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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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, 2005

[ ] 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 1-31875

METALLICA RESOURCES INC.

METALLICA RESOURCES INC.

Federally Incorporated in Canada (Jurisdiction of incorporation or organization)

36 Toronto Street, Suite 1000, Toronto, Ontario, Canada M5C
2C5Telephone: 1-888-933-0313
 (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the
Act.

|                                    |                        
|----------------------------------- | -----------------------
|Title of each                       | Name of each exchange  
|Class                               | on which registered    
|COMMON SHARES WITHOUT PAR
    VALUE | AMERICAN STOCK EXCHANGE

Securities registered or to be registered pursuant to Section 12(g) of the
Act.

NONE(Title of Class)

Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.

NONE(Title of Class)

1

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The number of outstanding shares of the issuer's common shares, no par value,
as of December 31, 2005 was 83,301,676.

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

Yes ___  No X

If this report is an annual or transition report, indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.

Yes ___  No X

Note - Checking the box above will not relieve any registrant required to
file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.

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 whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer ____    
Accelerated Filer X    
Non-Accelerated Filer ____

Indicate by check mark which financial statement item the registrant has
elected to follow:

Item 17 X   Item 18
___

If this is an annual report, indicate by check mark whether the registrant is
a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ___  No X

2

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GLOSSARY

advance royalty

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 - 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.

CIM Definitions on Mineral Resources and Mineral Reserves
- the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines
adopted by CIM Council on August 20, 2000, as amended from time to time by the
Canadian Institute of Mining, Metallurgy and Petroleum, which definitions are
adopted by reference in National Instrument 43-101 of the Canadian Securities
Administrators.

Cretaceous - a period of geological time ranging from approximately 145
to 65 million years before present.

dacite - igneous rock which is fine grained or volcanic equivalent of
granodiorite and quartz diorite.

diamond drill - 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.

doré - a precious metals smelter product in bar or bullion form that is
subsequently refined to high purity gold and silver.

dike - a tabular intrusion, meaning it is sheet- or
slab-like, and which cuts across or through the host rocks. Dikes 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 Chilean
Government, the grant is 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,

3

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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 Chilean
Government, the grant is for an indefinite period of time subject to payment of
the annual tax.

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.

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 to pinkish 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 - a rock formed by the cooling of molten material.

indicated mineral resource1- 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 resource1 - 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 resource1- 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.

4

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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 the 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.

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 mineable (or viable) orebody 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 orebody from
the surface in progressively deeper steps. Sufficient waste rock adjacent to the
orebody 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 database 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 database values.

5

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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 reserve1
- the economically mineable part of an indicated, and in some
circumstances 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 can be
justified.

proven/probable mineral reserve1- reserves in which the difference in degree of assurance between proven and
probable cannot be reliably defined.

proven mineral reserve1
- 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 a
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).

6

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tonne - 1.102 tons (2,204 pounds).

tuff - a finer grained pyroclastic rock made up mostly of ashes.

unique concession - a right granted by the Mexican
government to explore, exploit or develop a prescribed area for a period of 50
years, and is renewable if certain obligations are met. Previously, exploration
concessions were granted for a six-year term, and exploitation concessions were
granted for a 50-year term.

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

7

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TABLE OF CONTENTS

|PART I                            |                                                                                  | PAGE
|--------------------------------- | -------------------------------------------------------------------------------- | ----
|                                  |                                                                                  |     
|ITEM 1                            | Identity of Directors, Senior Management
    and Advisors                        | 10  
|                                  |                                                                                  |     
|ITEM 2                            | Offer Statistics and Expected Timetable                                          | 10  
|                                  |                                                                                  |     
|ITEM 3                            | Key Information                                                                  | 10  
|                                  |                                                                                  |     
|ITEM 4                            | Information on the Company                                                       | 16  
|                                  |                                                                                  |     
|ITEM 4A                           | Unresolved Staff Comments                                                        | 45  
|                                  |                                                                                  |     
|ITEM 5                            | Operating and Financial Review and
    Prospects                                 | 45  
|                                  |                                                                                  |     
|ITEM 6                            | Directors, Senior Management and Employees                                       | 55  
|                                  |                                                                                  |     
|ITEM 7                            | Major Shareholders and Related Party
    Transactions                            | 61  
|                                  |                                                                                  |     
|ITEM 8                            | Financial Information                                                            | 63  
|                                  |                                                                                  |     
|ITEM 9                            | The Offer and Listing                                                            | 64  
|                                  |                                                                                  |     
|ITEM 10                           | Additional Information                                                           | 65  
|                                  |                                                                                  |     
|ITEM 11                           | Quantitative and Qualitative Disclosures
    About Market Risk                   | 74  
|                                  |                                                                                  |     
|ITEM 12                           | Description of Securities Other than
    Equity Securities                       | 74  
|                                  |                                                                                  |     
|PART II                           |                                                                                  |     
|                                  |                                                                                  |     
|ITEM 13                           | Defaults, Dividend Arrearages and
    Delinquencies                              | 74  
|                                  |                                                                                  |     
|ITEM 14                           | Material Modifications to the Rights of
    Security Holders and Use of Proceeds | 75  
|                                  |                                                                                  |     
|ITEM 15                           | Controls and Procedures                                                          | 75  
|                                  |                                                                                  |     
|ITEM 16A                          | Audit Committee Financial Expert                                                 | 75  
|                                  |                                                                                  |     
|ITEM 16B                          | Code of Ethics                                                                   | 75  
|                                  |                                                                                  |     
|ITEM 16C                          | Principal Accountant Fees and Services                                           | 75  
|                                  |                                                                                  |     
|ITEM 16D                          | Exemptions from the Listing Standards for
    Audit Committees                   | 76  
|                                  |                                                                                  |     
|ITEM 16E                          | Purchases of Equity Securities by the
    Issuer and Affiliated Purchasers       | 76  
|                                  |                                                                                  |     
|PART III                          |                                                                                  |     
|                                  |                                                                                  |     
|ITEM 17                           | Financial Statements                                                             | 77  
|                                  |                                                                                  |     
|ITEM 18                           | Financial Statements                                                             | 77  
|                                  |                                                                                  |     
|ITEM 19                           | Exhibits                                                                         | 77  
|                                  |                                                                                  |     
|Consolidated Financial Statements |                                                                                  | F-1 
|                                  |                                                                                  |     
|Signatures                        |                                                                                  | 80  

8

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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; risks of liability for environmental damage; risks
relating to legal proceedings; and risks associated with international business
operations. Risks relating to legal proceedings include various lawsuits that
have been filed against governmental agencies seeking to nullify various permits
and licenses that have been granted to the Company with respect to its Cerro San
Pedro project. In the event of an adverse ruling from any
of these lawsuits, the Company could be forced to suspend or cease project
construction or operating activities. 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 Securities and
Exchange Commission ("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 Mineral Resources

This document uses the terms "measured and indicated mineral
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.

9

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Cautionary Note to U.S. Investors Concerning Estimates of Inferred Mineral
Resources

This document uses the term "inferred mineral 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 are cautioned not to assume that any
part or all of an inferred resource exists or is economically or legally
mineable.
ITEM 1
    Identity of Directors, Senior Management and AdvisorsThis 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 TimetableThis 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 InformationA) 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) Financial 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)
|                                    | 2005                                     
|                                    |                                          
|Working capital                     | $42,257                                  
|Mineral properties and deferred     |                                          
|expenditures                        | 55,530                                   
|Fixed assets, net                   | 504                                      
|Total assets                        | 99,920                                   
|Net assets                          | 98,194                                   
|Share capital                       | 108,158                                  
|Warrants                            | 5,889                                    
|Stock options                       | 1,431                                    
|Deficit                             | (18,769)                                 
|Interest income                     | 1,037                                    
|Income from property payments       | 8,349                                    
|General and administrative expenses | 1,749                                    
|Exploration expense                 | 232                                      
|Stock-based compensation expense    | 341                                      

10

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|                                      | Year Ended
    December 31,              
|------------------------------------- | -----------------------------------------
|                                      | (in thousands,
    except per share data)
|                                      | 2005                                     
|Reclamation & property closure costs  |                                          
|Write-down of mineral properties and  |                                          
|deferred exploration
    expenditures | 3                                        
|Interest expense                      | --                                       
|Foreign exchange (gain) loss          | (1,045)                                  
|Net income (loss) for the year        | 7,959                                    
|Basic income (loss) per share         | 0.10                                     
|Diluted income (loss) per share       | 0.10                                     
|Dividends per share                   |                                          
|Weighted average number of            |                                          
|shares outstanding                    | 82,953                                   
|                                      |                                          

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.

- 



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)
|                                    | 2005                                     
|                                    |                                          
|Mineral properties and deferred     |                                          
|expenditures                        | $45,003                                  
|Shareholders' equity                | 87,667                                   
|Income from property payments       | 9,400                                    
|Write-down of mineral properties    |                                          
|and deferred expenditures           |                                          
|Exploration expense                 | 2,130                                    
|Stock-based compensation            |                                          
|expense                             |                                          
|Net income (loss) for the year      | 7,453                                    
|Basic net income (loss) per share   | 0.09                                     
|Diluted net income (loss) per share |                                          
|                                    | 0.09                                     

11

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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 last six months 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.

|                           | February | January | December | November | October | September
|-------------------------- | -------- | ------- | -------- | -------- | ------- | ---------
|                           | 2006     | 2006    | 2005     | 2005     | 2005    | 2005     
|High Rate                  | 0.8638   | 0.8528  | 0.8521   | 0.8361   | 0.8413  | 0.8418   
|Low Rate                   | 0.8788   | 0.8744  | 0.8690   | 0.8579   | 0.8579  | 0.8615   
|                           |          |         |          |          |         |          
|                           |          | 2005    | 2004     | 2003     | 2002    | 2001     
|Average Rate During Period | 0.8282   | 0.7702  | 0.7452   | 0.6369   | 0.6462 

On March 20, 2006 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 US$0.8601 = Cdn$1.00.

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 section.

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 section.

D) Risk Factors

The discovery, acquisition and development 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 that involves 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 orebody 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 is no assurance that the Company will successfully establish mining
operations or profitably produce gold and silver at its Cerro San Pedro project.

The Company believes that it currently has sufficient cash balances to
complete construction of its Cerro San Pedro project. However, the Company may
seek additional debt or equity financing to cover possible construction and
other costs overruns during mine development, and to cover possible cash flow
deficiencies during the initial months of project operations. If required, there
are no assurances that the Company would be successful in its efforts to obtain
the required financing.

12

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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 orebody, 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.

Mineral Reserves and Resources Estimates.The definitions of proven and probable mineral reserves, and measured, indicated
and inferred mineral resources are set forth in Canadian Securities
Administrators National Instrument 43-101, Standards of Disclosure for Mineral
Projects, 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 identified 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 write-downs 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 conditions 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, Chile
and the United States. 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
undertake other remedial actions.

13

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The 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, annual renewal of the explosives
operating permit, annual renewal of titles to water rights and receipt of an
environmental license that is issued at commencement of operations. Although the
Company believes that it 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, or that existing
permits will not be revoked. 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 the Company is not in compliance with its
existing permits, the Company may be forced to suspend project construction or
operations.
Environmental Risks. The Company's operations are subject
to environmental regulation in the various jurisdictions in which it operates,
i.e., Mexico, Chile and the United States. Environmental legislation is evolving
in a manner that will require stricter standards and enforcement, increased
fines and penalties for non-compliance, more stringent environmental assessments
of proposed projects and a heightened degree of responsibility for companies and
their officers, directors and employees. There is no assurance that existing or
future environmental regulation will not have a material adverse affect on the
Company's business, financial condition and results of operations. 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 and its
results from operations. The Company does not currently carry any liability
insurance relating to these types of risks.
Amendments to current laws, regulations and permits governing
operations and activities of mining companies, or more stringent implementation
thereof, could have a material adverse impact on the Company and cause increases
in exploration expenses, capital expenditures or production costs, reduction in
levels of production at producing properties, or abandonment or delays in
development of new mining properties.
Legal Proceedings. Risks relating to legal proceedings
include various lawsuits that have been filed against governmental agencies
seeking to nullify various permits and licenses that have been granted to the
Company with respect to its Cerro San Pedro project. In the event of an adverse
ruling from any of these lawsuits, the Company could be forced to suspend or
cease project construction or operating activities. Due to the inherent
uncertainty of the litigation process, there can be no assurance that the
resolution of any particular legal proceeding will not have a material effect on
the Company's financial position or results of operations. Furthermore, the cost
of defending such claims may require substantial management time. Refer to "Item
8. Financial Information, A) Consolidated Financial Statements and Other
Financial Information  Legal Proceedings" and "Item 4. Information on the
Company, D) Property, Plant and Equipment  The Cerro San Pedro Project, Mexico
 Environmental  Environmental and Other Permit Status and D) Property, Plant
and Equipment  The Cerro San Pedro Project, Mexico  Surface and Water Rights
Acquisition" for details of current legal actions pending.
Market Factors and Volatility. The profitability of the
Company's operations will be dependent upon the market price of mineral
commodities. Mineral prices fluctuate widely and are affected by numerous
factors beyond the control of the Company. The level of interest rates, the rate
of inflation, the world supply of mineral commodities and the stability of
exchange rates can all cause significant fluctuations in prices. Such external
economic factors are in turn influenced by changes in international investment
patterns, monetary systems and political developments. The price of mineral
commodities has fluctuated widely in recent years, and future price declines
could cause commercial production to be impracticable, thereby having a material
adverse effect on the Company's business, financial condition and results of
operations.
14
Furthermore, reserve calculations and life-of-mine plans
using significantly lower gold prices could result in material write-downs of
the Company's investment in mining properties and increased amortization,
reclamation and closure charges.
In addition to adversely affecting the Company's reserve
estimates and its financial condition, declining commodity prices can impact
operations by requiring a reassessment of the feasibility of a particular
project. Such a reassessment may be the result of a management decision or may
be required under financing arrangements related to a particular project. Even
if the project is ultimately determined to be economically viable, the need to
conduct such a reassessment may cause substantial delays or may interrupt
operations until the reassessment can be completed.
Title to Properties. While the Company has verified title
to its mineral properties, these procedures do not guarantee the Company's title
and offer no assurance that title to its properties will not be challenged. Such
properties may have been acquired in error from parties who did not possess
transferable title or be subject to prior unregistered agreements or transfers.
Title may also be affected by undetected defects that could be material and
adverse to the Company.
International Business Risks. The Company's current
foreign exploration activities are focused in Mexico and Chile. International
business risks may include, among others, labor disputes, invalidation of
governmental orders and permits, corruption, uncertain political and economic
environments, war, civil disturbances and terrorist actions, arbitrary changes
in laws or policies of particular countries, foreign taxation, delays in
obtaining or the inability to obtain necessary governmental permits, opposition
to mining from environmental or other non-governmental organizations,
limitations on foreign ownership, limitations on the repatriation of earnings,
limitations on gold exports and increased financing costs. These risks may limit
or disrupt the Company's projects, restrict the movement of funds or result in
the deprivation of contract rights or the taking of property by nationalization
or expropriation without fair compensation.
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. The Company presently maintains most of its cash balances in
Canadian dollars. Since the Company's reporting currency is the U.S. dollar,
foreign currency gains and losses on its Canadian dollar cash balances can
result in volatile net losses and earnings, and adversely affect the Company's
financial position and its results from operations.
Competition. Significant and increasing competition
exists for the limited number of mineral acquisition opportunities available in
the Americas. As a result of this competition, some of which is with large and
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, and Bradley J. Blacketor, Vice
President, Chief Financial Officer and Secretary. Although the Company has
entered into employment agreements with these individuals, if either 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, Exploration for Gold Fields Ltd., a gold mining
company. 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 of various companies in the
mining industry. Oliver Lennox-King, a director of the Company, is Chairman of
the Board for Fronteer Development Group., a minerals exploration company, and
is a director of various other companies in the mining industry. A.J. Ali, a
director of the Company, is Executive Vice-President and Chief Financial Officer
of EuroZinc Mining Corporation, a base metals mining company. Such associations
may in the future give rise to conflicts of interest from time to time. The
Company has adopted a Code of Ethics that addresses potential conflicts of
interest.
15
ITEM 4
    Information on the CompanyA) History and Development of the Company
Metallica Resources Inc. ("Metallica" or the "Company") is a mineral
exploration company with core areas of activity in North and South America.
The Company was incorporated in Canada under the provincial
Business Corporations Act (Ontario) on June 23, 1977 under the name Temple
Explorations Inc. On July 10, 1987, the Company reorganized and changed 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 this acquisition, 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, telephone: (888) 933-0313. 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'slength rates. Metallica Management Inc.'s offices are located at 12200 East
Briarwood Avenue, Suite 165, Centennial, Colorado 80112, telephone: (303)
796-0229.
Principal Capital Expenditures/Divestitures Over Last Three Fiscal Years
In the past three fiscal years, the Company had three
principal exploration/development projects that required capital expenditures by
the Company totaling $45.4 million (Cerro San Pedro, Mexico - $42.2 million; Rio
Figueroa, Chile - $1.9 million; El Morro, Chile - $0.6 million; Southwest
Alaska/Aleutian Islands, USA - $0.5 million; and other projects in Chile - $0.2
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, Falconbridge Limited ("Falconbridge"), formerly Noranda
Inc., pursuant to project earn-in requirements. The Company has funded 100% of
project development costs on the Cerro San Pedro project since the acquisition
of its former joint venture partner's 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."

16
Current and Planned Capital Expenditures/Divestitures
The Company recommenced construction of its Cerro San Pedro
project in February 2006. The September 2003 feasibility study for the project,
prepared by Washington Group International ("WGI"), reflects a capital cost
estimate of $28.2 million, plus $3 million for working capital. The Company is
working with WGI to update the capital cost estimate for the project. It is
anticipated that construction will be complete by the end of 2006.
The El Morro project is subject to an exploration agreement
with Falconbridge which provides that Falconbridge must complete a feasibility
study on the project by September 14, 2007. Falconbridge is responsible for 100%
of the cost of preparing the feasibility study. As part of its requirement to
complete a feasibility study, Falconbridge informed the Company that it
commenced work on a planned 26,500 meter drilling program at the El Morro
project in late 2005. In the event that future exploration work is performed on
the El Morro project, the Company will be responsible for its 30% share of these
costs. The Company does not anticipate that it will incur any material
exploration expenditures on the El Morro project in 2006. For further
information about the exploration agreement with Falconbridge, please see "D)
Property, Plant and Equipment  The El Morro Project, Chile."
The Company estimates that 2006 expenditures on its Rio
Figueroa, Southwest Alaska/Aleutian Islands and other exploration projects will
be approximately $1.3 million. This estimate could materially change depending
on the Company's ability to acquire satisfactory exploration projects, progress
of work programs on its existing projects and market conditions.
The Company may have additional 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 December 31, 2005, the Company had working capital of
$42.3 million. The Company believes its current working capital is sufficient
for it to complete its planned exploration and development activities for at
least the next twelve months. The Company's ability to continue its future
exploration and development activities will depend in part on its ability to
complete construction, commence operations and generate sufficient cash flow
from its Cerro San Pedro mine.
The Company may be required to obtain additional financing to
fund future exploration and development activities or acquisitions of 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 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.
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 is presently engaged in the business of
exploration, development and acquisition of precious metal rich mineral
properties located in North and South America, principally Mexico, Chile and the
United States. Through its subsidiaries, the Company has held interests in
mineral exploration projects in Mexico, Chile, Brazil and the United States
during the past three years. The Company's mineral development and exploration
activities are currently focused on the Cerro San Pedro gold and silver project
in Mexico, the El Morro copper-gold project in Chile, the Rio Figueroa
copper-gold project in Chile, the Southwest Alaska/Aleutian Islands gold and
copper-gold project in the United States, and other preliminary stage
copper-gold projects in Chile. See "D) Property, Plant and Equipment" for
further information about these projects.
17
The Company does not have any producing mineral properties
and has never generated any revenue from the sale of metals. The Company
anticipates that it will generate revenue from the sale of gold and silver upon
completion of construction and start-up at its Cerro San Pedro gold and silver
project in Mexico.
A discussion of government regulation in Mexico relating to the Company's
most advanced stage project, the Cerro San Pedro project, is presented below:
Mineral 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, with amendments approved on
April 26, 2005 that took effect January 1, 2006. The most important amendments
include:A single "unique" concession, eliminating the
  distinction between exploration and exploitation concessions as provided for
  in the September 2003 law.The term of the "unique" concession
  is 50 years and is renewable if certain obligations are met. Previously,
  exploration concessions were granted for a six-year term, and exploitation
  concessions were granted for a 50-year term.

The Company's El Morro copper-gold project and Rio Figueroa
copper-gold project 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."
C) Organizational Structure

The following chart illustrates the inter-corporate relationships among the
Company and its subsidiaries.



D) Property, Plant and Equipment

18

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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

Project Location

19

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The Company's most advanced stage project is the Cerro San Pedro gold and
silver project, located approximately 20 kilometers (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 wholly owned
subsidiary, Minera San Xavier, S.A. de C.V. ("MSX"). See Figure 1 for the
project location map.

20

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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 1950s. Renewed interest in
the Cerro San Pedro district began in the 1970s 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 the Cerro
San Pedro project and began an exploration program to expand the work of recent
exploration programs conducted by other companies. The Company 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.

In January 1998, the Company entered into an agreement that
provided for Cambior, Inc. to acquire a 50% interest in MSX. Cambior was
required to spend $20 million on project development by December 31, 2000 in
order to retain its 50% interest in the project. Cambior completed an additional
66 core drill holes totaling 7,612 meters in 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.

In May 2000, Cambior sold its 50% interest in the Cerro San
Pedro project to Glamis Gold Ltd. ("Glamis"). 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.

In February 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:

- 

the addition of certain rock types into the
  definition of ore, due to different prices used to calculate the reserve
  estimate, and

higher mine operating costs were used to
  calculate the reserves due to an anticipated change from owner mining to
  contract mining.

The WLR technical report included a proven and probable
reserve estimate of 61.1 million tonnes grading 0.59 grams per tonne gold and
24.0 grams per tonne 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 per ounce and a silver price of $4.62 per ounce. Mr. Rose
is a Qualified Person, as that term is defined in Canadian Securities
Administrators National Instrument 43-101. The WLR technical report is discussed
in further detail below.

In March 2005, WLR prepared a technical report update to its
Cerro San Pedro technical report dated February 2003. The updated technical
report's mineral reserve estimate reflected higher contract mining costs, higher
metal prices ($375 per ounce gold and $5.77 per ounce silver) and a village
protection buffer zone. The updated technical report included a proven and
probable mineral reserve estimate of 63.0 million tonnes grading 0.58 grams per
tonne gold and 23.9 grams per tonne silver, with an overall waste to ore ratio
of 1.16:1. The reserve estimate was prepared by William L. Rose of WLR and was
calculated using a gold price of $375 per ounce and a silver price of $5.77 per
ounce. Mr. Rose is a Qualified Person, as that term is defined in Canada
Securities Administrators National Instrument 43-101.

21

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The WLR technical report update 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. Glamis also retained a
sliding scale net smelter returns ("NSR") royalty on the project when monthly
average gold prices equal or exceed $325 per ounce. The payment terms were as
follows:

- 

$6.0 million in cash or in the Company's common
  shares due on February 12, 2004 (paid in cash on February 10, 2004),

$2.5 million due at commencement of commercial
  production,

$2.5 million due one year from commencement of
  commercial production.

In March 2004, the Company acquired from Glamis the
aforementioned sliding scale NSR 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.

In September 2003, WGI released a mine development plan for
the Cerro San Pedro project. The WGI mine development plan was reformatted to
comply with Canadian Securities Administrators National Instrument 43-101,
Standards of Disclosure for Mineral Projects, and released by WGI 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. WGI 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 was $28.2 million, plus $3
million for working capital. The Company is currently working with WGI to update
the capital cost estimate for the project.

In December 2003, the Company entered into a contract with
WGI to provide site development and contract mining services for the Cerro San
Pedro project. The estimated remaining value of the contract over the
pre-production period and estimated operating life of 10 years, is approximately
$112 million.

Project construction began in February 2004 and was expected
to take approximately nine months to complete at a total cost of $28.2 million,
plus $3 million for project working capital. In June 2004, the Company suspended
project construction pending receipt of the project explosives permit and the
annual renewal of the municipal construction and operating licenses. In August
2004, the Company received the annual municipal construction and operating
licenses, and has received subsequent renewals thereafter. In February 2006, a
restriction on the Company's use of its explosives permit was removed. This has
enabled the Company to recommence full-scale mine construction, which is
anticipated to be complete by the end of 2006.

