##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F o
REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934þ
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to Commission file number 0-26854 METALLICA RESOURCES INC.  METALLICA RESOURCES INC.  Federally Incorporated in Canada
(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 exchangeClass
    
    on which registeredCOMMON SHARES WITHOUT PAR VALUE
    
    AMERICAN STOCK EXCHANGE
 Securities registered or to be registered pursuant to Section 12(g) of the Act. NONE
(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. NONE
(Title of Class) The number of outstanding shares of the issuers Common Shares, no par value, as of December 31,
2004 was 82,687,043. 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 þ
    
    No o
 Indicate by check mark which financial statement item the registrant has elected to follow: Item 17 þ
    
    Item 18 o
   1




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GLOSSARY advance royalty- The prepayment of a designated amount (the advance royalty) prior to actual mine
production. The advance royalty payments may be deductible from future production royalties. assay- an analysis to determine the presence, absence, and quantity of one or more metallic
components. assessment report- reports on work performed on a property during a prior period that is filed by
companies and prospectors to keep claims in good standing. bedding- means the layering of sediments preserved in sedimentary rocks. breccia- rock consisting of fragments, more or less angular, in a matrix of finer-grained material
or of cementing material. brecciation- the breaking up of rock by geological forces. buy-out- an option to the company to buy the prospectors interest in a property for a specified
sum of money or number of shares. Often a prospectors retained interest is subject to a sizeable
buy-out clause if the property goes into production. CIM Definitions on Mineral
Resources and Mineral Reserves  the CIM Standards on Mineral Resources
and Reserves Definitions and Guidelines adopted by CIM Councel 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 150 to 95 million years before
present. dacite- igneous rock which is fine grained or volcanic equivalent of granodiorite and quartz
diorite. diamond drill (or core hole)- a type of rotary drill in which the cutting is done by abrasion
rather than by percussion. The drill cuts a core of rock which is recovered in long cylindrical
sections. dore -A precious metals smelter product in bar or bullion form that is subsequently refined to
high purity gold and silver. 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 Mexican
Government, the grant is for a non-extendable six-year term. exploitation concession- a right granted by a governmental entity to exploit or develop a
prescribed area for a specified period. In the case of exploitation concessions granted by the
Mexican Government, the grant is for a fifty-year period, which can be extended for an additional
fifty years. 2




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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 mineral with a high aluminum and sodium or calcium content, common in igneous
and volcanic rocks. floating cone evaluation- A computer-aided means of designing an open pit mine based on a given
set of economic parameters which include metal price, metal recoveries, and operating costs. folds- when forces are applied gradually to rocks over a long period of time, the rocks fold
instead of breaking or faulting. g/t- grams per tonne heap-leaching- a process whereby gold is recovered from ore by heaping broken ore on sloping
impermeable pads, repeatedly spraying the heaps with a diluted cyanide solution which dissolves the
gold content in the ore, collecting the gold-laden solutions, and stripping the solution of gold. hectare- a square of 100 meters on each side, or 2.471 acres. igneous- means a rock formed by the cooling of molten material. Indicated Mineral Resource(1)- That part of a mineral resource for which quantity, grade or
quality, densities, shape and physical characteristics can be estimated with confidence sufficient
to allow the appropriate application of technical and economic parameters, to support mine planning
and evaluation of the economic viability of the deposit. The estimate is based on detailed and
reliable exploration and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for
geological and grade continuity to be reasonably assumed. Inferred Mineral Resource(1) - That part of a mineral resource for which quantity and grade or
quality can be estimated on the basis of geological evidence and limited sampling and reasonably
assumed, but not verified, geological and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes. Measured Mineral Resource(1)- That part of a mineral resource for which quantity, grade or
quality, densities, shape and physical characteristics are so well established that they can be
estimated with confidence sufficient to allow the appropriate application of technical and economic
parameters, to support production planning and evaluation of the economic viability of the deposit.
The estimate is based on detailed and reliable exploration, sampling and testing information
gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes that are spaced closely enough to confirm both geological and grade continuity. intrusion- general term for a body of igneous rock formed below the surface. leach- the dissolution of soluble constituents from a rock or orebody by the natural or artificial
action of percolating solutions. limestone- sedimentary rock that is composed mostly of mineral calcite. Limestones are commonly
grey, white, or off-white, and less commonly brownish, red or black. 3




