement.
    
    Noranda would allow the restitution of the minerals and equipment retained by the Court
    
    The miners would not go back to the project area.
    
    The new access road for the pirquineros would be closed.
    
    Court cases would continue against any of the miners that carry on with the illegal activities. Claims before the Court of Vallenar were pursued against the miners who did not
sign the agreement mentioned above and who were still working at the El Morro
project. In February 2004, Noranda reached an agreement with the remaining pirquineros
whereby Noranda agreed to drop its criminal lawsuits against the pirquineros,
in exchange for the pirquineros agreeing to leave the project area. The
pirquineros were also allowed to retain any mineralized material that had been
mined and was in their possession. Environmental Permitting The National Environmental Committee (CONAMA) and Regional Environmental
Committees (COREMAs) are the agencies responsible for environmental management
in Chile. For a project or activity to be environmentally evaluated, it must
be submitted into the Environmental Impact Evaluation System (SEIA), and the
CONAMA is responsible for administrating the environmental impact evaluation
procedures. Both exploration and mine development projects are included. The
type of assessment required for each project can be either of the following:  
    
    an Environmental Impact Assessment (EIA)
    
    an Environmental Impact Declaration (DIA) In broad terms, an EIA in Chile is comparable with international guidelines for
an EIA and is required if there is sufficient reason for speculating that the
project may produce certain specified environmental impacts. A DIA, on the
other hand, is a document that establishes, via a description of the project
and its surrounding environment, that the project will comply with current
norms and environmental standards. A DIA for the El Morro project was filed in
Copiapo before the CONAMA  III Region on October 5, 2001. The scope of the
permit was an advanced exploration and evaluation stage by the use of drilling
for a period of the next three years. A favorable Environmental Qualification
Resolution (RCA) was received on December 28, 2001. Geology 41




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The El Morro district is located within a 16-kilometer wide north-south
trending graben structure that was uplifted by major reverse faults. The
western graben-fault could correspond to the south extension of the Domeyko
fault system, the main controlling feature for the northern Chile copper
porphyry belt, represented by the Collahuasi, Quebrada Blanca, El Abra,
Chuquicamata, La Escondida, El Salvador and Potrerillo mines. The El Morro-La
Fortuna copper-gold-molybdenum mineralization may represent the southernmost
extension of the classic Chilean Oligocene porphyry copper belt, more than 300
kilometers south of the Potrerillos district. The basement rocks within the graben are made up of Paleozoic to Permo-Triassic
crystalline and volcanic rocks. The Permo-Triassic basement rocks are strongly
folded to the west, along the fault contact that thrusts these volcanic rocks
on top of Jurassic red beds. To the east the Permo-Triassic rocks are covered
in erosional unconformity by Triassic-Jurassic rocks. The Triassic-Jurassic
sediments as well as the overlying volcanic-pyroclastic Paleocene-Eocene
sequence have been intensely folded, forming overturned anticlines and
synclines. In the central part of the district, all the Permian to Eocene
sequences are intruded by a series of granodioritic to dioritic porphyrtic
stocks and dikes, possibly Oligocene in age. Miocene, dacitic ignimbrite flows
cover all the rock types described above. The ignimbrites are covered by a
thick sequence of Atacama Gravels, assigned to Miocene-Pliocene age. El Morro Area The El Morro project presently consists of two principal target areas: the El
Morro area and the La Fortuna area. Based on field observations, the
stratigraphy is grouped into three broad units: a Permo-Triassic basement,
Jurassic (possibly Cretaceous) and Tertiary rocks. The Permo-Triassic basement
rocks are composed mainly of rhyolitic crystal to lapilli tuffs and
ignimbrites, with minor interstratified dacite flows. The younger Jurassic (or
Cretaceous) rocks consist of a volcano-sedimentary package of interbedded
dacite tuffs, sandstones, conglomerates, and volcaniclastic rocks. To the west
of the project area, these units are covered with Tertiary dacitic ignimbrites
and andesitic tuffs, agglomerates and flows. At least two major, northeast trending faults are visible along the contact
zone between the Jurassic and the Tertiary units. Andesitic dikes, sills and small stocks intrude the Jurassic and Tertiary units
with frequent porphyritic texture, but of pre-mineral origin. Independently
from the andesites, a granodioritic porphyry of limited surface distribution
was identified in outcrop and in diamond drill core. This porphyry has been
described as a biotite  amphibole granodiorite. Besides the granodiorite
porphyry, petrographic studies on surface and core samples have also recognized
another intrusive unit in this area, a dacite porphyry (feldspar, biotite) of
difficult macroscopic identification because of the fine-grained texture and
high level of hydrothermal alteration of the rock. Within the Triassic basement, local graben structures are filled with and have
preserved younger stratified rocks, going from marine sequences to continental

volcano sedimentary units. The El Morro area lies in one of these graben
basins, at the intersection of the main NS  NE system. A sheeted vein pattern
visible at the El Morro mineralized zone trends to the NW. Other intrusive
bodies like andesite and porphyry dykes, follow the same pattern, with NW and
NE directions. La Fortuna Area La Fortuna is a classic copper/gold porphyry-type deposit found in the
Eocene-Oligocene Porphyry Copper Belt of northern Chile. Mineralization is
related to cylindrical, multistage subvolcanic intrusions of granodioritic to
dioritic composition, emplaced in a gently east dipping sequence of andesitic
conglomerate, tuffs and sediments. Multistage intrusions are present at La Fortuna, related to Oligocene
sub-volcanic igneous activity, which is at the origin of all the mineralized
porphyries in the district. 42




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##### Table of Contents



Exploration BHP Minerals, Metallica and Noranda have conducted drilling programs on the El
Morro project. A total of 43,796 meters consisting of 151 reverse circulation
and core holes have been drilled on the project through April 2004. Since
September 1999, all exploration drilling on the El Morro project has been
conducted by Noranda pursuant to its earn-in requirement under the Exploration
Agreement. As of December 31, 2002 Noranda had informed the Company that it
had spent approximately $10 million on exploration activities at the El Morro
project. A summary of drilling programs conducted on the El Morro project is
presented below in Table J: TABLE J SUMMARY OF DRILLING PROGRAMS  EL MORRO PROJECT
EXPLORATION TARGET AREA Company
    
    La Fortuna
    
    Cantarito
    
    Camp
    
    El Negro
    
    El Morro
    
    Other
    
    TotalDDH
    
    RDH
    
    DDH
    
    RDH
    
    DDH
    
    RDH
    
    DDH
    
    RDH
    
    DDH
    
    RDH
    
    RDH
    
    DDH
    
    RDH400.30
    
    
    
    (6
    )
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400.30
    
    
    
    (16
    )BHP1993
    
    
    (1
    )
    
    
    1327.90
    
    
    
    
    
    
    
    997.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    2324.901071.15
    
    
    
    (7
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1071.15
    
    
    
    (12
    )BHP1994
    
    
    (7
    )
    
    
    768.00
    
    
    
    
    
    
    
    379.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    1247.00Metallica
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    500.10
    
    
    
    (7
    )
    
    
    
    
    
    
    500.10
    
    
    
    (17
    )1999
    
    
    
    
    
    
    908.00
    
    
    
    
    
    
    
    340.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    418.00
    
    
    
    (1
    )
    
    
    1547.00
    
    
    
    
    
    
    
    (1
    )
    
    
    3213.00Noranda
    
    
    1159.91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199.16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2949.32
    
    
    
    
    
    
    
    
    
    
    
    4308.392000
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )Noranda
    
    
    9384.93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904.40
    
    
    
    
    
    
    
    4971.65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15260.982001
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )Noranda
    
    
    8247.65
    
    
    
    (5
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    748.55
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )
    
    
    (10
    )
    
    
    8996.20
    
    
    
    (22
    )2002
    
    
    (16
    )
    
    
    1538
    
    
    
    
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    912
    
    
    
    
    
    
    
    1094
    
    
    
    2536
    
    
    
    (19
    )
    
    
    6474.00Total (m)
    
    
    20263.94
    
    
    
    4541.90
    
    
    
    
    
    
    
    2110.00
    
    
    
    1103.56
    
    
    
    
    
    
    
    5720.20
    
    
    
    1430.00
    
    
    
    3449.42
    
    
    
    2641.00
    
    
    
    2536.00
    
    
    
    30537.12
    
    
    
    13258.90
 Legend:
  DDH - Diamond core drill hole
  RDH - Reverse circulation drill hole
  (*) - Represents number of holes drilled Cantarito, El Negro, Camp and Other Target Areas From 1993 through 2002 approximately 58 holes totaling 12,900 meters had been
drilled to test target areas identified as Cantarito, El Negro, Camp and Other.
Although some of these holes encountered intercepts of encouraging
mineralization, additional drilling at these areas has failed confirm the
continuity of significant metal values. El Morro Area The El Morro area is located approximately five kilometers west of the La
Fortuna area. During the first quarter of 1999, Metallica drilled seven wide-spaced reverse
circulation holes to test the El Morro property. One hole, RDM-2, encountered
mineralization averaging 0.64% Copper, 0.22 grams per tonne gold and 148 ppm Mo
over a 192-meter interval from 76 meters to 268 meters. During April 1999, a
500-meter deep core hole was drilled to twin reverse circulation hole RDM-2.
The copper and gold assays of the twin core hole were approximately 20% higher
when compared to the reverse circulation hole. In early 2000, Noranda completed a 4,300-meter, 16-hole drilling program on the
El Morro project. On the El Morro property, Noranda drilled 11 core holes
totaling 2,949 meters. Although Norandas drilling did not intercept the
grades or widths of the Companys discovery hole RDM-2, the drilling results
did show persistent secondary copper mineralization grading in the 0.2% to 0.5%
range over widths ranging from 75 to 200 meters. Noranda reported that the
drilling intersected no intrusive porphyritic units, only rocks considered to
be wall rocks to the porphyry system. In November 2000, Noranda began a second
phase of drilling on the El Morro project, none of which took place at the El
Morro area. 43




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The objective of Norandas 2002 drilling program at the El Morro area was to
test known mineralization and geophysical targets. In 2002 three new holes had
been drilled at the El Morro area. One of these holes, RDM-9, was drilled
within the northeast portion of a projected mineralized area approximately
1,000 meters in length by 400 meters in width. RDM-9 intersected a 50 meters
of secondary mineralization grading 0.91% copper and 0.58 g/t gold, and 170
meters of primary mineralization grading 0.45% copper and 0.27 g/t gold. In January 2004, Noranda presented the Company with an inferred resource
estimate for the El Morro area of the El Morro project. The inferred resource
estimate was drill tested on approximately 200-meter centers on an area
approximately 1.2 kilomters by 1.2 kilometers, consisting of 22 diamond and RC
drill holes totaling 6,090 meters. Surface elevations vary from 3,850 to 4,250
meters with the deepest hole tested to an elevation of 3,415 meters. The
deposit is not fully delineated and remains open to the west, northwest and the
east. The Qualified Person who supervised the design and conduct of work
performed on the El Morro property is Stanley Clemmer, Senior International
Geologist for Noranda Chile Ltda. Noranda El Morro Area Inferred Mineral Resource Estimate  2004 0.2% Copper Cutoff
    
    0.3% Copper Cutoff
    
    0.4% Copper CutoffTonnes
    
    Copper
    
    Gold
    
    Tonnes
    
    Copper
    
    Gold
    
    Tonnes
    
    Copper
    
    Gold(000s)
    
    (%)
    
    (g/t)
    
    (000s)
    
    (%)
    
    (g/t)
    
    (000s)
    
    (%)
    
    (g/t)Supergene
    
    
    80,000
    
    
    
    0.39
    
    
    
    0.15
    
    
    
    50,000
    
    
    
    0.47
    
    
    
    0.18
    
    
    
    35,000
    
    
    
    0.52
    
    
    
    0.20Primary
    
    
    110,000
    
    
    
    0.30
    
    
    
    0.10
    
    
    
    50,000
    
    
    
    0.36
    
    
    
    0.10
    
    
    
    10,000
    
    
    
    0.44
    
    
    
    0.12Total
    
    
    190,000
    
    
    
    0.34
    
    
    
    0.12
    
    
    
    100,000
    
    
    
    0.41
    
    
    
    0.14
    
    
    
    45,000
    
    
    
    0.50
    
    
    
    0.18
 Norandas 2004 Inferred Mineral Resource estimate for the El Morro area has
been determined in accordance with CIM Definitions on Mineral Resources and
Mineral Reserves. La Fortuna Area At the La Fortuna area, consistent but sub-economic copper and gold
mineralization was encountered by BHP. During the spring of 1999, Metallicas
initiated a drilling program at La Fortuna proper that consisted of four holes
totaling 594 meters and resulted in only anomalous metal values. In early 2000
Noranda drilled a total of five core holes on the La Fortuna area totaling
1,350 meters. One hole (DDHF-04) intersected a 70-meter chalcocite enriched
zone grading 1.15% copper and 0.35 g/t gold. The remaining holes encountered
lesser amounts of mineralization and were mineralized at depth. In November
2000 Noranda began a second round of drilling in the La Fortuna area that
included 23 holes at La Fortuna totaling 10,197 meters that encountered
significant continuity of metal values. Based on the results from the 2000 and 2001 drilling programs, Noranda
calculated an inferred mineral resource estimate in accordance with CIM
Definitions on Mineral Resources and Mineral Reserves for the La Fortuna area
of 410,000 million tonnes of grading 0.61% copper and 0.56 grams of gold per
tonne, at a 0.4% copper cut-off grade. The inferred resource estimate was diamond drill tested on approximately
200-meter centers by Noranda and was based on 10,545 meters of drilling in 25
holes. The resource, as currently defined, includes an area of approximately
600 meters by 800 meters of higher-grade mineralization that extends to a
vertical depth of more than 600 meters. The resource remains open to the
north, northwest and at depth. The resource estimate study was conducted using Gemcom software under the
supervision of qualified Noranda professionals. The estimate is based on a
block model with a block size of 20 meters on a side. The copper and gold
values were interpolated using an inverse distance algorithm. The supergene
zone, also modeled in three dimensions, was interpolated separately from the
primary zone. All drill core samples were assayed by Bondar Clegg, an independent laboratory
located in Coquimbo, Chile. Gannet certified standards were used to ensure
assay quality. The analytical method was assay analysis for the copper and
fire assay with an atomic absorption finish for the gold values. Norandas
Drill Core Sampling 44




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##### Table of Contents



and Analysis Protocols, developed through Norandas Six Sigma process, are
employed to ensure quality assurance and quality control. ALS Chemex in
Vancouver, Canada analyzed selected bulk rejects and pulps as part of the
quality assurance program. The Qualified Person who supervised the design and
conduct of work performed on the El Morro property is Stanley Clemmer, Senior
International Geologist for Noranda Chile Ltda., and John Sullivan, former
Director of the El Morro project for Noranda Chile Ltda. The objective of Norandas 2002 drilling program at La Fortuna was to expand
the previously identified mineralized area, which remained open to the north,
northwest and at depth. Noranda drilled 21 holes totaling 9,786 meters in 2002.
One hole, DDHF-39, encountered mineralizaton averaging 0.65% copper and 0.53
grams of gold per tonne over its entire 970-meter length. Based on the
encouraging results from the 2002 drilling program at La Fortuna, Noranda Inc.
completed an update to its 2001 inferred mineral resource estimate for the La
Fortuna area as follows: TABLE K
Noranda La Fortuna Area Inferred Mineral Resource Estimate  2002 0.3% Copper Cutoff
    
    0.4% Copper Cutoff
    
    0.5% Copper CutoffTonnes
    
    Copper
    
    Gold
    
    Tonnes
    
    Copper
    
    Gold
    
    Tonnes
    
    Copper
    
    Gold(000s)
    
    (%)
    
    (g/t)
    
    (000s)
    
    (%)
    
    (g/t)
    
    (000s)
    
    (%)
    
    (g/t)Supergene
    
    
    122,000
    
    
    
    0.66
    
    
    
    0.32
    
    
    
    103,000
    
    
    
    0.71
    
    
    
    0.35
    
    
    
    85,000
    
    
    
    0.77
    
    
    
    0.37Primary
    
    
    468,000
    
    
    
    0.53
    
    
    
    0.50
    
    
    
    362,000
    
    
    
    0.58
    
    
    
    0.54
    
    
    
    255,000
    
    
    
    0.64
    
    
    
    0.56Total
    
    
    590,000
    
    
    
    0.56
    
    
    
    0.46
    
    
    
    465,000
    
    
    
    0.61
    
    
    
    0.50
    
    
    
    340,000
    
    
    
    0.67
    
    
    
    0.51
 The 2002 inferred mineral resource estimate is calculated down to an elevation
of 3,400 meters, or 100 meters deeper than Norandas 2001 inferred resource
estimate. One diamond drill hole, DDHF-39, continues in strong mineralization
to an elevation of 3,073 meters or over 325 meters below the 2002 inferred
resource estimate. Norandas 2002 Inferred Mineral Resource estimate for the La Fortuna area has
been determined in accordance with CIM Definitions on Mineral Resources and
Mineral Reserves. The resource estimate study was conducted using Gemcom software under the
supervision of qualified Noranda professionals. The estimate is based on a
block model with a block size of 20 meters on a side and a 15 meters vertical
bench height. The copper and gold values were interpolated using an ordinary
kriging algorithm. The primary and supergene zones were interpolated
separately for copper and in combination for gold. All drill core samples were assayed by ALS Chemex (Chile) S.A., an independent
laboratory located in Coquimbo, Chile. Gannet certified standards were used to
ensure assay quality. The analytical method was assay analysis for the copper
and fire assay with an atomic absorption finish for the gold values. Norandas

Drill Core Sampling and Analysis Protocols, developed through Norandas Six
Sigma process, were employed to ensure quality assurance and quality control.
Geoanalitica, another independent laboratory located in Coquimbo, Chile
analyzed selected bulk rejects and pulps as part of the quality assurance
program. 2004 Work Program Although Noranda has spent the required $10 million on exploration and
development at the El Morro project as required under the Exploration
Agreement, Noranda is still required to maintain the project in good standing
and fund all project related costs until it either pays Metallica $10 million,
which is due on or before September 14, 2005, or forfeits its option to acquire
a 70% interest in the project. Noranda has informed the Company that it
intends to spend approximately $1.7 million on the El Morro project in 2004.
This includes an 8,000-meter diamond-drilling program scheduled for the fourth
quarter of 2004. 45




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##### Table of Contents



The MIMK and Other Projects, Chile Project History and Exploration In 2000 the Company initiated the MIMK project in Chile. The purpose of the
program was to identify and acquire projects similar to the El Morro project by
expanding the satellite spectra information that had been gathered over the El
Morro project. Thirty-four anomalous zones were identified in an area
approximately 90 kilometers by 100 kilometers and located south and west of the
El Morro project. These anomalies were then prioritized based on size,
location, geological features and availability. Fifteen of these anomalies were
ultimately acquired by staking. Further evaluation and prioritization reduced
the number of properties to six. During 2002, mapping and sampling continued on the six El Morro type anomalies.
As a result of this work, three of the properties were abandoned resulting in
a write-off of $21,000 and two properties were recommended for further work.
Encouraging results from detailed mapping, sampling and an induced polarization
(IP) geophysical survey at the Los Colorados MIMK property resulted in a
decision to drill the property in 2002. The Company conducted a 1,550 meter
drilling program consisting of six widely spaced holes. Although the drilling
did not intersect economic copper or gold mineralization, the data collected
from the drill holes was used by the Company to assist it in developing a
better geological understanding of the region. In 2003, the Company elected not to pursue additional work on the Los Colorados
property and wrote off its $674,364 investment in the property. Two other MIMK
properties with a carrying value of approximately $29,172 were also written off
in 2003, and four additional properties were acquired by staking. The MIMK
project currently consists of five properties with a carrying value of $41,741
at March 31, 2004. Other projects consist of two preliminary stage gold exploration properties in
Chile. The Company is in negotiations with various parties to acquire
additional land holdings that surround its present land positions. If the
Company is not successful in its efforts to secure additional land title, it
may drop these properties. These projects have a carrying value of $59,891. 2004 Work Program Based on the considerable knowledge gained from the El Morro deposit and the
MIMK project, the Company intends to continue with its systematic evaluation of
El Morro-type targets with the objective of advancing priority targets to the
drilling stage, along with its two other preliminary stage gold projects in
Chile. Approximately $491,000 has been budgeted for these projects in 2004.
This amount could materially change depending on the market conditions and the
Companys ability to secure additional land title. The budget does not include
a provision for drilling. The Mara Rosa Project, Brazil The Mara Rosa gold project was acquired from a subsidiary of Western Mining
Corporation in 1997 for $1.5 million. At December 31, 2001, the Company
wrote-off its $2.9 million investment in the project. In 2002, the Company
conducted a five-hole, 940-meter drilling program at Mara Rosa to test new
targets, but did not encounter any economic mineralization. In November 2003, the Company entered into an option agreement to sell its 100%
interest in the Mara Rosa project for $450,000. The Company has received
$350,000 of non-refundable option payments pursuant to the agreement. The
final $100,000 payment is due to the Company no later than July 20, 2004. If
the purchaser closes a $1 million equity financing on or before October 20,
2004, the Company is required to participate in the initial equity financing of
the purchaser for an aggregate subscription price of $100,000, provided that
the purchaser has satisfied the other terms of the option agreement. 46