Mineral Property Summary

The mineral rights at the Cerro San Pedro project consist of
48 mineral concessions, covering an area of 2,974 hectares or 7,349 acres. The
details of the mineral concessions and related groupings comprising the Cerro
San Pedro project are summarized in Table A.

TABLE A. CERRO SAN PEDRO MINERAL CONCESSIONS PROPERTY SUMMARY.

|Group                                   | Concession Name      | Concession Type | Title Number | Hectares
|--------------------------------------- | -------------------- | --------------- | ------------ | --------
|La Princesa: 100% Minera San
    Xavier |                      |                 |             
|1                                       | La Princesa          | Unique          | 180298       | 5.5916  
|2                                       | La Princesa Poniente | Unique          | 180366       | 0.0076  
|3                                       | Begonia              | Unique          | 181179       | 10.0000 

22

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|4                                               | Santa Ana            | Unique | 180598   | 8.0000    
|----------------------------------------------- | -------------------- | ------ | -------- | ----------
|5                                               | Santa Ana Sur        | Unique | 180597   | 1.5076    
|6                                               | Los Blancos          | Unique | 181180   | 9.0394    
|7                                               | Gogorron             | Unique | 180300   | 9.6250    
|8                                               | San Nicolás          | Unique | 180608   | 6.9788    
|9                                               | San Nicolás Sur      | Unique | 180610   | 1.4896    
|10                                              | San Nicolás Suroeste | Unique | 180609   | 0.1923    
|11                                              | Los Riscos           | Unique | 182282   | 4.3474    
|12                                              | La Concepción        | Unique | 182281   | 4.0000    
|13                                              | Cristina 2           | Unique | 180938   | 0.5537    
|14                                              | Cristina             | Unique | 186321   | 93.6228   
|15                                              | Gama                 | Unique | 179256   | 41.6391   
|16                                              | La Canoa             | Unique | 186370   | 3.4799    
|17                                              | La Canoa 2           | Unique | 180948   | 0.6649    
|18                                              | La Canoa 3           | Unique | 184906   | 0.0051    
|19                                              | Omega                | Unique | 193390   | 2.0576    
|20                                              | Omega 2              | Unique | 180958   | 0.1687    
|21                                              | San Salvador         | Unique | 186268   | 12.9399   
|22                                              | Triblin              | Unique | 187088   | 18.2808   
|23                                              | La Victoria          | Unique | 185387   | 10.3797   
|24                                              | El Barreno           | Unique | 179603   | 11.2359   
|25                                              | La Lotería           | Unique | 184377   | 3.8809    
|26                                              | San Fausto           | Unique | 179722   | 1.5000    
|27                                              | Maria del Pilar      | Unique | 179259   | 0.0049    
|28                                              | El Campeón           | Unique | 179257   | 0.2072    
|29                                              | Toro de Oro          | Unique | 206548   | 99.5187   
|30                                              | Gumercinda           | Unique | 205211   | 20.0000   
|                                                |                      |        | Subtotal | 380.9191  
|La Princesa: Optionor Antonio
    Álvarez Ruiz  |                      |        |         
|31                                              | Porvenir I           | Unique | 183925   | 12.0000   
|32                                              | Porvenir II          | Unique | 186269   | 2.9981    
|                                                |                      |        | Subtotal | 14.9981   
|Not Grouped: 100% Minera San
    Xavier         |                      |        |         
|33                                              | Gabriel              | Unique | 211849   | 18.0000   
|34                                              | Pedro                | Unique | 217859   | 1,969.5069
|35                                              | Pedro 2              | Unique | 219079   | 421.8333  
|36                                              | Gitano               | Unique | 219000   | 64.0000   
|37                                              | Porvenir IV Fracc.A  | Unique | 220628   | 55.0957   
|38                                              | Porvenir IV Fracc.B  | Unique | 216926   | 1.3237    
|39                                              | Mark 2005            | Unique | 223617   | 0.0529    
|40                                              | Davide2006           | Unique | 223618   | 0.0788    
|41                                              | Laura Maria 2008     | Unique | 223788   | 1.0976    
|42                                              | Tania 2008           | Unique | 223789   | 0.6860    
|43                                              | Maria Sofia 2008     | Unique | 223790   | 0.0247    
|44                                              | Porvenir V           | Unique | 218428   | 11.7876   
|                                                |                      |        | Subtotal | 2543.4872 
|Not Grouped: Optionor: Antonio
    Álvarez Ruiz |                      |       
|45                                              | Porvenir             | Unique | 214835   | 4.4241    
|46                                              | Porvenir III         | Unique | 212189   | 11.9902   
|                                                |                      |        | Subtotal | 16.4143   
|Not Grouped: 100% Minera San
    Xavier         |                      |        |         
|47                                              | Aracely              | Unique | 210668   | 9.3396    
|48                                              | Zalamera             | Unique | E.21070  | 9.0000    
|                                                |                      |        | Subtotal | 18.3396   
|                                                |                      |        | Total    | 2,974.1583

All of the mineral 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.

23

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The aforementioned unique mineral concessions begin to expire
in December 2036 through February 2055, subject to the timely filing of periodic
reports and payment of taxes to Direccion General de Minas ("Federal Mining
Bureau"). The unique concessions may be extended for an additional 50-year
period. The Company does not anticipate that extensions to the mineral
concessions will be required. All of the mineral concessions are held by the
Company without any encumbrances except for the following:

- 

Although the Company has investigated title to its mineral
concessions at the Cerro San Pedro project, there is no guarantee that title to
such concessions will not be challenged. In addition, certain permitting
requirements must be satisfied prior to commencing mining operations on a
mineral 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.

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 the project will be in compliance with the Normas
Oficiales Mexicanas [Official Mexican Standards].

Environmental and Other Permit Status

The Company was issued an MIA for the Cerro San Pedro project
by the Mexican federal agency, Secretaria de Medio Ambiente y Recursos Naturales
[Secretary of Environment and Natural Resources] ("SEMARNAT") on February 26,
1999. The MIA approval resolution lists 100 terms and conditions and 9
recommendations, which the Company 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 remaining
conditions considered by the Company to be most important are: i) stabilization
and monitoring of the Cerro San Pedro Apostle Church; (ii) offering to relocate
several families in the village of Cerro de San Pedro who are located within the
immediate vicinity of the mine; and (iii) establishing reclamation
funding/bonding requirements for the project. 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 MIA is valid for a
twelve-year period and includes eight years for project exploitation and four
years for reclamation. The Company will be required to apply for an extension
within 60 days of the February 2011 MIA expiration date in order to extend the
MIA term to adequately cover the proposed mining and reclamation period of
approximately 12 years.

In August 2004, the Company received notification that a
Mexican Federal Court rendered a judgment in favor of a group opposing the Cerro
San Pedro project who was seeking nullification of the Company's MIA. The legal
action brought by the contesting group claimed that the MIA violated various
environmental and other laws. The judgment was appealed by SEMARNAT. In August
2005, an Appeals Court revoked the August 2004 MIA nullification ruling and sent
the case to an Administrative and Fiscal Court for further review. In December
2005, the Administrative and Fiscal Court ruled that SEMARNAT must issue the
Company an amended MIA within four months that conforms to current environmental
and other laws. In the event that the amended MIA  contains onerous
conditions, it could have an adverse impact on project construction or operating
activities.

24

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The Company is required to obtain an annual explosives permit
during mine construction and operations. In October 2004, the Company received
the 2004 mine explosives permit; however, the explosives permit, as with all
mine explosives permits in Mexico, expired at the end of the calendar year. The
Company received the annual project explosives permit for 2005 in September
2005. The 2005 permit restricted the use of explosives to land owned by the
Company, which included the leach pad and processing area. The use of explosives
on land communally owned by Ejido Cerro de San Pedro, which included the pit
area and the access road to the pit, was prohibited pending the outcome of an
appeal to a lawsuit filed against Secretaria de Defensa National [National
Secretary of Defense] ("SEDENA") to prohibit it from issuing the permit. The
2006 mine explosives permit was received by the Company in January 2006 and
included the same blasting restriction as in the 2005 permit. On February 8,
2006, the Company received notification from SEDENA that the restriction on its
mine explosives permit for the Cerro San Pedro project, which prohibited the use
of explosives on land communally owned by Ejido Cerro de San Pedro, was removed.
In the event that the explosives permit is not renewed on an annual basis, the
Company may be required to cease mining operations.

The Company has recently been advised that another lawsuit was filed
against SEDENA seeking the cessation of blasting activity on land owned by Ejido
Cerro de San Pedro. Management believes this lawsuit is similar to an earlier lawsuit
that was resolved in favor of SEDENA, and resulted in SEDENA removing the
aforementioned restriction on the Company's explosives permit in February  2006. In the event of an adverse ruling from this new lawsuit, the Company may
be forced to cease blasting on ground owned by the Ejido of Cerro de San Pedro,
which could lead to the suspension or cessation of project construction or
operating activities.

The Company has also been advised of a lawsuit filed against
the Instituto Nacional de Anthropologia y Historia (National Institute of
Anthropology and History) seeking the suspension of a permit granted to the
Company that authorizes it to conduct project construction and operating
activities in close proximity to historical monuments.  In the event of an
adverse ruling from this lawsuit, the Company may be forced to cease project
construction or operating activities.

The Company is also required to obtain a renewal of its
municipal construction and operating licenses on an annual basis. The Company's
current municipal construction and operating licenses will expire on August 20,
2006. In the event that these licenses are not renewed on an annual basis, the
Company may be required to cease project construction or cease mining
operations.

The Company 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,
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 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 the Company is
not in compliance with its existing permits, the Company may be forced to
suspend project construction or mine operations.

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 Cerro San Pedro Apostle Church; (ii) offering to relocate several families
in the village of Cerro de San Pedro who are located within the immediate
vicinity of the mine; and (iii) establishing reclamation funding/bonding
requirements for the project. In January 2005, Procurador Federal de Proteccion
Ambiental [Federal Attorney for Environmental Protectioin] ("PROFEPA") (the
Mexican environmental enforcement agency) conducted a complete review of the
Cerro San Pedro project and issued a report that the Company was in full
compliance with all terms of the MIA.

25

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The Company has agreed to structurally stabilize the Cerro
San Pedro Apostle Church and install blast monitoring equipment near that
church. The work will be performed through a trust fund managed by an
independent technical committee and other interested parties. Various studies
made by architectural and engineering experts have estimated the cost of the
work to be $230,000. The Company has deposited approximately $237,000 with the
trust fund to cover the estimated cost of the project. The Company has applied
for a release of this permit condition with the relevant governmental agency.

The Company is required to "offer" to relocate all permanent
residents living within a defined buffer zone of the open pit. The Company has
expanded this requirement and offered all 24 families living within the village
of Cerro de San Pedro one of three options: a) a new house located a distance
farther 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. As of March 2006, 16 families have
accepted one of the aforementioned offers. The aggregate cost of the Company's
relocation offer is estimated to be $850,000.

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, providing
wildlife habitat, maintaining watershed functions, and supporting limited
livestock grazing. SEMARNAT has agreed to allow the Company to fund its
reclamation obligation during mining operations; however, negotiations with
SEMARNAT to determine the interim funding requirements have not yet been
finalized. 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 to be
$4.3 million.

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. The
Company 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 de 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, the Company 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 $52,000. The leases grant the Company temporary occupancy for a
period of 15 years (through January 2011), and may be extended by the Company
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 the Company at any time,
but with a penalty equal to one year's lease payment.

On May 28, 2002, a lawsuit was filed in a Mexican Agrarian
Court in which a contesting group claimed to be the rightful representatives of
the Ejido Cerro de San Pedro communal farmland. The contesting group's claim
stated that the Ejido Cerro de San Pedro lease agreement with the Company for
290 hectares of surface rights, which was executed in February 1997, was not
valid because the individuals who executed the agreement were not the legal
representatives of Ejido Cerro de San Pedro. In April 2004, the Agrarian Court
rendered a judgment in favor of a group opposing the project and nullified the
Company's lease agreement for surface rights at the project. In December 2004,
pursuant to an appeal, the Agrarian Court once again issued a nullification
order with respect to the lease agreement. The Company, along with the
individuals who entered into the lease agreement with the Company, have also
appealed this decision. In June 2005, the Company received a Temporary Occupancy
and Right of Way Authorization from the Federal Mining Bureau for the project.
This authorization provides the Company with federally mandated surface rights
access to its mineral rights over the life of the mine, and overrides the
various rulings and appeals in the Agrarian Court that challenged the Company's
surface rights access to its mineral rights.

26

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The Company has been informed of a lawsuit filed against the
Federal Mining Bureau and the Secretary of the Economy seeking nullification of
the Company's Temporary Occupancy and Right of Way Authorization for the Cerro
San Pedro project. In the event of an adverse ruling from this lawsuit, the
Company's surface rights access will revert to a lease agreement for surface
rights that has been challenged in an Agrarian Court. An adverse ruling in the
Agrarian Court could result in the suspension or cessation of project
construction or operating activities.

Water rights are federally owned in Mexico and administered
by an agency of the federal government; the Comision Nacional de Agua ("CNA").
CNA 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 who
received the water concessions from the CNA. The Cerro San Pedro project is
forecast to use a maximum of approximately one million cubic meters of water per
year. The Company has acquired titles for pumping rights for 1,010,234 cubic
meters per year, which generally must be renewed with CNA at various intervals
during mine construction and operations. The Company has also acquired an
additional 360,000 cubic meters of water rights for which it is awaiting receipt
of title from CNA. This brings the total to 1,370,234 cubic meters, which is in
excess of the estimated project requirements. Approximately $1.25 million has
been spent to date on the acquisition of water rights.

The 1.37 million cubic meters of water rights that are owned
or leased by the Company have been acquired from various 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 by the Company 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 project's water consumption will take place.

Access; Infrastructure

Access to the project area is by paved roads from the city of
San Luis Potosi, a distance of approximately 20 kilometers. The city of San Luis
Potosi has a population of approximately one million and has an adequate airport
with frequent flights to Mexico City, Monterrey, Houston, Dallas and other
cities.

A 115 kilovolt power line will need to be constructed to
supply the project with electricity. The power line will be 10 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. The 25.35 hectares of required right-of-way has been acquired at a
cost of $176,000. The cost to install the 115 kilovolt power line and build the
power substation is estimated at $1.3 million.

Glamis Feasibility Study (November 2000)

In November 2000, Glamis issued a revision to the Cambior
feasibility study entitled "Cerro San Pedro Project Feasibility Study" ("Glamis
Feasibility Study"). The Glamis Feasibility Study provided for the elimination
of the crushing plant from the process flow sheet resulting in the use of 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.

27

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In September 2003, WGI 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 the Glamis Feasibility Study. The
Development Plan also incorporated the updated mineral reserve estimate from the
February 2003 WLR technical report. Both the WLR technical report and the WGI
Development Plan are discussed in more detail below.

WLR Technical Report (February 4, 2003)

The following is a summary of information contained in the WLR Technical
Report dated February 4, 2003.

Background

The geological model and the metallurgical recoveries for the
Glamis Feasibility Study were not revised or amended for this report. The only
revisions were to 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 were recalculated in this technical report with higher prices
of $325 per ounce gold and $4.62 per ounce silver.

Mineral Resources

The mineral resource estimate used the results of 36 reverse
circulation holes from exploration prior to MSX and 219 drill holes completed by
MSX, 125 of which were reverse circulation and 94 were 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, that had less than
30% 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 occurred in the
correct position and conformed to the geological interpretation. Verification of
assay results used in the database was also performed.

The mineral resource was evaluated using various estimation
methods. The restricted kriging ("RK") method was determined to be the best at
characterizing the grade distribution and was therefore used to calculate the
mineral 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 B. Other operating costs,
including mining costs and general and administrative costs, used in these pit
limit evaluations are summarized in Table C.

TABLE B. PIT LIMIT INPUT PARAMETERS.

|               | Gold Recovery | Silver Recovery | Processing Cost
|-------------- | ------------- | --------------- | ---------------
|Able Rock Type | (%)           | (%)             | ($/t ore)      
|               |               |                 |                
|Porphyry oxide | 75            | 40              | 1.01           
|Porphyry mixed | 30            | 40              | 1.80           

28

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|Porphyry sulfide             | 20 | 30 | 1.80
|---------------------------- | -- | -- | ----
|Begoñia Limestone            | 55 | 25 | 1.01
|Hospital Limestone           | 35 | 10 | 1.01
|Barrano Limestones & MnOx    | 20 | 5  | 1.01
|All other rock types (waste) | 0  | 0  | n/a 

Other economic and overall slope angle parameters are summarized in Table C.

TABLE C. PIT LIMIT ECONOMIC INPUT PARAMETERS1.

|Parameter                                            | Value
|---------------------------------------------------- | -----
|Gold price (per ounce)                               | $325 
|Silver price (per ounce)                             | $4.62
|Refining recovery for gold                           | 99.5%
|Refining recovery for silver                         | 98.0%
|Freight and refining cost for
    gold (per ounce)   | $3.00
|Freight and refining cost for
    silver (per ounce) | $0.15
|Gross receipts royalty                               | 1.95%
|Mining cost  ore (per tonne)                        | $0.97
|Mining cost  waste (per tonne)                      | $0.85
|General and administration cost
    (per tonne ore)  | $0.20
|Slope angles on NW, N and NE
    walls (no ramps)    | 55°  
|Slope angles on E, SE, SW and W
    walls            | 45°  

> 1

Mineral Reserves

Total mineral reserves at prices of $325 per
ounce gold and $4.62 per ounce silver are estimated at 61.1 million tonnes
grading 0.59 grams per tonne gold and 24.0 grams per tonne silver. 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.

Table D 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 D. MINERAL RESERVE SUMMARY BY
CLASSIFICATION1,2

|               | Ore           | Gold  | Silver | Waste         | Total        
|-------------- | ------------- | ----- | ------ | ------------- | -------------
|Classification | (000s tonnes) | (g/t) | (g/t)  | (000s tonnes) | (000s tonnes)
|Proven         | 58,857        | 0.59  | 23.9   | 46,154        | 105,011      
|Probable       | 2,199         | 0.61  | 26.6   | 14,763        | 16,962       
|Other - waste  | -             | -     | -      | 13,071        | 13,071       
|Total          | 61,056        | 0.59  | 24.0   | 73,988        | 135,044      

> 1

2

29

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Conclusion

The results of this technical report illustrate that the use
of a higher gold price results in an increase in mineral reserves for the Cerro
San Pedro deposit. The Glamis Feasibility Study used metal prices of $275 per
ounce gold and $5.25 per ounce silver and reported a mineral reserve of 49.2
million tonnes grading 0.57 grams per tonne gold and 23.0 grams per tonne
silver, 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 increased to 61.1 million tonnes grading 0.59 grams per tonne gold and
24.0 grams per tonne silver with a strip ratio of 1.21 tonnes of waste per tonne
of ore.

WGI Development Plan (September 2003)

The following is a summary of information contained in the WGI Development
Plan dated September 2003.

Background

The WGI Development Plan (the "Development Plan") for the
Cerro San project updated the cost estimates of the Glamis Feasibility Study 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 and
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.
The Development Plan utilized 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 E. TABLE E. SOURCES OF INFORMATION FOR GEOLOGY AND
MINING SECTIONS OF THE 
DEVELOPMENT PLAN.

|Area    | Services Provided             | Name of Company/Consultant          
|------- | ----------------------------- | ------------------------------------
|        | Management                    | Minera San Xavier                   
|        | Assaying                      | Bondar Clegg                        
|Geology | Modeling, resource estimation | Minera San Xavier                   
|        | Deposit geology               | Mark Petersen, Consultant           
|        | Mineralogy/petrography        | Petrographic Consultants, Intl.     
|Mining  | Ore reserves/mine design      | Glamis / Mine Reserves Associates   
|        |                               | Independent Mining Consultants, Inc.
|        |                               | GeoSight, Inc.                      
|        | Model verification            | Glamis / Mine Reserves Associates   
|        |                               | WLR Consulting Inc.                 

30

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Gold and Silver Production:

A summary of annual estimated gold and silver production from
the Development Plan is presented in Table G. Estimated life-of-mine recovered
ounces total 721,946 ounces of gold and 16.9 million ounces of silver.

TABLE G. SUMMARY OF ANNUAL PRECIOUS METAL PRODUCTION.

|                            | Gold     | Silver       
|--------------------------- | -------- | -------------
|                            | (ounces) | (000s ounces)
|Estimated Annual Production |          |              
|Year 1                      | 63,779   | 1,580        
|Year 2                      | 87,519   | 2,091        
|Year 3                      | 91,831   | 2,076        
|Year 4                      | 93,309   | 1,938        
|Year 5                      | 83,897   | 2,008        
|Year 6                      | 95,502   | 2,167        
|Year 7                      | 108,541  | 2,466        
|Year 8                      | 72,633   | 1,833        
|Year 9                      | 23,126   | 645          
|Year 10                     | 1,809    | 78           
|Total                       | 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.

32



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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 kilometer 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 H.

33

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TABLE H. SUMMARY OF PRODUCTION, COST AND ECONOMIC PROJECTIONS.

|                                                 | Open Pit Mining /
|------------------------------------------------ | -----------------
|                                                 | ROM Leaching     
|Ore Reserves1                                    |                  
|Tonnes of ore                                    | 61,100,000       
|Grade of gold (grams per tonne)                  | 0.59             
|Grade of silver (grams per tonne)                | 24.0             
|Waste to ore ratio                               | 1.21:1           
|Contained gold (ounces)                          | 1,150,295        
|Contained silver (ounces)                        | 47,112,000       
|Production Data                                  |                  
|Mining life (years)                              | 8.3              
|Operating life (years)                           | 10 to 11         
|Total recovered gold (ounces)                    | 722,000          
|Total recovered silver (ounces)                  | 16,900,000       
|Average gold recovery (%)                        | 62.8             
|Average silver recovery (%)                      | 35.8             
|Average annual gold production (ounces)          | 90,500           
|Average annual silver production (ounces)        | 2,082,000        
|Cost Data2                                       |                  
|Initial capital cost (to production)             | $28,200,000      
|Total capital cost (over project life)           | $32,200,000      
|Mining cost per tonne of ore                     | $2.11            
|Processing cost per tonne of ore                 | $0.98            
|G & A cost per tonne of ore                      | $0.38            
|Total cost per tonne of ore                      | $3.47            
|GI total cash costs3 per ounce of gold           | $163             
|GI total production costs4 per ounce
    of gold | $215             

> 1

2

3

4

WLR Technical Report Update (March 30, 2005)

The following is a summary of information contained in the WLR Technical
Report Update dated March 30, 2005.

Background

On March 30, 2005, WLR provided an update to its February 4,
2003 technical report. The geological model and the metallurgical recoveries for
the previous technical report were not revised or amended. The new mineral
reserve estimates reflect a prescribed village protection buffer zone, higher
contract mining costs, a higher gold price of $375 per ounce and a higher silver
price of $5.77 per ounce.

Mineral Reserves

A minor redesign of the pit was performed based on conditions
of the surface rock mass of the pit. Due to previous mining activity, the main
access road was moved to improve pit wall stability. The final pit has not been
redesigned due to the modest expected increase in marginal ore tons at $375 per
ounce gold.

Total mineral reserves, at prices of $375 per ounce gold and $5.77 per ounce
silver, are estimated at 63.0 million tonnes grading 0.58 grams per tonne gold
and 23.9 grams per tonne silver. Waste stripping is

34

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estimated at 73.3 million tonnes, resulting in a strip ratio of 1.16 tonnes
of waste per tonne of ore. The total material tonnage for the designed ultimate
pit is 136.2 million tonnes.

Table I 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 I. MINERAL RESERVE SUMMARY BY CLASSIFICATION1.

|               | Ore           | Gold  | Silver | Waste         | Total        
|-------------- | ------------- | ----- | ------ | ------------- | -------------
|Classification | (000s tonnes) | (g/t) | (g/t)  | (000s tonnes) | (000s tonnes)
|               |               |       |        |               |              
|Proven         | 60,796        | 0.58  | 23.8   | 43,890        | 104,686      
|Probable       | 2,155         | 0.58  | 26.8   | 14,490        | 16,645       
|Waste          | -             | -     | -      | 14,950        | 14,950       
|Total          | 62,951        | 0.58  | 23.9   | 73,330        | 136,281      

> 1

Conclusions

The results of the mineral reserve analysis presented in this
technical report update indicate a slightly higher mineral reserve than
previously reported, at gold and silver prices of $375 per ounce and $5.77 per
ounce, respectively. Mineral reserves are now estimated at 63.0 million tonnes
of ore grading 0.58 grams per tonne gold and 23.9 grams per tonne silver. Waste
that must be stripped during open pit mining is projected at over 73.3 million
tonnes, for a stripping ratio of 1.16:1 (tonne of waste per tonne of ore).
Contained metal is estimated at about 1.17 million ounces of gold and 48.4
million ounces of silver.