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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 minable (or viable) ore body until
technical, economic and legal factors have been sufficiently satisfied to classify the mineralized
material as a reserve. monzonite and quartz monzonite- fairly common members of the granite family defined as having
certain proportions of quartz, orthoclase, and plagioclase. net profit interest- percent of profit earned after all costs to produce and market the commodity. net smelter return (NSR)- a return based on the actual sale price received less the cost of
refining at an off-site refinery. NSR- net smelter return. open pit- a surface working open to daylight, such as a quarry. open pit mining- the process of mining an ore body from the surface in progressively deeper steps.
Sufficient waste rock adjacent to the ore body is removed to maintain mining access and to
maintain the stability of the resulting pit. option agreement- an agreement with a company or another party who can exercise certain options
and increase their interest in a property by making periodic payments to the optionor or by
exploring, developing, or producing from the optionors property. ordinary kriging- A mathematical calculation procedure for estimating the metal content of certain
areas based on a data base of metal values and their location. ore- a natural aggregate of one or more minerals which, at a specified time and place, may be
mined and sold at a profit, or from which some part may be profitably separated. ounce (troy)- 31.103 grams. ounces- troy ounces; in this report production figures refer to gold having a fineness of at least
995 parts per 1,000 parts; other references to ounces in this report do not refer to a specific
fineness. outlier restricted kriging- A special type of kriging which limits the influence of higher data
base values. placer- a surficial mineral deposit (e.g., a gold deposit) formed by mechanical concentration of
mineral particles from weathered debris. porphyry- a common igneous rock type that contains relatively large crystals in a fine-grained
ground mass. 4




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probable ore- term used to describe ore where the mineralization has been extensively explored and
the size, shape, grade and tonnage are reasonably well known. probable mineral reserve(1)- The economically mineable part of an indicated and in some
circumstances a measured mineral resource demonstrated by at least a preliminary feasibility study.
This study must include adequate information on mining, processing, metallurgical, economic and
other relevant factors that demonstrate, at the time of reporting, that economic extraction can be
justified. proven/probable reserves(1)- reserves in which the difference in degree of assurance between
proven and probable cannot be reliably defined. proven mineral reserve(1)- The economically mineable part of a measured mineral resource
demonstrated by at least a preliminary feasibility study. This study must include adequate
information on mining, processing, metallurgical, economic and other relevant factors that
demonstrate, at the time of reporting, that economic extraction is justified. reclamation bond- usually required when mechanized work is contemplated. Used to reclaim any
workings or put right any damage, if the reclamation does not satisfy applicable regulatory
requirements. The amount of the bond is set largely on the basis of the amount of surface
disturbance proposed; the bond is returned, plus accumulated interest, if the clean-up is
satisfactory. reserve- the estimated quantity of ore that can be economically mined and legally extracted. reverse circulation drill- a rotary percussion drill in which the drilling mud and cuttings return
to the surface through the interior of the drill pipe. royalty interest- generally, a percentage interest that is tied to some production unit such as
tonne of concentrate or ounce of gold produced. A common form of royalty interest is based on the
net smelter return. run-of-mine- a mining method whereby ore is placed on the heap leach pads without being crushed. sample- small amount of material that is supposed to be typical or representative of the object
being sampled. sedimentary- a rock formed from cemented or compacted sediments. sediments- the debris resulting from the weathering and breakup of pre-existing rocks. shale- a sedimentary rock consisting of silt or clay-sized particles cemented together. stock- an intrusion which has an exposed surface area of less than 100 square kilometers (40
square miles). stockworks- a large number of cross-cutting veins and veinlets. strip ratio- the ratio of waste removed to ore processed. tons- dry short tons (2,000 pounds). Tonne- 1.102 tons (2,204 pounds). tuff- a finer grained pyroclastic rock made up mostly of ashes. variography study- A statistical evaluation of drill assay data to determine the variability of
assay results by their spatial relationships. 5




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vein- generally, a fissure in the earth containing a body of minerals.   (1) Please refer to Use of Mineral Reserve and Resource Terminology on page 9 of this document.
 6




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TABLE OF CONTENTS PAGEPART IITEM 1
    