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ITEM 5 Operating and Financial Review and Prospects Managements discussion and analysis (MD&A) has been prepared based on
current information available to the Company and provides a detailed analysis
of Metallica Resources Inc.s (the Company) business and compares its 2003
financial results with those of the two previous years. In order to gain a
better understanding of MD&A, it should be read in conjunction with the
Companys consolidated financial statements. The consolidated financial
statements have been prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP). For a reconciliation of measurement
differences to United States generally accepted accounting principles (U.S.
GAAP), see Note 13 to the consolidated financial statements. All amounts are
in U.S. dollars, except as otherwise indicated. Critical Accounting Policies The Companys accounting policies are described in Note 2 to the consolidated
financial statements. Management considers the following policies to be the
most critical in understanding the judgements and estimates that are involved
in the preparation of its consolidated financial statements and uncertainties
that could impact its results of operations, financial condition and cash
flows. Use of Estimates The preparation of the Companys financial statements, in conformity with
generally accepted accounting principles, requires that management make
assumptions and estimates that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management continually
evaluates its assumptions and estimates; however, actual amounts could
materially differ from those based on assumptions and estimates. Management has identified the following critical accounting estimates that
could have a material impact on the Companys financial statements: Mineral Properties and Deferred Costs: Mineral reserve estimates are imprecise and depend partly on statistical
inferences drawn from drilling and other data, which may prove to be
unreliable. Future production could differ dramatically from mineral
reserve estimates due to differences in actual mineralization and
mineralization estimated by sampling, variances in the grade of mineral
reserves, increases in mining, processing and reclamation costs, and
decreases in the market price of gold and/or silver. The Companys mineral reserves are limited to its Cerro San Pedro gold
and silver project in Mexico, and have been estimated by WLR Consulting
Inc. in accordance with Canadian Securities Administrators National
Instrument 43-101  Standards of Disclosure for Mineral Projects. The
mineral reserves at Cerro San Pedro are estimated at 61.1 million tonnes
grading 0.59 grams of gold and 24.0 grams of silver per tonne at a
waste-to-ore ratio of 1.2 to 1. This equates to 1.2 million ounces of
gold and 47 million ounces of silver. The mineral reserves have been
estimated using a gold price of $325 per ounce and a silver price of
$4.62 per ounce. Impairment assessment was performed using estimated long-term future gold
and silver prices of $350 per ounce and $5.00 per ounce, respectively.
Estimated long-term gold and silver prices were determined largely from
prices used by peers, current market prices, historical price trends and
analysts price expectations. Accounting for Stock Options: The Company follows the intrinsic value method of accounting for share
options granted to employees and directors as described in Note 2 to the
consolidated financial statements. If the Company had followed the fair
value method of accounting for share options granted to employees and
directors, the Company would have recorded additional compensation
expense totaling $339,367 and $61,248 for the years ended December 31,
2003 and 2002, respectively, as described in Note 7 to the consolidated
financial statements. 47




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##### Table of Contents



The fair value of share options used to calculate compensation expense
has been estimated using the Black-Scholes Option Pricing Model with the
following assumptions: 2003
    
    2002Risk free interest rate (Canada)
    
    3.6% to 4.4%
    
    
    4.5
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility of the Companys common shares
    
    75% to 87%
    
    
    110
    %Expected life of option
    
    5 years
    
    5 years
 Option pricing models require the input of highly subjective assumptions
including the expected price volatility of the Companys shares. Changes
in the subjective input assumptions can materially affect the fair value
estimate, and therefore, the existing models do not necessarily provide a
reliable measure of the fair value of the Companys share options Mineral Properties and Deferred Costs The Companys current business activity focus is on the exploration and, if
practicable, the development of precious and base metal deposits. All costs
relating to the Companys exploration activities, other than grass-roots
exploration, which is expensed as incurred, are capitalized until such time as
a decision is made to proceed with the development phase of each project. In
the event the Company elects to proceed with development of a project, the
capitalized exploration expenditures and subsequent development costs will be
depleted on the unit of production basis as the estimated total reserves are
mined. Management of the Company regularly reviews the carrying value of each
mineral property. Where information is available and conditions suggest
impairment, estimated future net cash flows from each property are calculated
using estimated future prices, proven and probable reserves, and operating,
capital and reclamation costs on an undiscounted basis. Reductions in the
carrying value of each property would be recorded when the net book value of
the property exceeds the estimated future net cash flows. Where estimates of
future net cash flows are not available and where other conditions suggest
impairment, management assesses if the carrying value can be recovered. As a
result of these potential write-offs and write-downs from exploration
activities, net income or loss of the Company may be volatile. U.S. GAAP The consolidated financial statements have been prepared in accordance with
Canadian GAAP. The primary measurement difference between Canadian and United
States GAAP in the consolidated financial statements relates to the accounting
treatment of exploration expenditures. Canadian GAAP allows for the
capitalization of exploration expenditures, whereas U.S. GAAP allows for the
capitalization of exploration or development expenditures only after such time
as proven and probable reserves have been determined. Had the consolidated
financials statements been prepared using U.S. GAAP, as reflected in Note 13 to
the consolidated financial statements, the Company would have reported
comprehensive losses of $1.22 million, $1.91 million and $2.17 million for the
three years ended December 31, 2003, respectively. A) Operating Results The Company has incurred losses in each of the last three years due to the lack
of an operating property or other revenue generating activity. Management
anticipates that net losses of the Company will continue for the next year as a
result of ongoing corporate general and administrative, exploration and
reclamation expenses, and write-downs of mineral properties and deferred costs.
With the acquisition of its joint venture partners 50% interest in the Cerro
San Pedro project in February 2003, the Company anticipates that this trend of
losses may reverse if, and when, gold and silver are produced from its
100%-owned Cerro San Pedro project in Mexico. Construction of the Cerro San
Pedro mine began in February 2004 and the first gold pour is anticipated to be
during the 4th quarter of 2004; however, there is no assurance that commercial
production from the Cerro San Pedro project will be achieved or that such
mining activities will be profitable. 48




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##### Table of Contents



Selected Annual Information 2003
    
    2002
    
    2001Total revenues
    
    $
    
    
    
    $
    
    
    
    $
    Net loss before discontinued operations and
extraordinary items
    
    $
    1,715,547
    
    
    $
    1,320,321
    
    
    $
    3,826,026Net loss
    
    $
    1,715,547
    
    
    $
    1,320,321
    
    
    $
    3,826,026Total assets
    
    $
    93,353,848
    
    
    $
    17,491,038
    
    
    $
    14,768,856Long-term liabilities
    
    $
    
    
    
    $
    
    
    
    $
    Net loss per
share before discontinued operations and extraordinary items
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.14Net loss per share
    
    $
    0.04
    
    
    $
    0.04
    
    
    $
    0.14
 The high net loss for the year ended December 31, 2001 results from a $2.89
million write-off of the Mara Rosa gold project. The increase in total assets
of $75.84 million at December 31, 2003 as compared to December 31, 2002
primarily results from two equity financings during 2003 for net proceeds of
$70.77 million, and acquisition debt of $5.96 million at December 31, 2003 to
acquire its joint venture partners 50% interest in the Cerro San Pedro
project. The selected annual information has been prepared in accordance with
Canadian GAAP. For a reconciliation to U.S. GAAP, see Note 13 to the
consolidated financial statements 2003 Compared with 2002 Since the Company does not own any interests in producing mineral properties or
have any other revenue generating activities, it does not have any operating
income or cash flow from operations. The Companys only significant source of
operating income is from interest earned on cash and cash equivalents, and
income from option payments. Interest income for the year ended December 31,
2003 increased to $0.16 million from $0.06 million in the preceding year. The
$0.1 million increase resulted from higher average invested cash balances in
2003 due to a $9.47 million private placement for shares and warrants that
closed in March 2003, and a $61.31 million public equity offering for shares
and warrants that closed in December 2003. The Companys only other source of
income was from option payments received in 2003 totaling $0.15 million for the
sale of its Mara Rosa project. Management anticipates that the Company will
recognize an additional $0.30 million of income from option payments from the
sale of its Mara Rosa project in 2004. General and administrative expenses for the year ended December 31, 2003
totaled $1.25 million and were $0.33 million higher than the 2002 expenditures
of $0.92 million. The increase was primarily attributable to a direct mail
marketing program undertaken in 2003 at a cost of $0.25 million. Exploration expenses for the year ended December 31, 2003 were $0.22 million as
compared to $0.25 million for 2002. The $0.03 million decrease results from
managements focus on project development and financing activities at its Cerro
San Pedro project in 2003 as opposed to exploration activites. The Company incurred reclamation and property closure costs relating to its
Mara Rosa project in Brazil of $0.02 million for the year ended December 31,
2003, as compared to $0.20 million for 2002. The amount expensed in 2003
represents an estimate of additional Mara Rosa closure costs that were accrued
at December 31, 2003. These amounts will be spent through April 20, 2004, the
estimated closing date for the sale of the Mara Rosa project. In November
2003, the Company entered into an agreement to sell its Mara Rosa project for
$450,000, as described in Note 3(d) to the consolidated financial statements. The Company abandoned three of its MIMK exploration properties in 2003
resulting in a write-down of mineral properties and deferred costs totaling
$0.70 million in 2003. The Company also abandoned three MIMK exploration
properties in 2002 resulting in a write-down of mineral properties and deferred
costs totaling $0.02 million in 2002. The increase in write-down in 2003 was
due to a write-off of the Los Colorados MIMK property totaling $0.70 million. 49




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Interest expense of $0.45 million for the year ended December 31, 2003
includes $0.44 million of interest accretion on acquisition debt relating to
the Companys purchase of Glamis 50% interest in the Cerro San Pedro project.
There was no interest expense in the preceding year. Foreign exchange gain of $0.61 million in 2003 is primarily attributable to
unrealized gains associated with holding the net proceeds from the December 11,
2003 public equity offering in Canadian dollars (Cdn$80.75 million) through
year end. The Cdn$/US$ exchange rate at December 11, 2003 was 1.3082 as
compared to 1.2946 on December 31, 2003. The majority of the Companys assets,
liabilities and operations in 2002 were denominated in U.S. dollars, resulting
in an insignificant foreign exchange loss for 2002. 2002 Compared with 2001 For the year ended December 31, 2002, interest income of $0.06 million was
comparable to interest income in the preceding year of $0.07 million. General and administrative expenses for the year ended December 31, 2002
totaled $0.92 million and were $0.18 million higher than the 2001 expenditures
of $0.74 million. The increase was primarily attributable to management
bonuses, including payroll burden, totaling $0.17 million in 2002 versus nil
bonuses in 2001. Exploration expenses for the year ended December 31, 2002 were $0.25 million as
compared to $0.20 million for 2001. The Company conducted a five-hole
1,000-meter drilling program to test new targets at its Mara Rosa gold project
in Brazil in 2002 versus no drilling activities in 2001. The 2002 drilling
program did not encounter any economic mineralization. The cost of the drilling
program was approximately $0.07 million and is the primary reason for the $0.05
million increase in exploration expenses in 2002. The Company incurred reclamation and property closure costs relating to its
Mara Rosa project in Brazil of $0.20 million for the year ended December 31,
2002, as compared to $0.05 million in 2001. The increase of $0.15 million is
primarily attributable to cost overruns and delays in the Companys closure
activities in Brazil to allow for completion of a 2002 drilling program at the
Mara Rosa project. The Company abandoned three MIMK exploration properties in 2002 resulting in a
write-down of mineral properties and deferred costs totaling $0.02 million in
2002. At December 31, 2001, the Company elected to write-off the $2.89 million
carrying value of its Mara Rosa project. Summary of 2003 and 2002 Quarterly Results The summary of quarterly results has been prepared in accordance with Canadian
GAAP. 20034th Quarter
    
    3rd Quarter
    
    2nd Quarter
    
    1st QuarterTotal revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income
(loss) before discontinued operations and extraordinary items
    
    $
    363,253
    
    
    $
    (1,326,066
    )
    
    $
    (388,595
    )
    
    $
    (364,139
    )Net income (loss)
    
    $
    363,253
    
    
    $
    (1,326,066
    )
    
    $
    (388,595
    )
    
    $
    (364,139
    )Net income
(loss) per share before discontinued operations and extraordinary items
    
    $
    0.01
    
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
        $
    (0.01
    )Net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 20024th Quarter
    
    3rd Quarter
    
    2nd Quarter
    1st QuarterTotal revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income
(loss) before discontinued operations and extraordinary items
    
    $
    (480,916
    )
    
    $
    (209,309
    )
    
    $
    (427,390
    )
    
    $
    (202,706
    )Net income (loss)
    
    $
    (480,916
    )
    
    $
    (209,309
    )
    
    $
    (427,390
    )
    
    $
    (202,706
    )Net income (loss) per share before discontinued operations and extraordinary items
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )Net income (loss) per share
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 50




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The increase in loss for the 3rd quarter of 2003 as compared to the preceding
two quarters is attributable to a $0.68 million write-off of the Los Colorados
MIMK property and a $0.25 million direct mail marketing program. Net income in
the 4th quarter of $0.36 million results from a foreign currency exchange gain
of $0.60 million due to holding net proceeds of Cdn$80.75 million from the
Companys December 11, 2003 public equity offering in Canadian dollars through
year end and the strengthening of the Canadian dollar. The increase in net loss for the 2nd quarter of 2002 as compared to the net
loss for the preceding and following quarters is primarily due to payment of
management bonuses and payroll taxes totaling $0.17 million. The increase in
net loss for the 4th quarter of 2002 resulted from a $0.20 million increase in
estimated reclamation and property closure costs for the Mara Rosa project in
the 4th quarter, and an increase in exploration expenses resulting from a
five-hole drilling program at the Mara Rosa project in the 4th quarter of 2002. B) Liquidity and Capital Resources The Company relies primarily on the sale of common shares, the exercise of
share options and common share purchase warrants, and joint venture
arrangements to fund its exploration and project development activities. The
extent to which such financing options are pursued in the future will depend
upon various factors, including the successful acquisition of new properties or
projects, commodity prices, results of exploration and development activities
and managements assessment of the capital markets. Any cessation of joint
venture funding or significant increase in exploration or project development
activities may require the Company to seek additional funding. There is no
assurance that such financing will be available when needed or that it can be
secured on favorable terms. Furthermore, there is no assurance that the Company
will be able to obtain new properties or projects, or that they can be secured
on favorable terms. For the years ended December 31, 2003, 2002 and 2001, the Company received net
proceeds of $71.17 million, $4.08 million, $1.20 million, respectively, from
the sale of equity securities. The increase in net proceeds from the sale of
equity securities in 2003 is primarily due to a private placement financing for
$9.47 million that closed in March 2003, and a public equity offering for
$61.31 million that closed in December 2003. Proceeds from these financings will be used to complete the Companys $18
million acquisition of its joint venture partners 50% interest in the Cerro
San Pedro project, build the mine at the Cerro San Pedro project ($31.2
million), which includes project working capital and for general corporate
purposes. The Company does not anticipate that it will need to secure
additional equity financing for at least the next year. The March 11, 2003 private placement financing resulted in the issuance of 10.1
million units at a price of Cdn$1.50 per unit for gross proceeds of Cdn$15.2
million (US$9.47 million, net of issue costs). Each unit consisted of one
common share and one-half of one common share purchase warrant. Each whole
common share purchase warrant entitles the holder to purchase one common share
at an exercise price of Cdn$2.00 for a period of two years to March 11, 2005.
The Company also granted the underwriters 505,000 compensation warrants. Each
compensation warrant is exercisable at a price of Cdn$1.50 per share for a
period of one year to March 11, 2004. Compensation warrants totaling 151,500
were exercised in 2003, resulting in 353,500 compensation warrants outstanding
as of December 31, 2003. The 353,500 compensation warrants were exercised
subsequent to year end. The December 11, 2003 public equity offering resulted in the issuance of 38.7
million units at a price of Cdn$2.20 per unit for gross proceeds of Cdn$85.1
million (US$61.31 million, net of issue costs). Each unit consisted of one
common share and one-half of one common share purchase warrant. Each whole
common share purchase warrant entitles the holder to purchase one common share
at an exercise price of Cdn$3.10 for a period of five years to December 11,
2008. The fair value attributable to the warrants and compensation warrants that were
issued in the March 2003 financing was $1,484,758 and $136,440, respectively.
The fair value attributable to the warrants that 51




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##### Table of Contents



were issued in the December 2003 financing was $5,889,285. The fair value
attributable to the warrants and compensation warrants was estimated using the
Black-Scholes Option Pricing Model with the following assumptions: Risk free interest rate (Canada)
    
    4.0% to 4.1%Expected dividend yield
    
    0.0%Expected volatility of the Companys common shares
    
    73% to 87%Expected life of option
    
    1 to 5 years
 Option pricing models require the input of highly subjective assumptions
including the expected price volatility of the Companys shares. Changes in
the subjective input assumptions can materially affect the fair value estimate,
and therefore, the existing models do not necessarily provide a reliable
measure of the fair value of the Companys share options At December 31, 2003, the Company had working capital of $59.74 million as
compared to $4.40 million at December 31, 2002. The increase in working capital
of $55.34 million is primarily due to net proceeds from the sale of equity
securities in 2003 of $71.17 million, which were primarily reduced by 2003
costs relating to the Companys Cerro San Pedro project as follows:
Acquisition costs paid to a former joint venture partner in 2003 totaling $6.92
million, acquisition debt owed to former joint venture partner at December 31,
2003 of $5.96 million and development costs incurred on the Cerro San Pedro
project during 2003 totaling $2.02 million. As of December 31, 2003, the Company had capitalized mineral properties and
deferred costs totaling $26.57 million. This amount includes $25.47 million
relating to the Cerro San Pedro project, of which $14.48 million and $0.38
million were capitalized in 2003 and 2002, respectively, for project
development activities. The increase in capitalized costs on the Cerro San Pedro project in 2003 of
$14.10 million primarily results from the Companys acquisition of Glamis 50%
equity interest in Minera San Xavier, S.A. de C.V. (MSX) for $18.0 million,
less 50% of MSXs working capital deficit at closing of $58,328. The purchase
price is payable as follows:  a)
    
    $2.0 million paid at closing.b)
    
    50% of MSXs working capital deficit at closing of
$58,328, paid to the Company subsequent to closing.c)
    
    $5.0 million paid on August 12, 2003.d)
    
    $6.0 million paid on February 10, 2004.e)
    
    $2.5 million payable upon commencement of commercial
production.f)
    
    $2.5 million payable one year from commencement of
commercial production. The $2.5 million payable upon commencement of commercial production and the
$2.5 million payable one year from commencement of commercial production
represent contingent consideration and have therefore not been recognized.
These contingent amounts will be recorded as acquisition costs on the date of
commencement of commercial production, which is presently unknown. The acquisition of Glamis 50% equity interest in MSX is a business combination
accounted for as a purchase transaction. The fair value of the consideration
of $12.5 million ($2.0 million less MSXs working capital deficit of $58,328,
plus $10.5 million representing the estimated present value of future cash
payments of $11.0 million) has been allocated to the fair value of the net
assets acquired as follows: Fair value of net assets acquired:Cash
    
    $
    19,739Other current assets
    
    
    72,376Fixed assets
    
    
    75,708Mineral properties
    
    
    12,461,97112,629,794
 52




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##### Table of Contents



Less: Current liabilities and other
    
    
    (71,265
    )Note payable
    
    
    (100,050
    )$
    12,458,479Consideration:Cash at closing, less working capital deficit
    
    $
    1,941,672Present value of future cash payments,
Discounted at 6%
    
    
    10,516,807$
    12,458,479
 Acquisition debt of $10.5 million represents the estimated present value of
future cash payments totaling $11.0 million discounted at 6%. Interest
accretion for the year ended December 31, 2003 totaled $442,933. On August 12,
2003 and February 10, 2004, the Company made acquisition debt payments to
Glamis totaling $5.0 million and $6.0 million, respectively. At December 31,
2003, the acquisition debt balance was $5,959,740. Glamis retained a net smelter returns royalty on the gross proceeds, less costs
and expenses, of all ores, metals and mineral concentrates mined at the Cerro
San Pedro project as follows: Gold Price Per Ounce
    
    Net Returns RoyaltyLess than $325.00
    
    
    0.0
    %$325.00 to $349.99
    
    
    0.5
    %$350.00 to $374.99
    
    
    1.0
    %$375.00 to $399.99
    
    
    1.5
    %$400.00 and above
    
    
    2.0
    %
 On March 24, 2004 the Company acquired Glamis interest in the royalty and paid
the remaining $5.0 million of contingent consideration for an aggregate payment
of $7.25 million. Capitalized expenditures relating to the El Morro project totaled $1.04 million
at December 31, 2003, and included nil and $0.08 million for costs that were
capitalized during the years ended December 31, 2003 and 2002, respectively.
The majority of exploration expenditures relating to the El Morro project are
being incurred by Noranda Inc., pursuant to its earn-in requirement as
described below. Management anticipates that the Company will incur
expenditures of up to US$0.1 million on the El Morro project in 2004. Capitalized expenditures relating to the MIMK and other projects totaled $0.07
million at December 31, 2003, and included $0.20 and $0.42 million for costs,
before write-downs, that were capitalized during the years ended December 31,
2003 and 2002, respectively. Management anticipates that it will incur
expenditures of up to $0.1 million on the MIMK project in 2004. Additional
expenditures are tentatively planned for other exploration projects that have
been identified by the Company. Additional expenditures were made on the Companys Cerro San Pedro and El Morro
projects by its joint venture partners pursuant to earn-in requirements.
Expenditures by the Companys joint venture partners totaled approximately $5.3
million for the year ended December 31, 2002. In addition, the Companys joint
venture partner on the El Morro project, Noranda Inc., has informed the Company
that it spent approximately $1.0 million on the El Morro project in 2003. The
Companys exploration agreement with Noranda provides that Noranda is required
to fund all project exploration activities until such time as it completes the
requirements necessary for it to earn a 70% interest in the project. One
requirement of the exploration agreement is that Noranda must make a $10
million payment to the Company by September 2005. If, and when, the $10 million
payment is made, the Company will be required to fund its 30% share 53




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##### Table of Contents



of future exploration expenditures at the El Morro project. See Note 3(b) to
the consolidated financial statements for details relating to the terms of the
El Morro agreement. The Companys contractual obligations for future payments are summarized as
follows: Payments Due by PeriodLess than
    
    1  3
    
    4  5Total
    
    1 year
    
    Years
    
    Years
    
    After 5 YearsContractual ObligationsLong-term Debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    287,962
    
    
    
    53,107
    
    
    
    78,235
    
    
    
    47,164
    
    
    
    109,456Purchase Obligations (1)
    
    
    105,116,000
    
    
    
    6,937,000
    
    
    
    27,320,000
    
    
    
    27,048,000
    
    
    
    43,811,000Other
Long-term Obligations (2)
    
    
    111,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    111,488Total Contractual Obligations
    
    $
    105,515,450
    
    
    $
    6,990,107
    
    
    $
    27,398,235
    
    
    $
    27,095,164
    
    
    $
    44,031,944
  (1)
    