In comparison, the February 3, 2003 WLR Technical Report
estimated approximately 61.1 million tonnes of ore grading 0.59 grams per tonne
gold and 24.0 grams per tonne silver for respective gold and silver prices of
$325 per ounce and $4.62 per ounce. Waste stripping was estimated at nearly 74.0
million tonnes, for a stripping ratio of 1.21:1.

While metals prices have increased during the period between
these two mineral reserve estimates, so has the ore mining cost and, in
particular, its relation to the waste mining cost. A mining contract is now in
place with WGI and the mining costs have been adjusted to reflect the new
contractual agreements. The increase in the ore mining cost relative to waste
effectively raises the internal cutoff grade upon which the mineral reserve
estimates are based. This has partially offset the gains expected by the higher
metals prices.

2006 Work Program

As a result of the removal of the restriction on the project
explosives permit in February 2006, which prohibited the use of explosives on
land communally owned by Ejido Cerro de San Pedro, the Company has recommenced
full-scale mine construction. It is anticipated that mine construction will be
completed by the end of 2006. The Company is working with WGI to update the 2003
capital cost estimate and with WLR to update the mineral reserve estimate for
the project using higher gold and silver prices. The current mineral reserve
estimate is based on a $375 per ounce gold price and a $5.77 per ounce silver
price.

The El Morro Project, Chile

Certain of the technical information set out below concerning
the El Morro Project is derived from a technical report dated May 16, 2005
authored by Bruce M. Davis and Mark A. Petersen. Each of Messrs. Davis and
Petersen is a "qualified person" for purposes of Canadian Securities
Administrators National

35

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Instrument 43-101.

Project Location

The El Morro project comprises approximately 29,470 hectares
and is located in the Municipality of Alto del Carmen, Huasco Province, Third
Region of Atacama in northern Chile (Figure 3), approximately 650 kilometers
north of Santiago and some 80 kilometers east of the city of Vallenar. The El
Morro project includes the La Fortuna deposit and the El Morro deposit. The El
Morro deposit is located approximately five kilometers northwest of the La
Fortuna deposit.



Project Ownership

In August 2005, pursuant to an exploration agreement (the
"Exploration Agreement") between Falconbridge Limited ("Falconbridge", formerly
Noranda Inc.) and the Company, Falconbridge completed the requirements necessary
to earn a 70% interest in the El Morro project. Falconbridge's earn-in
requirements are discussed below under Project History.

Project History

BHP Chile S.A. ("BHP") began work on the La Fortuna deposit
area in the early 1990s and completed limited exploration programs on the La
Fortuna and Cantarito copper-gold targets, and on the El Negro gold target.

36

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In December 1996, the Company entered into an option
agreement to acquire from BHP a 50% interest in the La Fortuna area exploitation
concessions owned by BHP. The agreement required the Company to invest $1.3
million in exploration and development expenditures over a three-year period. In
September 1999, the parties amended the option agreement to allow for the
Company to acquire a 100% interest in the La Fortuna area exploitation
concessions by making aggregate payments to BHP totaling $1.69 million over a
four-year period. The option was exercised in July 2003. The Company also
acquired additional land that surrounded the BHP concessions by staking in 1999.

In 1998, the Company entered into an option agreement to
acquire a 100% interest in the La Fortuna area exploitation concessions referred
to as the Rene Martin Jure ("Martin") concessions. The option was exercised in
2001 as a result of the Company and Falconbridge making aggregate payments to
Martin totaling $1.5 million.

In 2000 and 2001, Falconbridge Limited (formerly, Noranda
Inc.) entered into an option agreement to acquire a 100% interest in the La
Fortuna exploitation concessions, referred to as the Santa Julia concessions,
owned by the Cayo family pursuant to the exploration agreement discussed below.
The option was exercised in 2001 upon making aggregate payments to the Cayo
family totaling $85,000.

The El Morro deposit area, located five kilometers northwest
of the La Fortuna deposit area, was acquired by staking in 1998. Collectively,
the La Fortuna deposit area and the El Morro deposit area are referred to as the
El Morro project.

In September 1999, the Company entered into an exploration
agreement with Falconbridge to conduct an exploration program on the El Morro
project. In February 2000, the agreement was amended and provided for
Falconbridge 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 by making a payment to the Company of $10 million
by September 14, 2005. The agreement also provided for Falconbridge to subscribe
for a private placement in the Company for $1.0 million, among other
requirements. Falconbridge completed the requirements necessary to earn a 70%
interest in the El Morro project by making the $10 million payment to the
Company in August 2005. Falconbridge remains obligated to complete a feasibility
study on the project by September 14, 2007.

In addition to BHP's drilling programs in 1993 and 1994, the
Company conducted a drilling program consisting of 17 holes totaling 3,700
meters in 1999. Falconbridge has also completed four drilling programs
consisting of 120 holes totaling 44,971 meters since 2000. Falconbridge has
informed the Company that its current drilling program will consist of
approximately 70 holes totaling 26,500 meters.

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:

> 1. 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,
>   2. 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.

37

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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 proceeding may
become contentious in some cases (i.e., in the event of third party opposition
to the survey petition by claiming a preferential right in the area).

The El Morro project area currently consists of 29,470 hectares and includes
the following exploitation and exploration concessions:

|Mining exploitation concessions                        | 19,960 hectares
|------------------------------------------------------ | ---------------
|Mining exploitation concessions
    - purchase options | 2,216 hectares 
|Mining
    exploitation claims                         | 6,094 hectares 
|Mining exploration concessions                         | 1,200 hectares 

Falconbridge has also filed duplicate protection layer claim
applications covering 14,701 hectares, which overlap most of the exploitation
and exploration claims listed above. In addition, Falconbridge has applications
pending for mining exploration concessions that cover an additional 2,800
hectares.

Surface rights at the El Morro project are held by the Los
Huasco Altinos, a grazing and livestock cooperative. Los Huasco Altinos granted
Falconbridge an easement and right-of-way to conduct exploration work at the El
Morro project that expired in 2004. Falconbridge applied for an easement through
the Court of Vallenar, Chile, as provided for under the Chilean Mining Code. In
January 2005, the Court of Vallenar granted an easement to Falconbridge to
conduct additional exploration work on the project. In late 2005, the Court of
Vallenar granted Falconbridge a 30-year easement on the property.

At the El Morro project, 2,216 hectares are controlled
through five option to purchase agreements, two of which were executed by the
Company and three of which were executed by Falconbridge. Since September 1999,
all payments pursuant to the option to purchase agreements have been made by
Falconbridge pursuant to its earn-in requirement under the Exploration
Agreement. The option agreements are summarized below.

1) Minera Metallica Limitada and Rene Martin Jure Option to Purchase
Agreement

The Company and Falconbridge exercised an option in December
2001 to acquire certain mining exploitation concessions from 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"), for $1.5 million. The
underlying exploitation concessions are referred to as the Cantarito and
Tronquito mining properties and have a combined area of approximately 305
hectares. Martin 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 S.A. Option to Purchase Agreement

The Company and Falconbridge exercised an option in July 2003
to acquire certain mining exploitation concessions from BHP for $1.69 million.
The underlying concessions are referred to as the BHP concessions and have a
combined area of 1,849 hectares. BHP retained a 2% NSR royalty on any

38

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mining that occurs on the BHP mining concessions. In December
2004, the Company and Falconbridge acquired the 2% NSR royalty from BHP for $2.0
million. The Company acquired a 30% interest in the royalty for $0.6 million and
Falconbridge acquired a 70% interest in the royalty for $1.4 million.

3) Falconbridge Chile Limitada and Santiago del Carmen Cayo Salinas, Luis
Alberto Cayo Salinas and Johnny Cayo Salinas Option to Purchase Agreements

During 2001 and 2002, Falconbridge exercised three option
agreements with the shareholders of Santa Julia Uno de la Sierra Fortuna, to
acquire certain mining concessions held by Santa Julia Uno de la Sierra Fortuna
for $85,000. The underlying concessions are referred to as the Santa Julia
concessions and have a combined area of 61 hectares. Payments of $133,333 are
due to each of the three shareholders of Santa Julia Uno de la Sierra Fortuna
within two years of commencement of mining on the Santa Julia concessions.

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 an Environmental Impact Assessment (EIA) or 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. A favorable Environmental Qualification Resolution (RCA) was
received on December 28, 2001. The scope of the permit was advanced exploration
and evaluation for a period of three years beginning December 2001. In 2005,
Falconbridge was granted a two-year extension to conduct additional drilling on
the El Morro project through December 2006.

Geology

The El Morro district is located within a 16-kilometer wide
north-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
porphyritic 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 the
Miocene-Pliocene.

39

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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
subvolcanic igneous activity, which is at the origin of all the mineralized
porphyries in the district.

El Morro Area

Based on field observations, the El Morro area 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 Permo-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 north-south 
northeast system. A sheeted vein pattern visible at the El Morro mineralized
zone trends to the northwest. Other intrusive bodies, like andesite and porphyry
dikes, follow the same pattern, with northwest and northeast directions.

Exploration

BHP, Falconbridge and the Company have conducted drilling
programs on the El Morro project since 1993, consisting of 174 holes totaling
53,728 meters. As of March 20, 2006, the Company has received the results of
nine drill holes totaling 4,731 meters from Falconbridge's current 26,500 meter,
70-hole drilling program.

Since September 1999, all exploration drilling on the El
Morro project has been conducted by Falconbridge pursuant to its earn-in
requirement under an exploration agreement. 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                 
|(year)    | DDH                        
|          | total m                    
|          | (no. of                    
|          | holes)                     
|BHP       | 400.30                     
|(1993)    | (1)                        
|BHP       | 1071.15                    
|(1994)    | (7)                        
|Metallica |                            
|(1999)    |                            

40

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|Falconbridge   | 1159.91  |         |  |         | 199.16  |  |         |         | 2949.32 |         |         | 4308.39  |         
|-------------- | -------- | ------- |  | ------- | ------- |  | ------- | ------- | ------- | ------- | ------- | -------- | --------
|(2000)         | (4)      |         |  |         | (1)     |  |         |         | (11)    |         |         | (16)     |         
|Falconbridge   | 9384.93  |         |  |         | 904.40  |  | 4971.65 |         |         |         |         | 15260.98 |         
|(2000-2001)    | (21)     |         |  |         | (3)     |  | (16)    |         |         |         |         | (40)     |         
|Falconbridge   | 8247.65  | (5)     |  | (1)     |         |  | 748.55  | (3)     |         | (3)     | (10)    | 8996.20  | (22)    
|(2002)         | (16)     | 1538    |  | 394     |         |  | (3)     | 912     |         | 1094    | 2536    | (19)     | 6474.00 
|Falconbridge   | 9,932    |         |  |         |         |  |         |         |         |         |         | 9,932    |         
|(2005)         | (23)     |         |  |         |         |  |         |         |         |         |         | (23)     |         
|Falconbridge   | 4,731    |         |  |         |         |  |         |         |         |         |         | 4,731    |         
|(2006 partial) | (9)      |         |  |         |         |  |         |         |         |         |         | (9)      |         
|Total          | 34926.94 | (22)    |  | (19)    | 1103.56 |  | 5720.20 | (6)     | 3449.42 | (10)    | (10)    | 45200.12 | (67)    
|               | (81)     | 4541.90 |  | 2110.00 | (4)     |  | (19)    | 1430.00 | (12)    | 2641.00 | 2536.00 | (116)    | 13258.90

Notes: DDH - diamond
core drill hole; RDH - reverse circulation drill hole

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 initiated a drilling program at La Fortuna that consisted of four
holes totaling 908 meters and resulted in only anomalous metal values. In early
2000, Falconbridge drilled a total of four core holes on the La Fortuna area
totaling 1,160 meters. One hole (DDHF-04) intersected a 70-meter chalcocite-enriched
zone grading 1.15% copper and 0.35 grams per tonne gold. The remaining holes
encountered lesser amounts of mineralization and were mineralized at depth. In
November 2000, Falconbridge began a second round of drilling in the La Fortuna
area that included 21 holes totaling 9,385 meters that encountered significant
continuity of metal values.

The objective of Falconbridge's 2002 drilling program at the
La Fortuna area was to expand the previously identified mineralized area, which
remained open to the north, northwest and at depth. Falconbridge drilled 21
holes totaling 9,786 meters in 2002. One hole, DDHF-39, encountered
mineralization averaging 0.65% copper and 0.53 grams per tonne gold over its
entire 970-meter length.

Falconbridge's late 2004 through 2005 drilling program was
focused on improving the definition of the higher-grade copper enrichment zone
and the mineralized porphyry through in-fill drilling. This drilling program
consisted of 23 holes totaling 9,932 meters. The 2005 drilling campaign
increased the drill hole density within the upper 450 meters of the La Fortuna
deposit to an average drill hole spacing of approximately 100 meters. In
September 2005, the Company reported a mineral resource estimate for the La
Fortuna deposit, which is summarized in Table K.

TABLE K. MINERAL RESOURCE ESTIMATE FOR THE LA FORTUNA DEPOSIT.

|Resource       | 0.3% Copper Cutoff Grade | 0.4% Copper Cutoff Grade | 0.5% Copper Cutoff Grade
|-------------- | ------------------------ | ------------------------ | ------------------------
|Classification | Tonnes                   | Copper                   | Gold                    
|               | (000s)                   | (%)                      | (g/t)                   
|Indicated1     | 203,000                  | 0.69                     | 0.59                    
|Inferred2      | 450,000                  | 0.50                     | 0.39                    

1

2

The 2005 mineral resource estimate for the La Fortuna deposit is an update of
an earlier mineral resource estimate prepared in 2002 by
Falconbridge. The updated resource estimate is classified as an indicated and
inferred mineral resource in accordance with CIM Definitions on mineral
resources and mineral reserves. The estimate is based entirely on data provided
to the Company by Falconbridge. The Qualified Persons, as defined by Canadian
Securities Administrators National Instrument 43-101, responsible for the design
and completion of the updated resource estimate are Bruce M. Davis, Fellow -
AusIMM and Chief Geostatistician for Norwest Corporation, and Mark Petersen,
Certified Professional Geologist - AIPG and Exploration Manager for Metallica
Resources.

41

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Drill core samples from the 2005 drilling program were
assayed by ACME Analytical Laboratories S.A., an independent laboratory located
in Santiago, Chile. Drill core samples from previous years were assayed by ALS
Chemex (Chile) S.A., an independent laboratory located in Coquimbo, Chile. All
drill core samples have been subject to Falconbridge's Six Sigma Drill Core
Sampling and Analysis Protocols for quality assurance and quality control, which
include the use of internal blanks and Gannet certified standards. The
analytical methods used are geochemical analysis for copper and fire assay with
atomic absorption finish for gold.
The 2005 mineral resource estimate is calculated down to an
elevation of 3,400 meters. One diamond drill hole, DDHF-39, extends
approximately 325 meters below the 2005 mineral resource estimate, where it
averages 0.53% copper and 0.43 grams per tonne gold.
El Morro Area
In early 1999, Metallica drilled seven widely 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
molybdenum over a 192-meter interval from 76 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, Falconbridge completed a 4,300-meter, 16-hole
drilling program on the El Morro project. On the El Morro property, Falconbridge
drilled 11 core holes totaling 2,949 meters. Although Falconbridge'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. Falconbridge
reported that the drilling intersected no intrusive porphyritic units, only
rocks considered to be wall rocks to the porphyry system. In November 2000,
Falconbridge began a second phase of drilling on the El Morro project, none of
which took place at the El Morro area.
The objective of Falconbridge's 2002 drilling program at the
El Morro area was to test known mineralization and geophysical targets. In 2002,
three new holes were drilled at the El Morro area. One of these holes, RDM-9,
intersected 50 meters of secondary mineralization grading 0.91% copper and 0.58
grams per tonne gold, and 170 meters of primary mineralization grading 0.45%
copper and 0.27 grams per tonne gold.
In January 2004, Falconbridge presented the Company with an
inferred resource estimate for the El Morro deposit, calculated in accordance
with CIM Definitions on Mineral Resources and Mineral Reserves. The results from
this mineral resource estimate are summarized in Table L.
TABLE L. MINERAL RESOURCE ESTIMATE FOR THE EL MORRO AREA.

|Resource       | 0.2% Copper Cutoff Grade | 0.3% Copper Cutoff Grade | 0.4% Copper Cutoff Grade
|-------------- | ------------------------ | ------------------------ | ------------------------
|Classification | Tonnes                   | Copper                   | Gold                    
|               | (000s)                   | (%)                      | (g/t)                   
|Inferred1      | 190,000                  | 0.34                     | 0.12                    

1

42

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The El Morro area inferred resource estimate was drill tested
on approximately 200-meter centers on an area approximately 1.2 kilometers by
1.2 kilometers, consisting of 22 diamond and reverse circulation 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 east.

All drill core samples for the inferred resource estimate
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. Falconbridge's Drill Core Sampling
and Analysis Protocols, developed through Falconbridge'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. The Qualified Person, as
defined by Canadian Securities Administrators National Instrument 43-101, who
supervised the design and conduct of work on the El Morro inferred resource
estimate was Stanley Clemmer, Senior Resource Geologist, of Falconbridge Chile
Ltda.

Cantarito, El Negro, Camp and Other Target Areas

Approximately 12,900 meters in 58 holes have been drilled to
date 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 to confirm the
continuity of significant metal values.

2006 Work Program

Although Falconbridge has earned a 70% interest in the El
Morro project, Falconbridge is obligated to complete a feasibility study for the
project by September 2007. The cost of this feasibility study, which includes
Falconbridge's current 26,500 meter, 70-hole in-fill drilling program, will be
borne by Falconbridge. The objectives of this drilling program are to further
define the outer limits of the La Fortuna mineral resource and to elevate the
resource classification from the current indicated and inferred categories to
measured and indicated categories. The results from this drilling program will
serve as the basis for the feasibility study that Falconbridge must provide to
the Company.

The Company is also working with Falconbridge to complete a
joint venture and shareholder's agreement for the El Morro project. The Company
does not anticipate that it will incur costs in excess of $100,000 on the
project during 2006.

Rio Figueroa Project, Chile

In September 2004, the Company entered into an option
agreement with Sociedad Contractual Minera Los Potrillos ("Potrillos") to
acquire a 100% interest in a copper-gold exploration project referred to as the
Rio Figueroa project. The project is approximately 80 kilometers southeast of
Copiapó, Chile. The property is located within the Eocene-Oligocene porphyry
belt and along the southern extension of the Domeyko fault zone. The land
package consists of approximately 75 square kilometers and includes 56 square
kilometers of exploration concessions and 19 square kilometers of exploitation
concessions.

The option agreement provides for the Company to make annual
option payments over a five-year period beginning September 2004 totaling $3.5
million, and to incur annual exploration expenditures over a three-year period
beginning September 2004 totaling $1.5 million, in order to exercise the option.

43

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|Option Payments | Exploration Commitments |               
|--------------- | ----------------------- | --------------
|Due Date        | Amount                  | Due Date      
|September 2004  | $100,000                | September 2005
|September 2005  | $200,000                | September 2006
|September 2006  | $200,000                | September 2007
|September 2007  | $400,000                |               
|September 2008  | $750,000                |               
|September 2009  | $1,850,000              |               
|                |                         |               
|Total           | $3,500,000              |               

At December 31, 2005, the Company had made option payments
totaling $300,000 and had incurred qualifying exploration expenditures totaling
approximately $1.3 million. Potrillos has retained a 1.5% NSR royalty against
any future production from the property.

The Rio Figueroa property was first identified during a
regional reconnaissance program to explore for analogs to the Company's El Morro
coppergold project. A systematic evaluation of the property through geological
mapping, geochemical sampling and geophysical surveys was completed to identify
those areas with the greatest potential for discovery of an economic copper-gold
and/or epithermal gold deposit. Based on the results from this work, 40 reverse
circulation rotary holes were drilled in early 2005 totaling 7,475 meters in
four different porphyry and epithermal targets. The drilling focused on the
Quebrada Contrabando porphyry cluster, targeting the Cerro Matta, Quebradas,
Rodriguez and Cerro Isla target areas. The best results were returned from Cerro
Matta where nine holes totaling 2,884 meters were drilled. Five of these holes
intercepted what is considered to be anomalous copper-gold mineralization
(>0.10% copper and >0.10 grams per tonne gold) over intervals in excess of 100
meters.

During the fourth quarter of 2005, additional drilling in the
Cerro Matta area intercepted additional copper-gold mineralization which
included 158 meters averaging 0.36% copper and 0.37 grams per tonne gold in
drill hole MRC-15. These intercepts are from a seven-hole reverse circulation
drilling program totaling 2,250 meters, designed to test the continuity and
explore for extensions to anomalous copper-gold mineralization encountered in
previous drilling.

Fifteen holes totaling 4,834 meters have been drilled to date
in the Cerro Matta area. Drilling has delineated a core zone of copper-gold
mineralization developed along the contact between a granodiorite stock and
andesite country rocks. The core zone measures approximately 300 by 400 meters
in area and a vertical range of at least 400 meters. The zone remains open to
the north, southeast, southwest and at depth.

2006 Work Program

Compilation and interpretation of the Cerro Matta results are in progress to
determine the next phase of exploration work for the Rio Figueroa project.

Southwest Alaska/Aleutian Islands Project, USA

In September 2005, the Company entered into an option
agreement with Full Metal Minerals Ltd. ("Full Metal") to earn a 65% interest in
precious metal rich exploration properties located in Southwest Alaska and the
Aleutian Islands. In order to exercise the option, qualifying exploration
expenditures totaling $4.5 million and option payments to Full Metal totaling
$250,000 must be made as follows:

|Exploration Commitments | Option Payments |                  
|----------------------- | --------------- | -----------------
|Due Date                | Amount          | Due Date         
|December 31, 2005       | $250,000        | December 31, 2005
|December 31, 2006       | $400,000        | December 31, 2006
|December 31, 2007       | $600,000        | December 31, 2007
|December 31, 2008       | $800,000        | December 31, 2008
|December 31, 2009       | $1,000,000      | December 31, 2009

|December 31, 2010 | $1,450,000 |  |          | $1,450,000
|----------------- | ---------- |  | -------- | ----------
|                  |            |  |          |           
|Total             | $4,500,000 |  | $250,000 | $4,750,000

44

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The Company may increase its interest in individual
properties to 70% by completing a pre-feasibility study, and it may further
increase its interest in individual properties to 80% by completing a
feasibility study. Qualifying expenditures totaling approximately $0.48 million
have been incurred as of December 31, 2005.

The properties comprise mineral rights in excess of 2,000
square miles (1.4 million acres) and are held 100% by Full Metal through
exclusive option agreements with two Native Corporations. The properties cover a
150 mile section of the Alaskan Peninsula hosting numerous porphyry
copper-gold-molybdenum and epithermal gold-silver prospects that have seen
limited exploration in the past. Historic production within the property area
includes the Apollo-Sitka mines on Unga Island, which were Alaska's first lode
gold mines. More recent activity has included regional reconnaissance programs
for copper porphyries during the 1970s and epithermal gold systems during the
late 1980s and early 1990s. All of the prospects within the project area are
located at or near tidewater, and access to the region is excellent with regular
commercial air and marine service from Anchorage and Seattle.

2006 Work Program

The Company will continue its reconnaissance level geological
mapping, geochemical and geophysical surveys, and mechanical trenching to
identify areas meriting more detailed exploration. Work is currently focused on
the Pyramid, Zachary Bay, Kawisgag, San Diego Bay, Bee Creek, Weasel Mountain
and Mallard Duck Bay porphyry prospects, as well as on a large epithermal vein
system that includes the ApolloSitka and Shumagin deposits on Unga Island and
the Centennial gold deposit on Popof Island near the town of Sand Point, where a
regional airport and commercial port facilities are located. The Company intends
to conduct a reconnaissance drilling program totaling approximately 2,500 meters
to test two or three target areas during the summer of 2006. Approximately $1
million has been budgeted for 2006 for exploration and other activities on the
Southwest Alaska/Aleutian Islands project.



|ITEM 4A | Unresolved Staff Comments
|------- | -------------------------

The Company has no unresolved Staff comments.



|ITEM 5 | Operating and Financial Review and Prospects
|------ | --------------------------------------------

General

Management's discussion and analysis ("MD&A") has been
prepared based on information available to Metallica Resources Inc. (the
"Company") as of February 17, 2006. MD&A provides a detailed analysis of the
Company's business and compares its 2005 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 unless otherwise indicated.