    Purchase obligations include estimated amounts to be incurred by
Washington Group International totaling $104.7 million, exclusive of
fuel costs, pursuant to a ten-year contract mining and construction
services agreement for the Cerro San Pedro project that was entered
into on December 30, 2003. The contract provides that the Company may
terminate it at any time prior to the end of the ten-year term, but
must pay early termination and demobilization fees to Washington Group
International as follows: Termination Period
    
    Termination FeesPre-production
    
    $
    11,560,000Year 1
    
    $
    10,160,000Year 2
    
    $
    7,460,000Year 3
    
    $
    4,760,000Year 4
    
    $
    2,960,000Year 5
    
    $
    2,360,000Year 6
    
    $
    2,060,000Year 7
    
    $
    1,660,000Year 8
    
    $
    1,360,000Year 9
    
    
    
  It is estimated that approximately $4 to $5 million of annual
expenditures to be incurred pursuant to the Washington Group contract
will be incurred in Mexican pesos. The peso/US$ exchange rate used in
the Washington Group contract was approximately 10.75. As of March 3,
2004, the peso/US$ exchange rate was 10.97. In addition to the
Washington Group contract, the Company will incur peso denominated costs
for fuel, explosives, power, water, salaries and other supplies totaling
approximately $7 million per year. The Company does not currently intend
to enter into currency hedging arrangements for its estimated Mexican
peso expenditures.Also included in purchase obligations is $0.4 million owed to the former
owners of certain mining concessions at the El Morro project. The $0.4
million is payable within two years of commencement of mining operations
on the concessions.The March 2004 contract for construction between MSX and
Mextica de Mexico for procurement, supply, installation and
construction of certain facilities at the Cerro San Pedro project is
not reflected as a purchase obligation since MSX may suspend the
contract in its sole discretion at any time. This contract is filed
with this Annual Report on Form 20-F as an exhibit.  (2)
    
    The Company began to accrue the estimated fair value of its
reclamation obligation on the Cerro San Pedro project in 2004.
The total reclamation obligation for the Cerro San Pedro project is
currently estimated to be $4.3 million. Outlook The Companys focus for 2004 will be the construction of its Cerro San Pedro
heap-leach gold and silver project in central Mexico. Construction began in
February 2004 and is expected to take approximately nine months to complete at
a total cost of approximately $28.2 million plus $3.0 million for project
working capital. Contract negotiations with the principal contractor for mine
construction should be finalized by the end of the first quarter. The mine
currently scheduled to make its first gold pour by the end of 2004, with 54




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##### Table of Contents



commercial production commencing in early 2005. Washington Group International
prepared a feasibility study for the project in September 2003 in accordance
with Canadian Securities Administrators National Instrument 43-101. The
feasibility study estimates average annual production for the Cerro San Pedro
project of 90,500 ounces of gold and 2.1 million ounces of silver over its
estimated 8.3 year mine life. Noranda Inc. is required to fund all exploration costs at the El Morro project
until such time as it makes a $10 million earn-in payment to the Company, which
is due no later than September 2005. Once this payment is made, the Company
will be required to fund its 30% share of ongoing exploration costs, if any,
associated with the project. Noranda has informed the Company that it intends
to spend approximately $1.66 million on the El Morro project in 2004. This
includes the commencement of an 8,000-meter drilling program in the 4th quarter
of 2004. The Company has received notice that an Agrarian Court in San Luis Potosi,
Mexico, has found in favor of a contesting group and nullified a lease
agreement of the Companys wholly owned subsidiary, Minera San Xavier, S.A. de
C.V., for surface rights at its Cerro San Pedro project. The Agrarian Court
did not rule that MSX had to either cease construction of the project or vacate
the land and, accordingly, construction of the project will continue as the
Company seeks other remedies and appeals the decision. A federal court has
recently issued a stay of execution of the Agrarian Court decision, pending
resolution of the appeals. In the event that the Agrarian Court decision is
upheld in the federal court, and in the event that the Company is unsuccessful
in its pursuit of alternative remedies, the Company may be required to
negotiate a new lease agreement for surface rights with the contesting group.
There are no assurances that these negotiations would be successful. The Company anticipates an increase in its exploration expenditures in 2004.
The Company currently estimates that it will spend approximately $1.0 to $1.5
million in 2004 on exploration of grass roots and existing projects. This
estimate could materially change depending on the Companys ability to acquire
satisfactory exploration projects, progress of work programs on its projects
and market conditions. The Company is subject to a multitude of risks that may affect future
operations which include, among others, metal price volatility, uncertainty of
mineral reserve and resource estimates, currency fluctuations, laws governing
the repatriation of profits, foreign exchange controls, mineral property
exploration and development, environmental contingencies, regulatory permits,
and political and economic stability. It is not unusual in the mining industry
for new mining operations to experience unexpected problems during the
construction and start-up phases, and to require more capital that anticipated. The Company has historically managed its foreign currency risk by maintaining
maximum cash balances in the currency in which most of the Companys
expenditures are made, the U.S. dollar. Based on US$/Cdn$ currency trends,
interest rate differentials and market conditions, management and the Companys
directors elected to maintain the Canadian dollar proceeds from the December
11, 2003 public equity offering of Cdn$80.75 million in Canadian dollars. The
Cdn$/US$ exchange rate was 1.3082 on December 11, 2003 and 1.2946 on December
31, 2003. In January 2004, Cdn$16.7 million was converted to U.S. dollars at
an exchange rate of 1.2865. In February 2004, the Canadian dollar weakened
against the U.S. dollar. In March 2004, Cdn$9.7 million was converted to U.S.
dollars at an exchange rate of 1.3369, and Cdn$13.1 million was converted to
U.S. dollars at an exchange rate of 1.3095. As of May 3, 2004, the Canadian
dollar had weakened to an exchange rate of 1.3723, resulting in a year-to-date
foreign exchange loss on Canadian dollar cash balances of approximately $2.07
million. The Canadian Institute of Chartered Accountants has released amendments to
Section 3870, Stock-Based Compensation and Other Stock-Based Payments, which
requires an expense to be recognized in financial statements for all forms of
employee stock-based compensation, including stock options, effective for
periods beginning on or after January 1, 2004. Section 3870 allows for three
methods of transition for those companies who voluntarily adopt an expense
approach prior to January 1, 2004, and include retroactive application with
restatement of prior periods, retroactive application without restatement of
prior period, or prospective application to awards granted, modified or settled
since the beginning of the year of adoptions. The Company has elected not to
adopt Section 3870 prior to January 1, 2004. Under this alternative,
retroactive restatement of prior periods is not required; however, the 55




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Company will be required to present pro forma information for years beginning
on January 1, 2002. C) Research and Development, Patents and Licenses, etc. As the Company is a mineral exploration company that has not yet commenced
production on any of its properties, the information required by this section
is inapplicable. D) Trend Information The Company has incurred losses in each of the last five fiscal periods due to
the lack of an operating property or other revenue generating activity.
Management anticipates that net losses of the Company will continue for at
least the next year as a result of ongoing corporate general and
administrative, exploration write-downs of mineral properties and deferred
costs. With the acquisition of Glamis 50% interest in the Cerro San Pedro
project in February 2003, the Company anticipates that this trend of losses may
reverse if, and when, gold and silver are produced from its 100%-owned Cerro
San Pedro project in Mexico. Construction of the Cerro San Pedro mine began in
February 2004; however, there is no assurance that commercial production from
the Cerro San Pedro project will be achieved or that such mining activities
will be profitable. A number of significant events must occur before
commercial production at the Cerro San Pedro project can begin. These include,
but are not limited to, receipt of certain permits necessary to continue
construction of the mine and commence operations. E) Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements required to be disclosed in
this Annual Report on Form 20-F. F) Tabular Disclosure of Contractual Obligations The information required by this section is included under B. Liquidity and
Capital Resources. 
 ITEM 6 Directors, Senior Management and Employees A) Directors and Senior Management The following table sets forth the name and municipality of residence, and the
office (if any) held with the Company of each of the officers and directors of
the Company: Name and Municipalityof Residence
    
    Age
    
    Office Held
    
    Director SinceCraig J. Nelsen (2)(4)
Centennial, Colorado
    
    52
    
    Chairman, Director
    
    
    1994Richard J. Hall (6)
Centennial, Colorado
    
    54
    
    President, Chief Executive Officer and Director
    

    
    1999Denis M. Marsh(1)(2)
Toronto, Ontario
    
    62
    
    Director
    

    
    1994J. Alan Spence(1)(2)
Toronto, Ontario
    
    66
    
    Director
    

    
    1994Ian A. Shaw (1)(3)
Toronto, Ontario
    
    63
    
    Director
    

    
    1994Oliver Lennox-King (3)
Toronto, Ontario
    
    54
    
    Director
    

    
    1998Fred H. Lightner (5)
Centennial, Colorado
    
    57
    
    Senior Vice President, Chief Operating Officer & Director
    

    
    1999Brad
BlacketorLone Tree, Colorado
    
    45
    
    Vice President, Chief FinancialOfficer & Secretary
 56




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##### Table of Contents



(1)
    
    Member of the audit committee.(2)
    
    Member of the compensation committee.(3)
    
    Member of the nominating committee.(4)
    
    Mr. Nelsen resigned as Chief Executive Officer on April 9, 1999.(5)
    
    Mr. Lightner was appointed Chief Executive Officer and Director of the
Company on March 26, 1999. Mr. Lightner resigned as Chief Executive
Officer and was appointed Senior Vice-President and Chief Operating
Officer on November 8, 1999. Mr. Lightner continues to be a Director of
the Company.(6)
    
    Mr. Hall was appointed President, Chief Executive Officer and Director on
November 8, 1999. The following is a brief biographical description, including principal
occupations of each of the officers and directors of the Company. Craig J. Nelsenholds a Master of Science degree in Geology from the University
of New Mexico and a Bachelor of Arts degree in Geology and has been involved in
exploration and mining for over 28 years. From January 1991 to January 1994,
Mr. Nelsen was Senior Vice-President of Exploration with Lac Minerals Ltd. Mr.
Nelsen was the Chairman, Chief Executive Officer and a director of the Company
from January 1994 through March 1999. In April 1999, Mr. Nelsen resigned as
Chief Executive Officer of the Company but continues to serve as Chairman and a
director of the Company. Mr. Nelsen is currently the Executive Vice-President
of Exploration and Development of Gold Fields Ltd., an international gold
mining company. Richard J. Hallholds Bachelors and Masters Degrees in Geology, and a Masters
Degree in Business Administration, all from Eastern Washington University. Mr.
Hall has over 30 years of experience in the mining industry and has previously
held senior management positions with Dayton Mining Corporation and Pegasus
Gold Corporation. Mr. Hall was appointed President and Chief Executive Officer
and director of the Company on November 8, 1999. Ian A. Shawholds a Bachelor of Commerce degree from the University of Toronto
and is a Chartered Accountant. He has over 30 years of experience in the
mining industry. Mr. Shaw worked with Sherritt Inc. (1975-1986), Curragh Inc.
(1986-1993, most recently as Vice-President and Treasurer), and from October
1993 to present has provided financial management services as a consultant to a
number of mineral resource exploration companies. Executive positions he holds
or has held since October 1993 include Secretary and Treasurer of CaribGold
Resources Inc. (October 1993 to present), Treasurer of Pelangio-Larder Mines,
Limited and Vice-President, Finance of Pangea Goldfields Inc. and Tiomin
Resources Inc. (January 1994 to December 1994) and Vice-President, Finance of
Black Hawk Mining Inc. from 1997 to 1998. Mr. Shaw was formerly the Secretary
and Treasurer of the Company, and is currently a director of the Company, which
position he has held since January 1994. Mr. Shaw is also the Vice President
of Finance and Chief Financial Officer for Weda Bay Minerals Inc. and Pelangio
Mines, Inc., Secretary for Hornby Bay Exploration Limited and a director of
Mexgold Resources Inc. Denis M. Marshis a Chartered Financial Analyst and has worked in the Canadian
investment industry over the past 32 years. Most of his experience has been as
an investment analyst for both investment dealers and investment counselors.
His analytical experience encompasses a wide range of disciplines, including
the mining industry. Mr. Marsh has been a Senior Vice-President and Director
of Beutel, Goodman & Company Ltd., a Canadian investment dealer, since 1983 and
a director of the Company since January 1994. J. Alan Spenceholds a Master of Science degree in Geology from McGill
University and an Executive Master of Business Administration from Columbia
University. He has been involved in mineral exploration and development for
over 34 years, including positions as Director of Exploration with Inco Ltd.,
Vice-President of North American Partners Ltd., a venture capital fund, and
President of South American Goldfields Inc. which pioneered gold and diamond
exploration in the Guiana Shield from 1988 to 1992. Mr. Spence was Chairman of
Bactech Metallurgical Solutions Inc., a refractory minerals process 57




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technology company from 1999 to 2001. Mr. Spence has been a director of Canuc
Resources from 1987 to 1997; a director of Consolidated Nevada Goldfield
Company from 1989 to 1993, and has been President of I.M.I. Minerals
Development since 1993. Mr. Spence is currently the President of Spence
Resource Management Inc. Mr. Spence has been a director of the Company since
January 1994. Oliver Lennox-Kingwas previously a director of the Company from January 1994
until February 1997. In May 1998, Mr. Lennox-King was reappointed as a
director of the Company. Mr. Lennox-King holds a Bachelor of Commerce degree
and has over 26 years experience in the mineral resource industry in positions
ranging from administration to metal marketing to financial analysis. Since
February 1997, Mr. Lennox-King has been the Chairman of Southern Cross
Resources Inc., a uranium mining company listed on The Toronto Stock Exchange.
Prior to February 1997, Mr. Lennox-King was the President of Tiomin Resources
Inc. (July 1992 to January 1997), and the Chairman of Pangea Goldfields Inc.
(January 1994 to January 1997). From 1988 to 1992, Mr. Lennox-King was a
Vice-President of Midland Walwyn Inc., a Canadian investment dealer. Mr.
Lennox-King is also a director of Dumont Nickel Company (since 1991) and Tiomin
Resources Inc. (since July 1992). Mr. Lennox-King is also a director of
Fronteer Development Group, CGX Energy Inc., Hornby Bay Exploration Limited and
Unisphere Waste Conversion, Fred H. Lightnerholds a Metallurgical Engineering degree from the Colorado
School of Mines. He has over 33 years of experience in mine development and
project management, including senior management positions with Wharf Resources
Ltd., Pegasus Gold Company, Tenneco Minerals Co. and Asarco Inc. He was
appointed Vice President of Operations for the Company in September 1996 and
was appointed Chief Executive Officer and director of the Company in March
1999. Mr. Lightner resigned as Chief Executive Officer of the Company in
November 1999 and was re-appointed Senior Vice President and Chief Operating
Officer. Mr. Lightner has been a director of the Company since March 1999. Bradley J. Blacketorholds a Bachelor of Science degree in Business
Administration from Indiana University and an MBA from Colorado State
University. He is also a Certified Public Accountant. He has over 20 years of
experience in domestic and foreign accounting, taxation and finance. He was
Chief Financial Officer and Secretary for Mincorp Ltd. of Denver, Colorado
(July 1991 to April 1997), Vice President and Controller of Pincock, Allen &
Holt, Inc. of Lakewood, Colorado (July 1988 to July 1991) and an Audit Manager
at Touche Ross & Co. in Denver, Colorado (November 1983 to July 1988). He was
appointed Chief Financial Officer and Secretary for the Company in April 1997,
and Vice President of the Company in June 2003. B) Compensation Summary Compensation Table Long-TermCompensationAnnual Compensation
    
    AwardsName and Principal
    
    
    
    Salary
    
    Retirement Plan
    
    Securities Under
    
    Other Compensation -Position
    
    Year
    
    (US$)
    
    (US$)
    
    Options Granted (#)
    
    Bonus (US$)Richard J. Hall
President and CEO
    
    2003
    
    $
    121,000
    
    
    $
    6,050
    
    
    
    200,000
    
    
    
    Fred H. Lightner
Senior VP and COO
    
    2003
    
    $
    115,500
    
    
    $
    5,775
    
    
    
    150,000
    
    
    
    Bradley J. Blacketor
VP, CFO & Secretary
    
    2003
    
    $
    104,500
    
    
    $
    5,225
    
    
    
    125,000
    
    
    
    
 58




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Options Granted During the Year Ended December 31, 2003 Market Value ofSecurities
    
    
    
    
    
    SecuritiesUnder
    
    
    
    
    
    UnderlyingOptions
    
    Exercise or
    
    Options on theGranted
    
    Base Price
    
    Date of GrantName
    
    (#)
    
    (Cdn$/Security)
    
    (Cdn$/Security)
    
    Expiration DateRichard J. Hall
President and CEO
    
    
    200,000
    
    
    $
    1.32
    
    
    $
    1.32
    
    
    Mar 12, 2008Fred H. Lightner
Senior VP and COO
    
    
    150,000
    
    
    $
    1.32
    
    
    $
    1.32
    
    
    Mar 12, 2008Bradley J. Blacketor
VP, CFO & Secretary
    
    
    125,000
    
    
    $
    1.32
    
    
    $
    1.32
    
    
    Mar 12, 2008
 The options vest 1/3 on the date of grant, March 12, 2003, an additional 1/3 on
the first anniversary of the date of grant and the remaining 1/3 on the second
anniversary of the date of grant. Director Compensation Directors are entitled to remuneration as determined by the Board of Directors.
The Company has no specific provision for compensation of Directors in their
capacities as such, and did not pay any such compensation to Directors during
2003 or 2002. Directors are entitled to reimbursement from the Company of
out-of-pocket costs incurred in connection with acting in their capacities as
directors. Retirement Plan Since 1997, the Company has sponsored a defined contribution tax-deferred
retirement plan in accordance with the provisions of section 401(k) of the U.S.
Internal Revenue Code (the Retirement Plan). The Retirement Plan is
available to all permanent U.S. based employees. The purpose of the Retirement
Plan is to enable the Companys employees to make tax deferred contributions to
a trust established under the Retirement Plan. Upon termination of an
employees employment with the Company, all amounts contributed by the employee
to the Retirement Plan, as well as amounts contributed by the Company on behalf
of the employee in respect of which the employee has vested, may be paid out to
the employee, rolled into another retirement plan maintained by another
employer or rolled into an eligible rollover account under the U.S. Employee
Retirement Income Security Act. Under the Retirement Plan, U.S. based employees of the Company and its
affiliates may elect to defer up to 15% of their compensation, subject to
statutory dollar limits, by way of payroll deductions (employee
contributions). The Company also contributes an amount of common shares of
the Company, equal to one-half of the particular employees contribution, to a
maximum of 5% of the employees compensation. By way of example, if an
employee elects to contribute 8% of his or her compensation to the Retirement
Plan, the Company contributes 4% of the employees compensation, in the form of
common shares of the Company, to the plan. If an employee elects to contribute
15% of his or her compensation (being the maximum allowable contribution), the
Company contributes 5% of that employees compensation, in the form of common
shares of the Company, to the plan. The employee vests in respect of the
Companys contributions upon completion of three years employment with the
Company or its affiliates. At the Companys Annual General Meeting of
shareholders on June 7, 2001, the shareholders approved the issuance of up to
300,000 shares of Metallica common stock to satisfy the Companys obligations
as to employer matching contributions under the Retirement Plan. The Company has not set aside or accrued any funds for pension, retirement, or
similar benefits. Employment Contracts 59




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The Company has entered into employment contracts with each of its three
executive officers: Richard J. Hall, President and Chief Executive Officer,
Fred H. Lightner, Senior Vice President and Chief Operating Officer, and
Bradley J. Blacketor, Vice President, Chief Financial Officer and Secretary.
The respective current salaries under these contracts are $121,000, $115,500
and $104,500, respectively. The contracts are for two or three-year terms with
various expiration dates, but will remain in effect subsequent to the initial
term unless a minimum of six-months notice is provided by either party. The
contracts provide that if, within six months following a Change of Control, as
defined, the Company terminates the employment of the Named Executive Officer
other than for Manifest Cause, as defined, or the executive officer resigns
from his employment for Good Reason, as defined, then the Company shall pay to
the executive officer a lump sum amount equal three times the executive
officers annual salary currently in effect. C) Board Practices Directors are elected at each Annual General Meeting of Shareholders, each to
hold office until the next Annual Meeting or until his successor is duly
elected or appointed, unless his office is earlier vacated by death, removal or
other cause in accordance with the Articles of the Company. The non-executive directors of the Company are not entitled to any benefits
following termination of their service with the Company. The board of directors has assigned specific governance responsibilities to
three committees of the board, as follows: Audit Committee The Corporation has an Audit Committee which has the functions defined in
applicable regulatory and stock exchange requirements. The Audit Committee is
comprised of three non-management directors who are appointed by the Board.
The committee reviews the Corporations annual financial statements prior to
their acceptance by the Board of Directors. The Committee is also responsible
for reviewing the Corporations financial reporting procedures and the adequacy
of its internal controls. It considers the report of the external auditors and
examines the fees and expenses for audit services and it recommends to the
Board the independent auditors for appointment by the shareholders. It may
undertake additional tasks at the request of the Board. The audit committee is
composed of Ian A. Shaw, Denis M. Marsh and J. Alan Spence. Compensation Committee The Compensation Committee consists of three non-management directors. The
Committee reviews and recommends to the Board the remuneration of senior
officers. It is also charged with reviewing senior officer hiring, management
development and management succession. The Compensation Committee is composed
of Craig J. Nelsen, Denis M. Marsh and J. Alan Spence. Nominating Committee The Nominating Committee consists of two non-management directors. The
Committee is responsible for proposing new nominees to the board and for
assessing directors on an ongoing basis. The Committee is also responsible for
assessing the effectiveness of the board as a whole, the committees of the
board and the contribution of individual directors. The Nominating Committee
is composed of Oliver Lennox-King and Ian A. Shaw. 60




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D) Employees Number of Employees at the End of Each of the Past Three Years 2003
    
    2002
    
    2001United States:Management
    
    
    4
    
    
    
    3
    
    
    
    3Professional
    
    
    0
    
    
    
    0
    
    
    
    0Administrative/support
    
    
    1
    
    
    
    1
    
    
    
    1Mexico:Management
    
    
    6
    
    
    
    0
    
    
    
    0Professional
    
    
    0
    
    
    
    0
    
    
    
    0Administrative/support
    
    
    29
    
    
    
    0
    
    
    
    0
 Glamis Gold Ltd. was the operator of the Cerro San Pedro project in Mexico at
December 31, 2002 and 2001, and employed all personnel for the Cerro San Pedro
project through a wholly-owned subsidiary. As a result of the Companys
acquisition of Glamis 50% interest in the Cerro San Pedro project in February
2003, the Company became the operator of the project, and the personnel working
at the project became employees of the Company. The Company utilizes
independent contractors in Chile to carry out its exploration activities. E) Share Ownership The following table sets forth certain information as of May 10, 2004 regarding
share ownership and all outstanding options to purchase the Companys common
shares.  61




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ExerciseBeneficial
    
    Price of the
    
    ExpirationBeneficial
    
    Number of
    
    Number of
    
    Ownership
    
    Options/
    
    Date of theIdentity of Person or Group
    
    ShareOwnership
    
    Options(1)
    
    Warrants(2)
    
    Percentage(2)
    
    Warrants(Cdn$)
    
    Options/WarrantsCraig J. Nelsen
    
    
    475,000
    
    
    
    100,000
    
    
    
    
    
    
    
    1.0
    %
    
    
    0.85
    
    
    
    04/20/05207,500
    
    
    
    
    
    
    
    
    
    
    
    0.83
    
    
    
    06/07/0621,000
    
    
    
    
    
    
    
    
    
    
    
    0.45
    
    
    
    05/18/0525,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    09/21/05Dennis M. Marsh
    
    
    105,000
    
    
    
    28,750
    
    
    
    
    
    
    
    *
    
    
    
    0.83
    
    
    
    06/07/0621,000
    
    
    
    
    
    
    
    
    
    
    
    0.45
    
    
    
    05/18/0525,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    09/21/05J. Alan Spence
    
    
    30,000
    
    
    
    28,750
    
    
    
    
    
    
    
    *
    
    
    
    0.83
    
    
    
    06/07/0621,000
    
    
    
    
    
    
    
    
    
    
    
    0.45
    
    
    
    05/18/0525,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    09/21/05Ian A. Shaw
    
    
    20,000
    
    
    
    28,750
    
    
    
    
    
    
    
    *
    
    
    
    0.83
    
    
    
    06/07/0625,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    09/21/05Oliver Lennox-King
    
    
    50,000
    
    
    
    21,000
    
    
    
    
    
    
    
    *
    
    
    
    0.45
    
    
    
    05/18/0520,000
    
    
    
    
    
    
    
    
    
    
    
    0.83
    
    
    
    06/07/0625,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/0837,500
    
    
    
    
    
    
    
    
    
    
    
    1.20
    
    
    
    06/03/08Brad Blacketor
    
    
    8,926
    
    
    
    30,000
    
    
    
    
    
    
    
    *
    
    
    
    0.45
    
    
    
    05/18/0587,500
    
    
    
    
    
    
    
    
    
    
    
    1.39
    
    
    
    01/10/07125,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/08Fred H. Lightner
    
    
    146,904
    
    
    
    297,500
    
    
    
    
    
    
    
    *
    
    
    
    0.83
    
    
    
    06/07/06150,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/08Richard J. Hall
    
    
    408,245
    
    
    
    200,000
    
    
    
    
    
    
    
    1.0
    %
    
    
    0.70
    
    
    
    11/08/0475,000
    
    
    
    
    
    
    
    
    
    
    
    0.83
    
    
    
    06/07/06200,000
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    03/12/085,000
    
    
    
    
    
    
    
    3.10
    
    
    
    12/11/08
  (1)
    
    Includes vested and non-vested options.  (2)
    
    Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares or
warrants owned by a person and the percentage ownership of that person, Common
Shares subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of May 10, 2004, are deemed
outstanding. Such shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person. This table has been
prepared based on 82,473,385 Common Shares outstanding as of May 10, 2004.*
    
    Less than 1%. The Company had two stock option plans that were designed to give each option
holder an interest in preserving and maximizing shareholder value in the longer
term and to reward employees and service providers for both past and future
performance Individual grants are determined by an assessment of an
individuals current and expected future performance, level of responsibilities
and the importance of his/her position with, and contribution to, the Company.
At the Companys annual meeting of shareholders on June 3, 2003, the
shareholders approved an increase in the size of the Companys stock option
plans such that the aggregate number of common shares that could be issued
under the plans would be 5,000,000. In addition, the two stock option plans
were consolidated under one stock option plan, the 1996 Stock Option Plan.
Options issued and outstanding under the 1996 Stock Option Plan as of May 10,
2004 total 2,845,250. A total of 699,333 options have been exercised
subsequent to the June 62




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3, 2003 annual shareholders meeting, leaving 1,455,417 options available for
issuance under the 1996 Stock Option Plan. 
 ITEM 7 Major Shareholders and Related Party Transactions A) Major Shareholders Metallicas securities are recorded on the books of its transfer agent in
registered form. The majority of such shares are, however, registered in the
name of intermediaries such as brokerage houses and clearing houses on behalf
of their respective clients. Metallica does not have any knowledge of the
beneficial owners thereof. To the best of the Companys knowledge, the
following is a summary of shareholders who own 5% or more of the Companys
shares. The Company is not aware of any other shareholders with a 5% or
greater share position in the Company. Beneficial Shareholders (5% orgreater)
    
    As of 12/31/03
    
    As of 12/31/02
    
    As of 12/31/01Franco Nevada Mining Corporation
Limited
20 Eglinton Avenue West, Suite 1900
Toronto, Ontario M4R 1K8
Canada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,455,852
    
    
    
    12.8
    %Newmont Mining Corporation
1700 Lincoln Street
Denver, Colorado 80203
    
    
    <5
    %
    
    
    <5
    %
    
    
    3,749,932
    
    
    
    11.6
    %
    
    
    
    
    
    
    Passport Management, LLC
402 Jackson Street
San Francisco, CA 94111 (1)
    
    
    6,928,860
    
    
    
    8.5
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fidelity Investments
Fidelity Select Gold Portfolio
82 Devonshire Street
Boston, MA 02109-3614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,490,800
    
    
    
    5.2
    %Royal Precious Metals Fund
c/o The Royal Trust Company
The Royal Trust Tower
P.O. Box 7500, Station A
77 King Street West, 6th Floor
Toronto, Ontario M5W 1P9
Canada
    
    
    <5
    %
    
    
    <5
    %
    
    
    3,150,000
    
    
    
    9.7
    %
    
    
    2,500,000
    
    
    
    8.8
    %
  (1)
    
    Based on Schedule 13G filed April 19, 2004. Total includes 5,625,079
shares owned of record by Passport Master Fund, LP (Fund) and 1,303,780
shares owned of record by Passport Master Fund II, LP (Fund II), over which
Passport Management, LLC (LLC), Ralph K. McCluskey II, and John H. Burbank
III have shared voting and dispositive power. According to the Schedule 13G,
the LLC, which is an investment adviser that is controlled and managed by
Messrs. McCluskey and Burbank (as co-Managers), acts as investment adviser to
Fund and Fund II. Each share held by the major shareholders named above is entitled to equal
voting rights. In October 1997 Franco Nevada Mining Corporation Limited issued a $1.1 million
letter of credit on behalf of the Company to Western Mining Corporation in
connection with the purchase of the Mara Rosa Project in Brazil. The letter of
credit was drawn in October 1999 and Franco Nevada elected to receive 2,179,852
shares in the Company valued at $1.1 million. In May 2001, Franco Nevada Mining Corporation Limited increased the number of
shares it owns in the Company by 1,276,000 to hold a total of 3,455,852 shares
representing 12.8% of the issued and 63




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##### Table of Contents



outstanding shares in the Company. In early 2002, Franco Nevada Mining
Corporation Limited was acquired by Newmont Mining Corporation. To the best of the Companys knowledge, at December 31, 2003 17,006,846 common
shares were held by 609 registered record holders in the U.S. The number of
outstanding shares of the Companys Common Stock at May 10, 2004 was
82,473,385. To the best of the Companys knowledge, the Company is not
directly or indirectly owned or controlled by another corporation, by any
foreign government, or by any other natural or legal persons severally or
jointly. B) Related Party Transactions In June 2000 the Company granted a $100,000 interest-free loan to Richard J.
Hall that is collateralised by real property and due in June 2003. In the
event that the underlying collateral is sold prior to June 2003, the loan is
due and payable within 30 days of the date of sale unless additional collateral
is provided that is acceptable by the Company. The loan was re-paid in June
2003. C) Interests of Experts and Counsel This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. 
 ITEM 8 Financial Information A) Consolidated Statements and Other Financial Information This Annual Report contains the audited consolidated financial statements of
the Company for the years ended December 31, 2003, 2002, and 2001, including an
Audit Report dated February 13, 2004, except as to Note 14(c), which is as of
March 24, 2004. The following financial statements are included: Consolidated
Balance Sheets as at December 31, 2003 and 2002; Consolidated Statements of
Operations and Deficit for the Years Ended December 31, 2003, 2002 and 2001;
and Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001. Also included are Notes to the Consolidated Financial
Statements for the Years Ended December 31, 2003, 2002 and 2001. The Companys
consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. Except as described in Note
13 to the consolidated financial statements, there are no material measurement
differences, for the purposes of these financial statements, between accounting
principles generally accepted in Canada and the United States. Legal Proceedings The Company is directly and indirectly involved in various lawsuits that relate
to its Cerro San Pedro project in Mexico. These include a lawsuit relating to
the validity of its lease agreement for access to surface rights at the
proposed site. Please see Item 4. Information on the Company  D. Property,
Plant and Equipment  The Cerro San Pedro Project, Mexico  Surface and Water
Rights Acquisition. In the event of an adverse outcome from certain of these
lawsuits, the Companys ability to complete construction and operate this mine
could be impaired. Dividend Policy The Company has not paid any dividends on its Common Shares and has no dividend
policy with respect to the payment of dividends. B) Significant Changes There have been no significant changes since the date of the audited financial
statements, February 13, 2004, except as to Note 14(b), which is as of March
24, 2004. 64




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ITEM 9 The Offer and Listing A) Offer and Listing Details The Common Shares of the Company are listed and posted for trading on The
Toronto Stock Exchange (the TSX), under the symbol MR. The Common Shares
were also traded on the NASD Over-the-Counter Bulletin Board under the symbol
METLF until October 29, 2003. Effective October 30, 2003, the Common Shares
were listed and began to trade on the American Stock Exchange (AMEX) under
the symbol MRB. On December 11, 2003, certain warrants to purchase Common
Shares of the Company began trading on the TSX under the symbol MR.WT. The
warrants were issued in connection with a Canadian public offering that closed
on December 11, 2003. Each warrant is exercisable into one Common Share at any
time through December 11, 2008 at a price of Cdn$3.10 per share. 65




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The following table sets out the annual high and low closing market prices of
the Common Shares on the TSX and the AMEX during the last five fiscal years: TSX
    
    TSX
    
    AMEX
    
    AMEXHIGH (Cdn $)
    
    LOW (Cdn $)
    
    HIGH (US $)
    
    LOW (US $)1999
    
    
    1.50
    
    
    
    0.38
    
    
    n/a
    
    n/a2000
    
    
    0.60
    
    
    
    0.20
    
    
    n/a
    
    n/a2001
    
    
    1.45
    
    
    
    0.19
    
    
    n/a
    
    n/a2002
    
    
    2.02
    
    
    
    1.00
    
    
    n/a
    
    n/a2003
    
    
    2.55
    
    
    
    1.12
    
    
    (1) 1.96
    
    (1) 1.55
  (1)
    
    The Company commenced trading on the AMEX on October 30, 2003. The following table sets out the closing market price range of the Common
Shares on the TSX and the AMEX for the last two years by fiscal quarter: TSX
    
    TSX
    
    AMEX
    
    AMEXHIGH (Cdn $)
    
    LOW (Cdn $)
    
    HIGH (US $)
    
    LOW (US $)Fiscal 2002First Quarter
    
    
    1.95
    
    
    
    1.17
    
    
    
    n/a
    
    
    
    n/aSecond Quarter
    
    
    2.02
    
    
    
    1.25
    
    
    
    n/a
    
    
    
    n/aThird Quarter
    
    
    1.60
    
    
    
    1.02
    
    
    
    n/a
    
    
    
    n/aFourth Quarter
    
    
    1.54
    
    
    
    1.00
    
    
    
    n/a
    
    
    
    n/aFiscal 2003First Quarter
    
    
    1.70
    
    
    
    1.12
    
    
    
    n/a
    
    
    
    n/aSecond Quarter
    
    
    1.50
    
    
    
    1.20
    
    
    
    n/a
    
    
    
    n/aThird Quarter
    
    
    2.45
    
    
    
    1.18
    
    
    
    n/a
    
    
    
    n/aFourth Quarter
    
    
    2.55
    
    
    
    1.93
    
    
    
    1.96
    
    
    
    1.55Fiscal 2004First Quarter
    
    
    2.76
    
    
    
    2.04
    
    
    
    2.12
    
    
    
    1.51
 The following table sets out the high and low closing market prices of the
Common Shares on the TSX and the AMEX for the last six months: TSX
    
    TSX
    
    AMEX
    
    AMEXHIGH (Cdn $)
    
    LOW (Cdn $)
    
    HIGH (US $)
    
    LOW (US $)November 2003
    
    
    2.55
    
    
    
    2.10
    
    
    
    1.96
    
    
    
    1.60December 2003
    
    
    2.39
    
    
    
    2.05
    
    
    
    1.84
    
    
    
    1.55January 2004
    
    
    2.34
    
    
    
    2.05
    
    
    
    1.82
    
    
    
    1.59February 2004
    
    
    2.39
    
    
    
    2.04
    
    
    
    1.82
    
    
    
    1.51March 2004
    
    
    2.76
    
    
    
    2.21
    
    
    
    2.12
    
    
    
    1.66April 2004
    
    
    2.87
    
    
    
    1.80
    
    
    
    2.14
    
    
    
    1.32
 On May 10, 2004, the closing price of the Common Shares on the TSX was Cdn$1.85
and US$1.32 on the AMEX. B) Plan of Distribution This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this section. C) Markets 66




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The Companys Common Shares are listed for trading on The Toronto Stock
Exchange and the American Stock Exchange. D) Selling Shareholders This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this section. E) Dilution This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this section. F) Expenses of the Issue This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this section. 
 ITEM 10 Additional Information A) Share Capital This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. B) Articles of Incorporation and By-laws On July 16, 2002 the Company was continued from the Business Corporations Act
(Ontario) to the Canada Business Corporations Act (the CBCA). The effect of
the continuance is that the Company is a corporation to which the CBCA applies
as if it had been incorporated under the CBCA. The Companys corporation
number under the CBCA is 600473-3. A corporation subsisting under the CBCA has the capacity and, subject to the
CBCA, the rights, powers and privileges of a natural person. The Companys
Articles and by-laws do not contain any restrictions on the business which the
Company may carry on or the powers which the Company may exercise. The CBCA and the Companys by-laws provide that a director who is a party to,
or related to a person who is a party to, a material transaction or contract or
a proposed material transaction or contract with the Company shall disclose the
nature and extent of his interest at that time to the Company in writing or
request that it be entered into the minutes of a meeting of directors. A
director who has an interest in a material transaction or contract shall not
vote on any resolution to approve that material transaction or contact except
as permitted by the CBCA. Directors are entitled to remuneration as determined by the board of directors.
The directors may also award special remuneration to any director undertaking
special services on behalf of the Company. There was no compensation paid or
accrued to any director during the year 2003 and through May 5, 2004.
Directors are also entitled to reimbursement of out-of-pocket costs incurred in
connection with their capacity as a director of the Company. The directors
cannot conduct any business without a quorum of directors. The board of directors has unlimited authority to borrow, issue, reissue,
pledge, guarantee or otherwise, funds on behalf of the Company without the
approval of the shareholders. 67




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##### Table of Contents



The Companys bylaws do not provide for any age limit restrictions regarding
its directors and there is no requirement that directors hold a specified
number of shares in the Company. Each share of the common stock is entitled to share equally with each other
share of common stock in dividends from sources legally available therefore,
when, as, and if declared by the board of directors and, upon liquidation or
dissolution of the Company, whether voluntary or involuntary, to share equally
in the assets of the Company that are available for distribution to the holders
of the common stock. Each holder of common stock of the Company is entitled to
one vote per share. Cumulative voting shall not be allowed in the election of
directors or for any other purpose, and the holders of common stock have no
preemptive rights, redemption rights or rights of conversion with respect to
the common stock. All outstanding shares of common stock and all shares
underlying any warrants when issued will be fully paid and nonassessable by the
Company. The board of directors is authorized to issue an unlimited number of
common stock within the limits of the Canada Business Corporations Act and
without stockholder action. All shares of common stock have equal voting rights and voting rights are not
cumulative. The holders of more than 50 percent of the shares of common stock
of the Company could, therefore, if they chose to do so and unless subject to a
voting agreement to the contrary, elect all the directors of the Company. The Companys bylaws are incorporated by reference to the Companys Form 20-F
Registration Statement filed on September 22, 1995. The Articles of
Continuance are listed as Exhibit 1.2. The only changes to the bylaws/articles
of incorporation since September 22, 1995 are presented below: New Class of Preferred Shares On June 18, 1998 the shareholders approved an amendment to the Companys
articles of incorporation to creation of a new class of preference shares
issuable in series (Preference Shares). Such amendment was subsequently
incorporated in the Companys Articles of Continuance. The rights, privileges,
restrictions and conditions attaching to the Preference Shares as a class are
as follows:  1.
    
    Preference Shares may at any time or from time to time be issued in
one or more series. Prior to the issue of the shares of any such
series, the directors shall, subject to the limitations set out below,
fix the number of shares in, and determine the designation, rights,
privileges, restrictions and conditions attaching to the shares of such
series including, without limitation:  
    
    The rate, amount or method of calculation of dividends,
if any, and whether the same are subject to adjustments;
    
    Whether such dividends are cumulative, partly
cumulative or non-cumulative;
    
    The dates, manner and currency of payments of dividends
and the dates from which dividends accrue or become payable;
    
    If redeemable or purchasable, the redemption or
purchase prices and the terms and conditions of redemption or
purchase, with or without provision for sinking or similar funds;
    
    Any conversion, exchange or reclassification rights;
and
    
    Any other rights, privileges, restrictions and
conditions not inconsistent with these provisions;The whole subject to the receipt by the Director under the CBCA of
articles of amendment designating and fixing the number of Preference
Shares in such series and setting forth the rights, privileges,
restrictions and conditions attaching thereto and the issue by such
Director of a certificate of amendment with respect thereto.  2.
    
    The Preference Shares of each series shall, with respect to the
payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding-up of the Corporation, whether
voluntary or involuntary, or any other distribution of the assets of
the Corporation among its shareholders of the purpose of winding-up its
affairs, rank on a parity with the Preference 68




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Shares of every other series and be entitled to a preference over the
Common Shares and the shares of any other class ranking junior to the
Preference Shares. The Preference Shares of any series shall also be
entitled to such other preferences, not inconsistent with these
provisions, over the Common Shares and the shares of any other class
ranking junior to the Preference Shares, as may be fixed in accordance
with Section 1 above.3.
    