The Company is an emerging gold and silver producer focused
on the exploration and development of precious metal rich properties throughout
the Americas. The Company has two principal mineral properties: the 100%-owned
Cerro San Pedro gold and silver project in Mexico and the 30%-owned El Morro
copper-gold project in Chile.

45

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The Cerro San Pedro project contains estimated mineral
reserves1 of 63.0 million tonnes grading 0.58 grams per tonne gold
and 23.9 grams per tonne silver at a waste-to-ore ratio of 1.16 to 1. This
equates to 1.17 million ounces of gold and 48.4 million ounces of silver. The
mineral reserves were estimated using a gold price of $375 per ounce and a
silver price of $5.77 per ounce, and were prepared by William Rose of WLR
Consulting Inc., the Qualified Person, in accordance with Canadian Securities
Administrators National Instrument 43-101, "Standards of Disclosure for Mineral
Projects".

The El Morro project is subject to an exploration agreement
with Falconbridge Limited ("Falconbridge"), formerly Noranda Inc., which allowed
for Falconbridge to earn a 70% interest in the project by making, among other
requirements, a $10 million payment to the Company by September 14, 2005. The
$10 million payment was made to the Company on August 31, 2005 and resulted in
Falconbridge earning a 70% interest in the El Morro project. The exploration
agreement also provides that Falconbridge must complete a feasibility study on
the project by September 14, 2007. Falconbridge is responsible for 100% of the
cost of preparing the feasibility study.

In September 2005, the Company reported an updated mineral
resource2estimate for the La Fortuna deposit at the El Morro
project. Using a 0.4% copper cutoff grade, the La Fortuna deposit is estimated
to contain indicated mineral resources3 totaling 185 million tonnes
grading 0.72% copper and 0.62 grams per tonne gold. In addition, the La Fortuna
deposit is estimated to contain inferred mineral resources4 totaling
295 million tonnes grading 0.58% copper and 0.44 grams per tonne gold. The
mineral resource estimates were calculated independently by Norwest Corporation
in collaboration with the Company and incorporated the results from 23 core
holes totaling 9,932 meters completed by Falconbridge from late 2004 through
early 2005. The Qualified Persons, as defined by Canadian Securities
Administrators National Instrument 43-101, responsible for the design and
completion of the updated mineral resource estimates are Bruce M. Davis, Fellow
- AusIMM and Chief Geostatistician for Norwest Corporation and Mark Petersen,
Certified Professional Geologist - AIPG and Exploration Manager for Metallica
Resources.

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 judgments and

________________________

1

2

3

4

46

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estimates that are involved in the preparation of its consolidated financial
statements and the uncertainties which could materially 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
changes 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.

Management regularly reviews and
evaluates the carrying value of each mineral property for impairment. If the
total estimated future cash flows on an undiscounted basis are less than the
carrying value of the asset, an impairment loss is recorded and the carrying
value of the property is written down to fair value, which is typically the
estimated future discounted cash flows. Where estimates of future cash flows are
not available and where other conditions suggest impairment, management assesses
whether the carrying value can be recovered by considering alternative methods
of determining fair value. When it is determined that a mineral property has
been impaired, it is written down to its estimated fair value in accordance with
the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 3063,
"Impairment of Long-Lived Assets". As a result of these potential write-offs and
write-downs from its exploration and development activities, net income or loss
of the Company may be volatile.

An impairment assessment was
performed on the Cerro San Pedro project using estimated long-term future gold
and silver prices of $425 per ounce and $6.54 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 fair value of stock options used to calculate
compensation expense has been estimated using the Black-Scholes Option Pricing
Model with the following assumptions:

|                                                       | 2005        | 2004        | 2003       
|------------------------------------------------------ | ----------- | ----------- | -----------
|                                                       |             |             |            
|Risk free interest rate (Canada)                       | 3.2 to 3.7% | 3.3 to 3.5% | 3.6 to 4.4%
|Expected dividend yield                                | 0.0%        | 0.0%        | 0.0%       
|Expected volatility of the Company's common
    shares | 65 to 66%   | 70 to 71%   | 75 to 87%  
|Expected life of option                                | 5 years     | 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
stock options.

47

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Asset Retirement Obligation:

The Company's reclamation and closure
cost obligation is calculated using highly subjective assumptions that include
the Company's long-term credit-adjusted risk-free interest rate, the long-term
inflation rate, the year in which the reclamation obligation is expected to
begin and the current estimate of the reclamation obligation. Any changes in
these subjective assumptions could materially affect the Company's reclamation
and closure cost obligation.

Mineral Properties and Deferred Costs

The Company's current business activity focus is on the
exploration and, if practicable, the development of precious metal rich mineral
deposits. The cost of acquiring specific mineral properties, and any subsequent
exploration, development or other costs that are directly attributable to the
properties are capitalized. Exploration expenditures that are incurred prior to
the acquisition of a mineral property are expensed. In the event that the
Company elects to proceed with the development of a project, capitalized
acquisition, exploration and development expenditures will be amortized against
future production upon commencement of commercial production, or written off if
the properties are sold or abandoned.

A) Operating Results

The Company has generated net income in two of the last three
years principally as a result of foreign exchange gains and income from property
payments. The Company does not have any operating mines. Management anticipates
that the Company will incur net losses for at least the next year as a result of
ongoing general and administrative expenses, exploration expenses, write-downs
of mineral properties and deferred costs, and other costs. The Company
anticipates that the losses will reverse after it achieves commercial production
at its 100%-owned Cerro San Pedro project in Mexico. The Cerro San Pedro project
is currently under construction and is expected to be completed by the end of
2006. However, there are no assurances that commercial production from the Cerro
San Pedro project will be achieved.

Selected Annual Information

|                                    | 2005         | 2004         | 2003         
|----------------------------------- | ------------ | ------------ | -------------
|                                    |              |              |              
|Total revenues                      | $ --         | $ --         | $ --         
|Net income (loss)                   | $ 7,958,798  | $ 1,368,462  | $ (1,715,547)
|Total assets                        | $ 99,919,884 | $ 90,293,100 | $ 93,353,848 
|Long-term liabilities               | $ 343,164    | $ 203,818    | $ --         
|Basic net income (loss) per share   | $ 0.10       | $ 0.02       | $ (0.04)     
|Diluted net income (loss) per share | $ 0.10       | $ 0.01       | $ (0.04)     

Net income for 2005 of $7.96 million was primarily due to
$8.35 million of income from property payments and $1.05 million of foreign
exchange gains. Net income in 2004 of $1.37 million was primarily attributable
to an increase in foreign exchange gains from $0.61 million in 2003 to $2.17
million in 2004, and an increase in interest income from $0.16 million in 2003
to $0.93 million in 2004. 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.

2005 Compared with 2004

The Company reported net income of $7.96 million ($0.10 per
share) for the year ended December 31, 2005 as compared to net income of $1.37
million ($0.02 per share) for the year ended December 31, 2004. Significant
changes between the 2005 and 2004 income and expense amounts that comprised net
income are discussed below.

The Company does not own any interests in producing mineral
properties or have any other revenue generating activities; therefore, it does
not have any operating income or cash flow from operations. The Company's only
significant sources of income are from property payments and interest earned on
cash and cash equivalents. Income from property payments increased from $0.30
million in 2004 to $8.35 million in 2005. The $8.05 million increase results
from a $10 million earn-in payment received from Falconbridge in August 2005,
which resulted in Falconbridge earning a 70% interest in the El Morro project.

48

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General and administrative expense for the year ended
December 31, 2005 totaled $1.75 million and was $0.28 million higher than 2004
expenditures of $1.47 million. The increase was primarily attributable to
employee bonus payments totaling $0.17 million in the current period versus nil
in the preceding period.

Stock-based compensation expense increased from $0.08 million
for the year ended December 31, 2004 to $0.34 million for the year ended
December 31, 2005. The $0.26 million increase was primarily attributable to an
increase in stock option grants from 400,000 in 2004 to 880,000 in 2005. In
addition, the Company capitalized stock-based compensation expense totaling
$0.09 million in 2005 and $0.55 million in 2004, as a result of stock options
granted to employees at its Cerro San Pedro development project.

Foreign exchange gains of $1.05 million in 2005 and $2.17
million in 2004 were principally due to unrealized gains associated with holding
large cash balances in Canadian dollars (Cdn$39.4 million and Cdn$42.3 million
at December 31, 2005 and 2004, respectively), and the strengthening of the
Canadian dollar relative to the U.S. dollar in 2004 and 2005. The Cdn$/US$
exchange rate at December 31, 2003 was 1.2946 as compared to 1.2048 on December
31, 2004, and 1.1660 on December 31, 2005.

Income tax expense increased from $0.14 million in 2004 to
$0.15 million in 2005, despite an increase in income before taxes of $6.60
million in 2005. This was principally due to the recognition of tax loss
carryforwards in the current period which offset the taxable gain attributable
to the $10 million earn-in payment received from Falconbridge in August 2005.

2004 Compared with 2003

The Company reported net income of $1.37 million ($0.02 per
share) for the year ended December 31, 2004 as compared to a net loss of $1.72
million ($0.04 per share) for the year ended December 31, 2003. Significant
changes between the 2004 and 2003 income and expense amounts that comprised net
income (loss) are discussed below.

Interest income for the year ended December 31, 2004
increased to $0.93 million from $0.16 million in the preceding year. The $0.77
million increase resulted from higher average invested cash balances in 2004 as
a result of a $61.31 million public equity offering for shares and warrants that
closed in December 2003. The Company's only other source of income in 2004 was
the receipt of property payments from the sale of its Mara Rosa project totaling
$0.30 million, as compared to $0.15 million in 2003.

General and administrative expense for the year ended
December 31, 2004 totaled $1.47 million and was $0.22 million higher than 2003
expenditures of $1.25 million. The increase was primarily attributable to an
increase in business insurance premiums, higher financial advisory services and
retainer fees paid to the Company's directors.

Stock-based compensation expense increased from $0.01 million
for the year ended December 31, 2003 to $0.08 million for the year ended
December 31, 2004. The $0.07 million increase results from the Company's
adoption of the CICA Section 3870, "Stock-based Compensation and Other
Stock-based Payments" on January 1, 2004, which requires an expense to be
recognized in the financial statements for all forms of employee stock-based
compensation, including stock options.

The Company terminated its MIMK exploration program and
abandoned its remaining MIMK properties in 2004, which resulted in a write-down
of mineral properties and deferred costs totaling $0.08 million in 2004. The
Company also abandoned its Los Colorados MIMK exploration property in 2003
resulting in a write-down of mineral properties and deferred costs totaling
$0.70 million in 2003.

49

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Interest expense of $0.04 million and $0.45 million for the
years ended December 31, 2004 and 2003, respectively, represents interest
accretion on acquisition debt relating to the Company's purchase of its former
joint venture partner's 50% interest in the Cerro San Pedro project in February
2003. The acquisition debt was paid off in February 2004.

Foreign exchange gains of $2.17 million in 2004 and $0.61
million in 2003 are primarily attributable to unrealized gains associated with
holding the majority of the net proceeds from the Company's December 11, 2003
public equity offering in Canadian dollars (Cdn$80.75 million), and the
subsequent strengthening of the Canadian dollar relative to the U.S. dollar. The
Cdn$/US$ exchange rate at December 11, 2003 was 1.3082 as compared to 1.2946 on
December 31, 2003, and 1.2048 on December 31, 2004.

Income tax expense increased from a ($0.01) million income
tax benefit in 2003 to $0.14 million of income tax expense in 2004. The $0.15
million increase in income taxes in 2004 resulted from approximately $0.09
million of Canadian withholding taxes on interest earnings from a foreign
subsidiary, and approximately $0.05 million of Mexican income taxes. In the
preceding year, Canadian withholding and Mexican income taxes were
insignificant.

Summary of Quarterly Results

The summary of quarterly results has been prepared in accordance with
Canadian GAAP.

|                                    | 2005       
|----------------------------------- | -----------
|                                    | Fourth     
|                                    | Quarter    
|Total revenues                      | $ --       
|Net income (loss)                   | $ 15,202   
|Basic net income (loss) per share   | $ 0.00     
|Diluted net income (loss) per share | $ 0.00     
|                                    |            
|                                    | 2004       
|                                    | Fourth     
|                                    | Quarter    
|Total revenues                      | $ --       
|Net income (loss)                   | $ 1,582,433
|Basic net income (loss) per share   | $ 0.02     
|Diluted net income (loss) per share | $ 0.01     

The high quarterly net income (loss) volatility for 2004
primarily resulted from holding large cash balances in Canadian dollars and high
fluctuations in Cdn$/US$ exchange rates. Net foreign exchange gains (losses)
totaled ($0.59 million), ($0.90 million), $1.85 million and $1.80 million for
the first, second, third and fourth quarters of 2004, respectively. The high
quarterly net income (loss) volatility for 2005 is also attributable to holding
large cash balances in Canadian dollars and high fluctuations in Cdn$/US$
exchange rates. Net foreign exchange gains (losses) totaled ($0.36 million),
($0.32 million), $1.58 million and $0.15 million for the first, second, third
and fourth quarters of 2005, respectively. In addition, the Company recognized
income from property payments in the third quarter of 2005 totaling $8.35
million as a result of Falconbridge's $10 million earn-in payment on the El
Morro project.

B) Liquidity and Capital Resources

At December 31, 2005, the Company had $42.67 million in cash
and cash equivalents and working capital of $42.26 million. The Company believes
that it has sufficient cash balances to complete construction of the Cerro San
Pedro project. The Company may pursue additional debt or equity financing to
cover potential cost overruns and for other corporate projects.

For the years ended December 31, 2005, 2004 and 2003, the Company received
net proceeds of $0.43 million, $0.76 million and $71.16 million, respectively,
from the sale of equity securities and the exercise of warrants and stock
options. Approximately $70.77 million of the 2003 net proceeds is due to a
private placement financing for $9.46 million that closed in March 2003, and a
public equity offering for $61.31 million that closed in December 2003. A
portion of the proceeds from the 2003 equity financings was used to purchase the
Company's former joint venture partner's 50% interest in the Cerro San Pedro
project, to acquire a related royalty and for working capital. The proceeds will
also be used for construction of the Cerro San Pedro project.

50

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The December 2003 public equity offering provided for 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$61.3 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. The warrants expire on December
11, 2008.

At December 31, 2005, the Company had working capital of
$42.26 million as compared to $41.52 million at December 31, 2004. The increase
in working capital of $0.74 million was principally due to the $10 million
earn-in payment received from Falconbridge, less $9.8 million of additions to
mineral properties and deferred expenditures.

The Company's cash and cash equivalents increased by $1.05
million for the year ended December 31, 2005 as compared to a decrease in cash
and cash equivalents of $24.49 million for the year ended December 31, 2004. The
$25.54 million decrease in 2005 cash outflows was primarily attributable to the
following: $11.0 million in acquisition and debt payments in 2004 to the
Company's former joint venture partner on the Cerro San Pedro project versus nil
in the current period, a decrease in expenditures on mineral properties of $5.86
million, in the current period and an increase in cash received from property
payments of $9.70 million in the current period.

As of December 31, 2005, the Company had capitalized mineral
properties and deferred expenditures totaling $55.53 million. This amount
included $53.14 million relating to the Cerro San Pedro project, of which $7.93
million and $19.75 million was capitalized in 2005 and 2004, respectively, for
acquisition and other project related costs.

Capitalized expenditures relating to the El Morro project
totaled $0.02 million at December 31, 2005 as compared to $1.64 million at
December 31, 2004. The $1.62 million decrease primarily resulted from applying
$1.65 million of deferred costs incurred as of August 31, 2005 against the $10
million Falconbridge earn-in payment, also received on August 31, 2005.
Additions to deferred costs totaled $0.03 million and $0.60 million for the
years ended December 31, 2005 and 2004, respectively.

Substantially all exploration expenditures on the El Morro
project since 2000 have been incurred by Falconbridge pursuant to an exploration
agreement that provided for Falconbridge to earn a 70% interest in the project.
Although Falconbridge completed its earn-in requirements in August 2005, it
remains obligated to complete a feasibility study on the project by September
2007, the cost of which will be borne by Falconbridge. As part of its
requirement to complete a feasibility study by September 2007, Falconbridge
commenced work on a 26,500 meter drilling program in late 2005 at the La Fortuna
area of the El Morro project. In the event that future exploration work is
performed on the project, the Company will be responsible for its 30% share of
these costs.

In September 2004, the Company entered into an option
agreement to acquire a 100% interest in the Rio Figueroa copper-gold exploration
project in Chile. The agreement provides for the Company to make annual option
payments over a five-year period beginning September 2004 totaling $3.5 million,
and to incur annual exploration expenditures over a three-year period beginning
September 2004 totaling $1.5 million, in order to exercise the option. As of
December 31, 2005, the Company had incurred costs on the project totaling $1.86
million.

In September 2005, the Company entered into an option
agreement that allows it to earn a 65% interest in precious metal rich
exploration properties located in Southwest Alaska and the Aleutian Islands by
making qualifying aggregate expenditures totaling $4.75 million over a five-year
period beginning September 2005. The Company may increase its interest in
individual properties to 70% by completing a pre-feasibility study, and it may
further increase its interest in individual properties to 80% by completing a
feasibility study. As of December 31, 2005, the Company had incurred costs on
the project totaling $0.48 million.

51

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The Company's contractual obligations for future payments are summarized as
follows:

|                              | Payments Due by Period
|----------------------------- | ----------------------
|                              |                       
|Contractual Obligations       | Total                 
|Long-term debt                | $ --                  
|Capital lease obligations     | --                    
|Operating leases              | 354,468               
|Purchase obligations1         | 125,172,000           
|Other long-term obligations   | --                    
|                              |                       
|Total contractual obligations | $ 125,526,468         

1

|Termination Period | Termination and
    Demobilization Fees
|------------------ | ---------------------------------------
|Pre-production     | $11,560,000                            
|Year 1             | $10,160,000                            
|Year 2             | $7,460,000                             
|Year 3             | $4,760,000                             
|Year 4             | $2,960,000                             
|Year 5             | $2,360,000                             
|Year 6             | $2,060,000                             
|Year 7             | $1,660,000                             
|Year 8             | $1,360,000                             
|Year 9             | --                                     

It is estimated that approximately $1 to $2 million of annual
expenditures to be incurred pursuant to the WGI contract will be incurred in
Mexican pesos. The US$/peso exchange rate used in the WGI contract was
approximately 10.75. As of February 17, 2006, the US$/peso exchange rate was
10.54. In addition to the WGI contract, the Company will incur peso denominated
costs for fuel, explosives, power, water, salaries and other supplies averaging
approximately $7 million per year. The Company does not currently intend to
enter into currency hedging arrangements for its estimated Mexican peso
expenditures.

Purchase obligations also include option payments and
exploration work commitments totaling $3.4 million for the Rio Figueroa project,
and $4.3 million for the Southwest Alaska/Aleutian Islands project. In addition,
the Company owes $0.1 million, representing its 30% share of amounts owed to the
former owners of certain mining concessions at the El Morro project, within two
years of commencement of mining operations, as well as minimum annual royalty
payments totaling $0.85 million that are owed to a former owner of certain
mining concessions at the Cerro San Pedro project.

The reclamation obligation for the Cerro San Pedro project,
based on the Company's September 2003 feasibility study, is estimated to be $4.3
million. The Company has agreed to fund this obligation during mine operations;
however, negotiations with the relevant Mexican governmental agency to determine
the interim funding requirements have not yet been finalized.

The Company entered into an agreement with a Mexican
governmental agency to provide approximately $0.36 million for reforestation of
land in the area surrounding the proposed Cerro San Pedro mine that is not owned
or leased by the Company. Although the timing for funding this commitment has
not been finalized, it is anticipated that the $0.36 million will be funded by
the Company over a period of approximately twelve years.



52

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Related Party Transactions

In May 2005, the Company entered into a consulting agreement
with a director of the Company to provide technical advisory services at the
rate of $1,000 per day plus out-of-pocket expenses. The Company incurred
technical advisory fees pursuant to this agreement totaling $9,000 in 2005.

In December 2004, the Company entered into a six-month
consulting agreement with a director of the Company to provide technical
advisory services. The agreement provided for a minimum monthly retainer fee of
$2,500 for up to three days of consulting services per month, plus out-of-pocket
expenses. The Company incurred technical advisory fees pursuant to this
agreement totaling $2,500 in 2004 and $22,000 in 2005.

In June 2004, the Company entered into a consulting agreement
with a director of the Company that provides for corporate advisory services at
the rate of $600 per day plus out-of-pocket expenses. The Company incurred
corporate advisory fees pursuant to this agreement totaling $12,000 in 2004 and
$21,000 in 2005.

In October 2004, the Company entered into a consulting
agreement with a company controlled by an individual, who became a director of
the Company on June 9, 2005, to provide management services for the Company's
Cerro San Pedro project.  The agreement, as amended, provides for
consulting fees of $6,250 per month.  Consulting fees incurred pursuant to
this agreement totaled $72,500 in 2005.

Evaluation of Disclosure Controls

Management carried out an evaluation of the effectiveness of
the design and operation of the Company's disclosure controls and procedures (as
defined in Canadian Securities Administrators Multilateral Instrument 52-109,
"Certification of Disclosure in Issuer's Annual and Interim Filings") as of
December 31, 2005. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company to satisfy
its continuous disclosure obligations, and are effective in ensuring that
information required to be disclosed in the reports that the Company files is
accumulated and communicated to management as appropriate to allow for timely
decisions regarding required disclosure.

Outstanding Share Data

As of February 17, 2006, the Company has issued one class of
common shares and has a total of 83,454,464 shares outstanding. The Company also
has 19,350,000 common share purchase warrants outstanding, each of which is
exercisable for one common share at an exercise price of Cdn$3.10 through
December 11, 2008. Stock options outstanding as of February 17, 2006 total
2,440,000 and are exercisable for common shares at prices ranging from Cdn$0.83
per share to Cdn$2.54 per share.

Corporate Outlook

In February 2006, the Company received notification from
Secretaria de Defensa National ("SEDENA") that the restriction on its 2006
explosives permit that prohibited the use of explosives on land communally owned
by Ejido Cerro de San Pedro had been removed. As a result of this development,
the Company has recommenced full-scale mine construction at its Cerro San Pedro
project during the first quarter of 2006. It is anticipated that construction
will be complete by the end of 2006. The September 2003 feasibility study for
the project, prepared by WGI, reflects a capital cost estimate of $28.2 million,
plus $3 million for working capital. The Company is working with WGI to update
the capital cost estimate for the project.

As discussed herein under "Item 4. Information on the
Company, D) Property, Plant and Equipment - The Cerro San Pedro Project, Mexico
- Environmental - Environmental and Other Permit Status" and "- Surface and
Water Rights Acquisition" and elsewhere in this Annual Report, various lawsuits
have been filed against Mexican governmental authorities seeking nullification
of various permits and licenses that have been granted to the Company with
respect to its Cerro San Pedro project.  For further information, please
see the foregoing Item 4 discussion as well as "Item8. Financial Information. A)
Consolidated Financial Statements and Other Financial Information - Legal
Proceedings".

In regards to the El Morro project, Falconbridge is obligated
to complete a feasibility study on the project by September 2007, the cost of
which will be borne by Falconbridge. In the event that exploration work is
performed at the El Morro project, the Company will be responsible for its 30%
share of these costs.

The Company estimates that 2006 expenditures on its Rio
Figueroa, Southwest Alaska/Aleutian Islands and other exploration projects will
be approximately $1.3 million. 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.

53

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Risk Factors and Other

The discovery, development and acquisition of mineral
properties are in many instances unpredictable events and involve numerous risks
as those described under "Item 3. Key Information, D) Risk Factors" in this
Annual Report on Form 20-F. Readers are encouraged to give careful consideration
to these risk factors which include: risks associated with the Company's history
of net losses and the uncertainty of obtaining additional financing for mineral
exploration and development activities; risks inherent in the mining industry;
risks associated with estimates and forecasts of mineral reserves, mineral
resources and production timing and activities; operational and environmental
risks; the risk of failure to achieve production or cost estimates; risks of
development, construction and mining operations; risks relating to hedging;
risks of changes to applicable government regulations relating to the mining
industry or to their application or shifts in political conditions in foreign
countries; risks of fluctuations in mineral prices and foreign currency exchange
rates; risks associated with labor disruptions; risks associated with the
repatriation of earnings; the risk of loss of key management employees; risks of
competition from larger more established mining companies; risks of adverse
rulings from lawsuits and other legal proceedings; and the inability to
economically or fully insure against certain risks.