    Except as otherwise provided in the CBCA or these provisions, the
holders of Preference Shares shall not be entitled as such to receive
notice of, or to attend or vote at, any meeting of the shareholders of
the Corporation. Provided, however, that the holders of Preference
Shares shall be entitled to notice of meetings called for the purpose
of authorizing the dissolution of the Corporation or the sale, lease or
exchange of its undertaking or a substantial part thereof. Adoption of Rights Plan A shareholder rights plan (Rights Plan) was unanimously adopted at a meeting
of the Board of Directors held on March 19, 1999 and subsequently approved by
the shareholders on June 23, 1999. The provisions of the Rights Plan are set
out in an agreement dated as of March 19, 1999 (the Rights Plan Agreement)
between the Corporation and Equity Transfer Services Inc., as Rights Agent, as
previously filed by the Company. Under the Rights Plan, shareholders of the
Corporation have received, for each Common Share issued and outstanding at 5:00
p.m. (Toronto Time) on March 23, 1999 (the Effective Date), one right to
purchase one additional Common Share (a Right), under the circumstances and
on the terms described in the Rights Plan Agreement. A discussion of the
background and objectives of the Rights Plan, and the general impact of the
Rights Plan are discussed below: Background and Objectives of the Rights Plan The Board of Directors has considered various strategies, including
implementation of a shareholder rights plan, to ensure that, in the context of
a bid for control of the Corporation through an acquisition of the
Corporations Common Shares, shareholders will be positioned to receive full
and fair value for their shares. Of particular concern to the Board of
Directors is the widely held view that existing Canadian securities legislation
provides too short a response time to a company that is the subject of an
unsolicited bid for control. An inadequate response time has been identified
as an impediment to ensuring that shareholders are offered full and fair value
for their shares. Also of concern to the Board of Directors is the possibility
that, under existing securities laws, the Corporations shareholders could be
treated unequally in the context of a bid for control. These concerns are
described in more detail below. The Rights Plan was not adopted in response to, or in anticipation of, any
pending or threatened take-over bid, nor to deter take-over bids generally.
Rather, the objectives of the Rights Plan are to give adequate time for
shareholders to properly assess a bid without undue pressure, for the Board of
Directors to consider value-enhancing alternatives and to allow competing bids
to emerge. In addition, the Rights Plan has been designed to provide
shareholders of the Corporation with equal treatment in a bid for control of
the Corporation. In adopting the Rights Plan, the Board of Directors considered the following
concerns inherent in the existing legislative framework governing take-over
bids in Canada: 69




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(a)     Time.Current Canadian legislation permits a take-over
bid to expire in 21 days. The Board of Directors is of the view
that this is not sufficient time to permit shareholders to
consider a take-over bid and to make a reasoned and unhurried
decision. The Rights Plan provides a mechanism whereby the
minimum expiry period for a Take-over Bid must be 45 days after
the date of the bid and the bid must remain open for a further
period of 10 Business Days after the Offerer publicly announces
that the shares deposited or tendered and not withdrawn constitute
more than 50% of the Voting Shares outstanding held by
Independent Shareholders (generally, shareholders other than the
Offerer or Acquiring Person, their Associates and Affiliates, and
Persons acting jointly or in concert with the Offerer or Acquiring
Person). The Rights Plan is intended to provide shareholders with
adequate time to properly evaluate the offer and to provide the
Board of Directors with sufficient time to explore and develop
alternatives for maximizing shareholder value. Those alternatives
could include, if deemed appropriate by the Board of Directors,
the identification of other potential bidders, the conducting of
an orderly auction or the development of a corporate restructuring
alternative which could enhance shareholder value.(b)     Pressure to Tender.A shareholder may feel compelled to
tender to a bid which the shareholder considers to be inadequate
out of a concern that failing to tender may result in the
shareholder being left with illiquid or minority discounted shares
in the Corporation. This is particularly so in the case of a
partial bid for less than all shares of a class where the bidder
wishes to obtain a control position but does not wish to acquire
all of the Voting Shares. The Rights Plan provides a shareholder
approval mechanism in the Permitted Bid provision which is
intended to ensure that a shareholder can separate the tender
decision from the approval or disapproval of a particular
take-over bid. By requiring that a bid remain open for acceptance
for a further 10 Business Days following public announcement that
more than 50% of the Voting Shares held by Independent
Shareholders have been deposited, a shareholders decision to
accept a bid is separated from the decision to tender, lessening
the undue pressure to tender typically encountered by a
shareholder of a company that is the subject of a take-over bid.(c)     Unequal Treatment.While existing securities legislation
has substantially addressed many concerns of unequal treatment,
there remains the possibility that control of a company may be
acquired pursuant to a private agreement in which a small group of
shareholders disposes of shares at a premium to market price which
premium is not shared with the other shareholders. In addition, a
person may slowly accumulate shares through stock exchange
acquisitions which may result, over time, in an acquisition of
control without payment of fair value for control or a fair
sharing of a control premium among all shareholders. The Rights
Plan addresses these concerns by applying to all acquisitions of
greater than 20% of the Voting Shares, to better ensure that
shareholders receive equal treatment. General Impact of the Rights Plan It is not the intention of the Board of Directors in adopting the Rights Plan
to secure the continuance of existing directors or management in office, nor to
avoid a bid for control of the Corporation. For example, through the Permitted
Bid mechanism, described in more detail below, shareholders may tender to a bid
which meets the Permitted Bid criteria without triggering the Rights Plan,
regardless of the acceptability of the bid to the Board of Directors.
Furthermore, even in the context of a bid that does not meet the Permitted Bid
criteria, the Board of Directors will continue to be bound to consider fully
and fairly any bid for the Corporations Common Shares in any exercise of its
discretion to waive application of the Rights Plan or redeem the Rights. In
discharging that responsibility, the Board of Directors must act honestly and
in good faith with a view to the best interests of the Corporation and its
shareholders. The Rights Plan does not preclude any shareholder from utilizing the proxy
mechanism of the Canada Business Corporations Act to promote a change in the
management or direction of the Corporation, and has no effect on the rights of
holders of outstanding voting shares of the Corporation to requisition a
meeting of shareholders, in accordance with the provisions of applicable
corporate and securities 70




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legislation, or to enter into agreements with respect to voting their Common
Shares. The definitions of Acquiring Person and Beneficial Ownership have
been developed to minimize concerns that the Rights Plan may be inadvertently
triggered or triggered as a result of an overly-broad aggregating of holdings
of institutional shareholders and their clients. The Board of Directors believes that the dominant effect of the Rights Plan
will be to enhance shareholder value, and ensure equal treatment of all
shareholders in the context of an acquisition of control. The Rights Plan will not interfere with the day-to-day operations of the
Corporation. The initial issuance of the Rights does not in any way alter the
financial condition of the Corporation, impede its business plans or alter its
financial statements. In addition, the Rights Plan is initially not dilutive
and is not expected to have any effect on the trading of Common Shares.
However, if a Flip-in Event occurs and the Rights separate from the Common
Shares, as described in the summary below, reported earnings per share and
reported cash flow per share on a fully-diluted or non-diluted basis may be
affected. In addition, holders of Rights not exercising their Rights after a
Flip-in Event may suffer substantial dilution. At or prior to the first annual meeting of shareholders of the Corporation
following the third anniversary of the date of the Rights Plan Agreement, the
Board of Directors must submit to the shareholders a resolution ratifying the
continued existence of the Rights Plan. If holders of a majority of Common
Shares held by Independent Shareholders who vote in respect of such resolution
are voted against the continued existence of the Rights Plan, the Board of
Directors shall, without further formality, be deemed to have elected to redeem
the Rights at the then current Redemption Price. Otherwise, the Rights Plan, if
ratified after its third anniversary, will remain in force for a period of six
years. On June 6, 2002, the shareholders of the Company ratified the continued
existence of the Rights Plan through March 19, 2005. Action Necessary to Change the Rights of Holders of the Stock The rights, privileges, restrictions and conditions attaching to the common
stock of the Company may only be changed by Articles of Amendment, which must
be authorized by a special resolution of shareholders (being a resolution
passed by more than two-thirds of the votes cast on the matter at a meeting of
shareholders). In certain circumstances specified in the CBCA, including an
amendment to the Articles of the Company to create a class of shares have
rights superior to those of the common shares, holders of common shares would
have a right to dissent in respect of the proposed amendment. Dissenting
shareholders who follow the procedure set out in the CBCA are entitled to
require the Company to pay them the fair value of their shares. Conditions Governing Manner in Which Shareholder Meetings are Convoked The CBCA provides that the directors of the Company may at any time call a
special meeting of shareholders, and shall call an annual meeting of
shareholders not later than fifteen months after holding the last preceding
annual meeting (but no later than six months after the end of the Companys
preceding financial year). Meetings of shareholders may be held at any place
within Canada that the directors determine. The holders of not less than 5% of
the issued shares of the Company that carry the right to vote at a meeting
sought to be held may requisition the directors to call a meeting of
shareholders for the purposes stated in the requisition. Notice of each shareholders meeting must be sent to each of the shareholder,
directors and auditor of the Company not less than 21 days and not more than 60
days before the meeting. The Company is required to prepare an alphabetical
list of shareholders entitled to receive notice of a meeting, showing the
number of shares held by each shareholder, not less than ten days after the
record date for determining shareholders entitled to receive such notice (or,
if no such record date is fixed, as of the close of business on the day
immediately preceding the day on which the notice is given). A shareholder
whose name appears on the list is entitled to vote the shares shown opposite
their name at the meeting to which the list relates. Each shareholder whose
name appears on such list may attend the meeting in person, or may by a written
proxy appoint a proxyholder, who need not be a shareholder, to attend and act
at the meeting in the manner and to the extent authorized by the proxy. 71




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Limitations on Rights to Own Securities of the Company Except as provided in the Investment Canada Act (the Act), there are not any
limitations under the laws of Canada, the Province of Ontario or in the charter
or any other constituent documents of the Company on the right of foreigners to
hold and/or vote the Common Shares of the Company. The Act requires a non-Canadian making an investment to acquire control of a
Canadian business, the gross assets of which exceed certain defined threshold
levels, to file an application for review with Investment Canada, the federal
agency created by the Act. As a result of the Canada-U.S. Free Trade Agreement, the Act was amended in
January 1989 to provide distinct threshold levels for Americans who acquire
control of a Canadian business. A Canadian business is defined in the Act as a business carried on in Canada
that has a place of business in Canada, an individual or individuals in Canada
who are employed or self-employed in connection with the business, and assets
in Canada used in carrying on the business. An American, as defined in the Act, includes: an individual who is an American
national or a lawful permanent resident of the United States; a government or
government agency of the United States; an American-controlled entity, Company
or limited partnership; and a Company, limited partnership or trust which is
not controlled in fact through ownership of its voting interests of which
two-thirds of its board of directors, general partners or trustees, as the case
may be, are any combination of Canadians and Americans. The following investments by a non-Canadian are subject to review by Investment
Canada: (a) all direct acquisitions of control of Canadian businesses with assets
of $5 million or more; (b) all indirect acquisitions of control of Canadian businesses with
assets of $50 million or more if such assets represent less than 50% of the
value of the assets of the entities, the control of which is being acquired;
and (c) all indirect acquisitions of control of Canadian businesses with
assets of $5 million or more if such assets represent more than 50% of the
value of the assets of the entities, the control of which is being acquired. Review by Investment Canada is required when investments by Americans exceed
$150 million for direct acquisitions of control. For purposes of the Act,
direct acquisition of control means a purchase of the voting interest in a
Company, partnership, joint venture or trust carrying on a Canadian business,
or any purchase of all or substantially all of the assets used in carrying on a
Canadian business. Also for purposes of the Act, indirect acquisition of
control means a purchase of the voting interest of a Company, partnership,
joint review or trust, whether a Canadian or foreign entity, which controls a
Company, partnership, joint venture or trust company carrying on a Canadian
business in Canada. The acquisition of certain Canadian businesses is excluded from the higher
thresholds set out for Americans. These excluded businesses include oil, gas,
uranium, financial services (except insurance); transportation services and
cultural services (i.e., the publication, distribution or sale of books,
magazines, periodicals (other than printing or typesetting businesses), music
in print or machine readable form, radio, television, cable and satellite
services; the publication, distribution, sale or exhibitions of film or video
recordings or audio or video music recordings). Direct or indirect acquisitions of control of these excluded business are
reviewable at the $5 and $50 million thresholds. 72




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A non-Canadian shall not implement an investment reviewable under the Act
unless the investment has been reviewed and the Minister responsible for
Investment Canada is satisfied or is deemed to be satisfied that the investment
is likely to be of net benefit to Canada. If the Minister is not satisfied
that the investment is likely to be a net benefit to Canada, the non-Canadian
shall not implement the investment or, if the investment has been implemented,
shall divest himself of control of the business that is the subject of the
investment. A non-Canadian or American making the following investments must notify
Investment Canada, within prescribed time limits, of such investments: (i) an investment to establish a new Canadian business; and (ii) an investment to acquire control of a Canadian business which
investment is not subject to review under the Act. Provisions governing the ownership threshold above which shareholder ownership
must be disclosed The Ontario Securities Actprovides that a person that has direct or indirect
beneficial ownership of, control or direction over, or a combination of direct
or indirect beneficial ownership of, and of control or direction over,
securities of the issuer carrying more than 10% of the voting rights attached
to all the issuers outstanding voting securities must, within 10 days of
becoming an insider, file an insider report in the required form effective
the date on which the person became an insider, disclosing any direct or
indirect beneficial ownership of, or control or direction over, securities of
the reporting issuer. The Ontario Securities Actalso provides for the filing
of a report by an insider of a reporting issuer who acquires or transfers
securities of the issuer. This insider report must be filed within 10 days
after the end of the month in which the change takes place. The U.S. rules governing the ownership threshold above which shareholder
ownership must be disclosed are more stringent than those under the Ontario
Securities Act. Section 13 of the Exchange Act imposes reporting requirements
on persons who acquire beneficial ownership (as such term is defined in the
Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an
equity security registered under Section 12 of the Exchange Act. In general,
such persons must file, within 10 days after such acquisition, a report of
beneficial ownership with the Securities and Exchange Commission containing the
information prescribed by the regulations under Section 13 of the Exchange Act.
This information is also required to be sent to the issuer of the securities
and to each exchange where the securities are traded. Significant differences between law applicable to the Company and law of the
United States See preceding two paragraphs. C) Material Contracts The Company has entered into the following material contracts for the two years
preceding the date of publication of this document:  
    
    Purchase of Glamis Gold Ltd.s 50% interest in Minera San Xavier,
S.A. de C.V., the owner of the Cerro San Pedro gold and silver project
in Mexico, for $18 million plus a sliding scale royalty when average
monthly gold prices exceed $325 per ounce. Please refer to Item 4 
Information on the Company  D. Property, Plant and Equipment  The
Cerro San Pedro Project, Mexico for information about the Companys
purchase of Glamis 50% interest in Minera San Xavier, S.A. de C.V.
Please see Exhibit 4.11.  
    
    Mining Contract dated December 30, 2003 between Minera San Xavier,
S.A. de C.V., Metallica Resources Inc. and Washington Group Latin
America, Inc. for contract mining and related construction services for
the Cerro San Pedro project 73




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
    
    Contract for Constructon dated March 3, 2004 between Minera San
Xavier, S.A. de C.V. and Mextica de Mexico S. de R.L., de C.V. for
procurement, supply, installation and construction of certain
facilities at the Cerro San Pedro project
    
    Agreement dated March 24, 2004 to acquire Glamis royalty interest
in the Cerro San Pedro project Please refer to Item 6. Directors, Senior Management and Employees  B.
Compensation  Employment Contracts for information about the Companys
employment contracts with each of its three executive officers. D) Exchange Controls There are not any governmental laws, decrees or regulations in Canada relating
to restrictions on the import/export of capital affecting the remittance of
interest, dividends or other payments to non-residential holders of the
Companys Common Shares. Any such remittances to United States residents,
however, are subject to a 15% withholding tax pursuant to Article X of the
reciprocal tax treaty between Canada and the United States. See   E.
Taxation, below. E) Taxation The following paragraphs summarize certain Canadian and United States federal
income tax considerations in connection with the receipt of dividends paid on
Common Shares of the Company and certain Canadian federal income tax
considerations in connection with a disposition of Common Shares by
non-residents of Canada. These tax considerations are stated in brief and
general terms and are based on Canadian and United States law currently in
effect. There are other potentially significant Canadian and United States
federal income tax considerations, including proposals to amend some of the
rules summarized herein, and provincial, state or local income tax
considerations with respect to ownership and disposition of the Common Shares
which are not discussed herein. The discussion below is of a general nature only and is not intended to be,
nor should it be construed to be, legal, business or tax advice to any
particular holder or prospective holder of Common Shares. The tax
considerations relative to ownership and disposition of the Common Shares may
vary from taxpayer to taxpayer depending on the taxpayers particular status.
Accordingly,holders and prospective holders of Common Shares should consult
their own tax advisors regarding any and all tax consequences of purchasing,
owning and disposing of Common Shares. Certain Canadian Federal Income Tax Consequences The Company believes that the following is a summary of the principal Canadian
federal income tax considerations generally applicable to holders of Common
Shares who, for purposes of the Income Tax Act (Canada) (the Canadian Tax
Act): (i) will hold Common Shares as capital property; (ii) deal at arms
length with the Company; (iii) do not and will not have a fixed base or
permanent establishment in Canada; (iv) are not and will not be resident or
deemed to be resident in Canada at any time while they hold Common Shares; (v)
do not use or hold, and are not deemed to use or hold Common Shares in
connection with carrying on a business in Canada; and (vi) in the case of a
nonresident of Canada who carries on an insurance business in Canada and
elsewhere, the Common Shares are not designated insurance property pursuant
to the amendments to the Canadian Tax Act and Regulations publicly announced
by the Minister of Finance prior to the date hereof (the Proposed
Amendments) and are not effectively connected with an insurance business
carried on in Canada at any time a (non-resident holder). This summary does
not apply to a non-resident holder with respect to whom the Company is a
foreign affiliate within the meaning of the Canadian Tax Act. This summary is based on the current provisions of the Canadian Tax Act, the
Regulations thereunder, the current provisions of the Canada-United States
Income Tax Convention of 1980 (the Tax Treaty), and the current published
administrative practices of Canada Customs and Revenue Agency (CCRA). This
summary takes into account the Proposed Amendments and assumes that all the
Proposed 74




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Amendments will be enacted in their present form. However, no assurance can
be given that the Proposed Amendments will be enacted in the form proposed, or
at all. Except for the foregoing, this summary does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein. Dividends Dividends paid or credited to a non-resident holder on the Common Shares will
be subject to a non-resident withholding tax under the Canadian Tax Act at the
rate of 25% although such rate may be reduced under the provisions of an
applicable income tax treaty. Disposition of Company Common Shares A non-resident holder will not be subject to tax under the Canadian Tax Act on
any capital gain realized on a disposition or deemed disposition of Common
Shares provided such shares are not taxable Canadian property to such holder
at the time of disposition. Generally, the Common Shares will not be taxable
Canadian property to a non-resident holder described above, provided that such
shares are listed on a prescribed stock exchange (which currently includes the
TSX and the NYSE), and the holder, persons with whom such holder does not deal
at arms length, or the holder and such persons, has not owned (or had under
option) 25% or more of the issued shares of any class or series of the capital
stock of the Company at any time within five years preceding the date in
question. Even if the Common Shares are taxable Canadian property to a non-resident
holder, the Tax Treaty may generally exempt such a holder who is resident in
the United States for purposes of the Tax Treaty from tax in respect of the
disposition provided the value of the Common Shares is not derived principally
from real property situated in Canada. The Company is of the view that the
value of the Common Shares is not currently derived principally from real
property situated in Canada. Certain United States Federal Income Tax Consequences The Company believes that the following is a summary of the principal United
States Federal income tax consequences under current law which are generally
applicable to a U.S. Holder (as defined below) of Common Shares. This
discussion does not address all potentially relevant United States Federal
income tax matters and it does not address consequences peculiar to persons
subject to special provisions of United States Federal income tax law, such as
those described below as excluded from the definition of a U.S. Holder. In
addition, this discussion does not cover any state, local or foreign tax
consequences. The following discussion is based upon the sections of the Internal Revenue
Code of 1986, as amended (the Code), Treasury Regulations, published
Internal Revenue Service (IRS) rulings, published administrative positions
of the IRS and court decisions that are currently applicable, any or all of
which could be materially and adversely changed possibly on a retroactive
basis, at any time. The following discussion is for general information only
and it is not intended to be, nor should it be construed to be, legal or tax
advice to any holder or prospective holder of Common Shares and no opinion or
representation with respect to the United States Federal income tax
consequences to any such holder or prospective holders is made. U.S .Holders As used herein, a U.S. Holder includes a holder of Common Shares who is a
citizen or resident of the United States, a corporation created or organized
in or under the laws of the United States or of any political subdivision
thereof, any entity which is taxable as a corporation for U.S. tax purposes
and which is organized under the laws of the United States or any political
subdivision thereof, and any other 75




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person or entity whose ownership of Common Shares is effectively connected
with the conduct of a trade or business in the United States. A U.S. Holder
does not include persons subject to special provisions of United States
Federal income tax law. Distributions on Common Shares U.S. Holders receiving distributions (including constructive distributions)
with respect to Common Shares are required to include in their gross income
for United States Federal income tax purposes, the gross amount of such
distributions to the extent that the Company has current or accumulated
earnings and profits, without reduction for any Canadian income tax withheld
from such distributions. Such Canadian tax withheld may be credited, subject
to certain limitations, against the U.S. Holders United States Federal income
tax liability or, alternatively, may be deducted in computing the U.S.
Holders United States Federal taxable income by those who itemize deductions.
(See more detailed discussion under the heading Foreign Tax Credit below).
To the extent that such distributions exceed current or accumulated earnings
and profits of the Company, they will be treated first as a tax free return of
capital up to the U.S. Holders adjusted basis in the Common Shares and
thereafter as gain from the sale or exchange of the Common Shares.
Preferential tax rates for net capital gains are applicable to a U.S. Holder
which is an individual, estate or trust. There are currently no preferential
tax rates for long-term capital gains for a U.S. Holder which is a corporation
or is an entity taxable as a corporation. Foreign Tax Credit A U.S. Holder who pays (or has withheld from distributions) Canadian income
tax with respect to the ownership of Common Shares may be entitled, at the
option of the U.S. Holder, to either a deduction or a tax credit for such
foreign tax paid or withheld. This election is made on a year-by-year basis
and applies to all foreign taxes paid by (or withheld from amounts paid to)
the U.S. Holder during that year. There are significant and complex
limitations which apply to the credit, among which is the general limitation
that the credit cannot exceed the proportionate share of the U.S. Holders
United States income tax liability that the U.S. Holders foreign source
income bears to his or her worldwide taxable income. Disposition of Common Shares A U.S. Holder will recognize a gain or loss upon the sale of Common Shares
equal to the difference, if any, between (i) the amount of cash plus the fair
market value of any property received, and (ii) and shareholders tax basis in
the Common Shares. This gain or loss will be a capital gain or loss if the
Common Shares are a capital asset in the hands of the U.S. Holder, and will be
either a short-term or long-term capital gain or loss depending upon the
holding period of the U.S. Holder. Gains and losses are netted and combined
according to special rules in arriving at the overall capital gain or loss for
a particular tax year. Deductions for net capital losses are subject to
significant limitations. Other Considerations In the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of Common Shares. Passive Foreign Investment Company The Company may potentially be treated as a passive foreign investment company
(PFIC), as defined in Section 1297 of the Internal Revenue Code of 1986, as
amended, depending upon whether (i) 75% or more of its gross income is passive
income; or (ii) 50% or more of the average amount of its assets produce (or
are held for the production of) passive income. For the years ended December 31, 2003, 2002 and 2001, the Company does believe
that it is a PFIC as defined in Section 1297 of the Internal Revenue Code of
1986. The Companys determination in this respect has been made after
reviewing the PFIC provisions and applying such provisions to its past and 76




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present situations. Although it is considered unlikely, there can be no
assurance that the Companys determination concerning its PFIC status may not
be challenged by the IRS, or that the Company will be able to satisfy record
keeping requirements which are imposed on certain PFICs. The Company intends
to make annual information available to each U.S. Holder as to its potential
PFIC status and income to be reported. If a U.S. Holder does not make an election with respect to a PFIC, such U.S.
Holder may be subject to additional tax and to an interest charge upon
receiving certain dividends from a PFIC, or upon the disposition of shares of
a PFIC. The tax and interest charge are determined by allocating the
distribution or gain over the U.S. Holders holding period of the stock,
imposing tax at the highest rate in effect for each tax year to which the
excess distribution is allocated, and calculating interest on that unpaid tax. If the U.S. Holder makes a timely election either to treat a PFIC as a
qualified electing fund (QEF) or to mark-to-market any publicly traded PFIC
stock, the above-described rules generally will not apply. If a QEF election
is made, a U.S. Holder would include annually in gross income his or her pro
rata share of the PFICs ordinary earnings and net capital gain, regardless of
whether such income or gain was actually distributed. The mark-to-market election would cause a PFIC shareholder to include in
income each year an amount equal to the excess, if any, of the fair value of
the PFIC stock as of the close of the taxable year over the shareholders
adjusted basis in such stock; or allow the shareholder a deduction for the
excess, if any, of the adjusted basis of the PFIC stock over its fair market
value as of the close of the taxable year. The shareholders adjusted basis
in the PFIC stock is increased by the amount included in income and decreased
by any deductions allowed. The PFIC rules are exceedingly complex and, therefore, each U.S. Holder is
encouraged and expected to consult his or her own tax advisor regarding the
effect of the Companys potential PFIC status on such U.S. Holder. The foregoing summary is a general discussion of the United States Federal
income tax considerations to U.S. Holders of Common Shares under current law.
It does not discuss all the tax consequences that may be relevant to
particular holders in light of their circumstances or to holders subject to
special rules, such as tax-exempt organizations, qualified retirement plans,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, broker-dealers, nonresident alien individuals
or foreign corporations whose ownership of Common Shares is not effectively
connected with the conduct of a trade or business in the United States,
shareholders who acquired their stock through the exercise of employee stock
options or otherwise as compensation, and any other non U.S. Holders. In
addition, U.S. Holders may be subject to state, local or foreign tax
consequences. This discussion is not intended to be, nor should it be
construed to be, legal or tax advice to any holder or prospective holder of
Common Shares and no opinion or representation with respect to the United
States Federal income tax consequences to any such holder or prospective
holder is made. Holders and prospective holders should therefore consult
their own tax advisors with respect to their particular circumstances. This
discussion is limited to U.S. Holders who hold their Common Shares as capital
assets. F) Dividends and Paying Agents This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. G) Statement by Experts This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. H) Documents on Display 77




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The documents and exhibits referred to in this document are available for
inspection at the offices of Metallica Management Inc., 12200 East Briarwood
Avenue, Suite 165, Centennial, Colorado USA 80112. I) Subsidiary Information The information referred to in this section is not required for reports filed
in the United States. 
 ITEM 11 Quantitative and Qualitative Disclosures About Market Risk The Company is a Small Business Issuer as such term is defined in Rule 12b-2
under the Exchange Act and, as such, there is no requirement to provide any
information under this Item. 
 ITEM 12 Description of Securities Other than Equity Securities This Form 20-F is being filed as an Annual Report under the Exchange Act and,
as such, there is no requirement to provide any information under this Item. 
 PART II 
 ITEM 13 Defaults, Dividend Arrearages and Delinquencies There has not been a material default in the payment of principal, interest, a
sinking or purchase fund installment, or any other material default not cured
within thirty days, relating to indebtedness of the Company or any of its
subsidiaries. There are no payments of dividends by the Company in arrears,
nor has there been any other material delinquency relating to any class of
preference shares of the Company. 
 ITEM 14 Material Modifications to the Rights of Security Holders and
Use of Proceeds Neither the Company nor any other person has (i) modified materially any
instrument defining the rights of holders of any class of registered
securities, (ii) modified materially or qualified the rights evidenced by any
class of registered securities by issuing or modifying any other class of
securities, or (iii) withdrawn or substituted a material amount of the assets
securing any class of registered securities. There has been no change in the
trustees or paying agents for any of the Companys securities during the
previous fiscal year. 
 ITEM 15 Controls and Procedures Disclosure Controls and Procedures. As of December 31, 2003, an evaluation was
carried out by the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities
Exchange Act of 1934, as amended). Based on that evaluation, the Companys
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures were adequate to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. Changes in Internal Control over Financial Reporting. During the fiscal year
ended December 31, 2003, there were no changes in the Companys internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting. 78




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ITEM 16 [Reserved] 
 ITEM 16A Audit Committee Financial Expert The Company has an Audit Committee established by the Board of Directors. The
members of the Audit Committee are Denis M. Marsh, J. Alan Spence and Ian A.
Shaw. The Board has designated Mr. Ian A. Shaw as the Audit Committee
Financial Expert as that term is defined under Section 407 of the
Sarbanes-Oxley Act of 2002. Mr. Shaw is independent as that term is defined
under the rules of the American Stock Exchange. 
 ITEM 16B Code of Ethics The Company has adopted a Code of Business Conduct and Ethics that applies to
all directors, officers and employees, including its Chief Executive Officer,
Chief Financial Officer and principal accounting officer. The Companys Code
of Business Conduct and Ethics is posted on its website, www.metalres.com. 
 ITEM 16C Principal Accountant Fees and Services The aggregate amounts billed by PricewaterhouseCoopers LLP, Chartered
Accountants (PWC) to the Company for each of the fiscal years ended December
31, 2003 and 2002 for audit fees, audit-related fees, tax fees and all other
fees are set forth below: Year Ended
    
    Year EndedDecember 31,
    
    December 31,2003 (Cdn$)
    
    2002 (Cdn$)Audit Fees (1)
    
    $
    38,200
    
    
    $
    34,550Audit-Related Fees (2)
    
    
    80,000
    
    
    
    1,000Tax Fees
    
    
    
    
    
    
    All Other Fees (3)
    
    
    2,250
    
    
    
    Totals
    
    $
    120,450
    
    
    $
    35,550
 NOTES: (1) Audit Fees represent fees for the audit of the Companys annual
financial statements, review of the Companys interim financial statements and
review in connection with the Companys statutory and regulatory filings. (2) Audit-Related Fees represent fees relating to the December 2003
prospectus filing and the March 2003 private placement share offering, and
include a site visit by PricewaterhouseCoopers LLP Vancouver to Minera San
Xavier, S.A. de C.V. in Mexico. (3) Other Fees represent legal opinions rendered in connection with December
2003 prospectus filing and the March 2003 private placement share offering. The Audit Committee has adopted procedures requiring Audit Committee review and
approval in advance of all particular engagements for services provided by the
Companys independent auditors. Consistent with applicable laws, the
procedures permit limited amounts of services, other than audit, review or
attest services, to be approved by one or more members of the Audit Committee
pursuant to authority delegated by the Audit Committee, provided the Audit
Committee is informed of each particular service. All of the engagements and
fees for 2003 were approved by the Audit Committee. The Audit Committee
reviews with PWC whether the non-audit services to be provided are compatible
with maintaining the 79




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auditors independence. The Board has determined that, starting in 2004, fees
paid to the independent auditors for non-audit services in any year will not
exceed the fees paid for audit services during the year. Permissible non-audit
services will be limited to fees for tax services, accounting assistance or
audits in connection with acquisitions, and other services specifically related
to accounting or audit matters such as prospectus filings, registration
statement filings or private placements. 
 ITEM 16D Exemptions from the Listing Standards for Audit Committees The information referred to in this section is not currently required as to the
Company, as its Common Shares were first listed on the AMEX on October 30,
2003. 
 ITEM 16E Purchases of Equity Securities by the Issuer and Affiliated
Purchasers The information referred to in this section is not required as to the fiscal
year ended December 31, 2003, which is the period covered by this Annual Report
on Form 20-F. 80




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##### Table of Contents



PART III 
 ITEM 17 Financial Statements The following financial statements are attached and incorporated herein: Description of Document
    
    PageManagements
Report dated April 5, 2004
    
    
    F-1Independent Auditors Report dated February 13, 2004 (except as to
Note 14(c), which is as of March 24, 2004)
    
    
    F-2Consolidated Balance Sheets as at December 31, 2003 and 2002
    
    
    F-3Consolidated Statements of Operations and Deficit for the Years Ended
December 31, 2003, 2002 and 2001
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December
31, 2003, 2002 and 2001
    
    
    F-5Notes to Consolidated Financial Statements for the Years Ended
December 31, 2003, 2002 and 2001
    
    
    F-6
 
 ITEM 18 Financial Statements See Item 17. 
 ITEM 19 Exhibits The following exhibits are attached and incorporated herein: Description of Document1.2
    
    Certificate of Incorporation
    
    *1.2
    
    Certificate of Continuance dated July 16, 2002
    
    *1.3
    
    Articles of Continuance dated July 16, 2002
    
    *1.4
    
    By-Laws dated July 16, 2002
    
    *4.1
    
    Employment Agreement between the Company and Richard J. Hall
dated June 5, 2001
    
    *4.2
    
    Employment Agreements between the Company and Fred H.
Lightner dated May 16, 1997, April 1, 1999 and November 8,
1999
    
    *4.3
    
    Employment Agreement between the Company and Bradley J.
Blacketor dated May 16, 1997
    
    *4.4
    
    Shareholder Rights Plan Agreement dated March 19, 1999
    
    *4.5
    
    Loan Agreement between Metallica Barbados Inc. and Richard
J. Hall dated June 26, 2000
    
    *
 81




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##### Table of Contents



Description of Document4.6
    
    Richard J. Hall Subscription Agreement dated November 8, 1999
    
    *4.7
    
    Richard J. Hall Warrant Agreement dated November 8, 1999
    
    *4.8
    
    Noranda Exploration Agreement dated September 14, 1999
    
    *4.9
    
    Noranda Exploration Agreement dated February 10, 2000
    
    *4.10
    
    Stock Acquisition and Shareholders Agreement between
Raleigh Mining International Limited and Cambior de Mexico
S.A. de C.V. and Minera San Xavier S.A. de C.V. dated
January 21, 1998
    
    *4.11
    
    Share Purchase Agreement between Glamis de Mexico, S.A. de
C.V., Raleigh Mining International Limited, Metallica
Resources Inc. and Minera San Xavier, S.A. de C.V. dated
February 12, 2003
    
    *4.12
    
    Mining Contract dated December 30, 2003 between Minera San
Xavier, S.A. de C.V., Metallica Resources Inc. and
Washington Group Latin America, Inc. for contract mining and
related construction services for the Cerro San Pedro
project4.13
    
    Contract for Construction dated March 3, 2004 between Minera
San Xavier, S.A. de C.V. and Mextica de Mexico S. de R.L.,
de C.V., for procurement, supply, installation and
construction of certain facilities at the Cerro San Pedro
project4.14
    
    Agreement between Glamis de Mexico, S.A. de C.V., et. al.
and Minera San Xavier S.A. de C.V., et. al. dated March 24,
2004 to acquire Glamis royalty interest in the Cerro San
Pedro project4.15
    
    Lease between Ejido Cerro de San Pedro and Minera San
Xavier, S.A. de C.V. dated February 6, 1997 [English Translation]8
    
    Subsidiaries of the Company12.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended12.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended13.1
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 200213.2
    
    Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 * Previously filed. 82




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. METALLICA RESOURCES
INC.(Registrant)Date: May 18, 2004
    
    By:
    
    /s/ Richard J. HallName:
    
    Richard J. HallTitle:
    
    President and Chief Executive Officer
 83




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##### Table of Contents



Managements Report To the Board of Directors and Shareholders of Metallica Resources Inc. Management is responsible for the preparation of the information contained in
this annual report and for the consistency between the consolidated financial
statements and other financial operating data contained elsewhere in the
report. The accompanying consolidated financial statements have been prepared
by management in accordance with accounting principles generally accepted in
Canada and necessarily include amounts based on estimates and judgments. Management has established and maintains a system of internal control, designed
to provide reasonable assurance that assets are safeguarded from loss or
unauthorized use and that financial information is reliable and accurate. The
Audit Committee of the Board of Directors, comprised of non-management
directors, has reviewed the consolidated financial statements with management
and external auditors. The consolidated financial statements have been approved
by the Board of Directors on the recommendation of the Audit Committee. The Companys independent auditors, PricewaterhouseCoopers LLP, are appointed
by the shareholders to conduct an audit in accordance with generally accepted
auditing standards in Canada and the United States, and their report follows: /s/ Richard J. Hall
Richard J. Hall
President and Chief Executive Officer /s/ Bradley J. Blacketor
Bradley J. Blacketor
Vice President, Chief Financial Officer
and Secretary April 5, 2004 F - 1




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##### Table of Contents



Independent auditors report To the Shareholders of Metallica Resources Inc. We have audited the consolidated balance
sheets of Metallica Resources Inc. as at
December 31, 2003 and 2002, and the
consolidated statements of operations and
deficit and cash flows for the years ended
December 31, 2003, 2002 and 2001. 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
auditing standards generally accepted in
Canada and the United States. 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 December 31, 2003 and 2002, and
the results of its operations and its cash
flows for the years ended December 31, 2003,
2002 and 2001 in accordance with accounting
principles generally accepted in Canada. -s- PRICEWATERHOUSECOOPERS LLP Chartered
Accountants
Vancouver, Canada
February 13, 2004 (except as to Note
14(c) which is as of March 24, 2004) F - 2




---



Consolidated balance sheets Metallica Resources Inc.(A Development Stage Company)
December 31, 2003 and 2002
U.S. dollars 2003
    
    2002AssetsCurrent assets:Cash and cash equivalents (Note 11)
    
    $
    66,110,056
    
    
    $
    4,520,886Value-added tax and other current assets (Note 5)
    
    
    415,878
    
    
    
    285,48066,525,934
    
    
    
    4,806,366Mineral properties and deferred expenditures (Note 3)
    
    
    26,574,390
    
    
    
    12,587,193Fixed assets (Note 4)
    
    
    234,863
    
    
    
    92,283Other assets
    
    
    18,661
    
    
    
    5,196Total assets
    
    $
    93,353,848
    
    
    $
    17,491,038Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    597,771
    
    
    $
    153,017Provision for reclamation and property closure costs (Note 3(d))
    
    
    29,796
    
    
    
    150,000Note payable (Note 6)
    
    
    200,100
    
    
    
    100,050Acquisition debt (Note 3(a))
    
    
    5,959,740
    
    
    
    6,787,407
    
    
    
    403,067Shareholders equity:Share capital (Note 7(b)) 81,763,885 common shares (2002: 32,449,167)
    
    
    106,786,049
    
    
    
    43,068,285Warrants (Note 7(d))
    
    
    7,469,578
    
    
    
    Share options (Note 7(c))
    
    
    6,675
    
    
    
    Deficit
    
    
    (27,695,861
    )
    
    
    (25,980,314
    )86,566,441
    
    
    
    17,087,971Total liabilities and shareholders equity
    
    $
    93,353,848
    
    
    $
    17,491,038
 Contingencies and commitments (Notes 3(a) and 10) Subsequent events (Note 14) Approved by the Board: -s- Craig J. Nelsen Craig J. Nelsen -s- Ian A. Shaw Ian A. Shaw The accompanying notes are an integral part of these consolidated financial statements. F - 3




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##### Table of Contents



Consolidated statements of operations and deficit Metallica Resources Inc.(A Development Stage Company)
For the years ended December 31, 2003, 2002 and 2001
U.S. dollars, except share data 2003
    
    2002
    
    2001Interest income
    
    $
    158,087
    
    
    $
    64,918
    
    
    $
    69,900Income from option payments (Note 3(d))
    
    
    150,000
    
    
    
    
    
    
    
    308,087
    
    
    
    64,918
    
    
    
    69,900General and administrative expense
    
    
    1,252,077
    
    
    
    920,604
    
    
    
    742,401Exploration expense
    
    
    219,041
    
    
    
    246,828
    
    
    
    198,971Reclamation and property closure costs
    
    
    17,421
    
    
    
    198,749
    
    
    
    51,000Write-down of mineral properties and deferred expenditures
(Note 3)
    
    
    703,536
    
    
    
    21,000
    
    
    
    2,892,086Interest expense
    
    
    446,851
    
    
    
    
    
    
    
    Foreign exchange (gain) loss, net
    
    
    (609,547
    )
    
    
    3,281
    
    
    
    673Loss before income taxes
    
    
    (1,721,292
    )
    
    
    (1,325,544
    )
    
    
    (3,815,231
    )Income tax (recovery) provision (Note 8)
    
    
    (5,745
    )
    
    
    (5,223
    )
    
    
    10,795Loss for the year
    
    
    (1,715,547
    )
    
    
    (1,320,321
    )
    
    
    (3,826,026
    )Deficit, beginning of year
    
    
    (25,980,314
    )
    
    
    (24,659,993
    )
    
    
    (20,833,967
    )Deficit, end of year
    
    $
    (27,695,861
    )
    
    $
    (25,980,314
    )
    
    $
    (24,659,993
    )Basic and diluted loss per share
    
    $
    (0.04
    )
    
    $
    (0.04
    )
    
    $
    (0.14
    )Weighted average number of common shares outstanding
    
    
    42,865,141
    
    
    
    31,295,063
    
    
    
    27,290,979
 The accompanying notes are an integral part of these consolidated financial statements. F - 4




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##### Table of Contents



Consolidated statements of cash flows Metallica Resources Inc.(A Development Stage Company)
For the years ended December 31, 2003, 2002 and 2001
U.S. dollars 2003
    
    2002
    
    2001Cash Flows Provided From (Used in) Operating ActivitiesLoss for the year
    
    $
    (1,715,547
    )
    
    $
    (1,320,321
    )
    
    $
    (3,826,026
    )Non-cash items:Depreciation and amortization
    
    
    10,564
    
    
    
    8,638
    
    
    
    5,852Interest expense (Note 3(a))
    
    
    442,933
    
    
    
    
    
    
    
    Common share contribution to retirement plan
    
    
    21,735
    
    
    
    17,163
    
    
    
    15,572Reclamation and property closure costs
    
    
    17,421
    
    
    
    24,000
    
    
    
    51,000Write-down of mineral properties and deferred
expenditures
    
    
    703,536
    
    
    
    21,000
    
    
    
    2,892,086Value of options issued to consultants
    
    
    6,675
    
    
    
    
    
    
    
    Foreign exchange (gain) loss
    
    
    (609,547
    )
    
    
    
    
    
    
    Changes in non-cash working capital:Value-added tax and other current assets
    
    
    (158,022
    )
    
    
    34,584
    
    
    
    3,598Accounts payable and accrued liabilities
    
    
    217,940
    
    
    
    (16,159
    )
    
    
    (24,837
    )Provision for reclamation and property closure costs
    
    
    (137,625
    )
    
    
    
    
    
    
    Other assets
    
    
    (13,664
    )
    
    
    1,238
    
    
    
    29,097(1,213,601
    )
    
    
    (1,229,857
    )
    
    
    (853,658
    )Cash Flows Provided From (Used in) Investing ActivitiesAcquisition of subsidiary, net of cash acquired
    
    
    (1,921,933
    )
    
    
    
    
    
    
    Mineral properties and deferred expenditures
    
    
    (2,044,946
    )
    
    
    (886,771
    )
    
    
    (1,049,811
    )Payments to acquire fixed assets
    
    
    (105,504
    )
    
    
    (18,348
    )
    
    
    (5,554
    )(4,072,383
    )
    
    
    (905,119
    )
    
    
    (1,055,365
    )Cash Flows Provided From (Used in) Financing ActivitiesContributions to joint venture by joint venture partner
    
    
    
    
    
    
    61,968
    
    
    
    977,788Repayment of note payable
    
    
    (5,000,000
    )
    
    
    (50,000
    )
    
    
    (50,000
    )Common shares issued for cash, net of issue costs
    
    
    70,774,607
    
    
    
    4,054,994
    
    
    
    998,313Proceeds from exercise of warrants
    
    
    168,454
    
    
    
    
    
    
    
    123,088Proceeds from exercise of options
    
    
    222,546
    
    
    
    26,799
    
    
    
    82,227Proceeds from repayment of loan to director
    
    
    100,000
    
    
    
    
    
    
    
    66,265,607
    
    
    
    4,093,761
    
    
    
    2,131,416Foreign Exchange Gain on Foreign Cash Held
    
    
    609,547
    
    
    
    
    
    
    
    Increase in cash and cash equivalents
    
    
    61,589,170
    
    
    
    1,958,785
    
    
    
    222,393Cash and cash equivalents, beginning of year
    
    
    4,520,886
    
    
    
    2,562,101
    
    
    
    2,339,708Cash and cash equivalents, end of year
    
    $
    66,110,056
    
    
    $
    4,520,886
    
    
    $
    2,562,101
 Supplementary cash flow information (Note 11) The accompanying notes are an integral part of these consolidated financial statements. F - 5




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  1.
    
    Nature of OperationsMetallica Resources Inc. (the Company) is engaged in the exploration,
development and acquisition of mineral deposits principally in Mexico and
South America. At December 31, 2003, the Company is advancing a gold and
silver development project in Mexico. The Company has raised the financing
necessary to construct the mine and commenced construction in February 2004.
The Company estimates a construction period of nine to twelve months. The
Company is also advancing a copper and gold porphyry exploration project in
Chile with Noranda Inc. (Note 3(b)) and is pursuing various other
exploration projects in North and South America.2.
    
    Summary of Significant Accounting PoliciesThese consolidated financial statements are prepared in accordance with
generally accepted accounting principles (GAAP) in Canada. The significant
measurement differences between these principles and those that would be
applied to the Company under United States GAAP are described in Note 13.ConsolidationThese consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries, after elimination of
intercompany balances and transactions.  
    
    Datawave Sciences Inc.
    
    De Re Holdings Inc.
    
    Desarrollos Metallica C.A.
    
    MMM Exploraciones, S.A. de C.V.
    
    Metallica (Barbados) Inc.
    
    Metallica Brazil Ltda.
    
    Metallica Management Inc.
    
    Minera Metallica Limitada
    
    Minera San Xavier, S.A. de C.V.
    