The Company has certain operating and other permits that
require periodic renewal with governmental and regulatory authorities. In
addition, the Company is required to comply with existing permit conditions and
to obtain additional permits prior to commencing mine operations at its Cerro
San Pedro project. Although the Company believes that it is currently in full
compliance with its 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 the Company is not in compliance with its existing permits, the
Company may be forced to suspend or cease its development or operating
activities. Risks relating to legal proceedings include various lawsuits that
have been filed against governmental agencies seeking to nullify various permits
and licenses that have been granted to the Company with respect to it Cerro San
Pedro project.  Refer to "Item 4. Information on the Company. D) Property,
Plant and Equipment - The Cerro San Pedro Project, Mexico - Environmental -
Environmental and Other Permit Status" and "- Surface and Water Rights
Acquisition" and "Item 8. Financial Information. A) Consolidated Financial
Statements and Other Financial Information - Legal Proceedings" for details of
current legal actions pending.

In August 2004, the Company received notification that a
Federal Court nullified the Company's Manifestacion de Impacto Ambiental ("MIA")
for its Cerro San Pedro project. The MIA is the Mexican equivalent of an
Environmental Impact Statement or mining permit in the United States. The
Federal Court concluded that the MIA had violated various environmental and
other laws. In August 2005, an Appeals Court revoked the August 2004 MIA
nullification ruling and sent the case to an Administrative and Fiscal Court for
further review. In December 2005, the Administrative and Fiscal Court ruled that
the government agency that issued the MIA must issue the Company an amended MIA
within four months that conforms to current environmental and other laws.

In June 2005, the Company received a Temporary Occupancy and
Right of Way Authorization for the Cerro San Pedro project from the Federal
Mining Bureau. This authorization provides the Company with federally mandated
surface rights access to its mineral rights over the life of the mine, and
overrides the various rulings and appeals in the Agrarian Court that challenged
the Company's surface rights access.

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", "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, uncertainties and other factors, including those described under the
heading "Item 3. Key Information, D) Risk Factors" in this Annual Report on Form
20-F. These 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. 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.

54

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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 net losses in three of the last five
fiscal years due to the lack of an operating property or other revenue
generating activity. The exceptions were the 2005 fiscal year when the Company
had net income of $7.96 million as a result of foreign exchange gains of $1.05
million and income from property payments totaling $8.35 million, and the 2004
fiscal year when the Company had net income of $1.37 million as a result of
foreign exchange gains totaling $2.17 million. Management anticipates that the
Company will incur net losses for at least the next year as a result of ongoing
corporate general and administrative expenses, write-downs of mineral properties
and deferred costs, and exploration and other expenses. It is anticipated 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. The Company recommenced full
construction of its Cerro San Pedro gold and silver project during the first
quarter of 2006.

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 "Liquidity and
Capital Resources".

|ITEM 6 | Directors, Senior Management and Employees
|------ | ------------------------------------------

A) Directors and Senior Management

The following table sets forth the name, municipality of residence, age and
the office (if any) held with the Company of each of the officers and directors
of the Company.

|Name and Municipality of        | Age | Office Held                                | Director
|------------------------------- | --- | ------------------------------------------ | --------
|Residence                       |     |                                            | Since   
|Craig J. Nelsen2                | 54  | Chairman, Director                         | 1994    
|Centennial, Colorado            |     |                                            |         
|Richard J. Hall                 | 56  | President, Chief Executive
    Officer and | 1999    
|Centennial, Colorado            |     | Director                                   |         
|J. Alan Spence1,2               | 68  | Director                                   | 1994    
|Toronto, Ontario                |     |                                            |         
|Ian A. Shaw1,3                  | 66  | Director                                   | 1994    
|Toronto, Ontario                |     |                                            |         
|Oliver Lennox-King3             | 56  | Director                                   | 1998    
|Toronto, Ontario                |     |                                            |         
|Amjad ("A.J.") Ali1,5           | 62  | Director                                   | 2005    
|Vancouver,
    British Columbia |     |                                            |         

55

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|Robert Martinez2,5      | 59 | Director                                      | 2005
|----------------------- | -- | --------------------------------------------- | ----
|Coeur d'Alene, Idaho    |    |                                               |     
|Jorge Mendizabal5       | 66 | Director                                      | 2005
|San Luis Potosi, Mexico |    |                                               |     
|Fred H. Lightner4       | 59 | Former Director                               | 1999
|Centennial, Colorado    |    |                                               |     
|Bradley J. Blacketor    | 47 | Vice President, Chief Financial
    Officer & |     
|Lone Tree, Colorado     |    | Secretary                                     |     

1

The following is a brief biographical description, including principal
occupations of each of the officers and directors of the Company.

Craig J. Nelsen holds a Master of Science degree in
Geology from the University of New Mexico and a Bachelor of Arts degree in
Geology from the University of Montana, and has been involved in exploration and
mining for over 30 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 its Chairman and a Director of
the Company. Mr. Nelsen is currently the Executive Vice-President of Exploration
and Development for Gold Fields Ltd., an international gold mining company.

Richard J. Hall holds Bachelors and Masters degrees in
Geology, and a Masters degree in Business Administration, all from Eastern
Washington University. Mr. Hall has over 32 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. Shaw holds a Bachelor of Commerce degree from the
University of Toronto and is a Chartered Accountant. He has over 31 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, a 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.

J. Alan Spence holds a Master of Science degree in
Geology from McGill University and an Executive Master of Business
Administration diploma from Columbia University. He has been involved in mineral
exploration and development for over 36 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 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.

56

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Oliver Lennox-King was previously a Director of the
Company from January 1994 until February 1997. In May 1998, Mr. Lennox-King was
reappointed a Director of the Company. He has 22 years of senior experience in
the mining industry with involvement in marketing and administration. He also
spent 11 years as a mining analyst with a brokerage company. He has spent the
last 12 years in executive positions and directorships with junior mining
companies. Mr. Lennox-King serves on the Boards of a number of Canadian
resources companies including Tiomin Resources and Dumont Nickel, and is
Chairman of the Board of Fronteer Development. He was the co-founder and
Chairman of Pangea Goldfields as well as the co-founder and President of Tiomin
Resources. Mr. Lennox-King was a Director of Unisphere Waste Conversion Ltd., a
company listed on the TSX Venture Exchange. He resigned as a Director of this
Company on February 9, 2005, immediately before a subsidiary of this company
filed a Notice of Intention to make a proposal to its creditors under the
Bankruptcy and Insolvency Act (Canada).

Mr. A.J. Ali is a Chartered Accountant with 25 years of
experience in the mining and petroleum industries, and another 10 years of
experience in the transportation and aerospace services sector. Mr. Ali has been
the Executive Vice-President and Chief Financial Officer of EuroZinc Mining
Corporation since 2004. From 1998 to 2003, Mr. Ali was the Chief Operating
Officer and Chief Financial Officer of Resource 21, a subsidiary of Boeing,
designed to produce satellite-based imaging data and information services
primarily for the agricultural industry. From 1992 to 1998, Mr. Ali was the
Vice-President, Finance and Chief Financial Officer of Vista Gold Corporation, a
gold mining company listed on the Toronto Stock Exchange and the American Stock
Exchange. From 1981 to 1991, Mr. Ali held various senior financial positions
with Denison Mines Limited, with the last one being the Vice President, Finance
of its subsidiary Quintette Coal Limited, a company that mined metallurgical
coal for export to the Japanese steel industry. Mr. Ali has been a Director of
the Company since June 2005.

Mr. Robert Martinez has over thirty years of experience
in the mining industry. From 1988 until his retirement in 2004, Mr. Martinez
worked for Coeur d'Alene Mines Corporation, most recently as President and Chief
Operating Officer. Prior to joining Coeur d'Alene Mines Corporation, Mr.
Martinez held senior positions with Amselco Minerals, Phelps Dodge Corporation
and Amax, Inc. Mr. Martinez holds a Bachelor of Science in Metallurgical
Engineering from the University of Arizona. Mr. Martinez has been a Director of
the Company since June 2005.

Jorge Mendizabal is the Managing Director of Minera San
Xavier, S.A. de C.V. ("MSX"), the Corporation's wholly owned subsidiary which
holds the Cerro San Pedro project. Mr. Mendizabal has been a Director of MSX
since 1998. From 2000 to present, Mr. Mendizabal has been the General Director
and President of the Board of Firex, S.A. de C.V., a metals recovery consulting
company. Mr. Mendizabal has been a Director of Fyrem, S.A. de C.V., which
operates a recycling smelter, since 1998. From 1998 to 2001, Mr. Mr. Mendizabal
was the General Director and President of the Board of Fyrem, S.A. de C.V. Mr.
Mendizabal has been a Director of the Company since June 2005.

Fred H. Lightner holds a Metallurgical Engineering degree
from the Colorado School of Mines. He has over 35 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. In November 2004, Mr. Lightner retired as Senior Vice President and
Chief Operating Officer of the Company, and in June 2005, retired as a Director
of the Company.

Bradley J. Blacketorholds a Bachelor of Science
degree in Business Administration with distinction from Indiana University and a
Masters degree in Business Administration from Colorado State University. He is
also a Certified Public Accountant. He has over 23 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.

57

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B) Compensation

Summary Compensation Table

|                |      |                         | Long-Term    |           
|--------------- | ---- | ----------------------- | ------------ | ----------
|                |      |                         | Compensation |           
|                |      | Annual
    Compensation | Awards       |           
|                |      |                         |              |           
|                |      |                         |              |           
|Name and        |      |                         |              | Retirement
|Principal       |      | Salary                  | Bonus        | Plan      
|Position        | Year | (US$)                   | (US$)        | (US$)     
|Richard J. Hall | 2005 | $148,333                | $75,000      | $7,417    
|President and   |      |                         |              |           
|CEO             |      |                         |              |           
|Bradley J.      | 2005 | $128,333                | $65,000      | $6,417    
|Blacketor       |      |                         |              |           
|VP, CFO &       |      |                         |              |           
|Secretary       |      |                         |              |           

1

2

Director Compensation

The non-executive Directors are entitled to annual retainer
fees as follows: $5,000 annual board retainer fee, $5,000 annual board committee
chairperson fee, $2,500 annual audit committee member fee (non-chairperson) and
$500 for each board meeting attended. Annual Director retainer fees totaling
$58,000 were paid to the Company's non-executive Directors in 2005.

Directors are also entitled to other remuneration as
determined by the Board of Directors. The Company entered into a six-month
consulting agreement with Mr. Lightner on December 1, 2004. The agreement
provided for a minimum monthly retainer fee of $2,500 for up to three days
consulting services per month, plus out-of-pocket expenses. The agreement also
provided that any consulting services provided in excess of three days per month
will be charged at the rate of $125 per hour. Mr. Lightner rendered services to
the Company pursuant to this agreement totaling $22,000 in 2005.

The Company entered into a consulting agreement with Mr.
Lennox-King on June 11, 2004 that provides for consulting services at the rate
of $600 per day, plus out-of-pocket expenses. Mr. Lennox-King rendered services
under the agreement totaling $12,000 in 2004 and $21,000 in 2005, none of which
has been paid as of March 20, 2006.

In May 1, 2005, the Company entered into an eight-month
consulting agreement with Mr. Martinez to provide technical advisory services at
the rate of $1,000 per day plus out-of-pocket expenses. The Company incurred
technical advisory fees pursuant to this agreement totaling $9,000 in 2005. In
February 1, 2006, the Company entered into another consulting agreement with Mr.
Martinez to provide technical advisory services at the rate of $1,000 per day
plus out-of-pocket expenses.

In October 2004, the Company entered into a consulting
agreement with a company controlled by Mr. Mendizabal to provide management
services for the Company's Cerro San Pedro project. The agreement, as amended,
provides for consulting fees of $6,250 per month. Mr. Mendizabal became a
Director of the Company in June 2005. Consulting fees incurred pursuant to this
agreement totaled $72,500 in 2005.

58

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Non-executive Directors are also 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 100% of their compensation,
but not to exceed $15,000 for 2006 ($14,000 for 2005), by way of payroll
deductions ("employee contributions"). The Retirement Plan also allows for
employees that are at least age 50 by year end to defer an additional $5,000 for
2006 ($4,000 for 2005). The Company makes a matching contribution to the
Retirement Plan in common shares of the Company or cash, subject to a maximum of
50% of the employee's contribution up to 10% 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 or cash, to
the Retirement Plan. If an employee elects to contribute 15% of his or her
compensation, the Company contributes 5% of that employee's compensation, in the
form of common shares of the Company or cash, to the Retirement 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. As of March 20, 2006, 132,871 common shares of the Company
had been issued pursuant to the Retirement Plan.

Employment Contracts

The Company has entered into employment contracts with each
of its two executive officers: Richard J. Hall, President and Chief Executive
Officer, and Bradley J. Blacketor, Vice President, Chief Financial Officer and
Secretary. The current annual salaries under these contracts are $160,000 and
$140,000, respectively. The contracts are for an unlimited term and provide that
in the event the executive officer's employment is terminated by the Company for
other than Manifest Cause, as defined, or if the executive officer resigns from
his employment for Good Reason, as defined, the Company shall pay to the
executive officer a lump sum amount equal to three times the executive officer's
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 Board of Directors has assigned specific governance responsibilities to
three committees of the board, as follows:

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Audit Committee

The Company has an Audit Committee which performs the
functions as defined in applicable regulatory and stock exchange requirements.
The Audit Committee is composed of three non-management directors who are
appointed by the Board. The committee reviews the Company's annual financial
statements prior to their acceptance by the Board of Directors. The Committee is
also responsible for reviewing the Company's financial reporting procedures and
the adequacy of its internal controls, in addition to other duties as outlined
in the Audit Committee Charter. 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, A.J. Ali and J. Alan Spence. A.J. Ali was nominated and
accepted his appointment to the Audit Committee on June 10, 2005. Prior to June
10, 2005, Mr. Oliver Lennox-King was a member of the Audit Committee.

Compensation Committee

The Compensation Committee consists of three non-management
directors. The Committee reviews and recommends to the Board the remuneration of
senior officers, in addition to other duties as outlined in the Compensation
Committee Charter. It is also charged with reviewing senior officer hiring,
management development and management succession. The Compensation Committee is
composed of Craig J. Nelsen, J. Alan Spence and Robert Martinez. Mr. Martinez
was nominated and accepted his appointment to the Audit Committee on June 10,
2005.

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, in addition to other duties as
outlined in the Nominating Committee Charter. 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.

D) Employees

The number of employees at the end of each of the past three years are
summarized below.

|                       | 2005 | 2004 | 2003
|---------------------- | ---- | ---- | ----
|United States:         |      |      |     
|Management             | 4    | 4    | 4   
|Professional           | 0    | 0    | 0   
|Administrative/support | 1    | 1    | 1   
|Mexico:                |      |      |     
|Management             | 5    | 7    | 6   
|Professional           | 11   | 6    | 0   
|Administrative/support | 63   | 27   | 29  
|Chile:                 |      |      |     
|Professional           | 1    | --   | --  

E) Share Ownership

The following table sets forth certain information as of
March 20, 2006 regarding director and officer share ownership, option and
warrant holdings, and outstanding options to purchase the Company's common
shares.

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|                      |            |           |           |             | Exercise     |            
|--------------------- | ---------- | --------- | --------- | ----------- | ------------ | -----------
|                      |            |           |           |             | Price of the | Expiration 
|                      | Beneficial |           |           | Beneficial  | Options/     | Date of the
|Identity of Person or | Share      | Number of | Number of | Ownership   | Warrants     | Options/   
|Group                 | Ownership1 | Options2  | Warrants1 | Percentage1 | (Cdn$)       | Warrants   
|                      |            |           |           |             |              |            
|Craig J. Nelsen       | 596,000    | 207,500   |           | 1.0%        | 0.83         | 06/07/06   
|                      |            | 25,000    |           |             | 1.32         | 03/12/08   
|                      |            | 25,000    |           |             | 1.64         | 03/10/10   
|J. Alan Spence        | 51,000     | 28,750    |           | *           | 0.83         | 06/07/06   
|                      |            | 25,000    |           |             | 1.32         | 03/12/08   
|                      |            | 25,000    |           |             | 1.64         | 03/10/10   
|Ian A. Shaw           | 20,000     | 28,750    |           | *           | 0.83         | 06/07/06   
|                      |            | 25,000    |           |             | 1.32         | 03/12/08   
|                      |            | 25,000    |           |             | 1.64         | 03/10/10   
|Oliver Lennox-King    | 71,000     | 20,000    |           | *           | 0.83         | 06/07/06   
|                      |            | 25,000    |           |             | 1.32         | 03/12/08   
|                      |            | 37,500    |           |             | 1.20         | 06/03/08   
|                      |            | 25,000    |           |             | 1.64         | 03/10/10   
|Richard J. Hall       | 417,864    | 75,000    |           | *           | 0.83         | 06/07/06   
|                      |            | 200,000   |           |             | 1.32         | 03/12/08   
|                      |            | 150,000   |           |             | 1.64         | 03/10/10   
|                      |            |           | 10,000    |             | 3.10         | 12/11/08   
|A.J. Ali              |            | 50,000    |           |             | 1.42         | 06/09/10   
|Robert Martinez       |            | 50,000    |           |             | 1.42         | 06/09/10   
|Jorge Mendizabal      | 16,000     | 33,333    |           | *           | 1.64         | 03/10/10   
|                      |            | 16,667    |           |             | 1.42         | 06/09/10   
|Bradley J. Blacketor  | 46,962     | 87,500    |           | *           | 1.39         | 01/10/07   
|                      |            | 125,000   |           |             | 1.32         | 03/12/08   
|                      |            | 100,000   |           |             | 1.64         | 03/10/10   

1

2

The Company's stock option plan was 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.
In June 2003, the shareholders approved an increase in the aggregate number of
common shares that could be issued under the Company's stock option plan after
April 29, 2003 to 5,000,000. Stock options issued and outstanding under the plan
as of March 20, 2006 total 2,269,000. In addition, a total of 1,819,166 stock
options have been exercised subsequent to April 29, 2003, leaving 911,834 stock
options available for issuance under the plan.

|ITEM 7 | Major Shareholders and Related Party Transactions
|------ | -------------------------------------------------

A) Major Shareholders

The Company'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. The Company 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.

61

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|                                             | As of December 31, | As of December 31, | As of December 31,
|-------------------------------------------- | ------------------ | ------------------ | ------------------
|                                             | 2005               | 2004               | 2003              
|Beneficial
    Shareholders                  | No. of             | Percentage         | No. of            
|(5% or
    greater)                          | Shares             | ownership          | Shares            
|Sun Valley Gold LLC1                         |                    |                    |                   
|620 Sun Valley Rd.                           |                    |                    |                   
|P.O. Box 2759                                |                    |                    |                   
|Sun Valley, ID 83353                         | 3,681,100          | 4.4%               | 5,041,500         
|Sun Valley Gold Master Fund
    Ltd.2        |                    |                    |                   
|c/o Goldman Sachs (Cayman)
    Trust,Limited |                    |                    |                   
|2nd Floor, Harbour Centre, N.
    Church St. |                    |                    |                   
|P.O. Box 896                                 |                    |                    |                   
|George Town, Grand Cayman                    |                    |                    |                   
|Cayman Islands, B.W.I.                       | <5%                | <5%                | 3,892,899         
|Falconbridge Limited3                        |                    |                    |                   
|BCE Place                                    |                    |                    |                   
|181 Bay Street, Suite 200                    |                    |                    |                   
|Toronto, Ontario M5J 2T3                     |                    |                    |                   
|Canada                                       | 8,210,000          | 9.86%              | 6,003,863         
|Passport Management, LLC4                    |                    |                    |                   
|402 Jackson Street                           |                    |                    |                   
|San Francisco, CA 94111                      | <5%                | <5%                | <5%               
|Royce & Associates, LLC5                     |                    |                    |                   
|1414 Avenue of the Americas                  |                    |                    |                   
|New York, NY 10019                           | 5,079,100          | 6.1%               | 6,683,800         

1

2  Based on
Schedule 13G filed February 28, 2005. Includes warrants exercisable into common
shares.

3  Based on
Schedule 13G filed on January 19, 2006 and February 10, 2005.

4  December 31,
2003 amounts are 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.

5

Each share held by the major shareholders named above is entitled to voting
rights that are the same as accorded to all shareholders of the Company.

To the best of the Company's knowledge, at December 31, 2005,
15,098,140 common shares were held by 561 registered record holders in the U.S.
The number of outstanding shares of the Company's common stock at March 20, 2006
was 83,645,464. 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

On May 1, 2005 and February 1, 2006, the Company entered into
consulting agreements with Robert Martinez, who became a Director of the Company
on June 9, 2005, to provide technical advisory services at the rate of $1,000
per day plus out-of-pocket expenses. On December 1, 2004, the Company entered
into a six-month consulting agreement with Fred H. Lightner, a Director of the
Company until June 9, 2005. The agreement provided for a minimum monthly
retainer fee of $2,500 for up to three days consulting services per month, plus
out-of-pocket expenses. On June 11, 2004, the Company entered into a consulting
agreement with Oliver Lennox-King, a Director of the Company, that provides for
consulting fees at the rate of $600 per day plus out-of-pocket expenses. In
October 2004, the Company entered into a consulting agreement with a company
controlled by Jorge Mendizabal. The agreement, as amended, provides for
consulting fees of $6,250 per month. Mr. Mendizabal became a Director of the
Company on June 9, 2005. Please see "Item 6. Directors, Senior Management and
Employees, B) Compensation  Director Compensation" for additional information.

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 section.

62

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|ITEM 8 | Financial Information
|------ | ---------------------

A) Consolidated Financial Statements and Other Financial Information

This Annual Report contains the audited consolidated
financial statements of the Company for the years ended December 31, 2005, 2004
and 2003, including an Audit Report dated February 6, 2006, except as to Note
1, which is as of February 8, 2006. The following financial statements are
included: Consolidated Balance Sheets as at December 31, 2005 and 2004;
Consolidated Statements of Operations and Deficit for the Years Ended December
31, 2005, 2004 and 2003; and Consolidated Statements of Cash Flows for the Years
Ended December 31, 2005, 2004 and 2003. Also included are Notes to the
Consolidated Financial Statements for the Years Ended December 31, 2005, 2004
and 2003. 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

Various lawsuits have been filed against Mexican governmental authorities
seeking nullification of various permits and licenses that have been granted to
the Company with respect to its Cerro San Pedro project.

The Company has recently been advised that another lawsuit
was filed against SEDENA seeking the cessation of blasting activity on land
owned by Ejido Cerro de San Pedro.  Management believes that this lawsuit
is similar to an earlier lawsuit that was resolved in favor of SEDENA, and
resulted in SEDENA removing the aforementioned restriction on the Company's
explosives permit in February 2006.  In the event of an adverse ruling from
this new lawsuit, the Company may be forced to cease blasting on ground owned by
Eljido Cerro de San Pedro, which could lead to the suspension or cessation of
project construction or operating activities.

The Company has been informed of a lawsuit filed against the
Federal Mining Bureau and the Secretary of the Economy seeking nullification of
the Company's Temporary Occupancy and Right of Way Authorization for the Cerro
San Pedro project. In the event of an adverse ruling from this lawsuit, the
Company's surface rights access will revert to a lease agreement for surface
rights that has been challenged in an Agrarian Court. An adverse ruling in the
Agrarian Court could result in the suspension or cessation of project
construction or operating activities.

The Company has also been advised of a lawsuit filed against
Instituto Nacional de Anthropologia y Historia (National Institute of
Anthropology and History) seeking the suspension of a permit granted to the
Company that authorizes it to conduct project construction and operating
activities in close proximity to historical monuments.  In the event of an
adverse ruling from this lawsuit, the Company may be forced to cease project
construction or operating activities.

Please see "Item 4. Information on the Company, D) Property,
Plant and Equipment  The Cerro San Pedro Project, Mexico  Environmental 
Environmental and Other Permit Status" and D) Property, Plant and Equipment 
The Cerro San Pedro Project, Mexico  Surface and Water Rights Acquisition".

Dividend Policy

The Company has not paid any dividends on its Common Shares and has no 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 6, 2006, except as to Note 1, which is as of
February 8, 2006.

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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
of common shares 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.

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        | AMEX1      | AMEX1    
|-------------------------------------------------------------------- | ----------- | ---------- | ---------- | ---------
|                                                                     | High (Cdn$) | Low (Cdn$) | High (US$) | Low (US$)
|2001                                                                 | 1.45        | 0.19       | n/a        | n/a      
|2002                                                                 | 2.02        | 1.00       | n/a        | n/a      
|2003                                                                 | 2.55        | 1.12       | 1.96       | 1.55     
|2004                                                                 | 2.87        | 1.15       | 2.15       | 0.85     
|2005                                                                 | 2.50        | 1.26       | 2.16       | 1.03     
|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       | AMEX     
|-------------- | ----------- | ---------- | ---------- | ---------
|               | High (Cdn$) | Low (Cdn$) | High (US$) | Low (US$)
|Fiscal 2004    |             |            |            |          
|First Quarter  | 2.76        | 2.04       | 2.11       | 1.53     
|Second Quarter | 2.87        | 1.15       | 2.15       | 0.85     
|Third Quarter  | 1.72        | 1.15       | 1.35       | 0.86     
|Fourth Quarter | 1.90        | 1.33       | 1.57       | 1.12     
|               |             |            |            |          
|Fiscal 2005    |             |            |            |          
|First Quarter  | 1.90        | 1.34       | 1.52       | 1.10     
|Second Quarter | 1.84        | 1.37       | 1.46       | 1.09     
|Third Quarter  | 1.90        | 1.26       | 1.62       | 1.03     
|Fourth Quarter | 2.50        | 1.63       | 2.16       | 1.40     

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       | AMEX     
|-------------- | ----------- | ---------- | ---------- | ---------
|               | High (Cdn$) | Low (Cdn$) | High (US$) | Low (US$)
|September 2005 | 1.90        | 1.59       | 1.62       | 1.35     
|October 2005   | 1.85        | 1.63       | 1.58       | 1.40     
|November 2005  | 2.26        | 1.77       | 1.94       | 1.48     
|December 2005  | 2.50        | 2.04       | 2.16       | 1.75     
|January 2006   | 3.63        | 2.28       | 3.17       | 1.97     
|February 2006  | 3.35        | 3.00       | 3.15       | 2.59     

On March 20, 2006, the closing price of the Common Shares was Cdn$3.80 on the
TSX and US$3.27 on the AMEX.

B) Plan of Distribution

64

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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

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 section.

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 contract 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. 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.

65

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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.

The Company's by-laws 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 common share is entitled to share equally with each
other common share in dividends from sources legally available therefor, 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 share. Each holder of common share 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 share have no
preemptive rights, redemption rights or rights of conversion with respect to the
common share. All outstanding shares of common share and all shares underlying
any warrants when issued will be fully paid and non-assessable by the Company.
The Company is authorized to issue an unlimited number of common share within
the limits of the CBCA and without stockholder action.

All common shares have equal voting rights and voting rights
are not cumulative. The holders of more than 50% of the common shares 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 by-laws 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
by-laws/articles of incorporation since September 22, 1995 are presented below:

New Class of Preference Shares

On June 18, 1998 the shareholders approved an amendment to
the Company's articles of incorporation to create 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 Company, whether voluntary or involuntary, or any other
>   distribution of the assets of the Company among its shareholders for the
>   purpose of winding-up its affairs, rank on a parity with the Preference 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.

66

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> 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 Company. 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 Company 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 Company and Equity Transfer Services Inc.,
as Rights Agent, as previously filed by the Company. Under the Rights Plan,
shareholders of the Company 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. On June
6, 2002, the shareholders of the Company ratified the continued existence of the
Rights Plan through March 19, 2005. The Rights Plan expired on March 19, 2005.

Action Necessary to Change the Rights of Holders of the Stock

The rights, privileges, restrictions and conditions attaching
to the shares 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 having
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 shareholders, 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.

67

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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 CBCA 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.

68

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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 Act provides 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 Act also 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 Rule 13d-3 under the Exchange Act) of more than 5% 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 during the
  two years preceding the date of publication of this document:
- Agreement dated March 24, 2004 to acquire Glamis' royalty interest in the
  Cerro San Pedro project.
- Mining Option to Purchase Contract between Sociedad Contractual Minera Los
  Potrillos and Metallica Resources Inc. dated September 2, 2004.
- Sale and Purchase and Assignment of Rights in Net Smelter Return Royalty
  and Contractual Position between Noranda Chile Limitada and Metallica
  (Barbados) Inc. dated December 15, 2005.
- Employment Agreement between Richard J. Hall and Metallica Resources Inc.
  and Metallica Management Inc. dated March 1, 2005.
- Employment Agreement between Bradley J. Blacketor and Metallica Resources
  Inc. and Metallica Management Inc. dated March 1, 2005.
- Standby Agreement between Washington Group Latin America, Inc. and Minera
  San Xavier, S.A. de C.V. dated March 29, 2005.

69

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- 

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 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
non-resident 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 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 the Canada Revenue Agency ("CRA").
This summary takes into account the Proposed Amendments and assumes that all the
Proposed

70

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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 nonresident 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 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.

71

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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.

The Company does not believe that it is a PFIC, as defined in
Section 1297 of the Internal Revenue Code of 1986, for the year ended December
31, 2005. For the years ended December 31, 2004 and 2003, the Company believes
that it was a PFIC. The Company's determination in this respect has been made
after reviewing the PFIC provisions and applying such provisions to its past and
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.

72

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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, non-resident 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 section.

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 section.

H) Documents on Display

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.

73

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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 engaged in the acquisition of precious and base metals
projects, principally gold, silver and copper, and related activities including
exploration, engineering, permitting and the preparation of feasibility studies.
The value of the Company's properties is related to precious and base metals
prices and changes in precious and base metals prices could affect the Company's
ability to generate revenue from its portfolio of projects.

Gold prices may fluctuate significantly from time to time and
are affected by numerous factors, including the following: expectations with
respect to the rate of inflation, exchange rates, interest rates, global and
regional political and economic circumstances and governmental policies,
including those with respect to gold holdings by central banks. The demand for,
and supply of, precious and base metals affect precious and base metal prices,
but not necessarily in the same manner as demand and supply affect the prices of
other commodities. The supply of precious and base metals consists of a
combination of new mine production and existing stocks of bullion and fabricated
inventories held by governments, public and private financial institutions,
industrial organizations and private individuals. The demand for gold primarily
consists of jewelry and investments, whereas the demand for copper and silver is
principally from industrial applications. Additionally, hedging activities by
producers, consumers, financial institutions and individuals can affect precious
and base metals supply and demand. While gold, silver and copper can be readily
sold on numerous markets throughout the world, the market value of these metals
cannot be predicted for any particular time unless hedging activities are
undertaken.

Because the Company has exploration projects in North and South America, it
is subject to foreign currency fluctuations. Most of the Company's exposure to
foreign currency fluctuations relates to its decision to hold high cash and cash
equivalent balances in Canadian dollars. In addition, the Company has
significant expenditures in Mexican pesos attributable to its Cerro San Pedro
project in Mexico. The Company has not engaged in currency hedging to offset any
risk of currency fluctuations. The Company has no debt outstanding, nor does it
have any investment in debt instruments other than highly liquid short-term
investments. Accordingly, the Company considers its interest rate risk exposure
to be insignificant at this time.

|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.

74

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ITEM 14
    Material Modifications to the Rights of Security Holders
    and Use of ProceedsNeither 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 ProceduresDisclosure Controls and Procedures

As of December 31, 2005, 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 effective 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, 2005, 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.
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 A.J. Ali, 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.metal-res.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, 2005 and 2004 for audit fees, audit-related fees, tax fees and all
other fees are set forth below:
75

|                                  | Year Ended    | Year Ended   
|--------------------------------- | ------------- | -------------
|                                  | Dec. 31, 2005 | Dec. 31, 2004
|                                  | (Cdn$)        | (Cdn$)       
|Audit Services                    |               |              
|Consolidated financial statements | $91,250       | $72,800      
|Quarterly reviews                 | 23,500        | 23,600       
|Total Audit Fees                  | 114,750       | 96,400       
|                                  |               |              
|Audit-related Services            |               |              
|Audit related services            | 8,500         | 7,000        
|Total Audit-related Fees          | 8,500         | 7,000        
|                                  | $123,250      | $103,400     

The inclusion of fees is based on the accrual method (i.e., fees attributable
to the fiscal year under audit) in each category. Fees relating to tax services
for the Company are not provided by PWC.

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 2005 and 2004 were pre-approved by the Audit Committee.
The Audit Committee reviews with PWC whether the non-audit services to be
provided are compatible with maintaining the 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 applicable as to the
Company, as it is not relying on an exemption from the AMEX listing standards
for audit committees.

|ITEM 16E | Purchases of Equity Securities by the Issuer and
    Affiliated Purchasers
|-------- | --------------------------------------------------------------------------

The Company did not conduct any repurchases of its equity securities during
the fiscal year ended December 31, 2005.

76

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PART III

|ITEM 17 | Financial Statements
|------- | --------------------

The following financial statements are attached and incorporated herein:

|Description of
    Document                                                                                    | Page
|-------------------------------------------------------------------------------------------------------------- | ----
|                                                                                                               |     
|Summary Page                                                                                                   | F-1 
|Management's Report
    dated February 6, 2006                                                                 | F-2 
|Independent Auditors'
    Report dated February 6, 2006 (except as to Note                                     | F-3 
|1, which is as of
    February 8, 2006)                                                                        |     
|                                                                                                               |     
|Consolidated Balance
    Sheets as at December 31, 2005 and 2004                                               | F-4 
|                                                                                                               |     
|Consolidated Statements of Operations and
    Deficit for the Years Ended December
    31, 2005, 2004 and 2003 | F-5 
|                                                                                                               |     
|Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2005, 2004
    and 2003             | F-6 
|                                                                                                               |     
|Notes to Consolidated Financial Statements
    for the Years Ended December 31, 2005,
    2004 and 2003        | F-7 
|                                                                                                               |     

|ITEM 18 | Financial Statements
|------- | --------------------

See Item 17.

|ITEM 19 | Exhibits
|------- | --------

The following exhibits are attached and incorporated herein:

|    | Description of Document                                                                                                                                                                                 |  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|1.1 | 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 | Shareholder Rights Plan
    Agreement dated March 19, 1999                                                                                                                                              | *
|4.2 | Noranda Exploration Agreement
    dated September 14, 1999                                                                                                                                              | *
|4.3 | Noranda Exploration Agreement
    dated February 10, 2000                                                                                                                                               | *
|4.4 | 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 | *

77

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|     | Description of Document                                                                                                                                                                                                                                  |  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|4.5  | 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     | *
|4.6  | 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 project | *
|4.7  | 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 project                                               | *
|4.8  | Lease between Ejido Cerro de
    San Pedro and Minera San Xavier, S.A. de C.V.                                                                                                                                                                           | *
|4.9  | Mining Option to Purchase
    Contract between Sociedad Contractual Minera Los Potrillos and Metallica
    Resources Inc. dated September 2, 2004                                                                                                        | *
|4.10 | Sale and Purchase and
    Assignment of rights in Net Smelter Return Royalty and Contractual position
    between Noranda Chile Limitada and Metallica (Barbados) Inc. dated December
    15, 2004                                                       | *
|4.11 | Employment Agreement between
    Richard J. Hall and Metallica Resources Inc. and Metallica Management Inc.
    dated March 1, 2005                                                                                                                      | *
|4.12 | Employment Agreement between
    Bradley J. Blacketor and Metallica Resources Inc. and Metallica Management
    Inc. dated March 1, 2005                                                                                                                 | *
|4.13 | Consulting Agreement between
    Fred H. Lightner and Metallica Resources Inc. dated December 1, 2004                                                                                                                                                    | *
|4.14 | Services Agreement between
    Oliver Lennox-King and Metallica Resources Inc. dated June 11, 2004                                                                                                                                                       | *
|4.15 | Professional Services Contract
    between Firex and Minera San Xavier, S.A. de C.V. dated October 25, 2004                                                                                                                                              |  
|4.16 | Amendment Agreement to the
    Professional Services Contract between Firex and Minera San Xavier, S.A. de
    C.V. dated April 15, 2005                                                                                                                 |  
|4.17 | Standby Agreement between
    Washington Group Latin America, Inc. and Minera San Xavier, S.A. de C.V.
    dated March 29, 2005                                                                                                                          |  
|4.18 | First Amendment to Mining
    Contract between Washington Group Latin America, Inc. and Minera San Xavier,
    S.A. de C.V. dated April 5, 2005                                                                                                          |  
|4.19 | Consulting Agreement between
    Robert Martinez and Metallica Management Inc. dated May 1, 2005                                                                                                                                                         |  



78

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|                    | Description of Document                                                                                                                                  
|------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|4.20                | Option Agreement between Full
    Metal Minerals Ltd. and Metallica Management Inc. dated September 2, 2005                                              
|4.21                | Limited Notice to Proceed
    between Washington Group Latin America, Inc. and Minera San Xavier, S.A. de
    C.V. dated November 15, 2005               
|4.22                | Consulting Agreement between
    Robert Martinez and Metallica Management Inc. dated February 1, 2006                                                    
|4.23                | Letter Agreement re: Standby
    Term between Washington Group Latin America and Minera San Xavier, S.A. de
    C.V. dated May 12, 2004                  
|4.24                | Professional
    Services Contract between Minera San Xavier, S.A. de C.V. and Caframi dated
    May 14, 2005.                                           
|8                   | Subsidiaries of the Company                                                                                                                              
|12.1                | Certification of Chief
    Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange
    Act of 1934, as amended                        
|12.2                | Certification of Chief
    Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange
    Act of 1934, as amended                        
|13.1                | 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 2002
|13.2                | 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.







79

---



|                                            
|--------------------------------------------
|Metallica Resources Inc.                    
|(A development stage company)               
|                                            
|                                            
|Consolidated Financial Statements           
|as at December 31, 2005 and 2004 and for the
|years ended December 31, 2005, 2004 and 2003















F-1

---



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 and 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
controls 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 the 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 and have conducted an audit in accordance
with generally accepted auditing standards in Canada and the standards of the
Public Company Accounting Oversight Board (United States). Their report follows.

"Richard J. Hall" 
Richard J. Hall 
President and Chief Executive Officer

"Bradley J. Blacketor"

February 6, 2006



F-2

---



Auditors' Report



To the Shareholders of Metallica Resources Inc.

We have audited the accompanying consolidated balance sheets
of Metallica Resources Inc. as of December 31, 2005 and 2004, and the related
consolidated statements of operations and deficit and cash flows for each of the
three years in the period ended December 31, 2005. These 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 standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.

In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial position of Metallica
Resources Inc. at December 31, 2005 and 2004, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2005, in accordance with accounting principles generally accepted in Canada.

"PricewaterhouseCoopers LLP" Chartered AccountantsVancouver, British Columbia

February 6, 2006, except for Note 1, which is as of February 8, 2006



Comments by Auditors for United States Readers on Canada-United States
Reporting Difference

In the United States, reporting standards for auditors
require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have a material
effect on the comparability of the company's financial statements, such as the
changes described in Note 2 to the financial statements. Our report to the
shareholders dated February 6, 2006 except for Note 1, which is as of February
8, 2006 is expressed in accordance with Canadian reporting standards which do
not require a reference to such a change in accounting principles in the
auditors' report when the change is properly accounted for and adequately
disclosed in the financial statements.

"PricewaterhouseCoopers LLP" Chartered AccountantsVancouver, British Columbia

February 6, 2006, except for Note 1, which is as of February 8, 2006

F-3

---



|                                                                           |   |              |             |             
|-------------------------------------------------------------------------- | - | ------------ | ----------- | ------------
|Metallica Resources Inc.                                                   |   |              |             |             
|(A development stage company)                                              |   |              |             |             
|                                                                           |   |              |             |             
|Consolidated Balance Sheets                                                |   |              |             |             
|                                                                           |   |              |             |             
|                                                                           |   |              |             |             
|December 31, 2005 and 2004                                                 |   |              |             |             
|U.S. dollars                                                               |   |              |             |             
|                                                                           |   |              |             |             
|                                                                           |   | 2005         |             | 2004        
|Assets                                                                     |   |              |             |             
|Current assets:                                                            |   |              |             |             
|Cash and cash equivalents (Note 11)                                        | $ | 42,669,830   | $           | 41,617,044  
|Value-added tax receivable and other current
    assets                    |   | 969,947      |             | 640,244     
|                                                                           |   | 43,639,777   |             | 42,257,288  
|                                                                           |   |              |             |             
|Mineral properties and deferred expenditures
    (Note 3)                  |   | 55,530,251   |             | 47,355,378  
|Property, plant and equipment (Note 4)                                     |   | 503,585      |             | 416,464     
|Other assets (Note 10)                                                     |   | 246,271      |             | 263,970     
|                                                                           |   |              |             |             
|Total assets                                                               | $ | 99,919,884   | $           | 90,293,100  
|                                                                           |   |              |             |             
|Liabilities and shareholders' equity                                       |   |              |             |             
|Current liabilities:                                                       |   |              |             |             
|Accounts payable and accrued liabilities                                   | $ | 1,383,006    | $           | 738,384     
|                                                                           |   |              |             |             
|Asset retirement obligation (Note 5)                                       |   | 343,164      |             | 203,818     
|                                                                           |   |              |             |             
|Shareholders' equity:                                                      |   |              |             |             
|Share capital (83,301,676 common shares, 2004:
    82,687,043) (Note 6(b)) |   | 108,158,077  | 107,661,917
|Contributed surplus (Note 6(d))                                            |   | 1,484,554    |             | --          
|Warrants(Note 6(d))                                                        |   | 5,889,285    |             | 7,373,839   
|Stock options (Note 6(c))                                                  |   | 1,431,014    |             | 1,043,156   
|Deficit                                                                    |   | (18,769,216) |             | (26,728,014)
|                                                                           |   | 98,193,714   |             | 89,350,898  
|                                                                           |   |              |             |             
|Total liabilities and shareholders' equity                                 | $ | 99,919,884   | $           | 90,293,100  

|                                                                                            |              
|------------------------------------------------------------------------------------------- | -------------
|Contingencies(Notes 1 and 9)                                                                |              
|Commitments(Note 10)                                                                        |              
|                                                                                            |              
|                                                                                            |              
|                                                                                            |              
|Approved by the Board:                                                                      |              
|                                                                                            |              
|                                                                                            |              
|"Craig J. Nelsen"                                                                           | "Ian A. Shaw"
|Craig J. Nelsen                                                                             | Ian A. Shaw  
|                                                                                            |              
|                                                                                            |              
|The accompanying notes are an
    integral part of these consolidated financial statements.

F-4

---



|                                                               |   |              |   |              |   |             
|-------------------------------------------------------------- | - | ------------ | - | ------------ | - | ------------
|Metallica Resources Inc.                                       |   |              |   |              |   |             
|(A development stage company)                                  |   |              |   |              |   |             
|                                                               |   |              |   |              |   |             
|Consolidated Statements of
    Operations and Deficit         
|                                                               |   |              |   |              |   |             
|For the years ended December 31, 2005,
    2004 and 2003       |   |              |   |              |   |             
|U.S. dollars, except shares outstanding                        |   |              |   |              |   |             
|                                                               |   |              |   |              |   |             
|                                                               |   | 2005         |   | 2004         |   | 2003        
|                                                               |   |              |   |              |   |             
|Interest income                                                | $ | 1,036,850    | $ | 925,180      | $ | 158,087     
|Income from property payments (Notes 3(b
    and f))           |   | 8,349,264    |   | 300,000      |   | 150,000     
|                                                               |   |              |   |              |   |             
|                                                               |   | 9,386,114    |   | 1,225,180    |   | 308,087     
|                                                               |   |              |   |              |   |             
|General and administrative expense                             |   | 1,748,514    |   | 1,469,246    |   | 1,252,077   
|Exploration expense                                            |   | 232,252      |   | 192,627      |   | 212,366     
|Reclamation and property closure costs                         |   | --           |   | 22,368       |   | 17,421      
|Stock-based compensation expense                               |   | 341,110      |   | 83,466       |   | 6,675       
|Write-down of mineral properties and deferred
    expenditures |   | 2,518        |   | 81,469       |   | 703,536     
|Interest expense (Note 3(a))                                   |   | --           |   | 40,260       |   | 446,851     
|Foreign exchange (gain)                                        |   | (1,045,359)  |   | (2,169,257)  |   | (609,547)   
|                                                               |   |              |   |              |   |             
|Income (loss) before income taxes                              |   | 8,107,079    |   | 1,505,001    |   | (1,721,292) 
|                                                               |   |              |   |              |   |             
|Income tax provision (benefit) (Note 7)                        |   | 148,281      |   | 136,539      |   | (5,745)     
|                                                               |   |              |   |              |   |             
|Net income (loss)                                              |   | 7,958,798    |   | 1,368,462    |   | (1,715,547) 
|                                                               |   |              |   |              |   |             
|Deficit at beginning of year as previously
    reported        |   | (26,728,014) |   | (27,695,861) |   | (25,980,314)
|Stock-based compensation expense (Note
    6(c))               |   | --           |   | (400,615)    |   | --          
|Deficit at beginning of year as restated                       |   | (26,728,014) |   | (28,096,476) |   | (25,980,314)
|                                                               |   |              |   |              |   |             
|Deficit at end of year                                         | $ | (18,769,216) | $ | (26,728,014) | $ | (27,695,861)
|                                                               |   |              |   |              |   |             
|Basic net income (loss) per share                              | $ | 0.10         | $ | 0.02         | $ | (0.04)      
|Diluted net income (loss) per share                            | $ | 0.10         | $ | 0.01         | $ | (0.04)      
|                                                               |   |              |   |              |   |             
|Weighted average number of common shares
    outstanding       |   | 82,952,717   |   | 82,405,035   |   | 42,865,141  

F-5

---



|Metallica Resources Inc.                                                                    |   |             |   |              |   |            
|------------------------------------------------------------------------------------------- | - | ----------- | - | ------------ | - | -----------
|(A development stage company)                                                               |   |             |   |              |   |            
|                                                                                            |   |             |   |              |   |            
|Consolidated Statements of
    Cash Flows                                                  
|                                                                                            |   |             |   |              |   |            
|                                                                                            |   |             |   |              |   |            
|For the years ended December 31, 2005, 2004 and 2003                                        |   |             |   |              |   |            
|U.S. dollars                                                                                |   |             |   |              |   |            
|                                                                                            |   |             |   |              |   |            
|                                                                                            |   | 2005        |   | 2004         |   | 2003       
|Cash flows provided from (used for) operating activities                                    |   |             |   |              |   |            
|Net income (loss)                                                                           | $ | 7,958,798   | $ | 1,368,462    | $ | (1,715,547)
|Non-cash items:                                                                             |   |             |   |              |   |            
|Depreciation and amortization                                                               |   | 11,542      |   | 12,865       |   | 10,564     
|Stock-based compensation expense                                                            |   | 341,110     |   | 83,466       |   | 6,675      
|Restricted stock units                                                                      |   | 59,435      |   | --           |   | --         
|Interest expense                                                                            |   | --          |   | 40,260       |   | 442,933    
|Common share contribution to retirement plan                                                |   | 19,449      |   | 23,060       |   | 21,735     
|Reclamation and property closure costs                                                      |   | --          |   | --           |   | 17,421     
|Write-down of mineral properties and deferred
    expenditures                              |   | 2,518       |   | 81,469       |   | 703,536    
|Foreign exchange (gain) on foreign cash held                                                |   | (1,045,359) |   | (2,169,257)  |   | (609,547)  
|Changes in non-cash working capital:                                                        |   |             |   |              |   |            
|Value-added tax and other current assets                                                    |   | (329,703)   |   | (224,366)    |   | (158,022)  
|Accounts payable and accrued liabilities                                                    |   | 85,169      |   | (21,884)     |   | 217,940    
|Reclamation and closure cost obligation                                                     |   | --          |   | (29,796)     |   | (137,625)  
|Other assets                                                                                |   | 17,500      |   | (245,492)    |   | (13,664)   
|                                                                                            |   |             |   |              |   |            
|                                                                                            |   | 7,120,459   |   | (1,081,213)  |   | (1,213,601)
|Cash flows provided from (used for) investing activities                                    |   |             |   |              |   |            
|Acquisition of subsidiary, net of cash acquired                                             |   | --          |   | (5,000,000)  |   | (1,921,933)
|Mineral properties and deferred expenditures                                                |   | (9,024,369) |   | (14,889,399) |   | (2,044,946)
|Mineral properties and deferred expenditures                                                |   |             |   |              |   |            
|applied to income from property payments                                                    |   | 1,650,736   |   | --           |   | --         
|Payments to acquire property, plant and equipment                                           |   | (169,136)   |   | (254,405)    |   | (105,504)  
|                                                                                            |   |             |   |              |   |            
|                                                                                            |   | (7,542,769) |   | (20,143,804) |   | (4,072,383)
|Cash flows provided from (used for) financing activities                                    |   |             |   |              |   |            
|Common shares and units issued for cash, net of issue costs                                 |   | --          |   | --           |   | 70,774,607 
|Proceeds from exercise of warrants                                                          |   | --          |   | 400,230      |   | 168,454    
|Proceeds from exercise of options                                                           |   | 429,737     |   | 362,618      |   | 222,546    
|Repayment of acquisition debt                                                               |   | --          |   | (6,000,000)  |   | (5,000,000)
|Repayment of note payable                                                                   |   | --          |   | (200,100)    |   | --         
|Proceeds from repayment of loan to director                                                 |   | --          |   | --           |   | 100,000    
|                                                                                            |   |             |   |              |   |            
|                                                                                            |   | 429,737     |   | (5,437,252)  |   | 66,265,607 
|                                                                                            |   |             |   |              |   |            
|Foreign exchange gain on foreign cash held                                                  |   | 1,045,359   |   | 2,169,257    |   | 609,547    
|                                                                                            |   |             |   |              |   |            
|Increase (decrease) in cash and cash equivalents                                            |   | 1,052,786   |   | (24,493,012) |   | 61,589,170 
|Cash and cash equivalents, beginning of year                                                |   | 41,617,044  |   | 66,110,056   |   | 4,520,886  
|                                                                                            |   |             |   |              |   |            
|Cash and cash equivalents, end of year                                                      | $ | 42,669,830  | $ | 41,617,044   | $ | 66,110,056 
|                                                                                            |   |             |   |              |   |            
|Supplementary cash flow information(Note 11)                                                |   |             |   |              |   |            
|                                                                                            |   |             |   |              |   |            
|The accompanying notes are an
    integral part of these consolidated financial statements.