    Raleigh Mining International Limited
    
    Servicios del Plata y Oro, S.A. de C.V.  On February 12, 2003, the Company acquired Glamis Gold Ltd.s 50% interest
in Minera San Xavier, S.A. de C.V. (MSX), which resulted in the Company
owning a 100% interest in MSX. For all periods ended prior to February 12,
2003, the Companys 50% joint venture investment in MSX is included in these
consolidated financial statements using the proportionate consolidation
method. For the period ended December 31, 2003, MSX is reflected as a
wholly owned subsidiary.Use of EstimatesThe preparation of consolidated financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
consolidated financial statements and the reported amount of expenses during
the reporting period. Actual results could differ from those reported.Foreign Currency TranslationThe Company considers the U.S. dollar to be the functional currency of all
of its operations. The Companys subsidiaries are
integrated foreign subsidiaries and, accordingly, foreign currency amounts are
translated into U.S. dollars using the temporal method. Monetary balances are
translated at the rate of exchange at the balance sheet date, nonmonetary
balances at historic exchange rates and other revenue and expense items at
average exchange rates. Foreign currency gains and losses are included in
earnings for the period.Cash and Cash EquivalentsCash and cash equivalents include cash in demand deposits and short-term money
market investments that, on acquisition, have a term to maturity of three
months or less.Mineral Properties and Deferred ExpendituresThe cost of mineral property interests and related exploration and development
costs are capitalized until commercial production is established, the property
is disposed of through sale or otherwise, or management believes that the
recoverable value has declined. Expenditures related to grassroots exploration
are expensed as incurred. If a project is put into commercial production,
capitalized costs would be depleted on the unit-of-production basis.Proceeds received from the partial sale or sale of any interest in a property
are credited against the carrying cost of such property until the payments are
in excess of the costs incurred, at which time they are then credited to
income.The costs deferred at any time do not necessarily reflect present or future
values. The ultimate recovery of such amounts depends on the discovery of
economically recoverable reserves, successful commercial development of the
related properties, availability of financing and future profitable production
or proceeds from the disposition of the properties.Management of the Company regularly reviews the carrying value of each mineral
property. Where information is available and conditions suggest impairment,
estimated future net cash flows from each property are calculated using
estimated future prices, proven and probable reserves, and operating, capital
and reclamation costs on an undiscounted basis. Reductions in the carrying
value of each property would be recorded to the extent the net book value of
the property exceeds the estimated future cash flows. Where estimates of
future net cash flows are not available and where other conditions suggest
impairment, management assesses if carrying value can be recovered.Managements estimates of mineral prices, recoverable proven and probable
reserves, and operating, capital and reclamation costs are subject to certain
risks and uncertainties that may affect the 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 that could adversely affect
managements estimate of the net cash flow to be generated from its
properties.Although the Company has taken steps to verify title to mineral properties in
which it has an interest, according to the industry standards for the current
stage of exploration of such properties, these procedures do not guarantee the
Companys title. Such properties may be subject to prior undetected agreements
or transfers and title may be affected by such defects. F - 6




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Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  Fixed Assets, Depreciation and AmortizationFixed assets are recorded at cost. Depreciation and amortization
are provided on a straight-line basis over the estimated useful lives
of the related assets. The following rates are being used: Equipment
    
    3 to 10 yearsVehicles
    
    4 yearsBuildings and leasehold improvements
    
    3 to 17 yearsFurniture
    
    3 to 10 years
  Provision for Reclamation CostsThe Company has adopted the new accounting standard for asset retirement
obligations, CICA 3110. The standard requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. The adoption of this standard did not have
any impact on the Companys financial position or results.Financial InstrumentsAt December 31, 2003, the carrying values of cash and cash equivalents,
value-added tax and other current assets, accounts payable and accrued
liabilities, acquisition debt and note payable approximate their fair value
due to the relatively short period to maturity of the instruments.Income TaxesThe Company uses the liability method of accounting for income taxes. Under
this method, future tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying value and tax basis of assets and liabilities. Future tax assets and
liabilities are measured using substantively enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on future tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the date of substantive enactment.Stock-based Compensation PlanThe Companys stock-based compensation plan is described in Note 7. As
allowed by the accounting standard, the Company does not follow the fair value
method of accounting for share options granted to employees and directors.
Stock-based compensation on options granted to non-employees is recorded as an
expense at the earlier of the completion of performance or vesting of the
options granted, based upon the estimated fair value on the date of grant.
Under the intrinsic value method adopted by the Company, no compensation
expense is recorded if the exercise price of the share options is equal to or
greater than the market price on the date of the grant. Any consideration
paid on exercise of stock options or purchase of stock is credited to share
capital.Loss per ShareLoss per share is determined using the weighted average number of shares
outstanding during the year. All outstanding options and warrants are
anti-dilutive; therefore, basic and diluted loss per share are the same.
Information regarding securities that could potentially dilute basic earnings
per share in the future is presented in Note 7.3.
    
    Mineral Properties and Deferred ExpendituresMineral property costs and deferred expenditures are summarized as follows: December 31, 2003MineralProperty
    
    DeferredCosts
    
    Expenditures
    
    TotalCerro San Pedro, Mexico (a):Balance at January 1, 2003
    
    $
    3,609,686
    
    
    $
    7,374,956
    
    
    $
    10,984,642Acquisition of subsidiary
    
    
    12,461,971
    
    
    
    
    
    
    
    12,461,971Additions
    
    
    43,566
    
    
    
    1,978,341
    
    
    
    2,021,907Balance at December 31, 2003
    
    
    16,115,223
    
    
    
    9,353,297
    
    
    
    25,468,520El Morro, Chile (b):Balance at January 1, 2003
    
    
    90,000
    
    
    
    946,004
    
    
    
    1,036,004Additions
    
    
    
    
    
    
    3,585
    
    
    
    3,585Balance at December 31, 2003
    
    
    90,000
    
    
    
    949,589
    
    
    
    1,039,589MIMK and other projects,
Chile (c):Balance at January 1, 2003
    
    
    9,762
    
    
    
    556,785
    
    
    
    566,547Additions
    
    
    12,095
    
    
    
    191,175
    
    
    
    203,270Write-offs
    
    
    (6,287
    )
    
    
    (697,249
    )
    
    
    (703,536
    )Balance at December 31, 2003
    
    
    15,570
    
    
    
    50,711
    
    
    
    66,281$
    16,220,793
    
    
    $
    10,353,597
    
    
    $
    26,574,390
 December 31, 2002MineralProperty
    
    DeferredCosts
    
    Expenditures
    
    TotalCerro San Pedro, Mexico (a):Balance at January 1, 2002
    
    $
    3,601,493
    
    
    $
    7,062,647
    
    
    $
    10,664,140Additions
    
    
    8,193
    
    
    
    374,277
    
    
    
    382,470Contributions to joint venture
by joint venture partner
    
    
    
    
    
    
    (61,968
    )
    
    
    (61,968
    )Balance at December 31, 2002
    
    
    3,609,686
    
    
    
    7,374,956
    
    
    
    10,984,642El Morro, Chile (b):Balance at January 1, 2002
    
    
    90,000
    
    
    
    867,452
    
    
    
    957,452Additions
    
    
    
    
    
    
    78,552
    
    
    
    78,552Balance at December 31, 2002
    
    
    90,000
    
    
    
    946,004
    
    
    
    1,036,004MIMK, Chile (c):Balance at January 1, 2002
    
    
    17,462
    
    
    
    147,568
    
    
    
    165,030Additions
    
    
    
    
    
    
    422,517
    
    
    
    422,517Write-offs
    
    
    (7,700
    )
    
    
    (13,300
    )
    
    
    (21,000
    )Balance at December 31, 2002
    
    
    9,762
    
    
    
    556,785
    
    
    
    566,547$
    3,709,448
    
    
    $
    8,877,745
    
    
    $
    12,587,193
 F - 7




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  a)
    
    Mexico  Cerro San Pedro ProjectThe Cerro San Pedro gold and silver project (the Project) is located in
the State of San Luis Potosí, Mexico and is owned by Minera San Xavier, S.A.
de C.V. (MSX). The feasibility study for the Project is based on an
open-pit mining operation with heap-leach processing of ores.On February 12, 2003, the Company acquired Glamis Gold Ltd.s (Glamis) 50%
equity interest in MSX for $18 million, less 50% of MSXs working capital
deficit at closing of $58,328. As a result of the purchase, the Company owns
100% of the issued and outstanding shares of MSX. The purchase price is
payable as follows:  i)
    
    $2 million paid at closing.ii)
    
    50% of MSXs working capital deficit
at closing of $58,328, paid to the Company subsequent to closing.iii)
    
    $5 million paid on August 12, 2003.iv)
    
    $6 million paid on February 10,
2004 (Note 14(a)).v)
    
    $2.5 million payable upon commencement of
commercial production (Note 14(c)).vi)
    
    $2.5 million payable one year
from commencement of commercial production (Note 14(c)).  The $2.5 million payable upon commencement of commercial production and the
$2.5 million payable one year from commencement of commercial production
represent contingent consideration and have therefore not been recognized as
acquisition costs at December 31, 2003. These contingent amounts will be
recorded as acquisition costs on March 24, 2004 (Note 14(c)).The acquisition of Glamis 50% equity interest in MSX is a business
combination accounted for as a purchase transaction. The fair value of the
consideration of $13 million ($18 million less $5 million of contingent
payments) less 50% of MSXs working capital deficit of $58,328, has been
allocated to the fair value of the net assets acquired as follows: Fair Value of Net Assets Acquired:Cash
    
    $
    19,739Other current assets
    
    
    72,376Fixed assets
    
    
    75,708Mineral properties
    
    
    12,461,97112,629,794Less: Current liabilities and other
    
    
    (71,265
    )Note payable
    
    
    (100,050
    )$
    12,458,479Consideration:Cash at closing, less working capital deficit
    
    $
    1,941,672Present value of future cash payments,
discounted at 6%
    
    
    10,516,807$
    12,458,479
  Acquisition debt of $10.5 million represents the estimated present value of
future cash payments totaling $11.0 million discounted at 6%. Interest
accretion for the year ended December 31, 2003 totaled $442,933. On August
12, 2003, the Company made a $5.0 million debt payment. At December 31, 2003, the
acquisition debt balance was $5,959,740.Glamis retained a net returns royalty on the gross proceeds, less costs and
expenses, of all ores, metals and mineral concentrates mined at the Project as
follows (Note 14(c)): Net ReturnsGold Price per Ounce
    
    RoyaltyLess than $325.00
    
    
    0.0
    %$325.00 to $349.99
    
    
    0.5
    %$350.00 to $374.99
    
    
    1.0
    %$375.00 to $399.99
    
    
    1.5
    %$400.00 and above
    
    
    2.0
    %
  On December 30, 2003, the Company awarded a contract to Washington Group
International to provide MSX with contract mining and related construction
services over the pre-production period and estimated mine life totaling
approximately ten years. The contract has an estimated gross value, exclusive
of fuel costs, of approximately $105 million. The contract provides that MSX
may terminate the contract at any time prior to the end of the ten-year term,
but must pay early termination and demobilization fees to Washington Group
International as follows: Termination Period
    
    Termination FeesPre-production
    
    $
    11,560,000Year 1
    
    $
    10,160,000Year 2
    
    $
    7,460,000Year 3
    
    $
    4,760,000Year 4
    
    $
    2,960,000Year 5
    
    $
    2,360,000Year 6
    
    $
    2,060,000Year 7
    
    $
    1,660,000Year 8
    
    $
    1,360,000Year 9
    
    $
    
  The federal, state and local mining permits necessary to commence construction
of the Project have been received. Several governmental agencies periodically
supervise compliance with the conditions identified in the permits. Although
MSX is currently in compliance with the permit conditions, future
non-compliance could result in the permits being revoked. In addition, various
complaints have been filed against the government alleging that the permits
should not have been granted. In the event that the government were to lose
these lawsuits, the permits could be revoked. F - 8




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  The Project is subject to a 1.95% royalty on the gross value of metals and
minerals contained in production in all mineral concessions presently owned or
optioned by MSX. In addition, MSX has entered into an agreement with a former
owner of certain mining concessions that provides for the greater of a 2.5%
net smelter returns (NSR) royalty on any production that occurs on the
properties or $50,000 per year beginning April 2003, subject to a maximum of
$1.0 million. The first payment of $50,000 was made in April 2003.Prior to the Companys acquisition of its joint venture partners interest in
MSX on February 12, 2003, the Company accounted for its investment in MSX
using the proportionate consolidation method. Under this method, the Companys
50% interest in MSX was combined with the financial results of the Company and
its subsidiaries. The Companys share of the assets and liabilities of MSX at
December 31, 2002, and cash flows of MSX for the years ended December 31, 2002
and 2001, were as follows: December 31, 2002Current assets
    
    $
    129,657Current liabilities
    
    
    131,566Working capital deficit
    
    
    (1,909
    )Fixed assets, net
    
    
    75,299Mineral properties
    
    
    3,609,686Deferred exploration expenditures
    
    
    7,374,956Net assets
    
    $
    11,058,032
 Year Ended December 31,2002
    
    2001Cash inflow (outflow) from:Operating activities
    
    $
    131,546
    
    
    $
    (34,402
    )Investing activities
    
    
    (382,896
    )
    
    
    (681,243
    )Financing activities
    
    
    11,968
    
    
    
    902,738Increase (decrease) in cash
    
    $
    (239,382
    )
    
    $
    187,093
  b)
    
    Chile  El Morro ProjectThe Companys activities in Chile are concentrated on gold and copper
exploration targets. The El Morro copper and gold project consists of the La
Fortuna and El Morro areas. In September 1999, the Company entered into an
option agreement to acquire a 100% interest in the La Fortuna mining
concessions owned by BHP Minerals (BHP). The option agreement provides
for payments to BHP totaling $1.7 million, with the final payment being made
by Noranda Inc. (Noranda) in July 2003 pursuant to the exploration
agreement discussed below. The option agreement also provides for BHP to
retain a 2% NSR royalty on any production from the mining concessions sold
to the Company.The Company also entered into an option agreement to acquire a 100% interest
in the other La Fortuna mining concessions owned by S.L.M. Cantarito and
S.L.M. Tronquito (collectively Martin) by making aggregate payments to
Martin of $1.5 million. The
option was completed in December 2001. Martin retained a 2% NSR royalty on
the concessions, half of which can be repurchased by the Company for
$500,000 at any time up to five years following completion of the Martin
option purchase.In 2000 and 2001, Noranda entered into an option agreement to acquire a 100%
interest in the La Fortuna mining concessions (Santa Julia) owned by the
Cayo family pursuant to the exploration agreement discussed below. The
option was exercised in 2002 upon making aggregate payments to the Cayo
family totaling $85,000. The
Company is required to make additional payments totaling $400,000 within two
years of commencement of mining on the Santa Julia concessions.The Companys 100% interest in the El Morro area, which is adjacent to the
La Fortuna area, was acquired by staking in 1998. As of December 31, 2003,
the Company had incurred mineral property costs and deferred expenditures
totaling $1,039,589 on the El Morro project.The Company entered into an exploration agreement with Noranda to conduct an
exploration program on the El Morro project in September 1999. In February
2000, the agreement was amended and provides for Noranda to earn up to a 70%
interest in the project by making aggregate exploration and property
acquisition expenditures of $10.0 million, including the BHP, Martin and
Cayo family option payments, over a five-year period beginning September
1999, and a payment to the Company by September 14, 2005 of $10.0 million.
The agreement also provides for Noranda to subscribe for a private placement
in the Company for $1.0 million, which was completed in October 2001 by
paying the Company $1.0 million in exchange for 918,563 Metallica common
shares (Note 7). Noranda has advised the Company that as of December 31,
2003, it had incurred approximately $11 million of exploration and property
acquisition expenditures on the El Morro project. Noranda is required to
continue to fund all exploration activities at the El Morro project until it
either makes the $10.0 million payment to the Company that is due on or
before September 14, 2005, or forfeits its interest in the project.c)
    
    Chile  MIMK and Other ProjectsThe MIMK project was established in 2000 to identify copper-gold projects in
close proximity and similar to the El Morro project. For the years ended
December 31, 2003 and 2002, various MIMK properties, with carrying values
totaling $703,536 and $21,000, respectively, were abandoned and written off.
As of December 31, 2003, the MIMK project consists of five properties with
deferred exploration expenditures and property acquisition costs totaling
$32,831.The other project, also in Chile, is a gold exploration project and has
deferred exploration expenditures and property acquisition costs totaling
$33,450 as of December 31, 2003.d)
    
    Brazil  Mara Rosa ProjectAt December 31, 2001, the Company elected not to proceed with further
exploration on the Mara Rosa gold project and wrote off F - 9




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  its $2,892,086 investment in the project. At December 31, 2003 and 2002, the
Company had accrued estimated reclamation and property closure costs
relating to the Mara Rosa project of $29,796 and $150,000, respectively.In November 2003, the Company entered into an option agreement to sell its
100% interest in the Mara Rosa project for $450,000. The Company has
received $150,000 of non-refundable option payments pursuant to the
agreement as of December 31, 2003. These amounts have been recognized as
income from option payments for the year ended December 31, 2003. The
agreement also provides for the Company to receive three payments of
$100,000 each, due no later than January 31, 2004, April 20, 2004 and July
20, 2004, respectively. The Company has the option to receive shares of the
purchaser at a 25% discount to the closing market price, as defined, in lieu
of the $100,000 cash payment that is due on April 20, 2004. If the Company
does not elect to receive shares of the purchaser in lieu of the $100,000
cash payment due on April 20, 2004, and if the purchaser closes a $1 million
equity financing on or before October 20, 2004, then the Company is required
to participate in the initial equity financing of the purchaser for an
aggregate subscription price of $100,000, provided that the purchaser has
satisfied the other terms of the option agreement.4.
    
    Fixed AssetsFixed assets consist of the following at December 31, 2003 and 2002: 2003AccumulatedDepreciationand
    
    Net BookCost
    
    Amortization
    
    ValueEquipment
    
    $
    161,395
    
    
    $
    82,175
    
    
    $
    79,220Vehicles
    
    
    107,377
    
    
    
    67,814
    
    
    
    39,563Building and leasehold
improvements
    
    
    123,067
    
    
    
    19,991
    
    
    
    103,076Furniture
    
    
    36,755
    
    
    
    23,751
    
    
    
    13,004Total
    
    $
    428,594
    
    
    $
    193,731
    
    
    $
    234,863
 2002AccumulatedDepreciationand
    
    Net BookCost
    
    Amortization
    
    ValueEquipment
    
    $
    100,183
    
    
    $
    64,409
    
    
    $
    35,774Vehicles
    
    
    60,517
    
    
    
    58,205
    
    
    
    2,312Building and leasehold
improvements
    
    
    66,546
    
    
    
    13,105
    
    
    
    53,441Furniture
    
    
    23,220
    
    
    
    22,464
    
    
    
    756Total
    
    $
    250,466
    
    
    $
    158,183
    
    
    $
    92,283
  5.
    
    Other Current AssetsIncluded in other current assets at December 31, 2002 is a $100,000
interest free loan that was granted to a director and officer in June 2000.
The loan was repaid in June 2003.6.
    
    Note PayableThe note payable at December 31, 2003 and 2002 is collateralized by mineral
properties held by MSX (Note 3(a)) and consists of the following: 2003
    
    2002MSX debt, interest at 1% per
month effective March 1, 2002,
payable monthly
    
    $
    200,100
    
    
    $
    100,050Less current portion
    
    
    200,100
    
    
    
    100,050Long-term debt
    
    $
    
    
    
    $
    
  The current portion of the note payable was paid in January 2004. F - 10




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  7.
    
    Share Capitala)
    
    AuthorizedUnlimited number of common and preferred shares without par value.b)
    
    Common Shares Issued and Outstanding Year Ended December 31,2003
    
    2002
    
    2001Shares
    
    Amount
    
    Shares
    
    Amount
    
    Shares
    
    AmountOutstanding, beginning of year
    
    
    32,449,167
    
    
    $
    43,068,285
    
    
    
    28,472,978
    
    
    $
    38,964,222
    
    
    
    27,077,735
    
    
    $
    37,744,962Shares issued in public
offering (Note 7(d))
    
    
    38,700,000
    
    
    
    55,416,199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares issued in private
placements (Notes 3(b)
and 7(d))
    
    
    10,100,000
    
    
    
    7,847,925
    
    
    
    3,900,000
    
    
    
    4,054,994
    
    
    
    918,563
    
    
    
    998,313Exercise of compensation
warrants (Note 7(d))
    
    
    151,500
    
    
    
    168,454
    
    
    
    
    
    
    
    
    
    
    
    267,858
    
    
    
    123,088Fair value of compensation
warrants exercised (Note 7(d))
    
    
    
    
    
    
    40,905
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
(Note 7 (c))
    
    
    344,333
    
    
    
    222,546
    
    
    
    50,000
    
    
    
    26,799
    
    
    
    154,000
    
    
    
    82,227Shares issued for retirement
plan (Note 9)
    
    
    18,885
    
    
    
    21,735
    
    
    
    26,189
    
    
    
    22,270
    
    
    
    55,551
    
    
    
    15,632Transfer agent share
consolidation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (729
    )
    
    
    Outstanding, end of year
    
    
    81,763,885
    
    
    $
    106,786,049
    
    
    
    32,449,167
    
    
    $
    43,068,285
    
    
    
    28,472,978
    
    
    $
    38,964,222
  On March 19, 1999, the Company adopted a Shareholder Rights Plan whereby
each shareholder of record was effectively issued one right for each common
share held. In the event that a bidder acquires 20% or more of the
outstanding voting shares of the Company, other than by a permitted bid or
with the approval of the Board of Directors of the Company, the rights would
become exercisable to purchase common shares of the Company at a 50%
discount to the then current market price. In June 2002, the shareholders
ratified the continued existence of the Shareholder Rights Plan to March 19,
2005.c)
    
    OptionsThe Companys stock-based compensation plan provides that the exercise price
per share is equal to the closing market price the day prior to granting as
quoted on the Toronto Stock Exchange. Each option allows for the purchase of
one share and expires not later than ten years from the date it was granted.
Options vest over a period of up to three years depending on the date of
grant. The stock option plan was amended to provide for a maximum of 5.0
million common shares that may be issued after April 29, 2003. As of
December 31, 2003, 344,333 common shares had been issued subsequent to April
29, 2003.The fair value of vested share options granted to consultants totaling
$6,675 for the year ended December 31, 2003 is included in exploration
expense.If the Company had followed the fair value method of accounting for share
options granted to employees and directors, the Company would have recorded
additional compensation expense totaling $339,367 and $61,248 for the years
ended December 31, 2003 and 2002, respectively. The pro forma effect on loss
for the year, and basic and diluted loss per share, for the years ended
December 31, 2003 and 2002, had the Company followed the fair value method of
accounting for stock-based compensation for options granted from January 1,
2002, is as follows: Year Ended December 31,2003
    
    2002Loss for the year
    
    $
    1,715,547
    
    
    $
    1,320,321Compensation expense
    
    
    339,367
    
    
    
    61,248Pro forma loss for the year
    
    $
    2,054,914
    
    
    $
    1,381,569Basic and diluted loss per share:As reported
    
    $
    (0.04
    )
    
    $
    (0.04
    )Pro forma
    
    $
    (0.05
    )
    
    $
    (0.04
    )
 F - 11




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  The fair value of share options used to calculate compensation expense has been
estimated using the Black-Scholes Option Pricing Model with the following
assumptions: 2003
    