F-6

---



Metallica Resources Inc. (A development stage company)

Notes to Consolidated Financial Statements

1. Nature of Operations

Metallica Resources Inc. (the "Company") is engaged in the exploration,
development and acquisition of precious metal rich mineral properties located
principally in North and South America.

The Company commenced construction of its 100%-owned Cerro
San Pedro gold and silver project in Mexico in February 2004. In June 2004,
construction of the mine was suspended pending resolution of various permitting
and other issues involving the project as discussed in Note 3(a) and Note 9. The Company received notification
from Secretaria de Defensa National ("SEDENA") that the restriction on its
explosives permit for the project that prohibited the use of explosives on land
communally owned by the Ejido of Cerro de San Pedro was removed. The Company
intends to recommence full scale mine construction during the first quarter of
2006. It is anticipated that mine construction will be completed by the end of
2006.

In June 2005, the Company received a Temporary Occupancy and
Right of Way Authorization from the Federal Mining Bureau for its Cerro San
Pedro project. This authorization provides the Company with federally mandated
surface rights access to its mineral rights over the life of the mine, and
overrides the various rulings and appeals in the Agrarian Court that challenged
the Company's surface rights access.

The Company has been notified of various lawsuits and legal
actions that have been filed by a group of project opponents against
governmental agencies seeking nullification of various permits and licenses that
have been granted to the Company with respect to its Cerro San Pedro project. 
Various lawsuits and legal actions have been filed by members of this group over
the past three years, those that have had final rulings have all been resolved
in favor of the various governmental agencies.  In the event of an adverse
ruling from any of the unresolved lawsuits, the Company could be forced to
suspend or cease project construction or operating activities.

The Company is also advancing a copper-gold exploration
project in Chile with Falconbridge Limited ("Falconbridge"), formerly Noranda
Inc., (Note 3(b)) and is pursuing various other exploration projects in the
Americas.

2. Summary of Significant Accounting Policies

These 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.

Consolidation

These 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.          | · | Metallica Management Inc.              
|· | De Re Holdings Inc.             | · | Minera Metallica Limitada              
|· | Desarrollos Metallica C.A.      | · | Minera San Xavier, S.A. de C.V.        
|· | MMM Exploraciones, S.A. de C.V. | · | Raleigh Mining International Limited   
|· | Metallica (Barbados) Inc.       | · | Servicios del Plata y Oro, S.A. de C.V.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities at
the date of the consolidated financial statements and the reported amount of
income and expenses during the reporting period. Significant estimates that
involve highly subjective assumptions by management include the Company's
estimated reclamation obligation for its Cerro San Pedro project in Mexico, its
estimation of stock-based compensation amounts and its assessment of its mineral
property carrying values for impairment. Actual results could differ from those
reported.

F-1

---



Foreign Currency Translation

The 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 Equivalents

Cash 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 Expenditures

The costs of acquiring mineral property interests, and
related exploration and development costs incurred thereafter, are capitalized
until commercial production is established, the property is disposed of through
sale or otherwise, or the carrying value is impaired. Expenditures related to
generative 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 point in 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, future
profitable production, or proceeds from the disposition of the properties.

Management 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 value beyond
proven and probable reserves, and operating, capital and reclamation costs on an
undiscounted basis. If it is determined that the future cash flows are less than
the carrying value, a write-down to the estimated fair value is made with a
charge to earnings. 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.

Management's estimates of mineral prices, recoverable proven
and probable reserves and value beyond 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, 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-2

---



Depreciation and Amortization

Property, plant and equipment 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 estimated useful
lives are being used:

|Equipment                            | 3 to 17 years
|------------------------------------ | -------------
|Vehicles                             | 4 years      
|Buildings and leasehold improvements | 3 to 20 years
|Furniture                            | 3 to 10 years

Asset Retirement Obligations

On January 1, 2004, the Company adopted the new accounting
standard for asset retirement obligations. 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 of operations in
2003 as the Company did not commence construction at its Cerro San Pedro project
until February 2004.

Financial Instruments

At December 31, 2005, the carrying values of cash and cash
equivalents, value-added tax and other current assets, and accounts payable and
accrued liabilities approximate their fair values due to the relatively short
period to maturity of the instruments.

Income Taxes

The 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. Future tax assets are
evaluated and if realization is not considered more likely than not, a valuation
allowance is provided.

Stock-based Compensation

The Company's stock-based compensation plan is described in
Note 6. Effective January 1, 2004, the Company retroactively adopted the revised
Canadian Institute of Chartered Accountants ("CICA") Section 3870, "Stock-based
Compensation and Other Stock-based Payments", which requires an expense to be
recognized in the financial statements for all forms of employee stock-based
compensation, including stock options. Any consideration paid upon the exercise
of stock options, in addition to the fair value attributable to stock options
granted after January 1, 2002, is credited to share capital. The fair value
attributable to stock options that expire unexercised is credited to contributed
surplus. The fair value attributable to stock options that are forfeited is
credited to earnings.

The Company applied these provisions retroactively, without
restatement of prior years, resulting in a cumulative increase to the deficit of
$400,615 and a corresponding increase to stock options on January 1, 2004, with
respect to options granted in 2002 and 2003.

Per Share Amounts

Basic per share amounts are calculated
using the weighted average number of common shares outstanding during the year.
Diluted per share amounts are calculated based on the treasury-stock method,
which assumes that any proceeds from the exercise of options and warrants would
be used to purchase common shares at the average market price during the year.
The weighted average number of common shares outstanding is adjusted for the net
increase in the number of common shares issued upon exercise of the options and
warrants. Stock options and warrants are included in the calculation of diluted
per share amounts only to the extent that the average market price of the common
shares during the year exceeds the exercise price of the options or warrants.
During years when the Company has generated a loss, the potential shares to be
issued from the assumed exercise of options and warrants are not included in the
computation of diluted per share amounts since the result would be
anti-dilutive.

F-3

---



Variable Interest Entities

Effective January 1, 2005, the Company adopted Accounting
Guideline AcG-15, "Consolidation of Variable Interest Entities", which requires
consolidation of entities in which the Company has a controlling financial
interest. The Company has determined that it has no variable interest entities.

3. Mineral Properties and Deferred Expenditures

Mineral property costs and deferred expenditures are summarized as follows:

|                                            |   | Mineral        |   | Deferred     |   |            
|------------------------------------------- | - | -------------- | - | ------------ | - | -----------
|December 31, 2005                           |   | Property Costs |   | Expenditures |   | Total      
|Cerro San Pedro, Mexico (a):                |   |                |   |              |   |            
|Balance at January 1, 2005                  | $ | 23,869,587     | $ | 21,345,638   | $ | 45,215,225 
|Additions                                   |   | 4,737          |   | 7,924,071    |   | 7,928,808  
|Balance at December 31, 2005                |   | 23,874,324     |   | 29,269,709   |   | 53,144,033 
|                                            |   |                |   |              |   |            
|El Morro, Chile (b):                        |   |                |   |              |   |            
|Balance at January 1, 2005                  |   | 690,000        |   | 949,589      |   | 1,639,589  
|Additions                                   |   | --             |   | 31,522       |   | 31,522     
|Proceeds from property payment              |   | (690,000)      |   | (960,736)    |   | (1,650,736)
|Balance at December 31, 2005                |   | --             |   | 20,375       |   | 20,375     
|                                            |   |                |   |              |   |            
|Rio Figueroa, Chile (c):                    |   |                |   |              |   |            
|Balance at January 1, 2005                  |   | 115,856        |   | 375,182      |   | 491,038    
|Additions                                   |   | 219,186        |   | 1,145,508    |   | 1,364,694  
|Balance at December 31, 2005                |   | 335,042        |   | 1,520,690    |   | 1,855,732  
|                                            |   |                |   |              |   |            
|Other Projects, Chile (d):                  |   |                |   |              |   |            
|Balance at January 1, 2005                  |   | 8,043          |   | 1,483        |   | 9,526      
|Additions                                   |   | 20,114         |   | 1,226        |   | 21,340     
|Write-offs                                  |   | (2,518)        |   | --           |   | (2,518)    
|Balance at December 31, 2005                |   | 25,639         |   | 2,709        |   | 28,348     
|                                            |   |                |   |              |   |            
|Southwest Alaska/Aleutian Islands, USA (e): |   |                |   |              |   |            
|Balance at January 1, 2005                  |   | --             |   | --           |   | --         
|Additions                                   |   | 310,208        |   | 171,555      |   | 481,763    
|Balance at December 31, 2005                |   | 310,208        |   | 171,555      |   | 481,763    
|                                            |   |                |   |              |   |            
|                                            | $ | 24,545,213     | $ | 30,985,038   | $ | 55,530,251 
|                                            |   |                |   |              |   |            
|                                            |   | Mineral        |   | Deferred     |   |            
|December 31, 2004                           |   | Property Costs |   | Expenditures |   | Total      
|Cerro San Pedro, Mexico (a):                |   |                |   |              |   |            
|Balance at January 1, 2004                  | $ | 16,115,223     | $ | 9,353,297    | $ | 25,468,520 
|Acquisition of subsidiary                   |   | 5,000,000      |   | --           |   | 5,000,000  
|Additions                                   |   | 2,754,364      |   | 11,992,341   |   | 14,746,705 
|Balance at December 31, 2004                |   | 23,869,587     |   | 21,345,638   |   | 45,215,225 
|                                            |   |                |   |              |   |            
|El Morro, Chile (b):                        |   |                |   |              |   |            
|Balance at January 1, 2004                  |   | 90,000         |   | 949,589      |   | 1,039,589  
|Acquisition of royalty                      |   | 600,000        |   | --           |   | 600,000    
|Balance at December 31, 2004                |   | 690,000        |   | 949,589      |   | 1,639,589  
|                                            |   |                |   |              |   |            
|Rio Figueroa, Chile (c):                    |   |                |   |              |   |            
|Balance at January 1, 2004                  |   | --             |   | --           |   | --         

F-4

---



|Additions                    |   | 115,856    |   | 375,182    |   | 491,038   
|---------------------------- | - | ---------- | - | ---------- | - | ----------
|Balance at December 31, 2004 |   | 115,856    |   | 375,182    |   | 491,038   
|                             |   |            |   |            |   |           
|Other Projects, Chile (d):   |   |            |   |            |   |           
|Balance at January 1, 2004   |   | 15,570     |   | 50,711     |   | 66,281    
|Additions                    |   | 8,971      |   | 15,743     |   | 24,714    
|Write-offs                   |   | (16,498)   |   | (64,971)   |   | (81,469)  
|Balance at December 31, 2004 |   | 8,043      |   | 1,483      |   | 9,526     
|                             |   |            |   |            |   |           
|                             | $ | 24,683,486 | $ | 22,671,892 | $ | 47,355,378

a) Mexico  Cerro San Pedro Project

The Cerro San Pedro gold and silver project (the "Project")
is located in the State of San Luis Potosí, Mexico and is 100%-owned by the
Company's wholly owned subsidiary, 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. The purchase price was paid 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.
>   v) $5 million
>   paid on March 24, 2004.

The $5 million payment that was made on March 24, 2004 was
initially due and payable upon commencement of commercial production ($2.5
million) and one year from commencement of commercial production ($2.5 million).
These amounts initially represented contingent consideration and were not
recognized as acquisition costs until March 2004.

The acquisition of Glamis' 50% equity interest in MSX was a
business combination accounted for as a purchase transaction. As of December 31,
2003, 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, was allocated to the fair value of the net assets acquired as follows:

|Cash                                                        | $ | 19,739    
|----------------------------------------------------------- | - | ----------
|Other current assets                                        |   | 72,376    
|Property, plant and equipment                               |   | 75,708    
|Mineral properties                                          |   | 12,461,971
|                                                            |   | 12,629,794
|                                                            |   |           
|Current liabilities and other                               |   | (71,265)  
|Note payable                                                |   | (100,050) 
|                                                            |   |           
|Fair value of net assets acquired                           | $ | 12,458,479
|                                                            |   |           
|                                                            |   |           
|Consideration:                                              |   |           
|Cash at closing, less working capital deficit               | $ | 1,941,672 
|Present value of future cash payments, discounted
    at 6% |   | 10,516,807
|                                                            |   |           
|                                                            | $ | 12,458,479

F-5

---



Initial acquisition debt of $10.5 million represented the
estimated present value of future cash payments of $11.0 million, discounted at
6%. Interest accretion for the years ended December 31, 2004 and 2003 was
$40,260 and $442,933, respectively. The acquisition debt was paid off in
February 2004.

On March 24, 2004, the Company acquired a sliding scale net
returns royalty that Glamis had retained as part of the sale of its 50% equity
interest in MSX to the Company in February 2003, and prepaid the remaining $5
million of contingent consideration owed to Glamis, for $7.25 million. The $7.25
million payment was allocated to mineral properties.

In December 2003, the Company awarded a contract to
Washington Group International ("WGI") to provide the Company with contract
mining and related construction services over the pre-production period and
estimated mine life totaling approximately ten years. The contract has a
remaining estimated gross value, exclusive of fuel costs, of approximately $112
million. The contract also provides that the Company, and in certain
circumstances WGI, may terminate the contract at any time prior to the end of
the ten-year term, but the Company would be required to pay early termination
fees and equipment demobilization costs to WGI as follows:

Demobilization andTermination 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
      --


In the event that the contract is terminated as a result of
force majeure, the Company is only obligated to pay WGI equipment demobilization
and termination fees totaling approximately $2.0 million.

Project construction commenced in February 2004, but was
suspended in June 2004 pending resolution of various permitting and other issues
(Notes 1 and 9). In May 2004, the Company entered into a standby agreement, and
subsequent extensions, with WGI in order to retain the construction equipment at
the Project site. In November 2005, the Company executed a limited notice to
proceed with WGI to allow for certain construction activities at hourly rates
during the standby period. Through December 31, 2005, the Company has deferred
costs totaling $2.7 million under the standby agreement and $0.3 million under
the limited notice to proceed.

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 the Company. In addition, the Company has entered
into an agreement with a former owner of certain mining concessions that
provides for a 2.5% net smelter returns ("NSR") royalty on any production that
occurs on the those properties or $50,000 per year beginning April 2003,
whichever is greater, subject to a maximum of $1.0 million. The Company has made
minimum royalty payments totaling $150,000 under the agreement.

b) Chile  El Morro Project

The Company's activities in Chile are concentrated on
precious metal rich exploration targets. The El Morro copper-gold project
consists of the La Fortuna and El Morro areas. The Company's interest in the El
Morro area, which is approximately five kilometers from the La Fortuna area, was
acquired by staking in 1998.

F-6

---



In September 1999, the Company entered into an exploration
agreement with Falconbridge that provided for Falconbridge to earn a 70%
interest in the El Morro copper-gold project by making, among other
requirements, minimum exploration and property acquisition expenditures on the
project of $10.0 million and by making a $10.0 million payment to the Company by
September 14, 2005. On August 31, 2005, the Company received a $10.0 million
payment from Falconbridge which resulted in Falconbridge earning a 70% interest
in the El Morro project and the Company recording $8.35 million of income from
property payments:

|Falconbridge El Morro earn-in payment | $ | 10,000,000
|------------------------------------- | - | ----------
|Carrying value at August 31, 2005     |   | 1,650,736 
|Income from property payment          | $ | 8,349,264 

It is anticipated that the taxable gain attributable to the $10.0 million
payment will be offset by tax loss carryforwards not previously recognized.

In December 2004, the Company and Falconbridge acquired a 2%
NSR royalty on certain mining concessions at the La Fortuna area, that were
formerly owned by BHP Minerals Ltd., for $2.0 million. The Company acquired a
30% interest in the royalty for $0.6 million and Falconbridge acquired the
remaining 70% interest for $1.4 million.

The Company and Falconbridge are required to make payments to
the former owners of certain mining concessions totaling $400,000, in accordance
with their respective ownership interests, within two years of commencement of
mining on these concessions.

Certain mining concessions at the La Fortuna area, that were formerly owned
by S.L.M. Cantarito and S.L.M. Tronquito, are subject to a 2% NSR royalty.

c) Chile  Rio Figueroa Project

In September 2004, the Company entered into an option
agreement with Sociedad Contractual Minera Los Potrillos ("Potrillos") to
acquire a 100% interest in a copper-gold exploration project referred to as the
Rio Figueroa project. In order to exercise the option, the Company must make
annual option payments over a five-year period beginning September 2004 totaling
$3.5 million, of which $0.3 million has been paid to date. The Company must also
incur qualifying aggregate exploration expenditures over a three-year period
beginning September 2004 of $1.5 million, of which approximately $1.3 million
has been incurred to date.

d) Chile  Other Projects

Other projects consist of copper-gold exploration concessions
that the Company acquired by staking and are contiguous to the El Morro project.
The Company has incurred property acquisition costs and deferred expenditures on
these concessions totaling $28,348 at December 31, 2005.

e) USA - Southwest Alaska/Aleutian Islands

In September 2005, the Company entered into an option
agreement that allows the Company to earn a 65% interest in precious metal rich
exploration properties located in southwest Alaska and the Aleutian Islands by
making qualifying aggregate expenditures totaling $4.75 million over a five-year
period beginning September 2005. The Company may increase its interest in
individual properties to 70% by completing a pre-feasibility study, and it may
further increase its interest in individual properties to 80% by completing a
feasibility study. The Company has incurred qualifying expenditures as of
December 31, 2005 totaling approximately $0.48 million.

f) Brazil  Mara Rosa Project

At December 31, 2001, the Company elected not to proceed with
further exploration on its Mara Rosa gold project and wrote off the project
carrying value. In November 2003, the Company entered into an option agreement
to sell its 100% interest in the Mara Rosa gold project for $0.45 million. The
Company received $0.15 million pursuant to the agreement in 2003, and the
remaining $0.3 million in 2004. These amounts were recognized as income from
option payments in the year in which the payments were received.

F-7

---



4. Property, Plant and Equipment

Property, plant and equipment consist of the following at December 31, 2005
and 2004:

|                                    |   |         |   | Accumulated      |   |               
|----------------------------------- | - | ------- | - | ---------------- | - | --------------
|                                    |   |         |   | Depreciation and |   |               
|                                    |   | Cost    |   | Amortization     |   | Net Book Value
|December 31,                        |   | 2005    |   | 2005             |   | 2005          
|Equipment                           | $ | 339,736 | $ | 172,279          | $ | 167,457       
|Vehicles                            |   | 183,076 |   | 90,789           |   | 92,287        
|Building and leasehold improvements |   | 269,021 |   | 40,877           |   | 228,144       
|Furniture                           |   | 44,757  |   | 29,060           |   | 15,697        
|                                    |   |         |   |                  |   |               
|                                    | $ | 836,590 | $ | 333,005          | $ | 503,585       
|                                    |   |         |   |                  |   |               
|                                    |   |         |   | Accumulated      |   |               
|                                    |   |         |   | Depreciation and |   |               
|                                    |   | Cost    |   | Amortization     |   | Net Book Value
|December 31,                        |   | 2004    |   | 2004             |   | 2004          
|Equipment                           | $ | 310,579 | $ | 126,821          | $ | 183,758       
|Vehicles                            |   | 119,996 |   | 73,087           |   | 46,909        
|Building and leasehold improvements |   | 196,057 |   | 27,850           |   | 168,207       
|Furniture                           |   | 43,690  |   | 26,100           |   | 17,590        
|                                    |   |         |   |                  |   |               
|                                    | $ | 670,322 | $ | 253,858          | $ | 416,464       

5. Asset Retirement Obligation

The Company's environmental permit for its Cerro San Pedro
project requires that it reclaim any land that it disturbs during mine
construction and mine operations. The Company has estimated the present value of
its future reclamation obligation to be $343,164 at December 31, 2005, of which
$30,583 represents capitalized interest accretion. The present value of the
future reclamation obligation assumes a credit-adjusted risk-free rate of 9% and
commencement of reclamation activities in 2016. The total reclamation obligation
for the Cerro San Pedro project per the Company's September 2003 feasibility
study is estimated to be $4.3 million. The Company has agreed to fund this
obligation during mining operations; however, negotiations with the relevant
Mexican governmental agency to determine the interim funding requirements have
not yet been finalized.

6. Share Capital

a) Authorized

Unlimited number of common and preferred shares without par value.

b) Common Shares Issued and Outstanding

|Year Ended December 31,          | 2005       |               | 2004       |              | 2003       |             
|-------------------------------- | ---------- | ------------- | ---------- | ------------ | ---------- | ------------
|                                 | Shares     | Amount        | Shares     | Amount       | Shares     | Amount      
|Outstanding, beginning of year   | 82,687,043 | $ 107,661,917 | 81,763,885 | $106,786,049 | 32,449,167 | $ 43,068,285
|Shares issued in public          |            |               |            |              |            |             
|offering (Note 6(d))             | --         | --            | --         | --           | 38,700,000 | 55,416,199  
|Shares issued in private         |            |               |            |              |            |             
|placement (Note 6(d))            | --         | --            | --         | --           | 10,100,000 | 7,847,925   
|Exercise of warrants (Note 6(d)) | --         | --            | 354,500    | 400,229      | 151,500    | 168,454     
|Fair value of warrants           |            |               |            |              |            |             
|exercised (Note 6(d))            | --         | --            | --         | 95,739       | --         | 40,905      
|Exercise of stock options        |            |               |            |              |            |             
|(Note 6(c))                      | 598,833    | 429,737       | 555,000    | 362,619      | 344,333    | 222,546     
|Fair value of stock options      |            |               |            |              |            |             

F-8

---



|exercised (Note 6c))         | --         | 46,051        |            | --            | --         | --           
|---------------------------- | ---------- | ------------- | ---------- | ------------- | ---------- | -------------
|Shares issued for retirement |            |               |            |               |            |              
|plan (Note 8)                | 15,800     | 20,372        | 13,658     | 17,281        | 18,885     | 21,735       
|Outstanding, end of year     | 83,301,676 | $ 108,158,077 | 82,687,043 | $ 107,661,917 | 81,763,885 | $ 106,786,049

c) Options

The Company's stock-based compensation plan provides that the
exercise price per share is equal to the five-day weighted average market price
as quoted on the Toronto Stock Exchange for the five days preceding the date of
grant. Each option allows for the purchase of one share and expires not later
than five years from the date it was granted. Options generally vest over a
period of up to two years from 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, 2005, 1,498,166 common shares had been
issued pursuant to the plan subsequent to April 29, 2003.

Effective January 1, 2004, the Company adopted revised CICA
Section 3870, "Stock-based Compensation and Other Stock-based Payments", which
requires an expense to be recognized in the financial statements for all forms
of employee stock-based compensation, including stock options. Previously, the
Company did not record any compensation expense on the granting of stock options
to employees and directors as the exercise price was equal to or greater than
the market price on the date of grants. Under the new requirement, stock-based
compensation expense would have been increased by $339,367 and $61,248 for the
years ended December 31, 2003 and 2002, respectively. The Company elected to
adopt this new requirement retroactively without restatement of prior years.
This has resulted in a cumulative increase of $400,615 to the deficit and to
stock options at January 1, 2004. The pro forma effect on loss for the year, and
basic and diluted loss per share, for the year ended December 31, 2003, had the
Company followed the fair value method of accounting for stock-based
compensation for options granted after January 1, 2002, is as follows:

|Year Ended December 31,           |   | 2003     
|--------------------------------- | - | ---------
|Loss for the year                 | $ | 1,715,547
|Compensation expense              |   | 339,367  
|                                  |   |          
|Pro forma loss for the year       | $ | 2,054,914
|                                  |   |          
|Basic and diluted loss per share: |   |          
|As reported                       | $ | (0.04)   
|Pro forma                         | $ | (0.05)   

The fair value of stock options used to calculate compensation expense has
been estimated using the Black-Scholes Option Pricing Model with the following
assumptions:

|                                                             | 2005        | 2004        | 2003       
|------------------------------------------------------------ | ----------- | ----------- | -----------
|Risk free interest rate (Canada)                             | 3.2 to 3.7% | 3.3 to 3.5% | 3.6 to 4.4%
|Expected dividend yield                                      | 0.0%        | 0.0%        | 0.0%       
|Expected price volatility of the Company's
    common shares | 65 to 66%   | 70 to 71%   | 75 to 87%  
|Expected life of option                                      | 5 years     | 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 stock options.

The following is a summary of options granted under the Company's stock-based
compensation plan:

F-9

---



|                               |               |           |                    |   | Weighted
    Average Exercise Price
|------------------------------ | ------------- | --------- | ------------------ | - | -----------------------------------
|                               | Stock Options |           | (Canadian Dollars)
|Year Ended December 31,        | 2005          | 2004      | 2003               |   | 2005                               
|                               |               |           |                    |   |                                    
|Outstanding, beginning of year | 2,535,500     | 2,800,250 | 2,107,083          | $ | 1.36                               
|Granted                        | 880,000       | 400,000   | 1,112,500          |   | 1.62                               
|Exercised                      | (598,833)     | (555,000) | (344,333)          |   | 0.86                               
|Forfeited                      | (186,667)     | (109,750) | --                 |   | 1.79                               
|Expired                        | (75,000)      | --        | (75,000)           |   | 2.87                               
|                               |               |           |                    |   |                                    
|Outstanding, end of year       | 2,555,000     | 2,535,500 | 2,800,250          | $ | 1.49                               
|                               |               |           |                    |   |                                    
|Exercisable, end of year       | 1,858,333     | 1,914,666 | 1,957,750          | $ | 1.39                               

The aggregate fair value of options granted in 2005, 2004 and
2003 was $625,881, $435,624 and $714,447, respectively. The weighted average
fair value per option granted in 2005, 2004 and 2003 was $0.71, $1.09 and $0.64,
respectively. The fair value attributable to stock options granted after January
1, 2002 and exercised during 2005 of $46,051 has been allocated to share
capital.

The following table summarizes selected information relating tostock
options outstanding at December 31, 2005:

|Range of           |             | Weighted Average | Weighted Average  
|------------------ | ----------- | ---------------- | ------------------
|Exercise Prices    | Number      | Remaining        | Exercise Price    
|(Canadian Dollars) | Outstanding | Contractual Life | (Canadian Dollars)
|$0.83              | 360,000     | 0.4 years        | $0.83             
|$1.20 to $1.64     | 1,815,000   | 3.0 years        | $1.44             
|$2.07 to $2.44     | 380,000     | 3.0 years        | $2.35             
|                   |             |                  |                   
|$0.83 to $2.44     | 2,555,000   | 2.6 years        | $1.49             

d) Warrants

|Year Ended December 31,        | 2005        |   |             | 2004       |   |           | 2003        |   |          
|------------------------------ | ----------- | - | ----------- | ---------- | - | --------- | ----------- | - | ---------
|                               | Warrants    |   | Amount      | Warrants   |   | Amount    | Warrants    |   | Amount   
|                               |             |   |             |            |   |           |             |   |          
|Outstanding, beginning of year | 24,399,000  | $ | 7,373,839   | 24,753,500 | $ | 7,469,578 | 1,950,000   | $ | --       
|Warrants issued in public      |             |   |             |            |   |           |             |   |          
|offering                       | --          |   | --          | --         |   | --        | 19,350,000  |   | 5,889,285
|Warrants issued in private     |             |   |             |            |   |           |             |   |          
|placement                      | --          |   | --          | --         |   | --        | 5,555,000   |   | 1,621,198
|Exercise of warrants           | --          |   | --          | (354,500)  |   | (95,739)  | (151,500)   |   | (40,905) 
|Expiration of warrants         | (5,049,000) |   | (1,484,554) | --         |   | --        | (1,950,000) |   | --       
|                               |             |   |             |            |   |           |             |   |          
|Outstanding, end of year       | 19,350,000  | $ | 5,889,285   | 24,399,000 | $ | 7,373,839 | 24,753,500  | $ | 7,469,578

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. As of December 31, 2005, 19,350,000 warrants were outstanding.

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 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.
Warrants to purchase 1,000 shares were exercised in 2004. The remaining
5,049,000 warrants expired unexercised on March 11, 2005. The value attributable
to the expired warrants of $1,484,554 was

F-10

---



charged to contributed surplus. The Company also granted the
underwriters 505,000 compensation warrants. Each compensation warrant was
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, and the
remaining 353,500 compensation warrants were exercised in 2004.

e) Restricted Stock Units

In November 2005, the directors adopted a restricted stock
unit ("RSU") plan with an effective date of March 1, 2005. The plan provides for
the Compensation Committee of the Board of Directors to grant, at its sole
discretion, RSU's to employees pursuant to vesting and other conditions as
determined by the Compensation Committee; however, the vesting period may not
exceed three years from the award date and may be accelerated at the sole
discretion of the Compensation Committee. The settlement value of RSU's will be
made in cash and is calculated as the average closing price of the Company's
common shares on the Toronto Stock Exchange for the five trading days preceding
the date of settlement. As of December 31, 2005, the Company had awarded 120,000
RSU's with a vesting date of March 1, 2008. The fair value of outstanding RSU's
at December 31, 2005 was $59,144.

7. Income Taxes

The difference between the amount of reported consolidated
income tax provision and the amount computed by multiplying income (loss) before
income taxes by the Company's combined applicable Canadian federal and
provincial tax rate of 36.12% (36.12% in 2004 and 36.62% in 2003) is reconciled
as follows:

|Year Ended December 31,                                            |   | 2005        |   | 2004      |   | 2003     
|------------------------------------------------------------------ | - | ----------- | - | --------- | - | ---------
|Income tax provision (benefit) computed using                      |   |             |   |           |   |          
|the applicable tax
    rate                                        | $ | 2,928,277   | $ | 543,606   | $ | (630,337)
|Expenses not deductible for tax purposes                           |   | 1,153,729   |   | 96,542    |   | 419,837  
|Tax deductions not expensed                                        |   | (542,516)   |   | (600,387) |   | --       
|Net foreign earnings taxed at more (less)
    than applicable rate |   | (138,711)   |   | 14,229    |   | 58,210   
|Unrealized foreign exchange gain                                   |   | (377,632)   |   | (783,536) |   | (223,130)
|Foreign withholding tax on interest income                         |   | --          |   | 85,585    |   | --       
|Benefit of tax loss carryforwards recognized                       |   | (3,066,783) |   | --        |   | --       
|Benefit of current tax losses not recognized                       |   | 191,917     |   | 780,500   |   | 369,675  
|                                                                   |   |             |   |           |   |          
|Income tax provision (benefit)                                     | $ | 148,281     | $ | 136,539   | $ | (5,745)  

The tax effects of temporary differences that give rise to significant
portions of the future income tax assets and liabilities at December 31, 2005
and 2004 are as follows:

|                                                         |   | 2005        |   | 2004       
|-------------------------------------------------------- | - | ----------- | - | -----------
|Future income tax assets:                                |   |             |   |            
|Canada:                                                  |   |             |   |            
|Net operating loss carryforwards                         | $ | 352,000     | $ | 3,651,000  
|Deferred financing costs                                 |   | 829,000     |   | 1,169,000  
|Other                                                    |   | --          |   | 200,000    
|Mexico:                                                  |   |             |   |            
|Net operating loss carryforwards                         |   | 12,459,000  |   | 10,789,000 
|Other                                                    |   | 100,000     |   | 126,000    
|Other countries:                                         |   |             |   |            
|Net operating loss carryforwards                         |   | 352,000     |   | 220,000    
|Other                                                    |   | 9,000       |   | 10,000     
|Total future income tax assets                           |   | 14,101,000  |   | 16,165,000 
|Less valuation allowance                                 |   | (4,189,000) |   | (9,212,000)
|                                                         |   |             |   |            
|Future income tax assets, net of valuation
    allowance |   | 9,912,000   |   | 6,953,000  

F-11

---



|Future income tax liabilities:                               |   |           |   |          
|------------------------------------------------------------ | - | --------- | - | ---------
|Mexico:                                                      |   |           |   |          
|Mineral properties and deferred exploration
    expenditures |   | 9,900,000 |   | 6,948,000
|Other                                                        |   | 12,000    |   | 5,000    
|Total future income tax liabilities                          |   | 9,912,000 |   | 6,953,000
|                                                             |   |           |   |          
|Net future income tax assets                                 | $ | --        | $ | --       

At December 31, 2005, the Company and its subsidiaries have available tax
loss carryforwards in various tax jurisdictions as follows:

|                 |                   | Tax Loss     
|---------------- | ----------------- | -------------
|Tax Jurisdiction | Expiry Dates      | Carryforward 
|Mexico           | 2006              | $7.3 million 
|                 | 2007              | 4.0 million  
|                 | 2008              | 8.8 million  
|                 | 2009              | 6.8 million  
|                 | 2010              | 2.7 million  
|                 | 2011              | 1.2 million  
|                 | 2012              | 0.6 million  
|                 | 2013              | 2.1 million  
|                 | 2014              | 6.2 million  
|                 | 2015              | 4.8 million  
|Total            |                   | $44.5 million
|                 |                   |              
|Chile            | None              | $3.3 million 
|Canada           | 2007 through 2012 | $1.0 million 
|United States    | 2018 through 2020 | $0.9 million 
|Barbados         | 2006 through 2012 | $0.7 million 

8. Pension Plan

The Company has a qualified defined contribution savings plan
that covers all U.S. employees. Subject to certain employee eligibility
requirements and statutory limitations on employee elective deferrals, the
Company matches 50% of the employee's elective deferral up to a maximum matching
contribution of 5% of the employee's compensation, as defined under the plan.
The employee has the option of receiving the matching contribution in common
shares of the Company or in cash. Employees vest 100% in the employer matching
contribution after three years of service. The Company's matching contributions
were $22,053, $25,627, and $26,773 for the years ended December 31, 2005, 2004
and 2003, respectively.

9. Contingencies

a)The
Company's activities are subject to various governmental laws and regulations
relating to the protection of the environment. Although the Company believes
that it is currently in full compliance with its 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.

b) In August
2004, the Company received notification that a Federal Court nullified the
Company's Manifestacion de Impacto Ambiental ("MIA") for its Cerro San Pedro
project. The MIA is the Mexican equivalent of an Environmental Impact Statement
or mining permit in the United States. The Federal Court concluded that the MIA
had violated various environmental and other laws. In August 2005, an Appeals
Court revoked the August 2004 MIA nullification ruling and sent the case to an
Administrative and Fiscal Court for further review. In December 2005, the
Administrative and Fiscal Court ruled that the government agency that issued the
MIA must issue the Company an amended MIA within four months that conforms to
current environmental and other laws.

F-12

---



10. Commitments

a)The Company leases certain surface rights,
facilities and equipment under long-term operating lease agreements. As of
December 31, 2005, lease commitments for the next five years and thereafter are
as follows:

|2006       | $ | 86,263
|---------- | - | ------
|2007       | $ | 60,409
|2008       | $ | 52,846
|2009       | $ | 51,650
|2010       | $ | 51,650
|Thereafter | $ | 51,650

b) In September 2003, the Company entered into an
agreement with a Mexican governmental agency to provide approximately $360,000
for reforestation of land in the area surrounding the proposed Cerro San Pedro
mine that is not owned or leased by the Company. Although the timing of funding
of this commitment has not been finalized, it is anticipated that the $360,000
will be funded by the Company over a period of approximately twelve years.

c)The Company's Land Use License with the State
of San Luis Potosí requires that it structurally stabilize a church in the
village of Cerro de San Pedro prior to commencing mine operations. The Company
has deposited $237,000 in a bank trust account to cover the estimated cost of
stabilizing the church. The $237,000 deposit is included with other assets on
the balance sheet.

11. Supplementary Cash Flow Information

Cash and cash equivalents included in the cash flow statement comprise the
following balance sheet amounts at December 31, as follows:

|                                    |   | 2005       |   | 2004       |   | 2003      
|----------------------------------- | - | ---------- | - | ---------- | - | ----------
|Cash on hand and balances with bank | $ | 489,913    | $ | 639,841    | $ | 642,637   
|Short-term investments              |   | 42,179,917 |   | 40,977,203 |   | 65,467,419
|                                    |   |            |   |            |   |           
|                                    | $ | 42,669,830 | $ | 41,617,044 | $ | 66,110,056

The Company paid interest and income taxes for the three years ended December
31, as follows:

|             |   | 2005    |   | 2004    |   | 2003  
|------------ | - | ------- | - | ------- | - | ------
|Income taxes | $ | 139,970 | $ | 171,591 | $ | --    
|Interest     | $ | --      | $ | --      | $ | 25,929

In addition to the Company's acquisition of 50% of MSX as
described in Note 3(a), the Company incurred non-cash investing and financing
activities for the three years ended December 31, as follows:

|                                                                |   | 2005   |   | 2004    |   | 2003
|--------------------------------------------------------------- | - | ------ | - | ------- | - | ----
|Non-cash investing activities:                                  |   |        |   |         |   |     
|Stock-based compensation allocated to deferred
    expenditures | $ | 92,800 | $ | 552,400 | $ | --  

12. Segment Information

The Company's operations are limited to a single industry
segment being the exploration and development of precious metal rich mineral
properties for economically recoverable reserves. Segment assets by geographic
location are as follows:

F-13

---



|                                             |   |            |   |           |   | United  |   |           
|-------------------------------------------- | - | ---------- | - | --------- | - | ------- | - | ----------
|December 31, 2005                            |   | Mexico     |   | Chile     |   | States  |   | Total     
|Mineral properties and deferred expenditures | $ | 53,144,033 | $ | 1,904,455 | $ | 481,763 | $ | 55,530,251
|Property, plant and equipment, net           |   | 488,960    |   | --        |   | 14,625  |   | 503,585   
|                                             |   |            |   |           |   |         |   |           
|                                             | $ | 53,632,993 | $ | 1,904,455 | $ | 496,388 | $ | 56,033,836
|                                             |   |            |   |           |   |         |   |           
|                                             |   |            |   |           |   | United  |   |           
|December 31, 2004                            |   | Mexico     |   | Chile     |   | States  |   | Total     
|Mineral properties and deferred expenditures | $ | 45,215,225 | $ | 2,140,153 | $ | --      | $ | 47,355,378
|Property, plant and equipment, net           |   | 398,473    |   | --        |   | 17,991  |   | 416,464   
|                                             |   |            |   |           |   |         |   |           
|                                             | $ | 45,613,698 | $ | 2,140,153 | $ | 17,991  | $ | 47,771,842

13. Reconciliation to United States Generally Accepted Accounting Principles

The consolidated financial statements have been prepared in
accordance with Canadian GAAP which differs 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 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.

For United States GAAP purposes, the Company
  will adopt SFAS 123R, "Accounting for Stock-based Compensation" effective
  January 1, 2006. SFAS 123R requires the use of the fair value method of
  accounting for stock-based compensation. This standard is consistent with the
  revised provisions of CICA Section 3870, which was adopted by the Company for
  Canadian GAAP effective January 1, 2004 (Note 6(c)). For United States GAAP,
  the Company has not yet determined which acceptable method of adoption it will
  apply.

Had the Company followed United States GAAP, certain items in the statements
of operations and deficitand balance sheets would have been reported as
follows:

|Statements of Operations and Deficit                    |   |             |   |           |   |             
|------------------------------------------------------- | - | ----------- | - | --------- | - | ------------
|Year Ended December 31,                                 |   | 2005        |   | 2004      |   | 2003        
|Net income (loss) under Canadian GAAP                   | $ | 7,958,798   | $ | 1,368,462 | $ | (1,715,547) 
|Exploration expenditures expensed                       |   | (1,899,978) |   | (570,327) |   | (206,855)   
|Net effect of write-down of mineral
    properties and  |   |             |   |           |   |             
|deferred
    expenditures                               |   | 2,518       |   | 81,469    |   | 703,536     
|Income from property payments                           |   | 1,050,736   |   | --        |   | --          
|Stock based compensation expense                        |   | 341,110     |   | 74,834    |   | --          
|Net income (loss) under U.S. GAAP                       | $ | 7,453,184   | $ | 954,438   | $ | (1,218,866 )
|                                                        |   |             |   |           |   |             
|Basic net income (loss) per share under U.S.
    GAAP   | $ | 0.09        | $ | 0.01      | $ | (0.03 )     
|Diluted net income (loss) per share under
    U.S. GAAP | $ | 0.09        | $ | 0.01      | $ | (0.03 )     

F-14

---



|Balance Sheets                                                |   |               |   |              |               |             |           |           
|------------------------------------------------------------- | - | ------------- | - | ------------ | ------------- | ----------- | --------- | ----------
|December 31,                                                  |   | 2005          |   | 2004        
|                                                              |   | Canadian GAAP |   | U.S. GAAP    | Canadian GAAP |             | U.S. GAAP
|Mineral properties and deferred                               |   |               |   |              |               |             |           |           
|expenditures                                                  | $ | 55,530,251    | $ | 45,003,387   | $             | 47,355,378  | $         | 37,768,037
|                                                              |   |               |   |              |               |             |           |           
|Shareholders' equity                                          | $ | 98,193,714    | $ | 87,666,850   | $             | 89,350,898  | $         | 79,763,557
|                                                              |   |               |   |              |               |             |           |           
|Statements of Cash Flows                                      |   |               |   |              |               |             |           |           
|Year Ended December 31,                                       |   |               |   | 2005         |               | 2004        |           | 2003      
|Cash flows provided from (used
    for) operating activities, | $ | 7,120,459     | $ | (849,271)    | $             | (1,213,601)
|Canadian GAAP                                                 |   |               |   |              |               |            
|Mineral properties and deferred
    expenditures              |   | (849,242)     |   | (570,327)    |               | (206,855)  
|                                                              |   |               |   |              |               |             |           |           
|Cash flows provided from (used
    for) operating activities, | $ | 6,271,217     | $ | (1,419,598)  | $             | (1,420,456)
|U.S. GAAP                                                     |   |               |   |              |               |             |           |           
|                                                              |   |               |   |              |               |             |           |           
|Cash flows used for investing
    activities, Canadian GAAP   | $ | (7,542,769)   | $ | (20,143,804) | $             | (4,072,383)
|Mineral properties and deferred
    expenditures              |   | 849,242       |   | 570,327      |               | 206,855    
|                                                              |   |               |   |              |               |             |           |           
|Cash flows used for investing
    activities, U.S. GAAP       | $ | (6,693,527)   | $ | (19,573,477) | $             | (3,865,528)

Recent Canadian Accounting Pronouncements a) Non-monetary Transactions

CICA Handbook Section 3831, "Non-Monetary Transactions" will be applicable to
the Company commencing with the 2006 financial year.

b) Derivative Instruments

In January 2005, CICA issued three new standards relating to
financial instruments. These standards are applicable for fiscal years beginning
on or after October 1, 2006. The Company is currently reviewing the impact of
these new standards. These standards are as follows:

Financial Instruments  Recognition and Measurement, Section 3855

This standard prescribes when a financial asset, financial
liability, or non-financial derivative is to be recognized on the balance sheet
and whether fair value or cost-based measures are used. It also specifies how
financial instrument gains and losses are to be presented.

Hedges, Section 6865

This standard is applicable when a company chooses to
designate a hedging relationship for accounting purposes. It builds on the
existing Accounting Guideline AcG13, "Hedging Relationships", and Section 1650,
"Foreign Currency Translation", by specifying how hedge accounting is applied
and what disclosures are necessary when it is applied.

Comprehensive Income, Section 1530

This standard introduces new rules for the reporting and
display of comprehensive income. Comprehensive income, which is currently
reported under United States GAAP, is the change in shareholders' equity (net
assets) of an enterprise during a reporting period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. These items include holding gains and losses on certain
investments, gains and losses on certain derivative instruments and foreign
currency gains and losses related to self-sustaining foreign operations
(cumulative translation adjustment).

Recent U.S. Accounting Pronouncement

During June 2005, the FASB issued SFAS No. 154, "Accounting
for Changes in Accounting Principles and Error Corrections". The new standard
requires that entities which make a voluntary change in accounting principle
apply that change retroactively to prior period financial statements, unless
this would be impracticable. For changes in methods of depreciation,
amortization or depletion for long-lived assets, the change must be accounted
for prospectively, as a change in estimate. SFAS No. 154 is effective for the
Company's 2006 financial statements and is not expected to impact earnings.

F-15

---

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: March 31, 2006 | By:       /s/
    Richard J. Hall                        
|                     | Name:       
    Richard J. Hall                         
|                     | Title:         
    President and Chief Executive Officer
|                     |                                                          







80

---

Table of Exhibits

|    | Description of Document                                                                                                                                                                                 |  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|1.1 | 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 | Shareholder Rights Plan
    Agreement dated March 19, 1999                                                                                                                                              | *
|4.2 | Noranda Exploration Agreement
    dated September 14, 1999                                                                                                                                              | *
|4.3 | Noranda Exploration Agreement
    dated February 10, 2000                                                                                                                                               | *
|4.4 | 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 | *

|4.5  | 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     | *
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -
|4.6  | 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 project | *
|4.7  | 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 project                                               | *
|4.8  | Lease between Ejido Cerro de
    San Pedro and Minera San Xavier, S.A. de C.V.                                                                                                                                                                           | *
|4.9  | Mining Option to Purchase
    Contract between Sociedad Contractual Minera Los Potrillos and Metallica
    Resources Inc. dated September 2, 2004                                                                                                        | *
|4.10 | Sale and Purchase and
    Assignment of rights in Net Smelter Return Royalty and Contractual position
    between Noranda Chile Limitada and Metallica (Barbados) Inc. dated December
    15, 2004                                                       | *
|4.11 | Employment Agreement between
    Richard J. Hall and Metallica Resources Inc. and Metallica Management Inc.
    dated March 1, 2005                                                                                                                      | *
|4.12 | Employment Agreement between
    Bradley J. Blacketor and Metallica Resources Inc. and Metallica Management
    Inc. dated March 1, 2005                                                                                                                 | *
|4.13 | Consulting Agreement between
    Fred H. Lightner and Metallica Resources Inc. dated December 1, 2004                                                                                                                                                    | *



---



|     | Description of
    Document                                                                                                                     |  
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -
|     |                                                                                                                                                 |  
|4.14 | Services Agreement between
    Oliver Lennox-King and Metallica Resources Inc. dated June 11, 2004                                              | *
|4.15 | Professional Services Contract
    between Firex and Minera San Xavier, S.A. de C.V. dated October 25, 2004                                     |  
|4.16 | Amendment Agreement to the
    Professional Services Contract between Firex and Minera San Xavier, S.A. de
    C.V. dated April 15, 2005        |  
|4.17 | Standby Agreement between
    Washington Group Latin America, Inc. and Minera San Xavier, S.A. de C.V.
    dated March 29, 2005                 |  
|4.18 | First Amendment to Mining
    Contract between Washington Group Latin America, Inc. and Minera San Xavier,
    S.A. de C.V. dated April 5, 2005 |  
|4.19 | Consulting Agreement between
    Robert Martinez and Metallica Management Inc. dated May 1, 2005                                                |  

|4.20                | Option Agreement between Full
    Metal Minerals Ltd. and Metallica Management Inc. dated September 2, 2005                                              
|------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|4.21                | Limited Notice to Proceed
    between Washington Group Latin America, Inc. and Minera San Xavier, S.A. de
    C.V. dated November 15, 2005               
|4.22                | Consulting Agreement between
    Robert Martinez and Metallica Management Inc. dated February 1, 2006                                                    
|4.23                | Letter Agreement re: Standby
    Term between Washington Group Latin America and Minera San Xavier, S.A. de
    C.V. dated May 12, 2004                  
|4.24                | Professional
    Services Contract between Minera San Xavier, S.A. de C.V. and Caframi dated
    May 14, 2005.                                           
|8                   | Subsidiaries of the Company                                                                                                                              
|12.1                | Certification of Chief
    Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange
    Act of 1934, as amended                        
|12.2                | Certification of Chief
    Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange
    Act of 1934, as amended                        
|13.1                | 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 2002
|13.2                | 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.





---