    2002Risk free interest rate (Canada)
    
    3.6% to 4.4%
    
    
    4.5
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected price volatility of the Companys common shares
    
    75% to 87%
    
    
    110
    %Expected life of option
    
    5 years
    
    5 years
  Option pricing models require the input of highly subjective assumptions
including the expected price volatility of the Companys common shares. Changes
in the subjective input assumptions can materially affect the fair value
estimate, and therefore, the existing models do not necessarily provide a
reliable measure of the fair value of the Companys share options.The following is a summary of options granted under the Companys stock-based
compensation plan: Weighted Average Exercise Price(Canadian Dollars)Year Ended December 31,
    
    Year Ended December 31,2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001Outstanding, beginning of year
    
    
    2,107,083
    
    
    
    2,244,583
    
    
    
    2,655,500
    
    
    $
    0.99
    
    
    $
    1.10
    
    
    $
    1.74Granted
    
    
    1,112,500
    
    
    
    87,500
    
    
    
    811,250
    
    
    
    1.35
    
    
    
    1.39
    
    
    
    0.83Exercised
    
    
    (344,333
    )
    
    
    (50,000
    )
    
    
    (154,000
    )
    
    
    0.88
    
    
    
    0.85
    
    
    
    0.84Forfeited
    
    
    
    
    
    
    
    
    
    
    (18,667
    )
    
    
    
    
    
    
    
    
    
    
    1.04Expired
    
    
    (75,000
    )
    
    
    (175,000
    )
    
    
    (1,049,500
    )
    
    
    2.24
    
    
    
    2.55
    
    
    
    2.55Outstanding, end of year
    
    
    2,800,250
    
    
    
    2,107,083
    
    
    
    2,244,583
    
    
    $
    1.12
    
    
    $
    0.99
    
    
    $
    1.10Exercisable, end of year
    
    
    1,957,750
    
    
    
    1,778,333
    
    
    
    1,658,750
    
    
    $
    1.02
    
    
    $
    1.01
    
    
    $
    1.20
  The following table summarizes information about stock options outstanding at
December 31, 2003: Range of
    
    
    
    
    
    Weighted Average
    
    Weighted AverageExercise Prices
    
    Number
    
    Remaining
    
    Exercise Price(Canadian Dollars)
    
    Outstanding
    
    Contractual Life
    
    (Canadian Dollars)$0.45
to $0.50
    
    
    144,000
    
    
    
    1.1 years
    
    
    $
    0.46$0.70
to $0.85
    
    
    1,136,250
    
    
    
    1.9 years
    
    
    
    0.80$1.11
to $1.39
    
    
    1,390,000
    
    
    
    3.5 years
    
    
    
    1.30$2.11
    
    
    30,000
    
    
    
    4.8 years
    
    
    
    2.11$2.87
    
    
    100,000
    
    
    
    1.7 years
    
    
    
    2.87$0.45
to $2.87
    
    
    2,800,250
    
    
    
    2.7 years
    
    
    $
    1.12
  d)
    
    Warrants and Private PlacementsThe 267,858 common shares issued pursuant to a private placement in 2000 each
had one common share purchase warrant attached. Each warrant entitled the
holder to purchase one common share in the Company at a price of Cdn$0.70 per
share. The warrants were exercised in June 2001.On April 16, 2002, the Company sold 3.9 million units pursuant to a private
placement at a price of Cdn$1.80 per share for gross proceeds of Cdn$7.0
million (US$4,054,994, net of share issuance
costs). Each unit included one-half of one common share purchase warrant. Each
whole common share purchase warrant was exercisable at a price of Cdn$2.00 per
share for a period of one year. The warrants expired unexercised on April 16,
2003.On March 11, 2003, the Company closed a private placement for 10.1 million
units at a price of Cdn$1.50 per unit for gross proceeds of Cdn$15.2 million
(US$9.5 million, net of issue costs). Each unit consisted of one common share
and one-half of one common share purchase warrant. Each whole common share F - 12




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  purchase warrant entitles the holder to purchase one common share at an
exercise price of Cdn$2.00 for a period of two years to March 11, 2005. The
Company also granted the underwriters 505,000 compensation warrants. Each
compensation warrant is exercisable at a price of Cdn$1.50 per share for a
period of one year to March 11, 2004. Compensation warrants totaling 151,500
were exercised in 2003, resulting in 353,500 compensation warrants outstanding
as of December 31, 2003.On December 11, 2003, the Company issued 38.7 million units in a public
offering at a price of Cdn$2.20 per unit for gross proceeds of Cdn$85.1
million (US$61.3 million, net of issue costs). Each unit consisted of one
common share and one-half of one common share purchase warrant. Each whole
common share purchase warrant entitles the holder to purchase one common
share at an exercise price of Cdn$3.10 for a period of five years to December
11, 2008.The fair value attributable to the warrants and compensation warrants that
were issued in the March 2003 financing was $1,484,758 and $136,440,
respectively. The fair value attributable to the warrants that were issued in
the December 2003 financing was $5,889,285. The fair value attributable to the
151,500 compensation warrants that were exercised in 2003 was $40,905,
resulting in a net fair value attributable to warrants and compensation
warrants of $7,469,578 at December 31, 2003.8.
    
    Income TaxesThe difference between the amount of reported consolidated income tax
provision and the amount computed by multiplying the loss before income taxes
by the Companys combined applicable Canadian federal and provincial tax rate
of 36.62% (38.62% in 2002 and 42.12% in 2001) is reconciled as follows: Year Ended December 31,2003
    
    2002
    
    2001Income tax (benefit) computed using the applicable tax rate
    
    $
    (630,337
    )
    
    $
    (489,912
    )
    
    $
    (1,606,975
    )Non-deductible write-down of mineral properties and deferred
exploration expenditures
    
    
    257,635
    
    
    
    8,110
    
    
    
    1,218,147Net foreign losses subject to different tax rates
    
    
    57,785
    
    
    
    91,852
    
    
    
    53,147Interest expense not deductible
    
    
    162,202
    
    
    
    
    
    
    
    Earnings taxed at more (less) than applicable rate
    
    
    425
    
    
    
    (5,262
    )
    
    
    (7,766
    )Unrealized foreign exchange gain
    
    
    (223,130
    )
    
    
    
    
    
    
    Benefit of current tax loss not recognized
    
    
    369,675
    
    
    
    389,989
    
    
    
    354,242Income tax (benefit) provision
    
    $
    (5,745
    )
    
    $
    (5,223
    )
    
    $
    10,795
 F - 13




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Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  The tax effects of temporary differences that give rise to significant
portions of the future income tax assets and liabilities at December 31,
2003 and 2002 are as follows: 2003
    
    2002Future income tax assets:Canada:Net operating loss carryforwards
    
    $
    3,177,000
    
    
    $
    2,326,000Deferred financing costs
    
    
    1,704,000
    
    
    
    125,000Mexico:Net operating loss carryforwards
    
    
    9,909,000
    
    
    
    3,517,000Other countries:Net operating loss carryforwards
    
    
    389,000
    
    
    
    232,000Other
    
    
    30,000
    
    
    
    37,000Total future income tax assets
    
    
    15,209,000
    
    
    
    6,237,000Less valuation allowance
    
    
    (9,321,000
    )
    
    
    (3,782,000
    )Future income tax assets, net of valuation allowance
    
    
    5,888,000
    
    
    
    2,455,000Future income tax liabilities:Mexico:Mineral properties and deferred exploration
expenditures
    
    
    5,847,000
    
    
    
    2,455,000Other
    
    
    41,000
    
    
    
    Total future income tax liabilities
    
    
    5,888,000
    
    
    
    2,455,000Net future income tax assets
    
    $
    
    
    
    $
    
  At December 31, 2003, the Company and its subsidiaries have available
Canadian tax loss carryforwards of approximately $8.7 million that expire
between the years 2004 and 2010; Mexican tax loss carryforwards of
approximately $31.0 million that expire between the years 2005 and 2013;
Chilean tax loss carryforwards of approximately $1.8 million that can be
carried forward indefinitely; Barbados tax loss carryforwards of
approximately $2.2 million that expire between the years 2006 and 2012; and
United States tax loss carryforwards of approximately $0.1 million that
expire in 2018.9.
    
    Pension PlanThe Company has a qualified defined contribution savings plan that covers
all U.S. salaried and hourly employees. When an employee meets certain
eligibility requirements, the Company matches 50% of employee contributions
up to 10% of base salary. Employees vest 100% in the employer matching
contribution after three years of service. The Companys matching
contributions were $26,773, $18,038 and $15,572 for the years ended
December 31, 2003, 2002 and 2001, respectively.10.
    
    Contingencies and Commitmentsa)
    
    The Companys activities are subject to various governmental laws and
regulations relating to the protection of the environment.
These environmental regulations are continually changing and are generally
becoming more restrictive. The Company believes its operations comply in
all material respects with all applicable laws and regulations.b)
    
    MSX entered into a lease agreement with a group of individuals representing
Ejido Cerro San Pedro for a 15-year period beginning February 1997. The lease
provides for annual lease payments of $15,128 and grants MSX surface rights to
Ejido Cerro San Pedros communal farm land at the proposed mine site. Another
group of individuals has filed a lawsuit requesting nullification of the
existing lease agreement with MSX alleging that they are the lawful
representatives of Ejido Cerro San Pedro. In December 2002, a judgement was
rendered in favor of the group of individuals who signed the lease agreement
with MSX, which allows them to prove that they are the lawful representatives
of Ejido Cerro San Pedro. In the event that the lawsuit is settled in favor
of the individuals requesting nullification of the existing lease agreement,
MSX will be required to negotiate a new lease agreement with the new Ejido
Cerro San Pedro representatives. F - 14




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  c)
    
    The Company leases certain surface rights,
facilities and equipment under long-term
operating lease agreements. As of December 31,
2003, lease commitments for the next five
years and thereafter are as follows: 2004
    
    $
    53,1072005
    
    $
    50,4822006
    
    $
    27,7532007
    
    $
    23,5822008
    
    $
    23,582Thereafter
    
    $
    109,456
  d)
    
    In September 2003, MSX entered into an
agreement with a Mexican governmental agency to
provide a total of approximately $360,000 for
reforestation of land in the area surrounding
the proposed Cerro San Pedro mine that is not
owned or leased by MSX. The $360,000 will be
funded by MSX over a period of approximately
twelve years.e)
    
    Other commitments are discussed in Note 3(a).  11.
    
    Supplementary Cash Flow InformationCash and cash equivalents included in the cash flow statement comprise the
following balance sheet amounts at December 31, as follows: 2003
    
    2002
    
    2001Cash on hand and balances with bank
    
    $
    642,637
    
    
    $
    120,886
    
    
    $
    459,288Short-term investments
    
    
    65,467,419
    
    
    
    4,400,000
    
    
    
    2,102,813$
    66,110,056
    
    
    $
    4,520,886
    
    
    $
    2,562,101
  The Company paid interest and income taxes as follows for the three years ended
December 31, as follows: 2003
    
    2002
    
    2001Income taxes
    
    $
    
    
    
    $
    13,000
    
    
    $
    Interest
    
    $
    25,929
    
    
    $
    10,005
    
    
    $
    
  Other than the acquisition of 50% of MSX described in Note 3(a), the Company
incurred non-cash operating and financing activities for the three years ended
December 31, as follows: 2003
    
    2002
    
    2001Non-cash operating activities:Settlement of retirement plan obligations with
common shares
    
    $
    (21,735
    )
    
    $
    (22,270
    )
    
    $
    (15,632
    )Non-cash financing activities:Common shares issued for retirement plan contributions
    
    $
    21,735
    
    
    $
    22,270
    
    
    $
    15,632
 F - 15




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  12.
    
    Segment InformationThe Companys operations are limited to a single industry segment being the
exploration and development of mineral properties for economically
recoverable reserves. Segment assets by geographic location are as follows: December 31, 2003Mexico
    
    Chile
    
    United States
    
    TotalMineral properties and deferred expenditures
    
    $
    25,468,520
    
    
    $
    1,105,870
    
    
    $
    
    
    
    $
    26,574,390Fixed assets, net
    
    
    219,801
    
    
    
    
    
    
    
    15,062
    
    
    
    234,863$
    25,688,321
    
    
    $
    1,105,870
    
    
    $
    15,062
    
    
    $
    26,809,253
 December 31, 2002Mexico
    
    Chile
    
    United States
    
    TotalMineral properties and deferred expenditures
    
    $
    10,984,642
    
    
    $
    1,602,551
    
    
    $
    
    
    
    $
    12,587,193Fixed assets, net
    
    
    75,299
    
    
    
    
    
    
    
    16,984
    
    
    
    92,283$
    11,059,941
    
    
    $
    1,602,551
    
    
    $
    16,984
    
    
    $
    12,679,476
  13.
    
    Reconciliation to United States GAAPThe consolidated financial statements have been prepared in accordance with
Canadian GAAP which differ in certain respects from those principles that
the Company would have followed had its consolidated financial statements
been prepared in accordance with United States GAAP. Significant
measurement differences that materially affect these consolidated financial
statements are as follows:  
    
    As described in Note 2, Canadian GAAP allows for the deferral of
exploration expenditures. Under United States GAAP, the Company
expenses, as incurred, costs relating to unproven mineral properties.
When proven and probable reserves are determined for a property and a
feasibility study has been prepared, then subsequent exploration and
development costs of the property would be capitalized. The
capitalized cost is then assessed periodically for recoverability of
carrying values under Statement of Financial Accounting Standard
(SFAS) 144.
    
    Canadian GAAP provides for investments in jointly controlled entities to
be accounted for using proportionate consolidation. Under United States
GAAP, investments in incorporated joint ventures are to be accounted for
using the equity method. Under an accommodation of the United States
Securities and Exchange Commission, the accounting for joint ventures
need not be reconciled from Canadian to United States GAAP. The different
accounting treatment affects only the display and classification of
financial statement items and not net income or shareholders equity.
Details of the Companys share of the assets, liabilities and cash flows
of the MSX joint venture as at December 31, 2002 and for the years ended
December 31, 2002 and 2001 are set out in Note 3(a). MSX became a wholly
owned subsidiary of the Company on February 12, 2003. F - 16




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  Had the Company followed United States GAAP, certain items in the statements
of operations and deficit and balance sheets would have been reported as
follows: Statements of Operations and Deficit
    
    Year Ended December 31,2003
    
    2002
    
    2001Net loss under Canadian GAAP
    
    $
    (1,715,547
    )
    
    $
    (1,320,321
    )
    
    $
    (3,826,026
    )Exploration expenditures expensed
    
    
    (206,855
    )
    
    
    (600,831
    )
    
    
    (313,594
    )Net effect of write-down of mineral properties
and deferred expenditures
    
    
    703,536
    
    
    
    13,300
    
    
    
    1,964,940Net loss under U.S. GAAP
    
    $
    (1,218,866
    )
    
    $
    (1,907,852
    )
    
    $
    (2,174,680
    )Net loss per share under U.S. GAAP
    
    $
    (0.03
    )
    
    $
    (0.06
    )
    
    $
    (0.08
    )
 Balance Sheets
    
    At December 31,2003
    
    2002Canadian GAAP
    
    U.S. GAAP
    
    Canadian GAAP
    
    U.S. GAAPMineral properties and deferred expenditures
    
    $
    26,574,390
    
    
    $
    18,173,219
    
    
    $
    12,587,193
    
    
    $
    3,689,341Shareholders equity
    
    $
    86,566,441
    
    
    $
    78,165,270
    
    
    $
    17,087,971
    
    
    $
    8,190,119
 Statements of Cash Flows
    
    Year Ended December 31,2003
    
    2002
    
    2001Cash flows used in operating activities, Canadian GAAP
    
    $
    (1,213,601
    )
    
    $
    (1,229,857
    )
    
    $
    (853,658
    )Mineral properties and deferred expenditures
    
    
    (206,855
    )
    
    
    (499,153
    )
    
    
    (313,594
    )Cash flows used in operating activities, U.S. GAAP
    
    $
    (1,420,456
    )
    
    $
    (1,729,010
    )
    
    $
    (1,167,252
    )Cash flows used in investing activities, Canadian GAAP
    
    $
    (4,072,383
    )
    
    $
    (905,119
    )
    
    $
    (1,055,365
    )Mineral properties and deferred expenditures
    
    
    206,855
    
    
    
    499,153
    
    
    
    313,594Cash flows used in investing activities, U.S. GAAP
    
    $
    (3,865,528
    )
    
    $
    (405,966
    )
    
    $
    (741,771
    )
 F - 17




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##### Table of Contents



Metallica Resources Inc.(A Development Stage Company) Notes to consolidated financial statements  Recent Accounting PronouncementsIn April 2003, the Financial Accounting Standards Board (FASB) issued
Statement No. 149, Amendments of Statement No. 133 on Derivative Instruments
and Hedging Activities (SFAS No. 149) which is primarily effective for
contracts entered into or modified after June 30, 2003. Statement No. 149
amends Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133) for certain decisions made by the FASB as part of
the Derivatives Implementation Group process and incorporates clarifications
of the definition of a derivative. Adoption of SFAS No. 149 will not impact
the Companys financial position and results of operations.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS No.
150). This Statement establishes standards for how an issuer should classify
and measure certain financial instruments having characteristics of both
liabilities and equity. SFAS No. 150 requires that an issuer classify a
financial instrument that is within its scope as a liability (or an asset in
certain cases). Prior to the issuance of SFAS No. 150, many issuers classified
such instruments as equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have any impact on the
Companys consolidated financial statements because the Company does not have
any financial instruments with characteristics of both liabilities and equity.The Canadian Institute of Chartered Accountants (CICA) has issued amendments
to Section 3850, Stock-based Compensation and Other Stock-based Payments,
which require an expense to be recognized in financial statements for all
forms of employee stock-based compensation, including stock options. The
Company will be required to adopt this Standard on January 1, 2004, which will
result in compensation expense on stock options granted to directors and
employees, previously only disclosed on a pro forma basis, to be charged to
earnings.The CICA has issued Accounting Guideline 13, Hedging Relationships, which
establishes certain conditions regarding when hedge accounting may be
applied, and is effective for the Companys fiscal year beginning January
1, 2004. The Company does not expect the adoption of this Guideline to have
a material impact on the Companys financial position or results.The CICA has issued Accounting Guideline 15, Consolidation of Variable
Interest Entities, which will be effective for annual and interim periods
beginning on or after January 1, 2004. This Guideline addresses the
application of consolidation principles to entities that are subject to
control on a basis other than ownership of voting interests. The Company
does not expect the adoption of this Guideline to have a material impact on
the Companys financial position or results of operations.14.
    
    Subsequent Eventsa)
    
    On February 10, 2004, the Company made a $6.0 million acquisition debt
payment to Glamis as part of its purchase of the Cerro San Pedro project.b)
    
    At December 31, 2003 and February 13, 2004, the Company held Canadian
dollar denominated cash and cash equivalents totaling approximately Cdn$81.0
million and Cdn$64.3 million, respectively. At December 31, 2003, the Cdn$/US$
exchange rate was 1.2946. At February 13, 2004, the date of issuance of the
audited financial statements, Cdn$/US$ exchange rate was 1.3194.c)
    
    On February 27, 2004, the Company announced that it had reached an
agreement to acquire Glamis NSR royalty and to prepay the remaining $5.0
million of contingent consideration related to the Cerro San Pedro project for
$7.25 million. Glamis had retained the royalty as part of the sale of its 50%
interest in the Cerro San Pedro project to the Company in February 2003 (Note
3(a)). The transaction closed on March 24, 2004. F - 18




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##### Table of Contents



Table of Exhibits Description of Document1.2
    
    Certificate of Incorporation
    
    *1.2
    
    Certificate of Continuance dated July 16, 2002
    
    *1.3
    
    Articles of Continuance dated July 16, 2002
    
    *1.4
    
    By-Laws dated July 16, 2002
    
    *4.1
    
    Employment Agreement between the Company and Richard J. Hall
dated June 5, 2001
    
    *4.2
    
    Employment Agreements between the Company and Fred H.
Lightner dated May 16, 1997, April 1, 1999 and November 8,
1999
    
    *4.3
    
    Employment Agreement between the Company and Bradley J.
Blacketor dated May 16, 1997
    
    *4.4
    
    Shareholder Rights Plan Agreement dated March 19, 1999
    
    *4.5
    
    Loan Agreement between Metallica Barbados Inc. and Richard
J. Hall dated June 26, 2000
    
    *




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##### Table of Contents



Description of Document4.6
    
    Richard J. Hall Subscription Agreement dated November 8, 1999
    
    *4.7
    
    Richard J. Hall Warrant Agreement dated November 8, 1999
    
    *4.8
    
    Noranda Exploration Agreement dated September 14, 1999
    
    *4.9
    
    Noranda Exploration Agreement dated February 10, 2000
    
    *4.10
    
    Stock Acquisition and Shareholders Agreement between
Raleigh Mining International Limited and Cambior de Mexico
S.A. de C.V. and Minera San Xavier S.A. de C.V. dated
January 21, 1998
    
    *4.11
    
    Share Purchase Agreement between Glamis de Mexico, S.A. de
C.V., Raleigh Mining International Limited, Metallica
Resources Inc. and Minera San Xavier, S.A. de C.V. dated
February 12, 2003
    
    *4.12
    
    Mining Contract dated December 30, 2003 between Minera San
Xavier, S.A. de C.V., Metallica Resources Inc. and
Washington Group Latin America, Inc. for contract mining and
related construction services for the Cerro San Pedro
project4.13
    
    Contract for Construction dated March 3, 2004 between Minera
San Xavier, S.A. de C.V. and Mextica de Mexico S. de R.L.,
de C.V., for procurement, supply, installation and
construction of certain facilities at the Cerro San Pedro
project4.14
    
    Agreement between Glamis de Mexico, S.A. de C.V., et. al.
and Minera San Xavier S.A. de C.V., et. al. dated March 24,
2004 to acquire Glamis royalty interest in the Cerro San
Pedro project4.15
    
    Lease between Ejido Cerro de San Pedro and Minera San
Xavier, S.A. de C.V. dated February 6, 1997 [English Translation]8
    
    Subsidiaries of the Company12.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended12.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended13.1
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 200213.2
    
    Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 * Previously filed.