    Identity of Directors, Senior Management and Advisors
    
    
    9ITEM 2
    
    Offer Statistics and Expected Timetable
    
    
    9ITEM 3
    
    Key Information
    
    
    9ITEM 4
    
    Information on the Company
    
    
    15ITEM 5
    
    Operating and Financial Review and Prospects
    
    
    49ITEM 6
    
    Directors, Senior Management and Employees
    
    
    61ITEM 7
    
    Major Shareholders and Related Party Transactions
    
    
    67ITEM 8
    
    Financial Information
    
    
    68ITEM 9
    
    The Offer and Listing
    
    
    69ITEM 10
    
    Additional Information
    
    
    70ITEM 11
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    81ITEM 12
    
    Description of Securities Other than Equity Securities
    
    
    82PART IIITEM 13
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    82ITEM 14
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    82ITEM 15
    
    Controls and Procedures
    
    
    82ITEM 16A
    
    Audit Committee Financial Expert
    
    
    82ITEM 16B
    
    Code of Ethics
    
    
    83ITEM 16C
    
    Principal Accountant Fees and Services
    
    
    83ITEM 16D
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    84ITEM 16E
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    84PART IIIITEM 17
    
    Financial Statements
    
    
    85ITEM 18
    
    Financial Statements
    
    
    85ITEM 19
    
    Exhibits
    
    
    85Consolidated Financial Statements
    
    
    F-1Signatures
    
    
    88Mining Option to Purchase ContractSale and Purchase and Assignment of RightsEmployment Agreement - Richard J. HallEmployment Agreement - Bradley J. BlacketorConsulting Agreement between Fred H. Lightner and Metallica Resources Inc.Services AgreementSubsidiariesCertification of CEO Pursuant to Rule 13a-14(a)Certification of CFO Pursuant to Rule 13a-14(a)Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  7




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




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##### Table of Contents



are cautioned not to assume that any part or all of an inferred resource exists or is economically
or legally minable. 
 ITEM 1
    
    Identity of Directors, Senior Management and Advisors
 This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this Item. 
 ITEM 2
    
    Offer Statistics and Expected Timetable
 This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this Item. 
 ITEM 3
    
    Key Information
 A) Selected Financial Data The following financial information has been extracted from the Companys consolidated financial
statements for the periods indicated and is expressed in U.S. dollars. The information should be
read in conjunction with Item 5. Operating and Financial Review and Prospects  A. Results of
Operations and   B. Liquidity and Capital Resources, and the consolidated financial statements
of the Company filed herewith. Year Ended December 31,(in thousands, except per share data)2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Working capital
    
    $
    41,751
    
    
    $
    59,738
    
    
    $
    4,403
    
    
    $
    2,318
    
    
    $
    2,125Mineral properties and deferred
exploration
    
    
    47,355
    
    
    
    26,574
    
    
    
    12,587
    
    
    
    11,787
    
    
    
    14,551Fixed assets, net
    
    
    416
    
    
    
    235
    
    
    
    92
    
    
    
    93
    
    
    
    199Total assets
    
    
    90,293
    
    
    
    93,354
    
    
    
    17,491
    
    
    
    14,769
    
    
    
    17,475Net assets
    
    
    89,351
    
    
    
    86,566
    
    
    
    17,088
    
    
    
    14,304
    
    
    
    16,911Share capital
    
    
    107,662
    
    
    
    106,786
    
    
    
    43,068
    
    
    
    38,964
    
    
    
    37,745Warrants
    
    
    7,374
    
    
    
    7,470
    
    
    
    
    
    
    
    
    
    
    
    Stock Options
    
    
    1,043
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Deficit
    
    
    (26,728
    )
    
    
    (27,696
    )
    
    
    (25,980
    )
    
    
    (24,660
    )
    
    
    (20,834
    )Interest income
    
    
    925
    
    
    
    158
    
    
    
    65
    
    
    
    70
    
    
    
    153Income from option payments
    
    
    300
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    1,469
    
    
    
    1,252
    
    
    
    924
    
    
    
    743
    
    
    
    722Exploration expense
    
    
    193
    
    
    
    212
    
    
    
    247
    
    
    
    199
    
    
    
    214Stock-based compensation expense
    
    
    83
    
    
    
    7
    
    
    
    0
    
    
    
    0
    
    
    
    0Reclamation & property closure costs
    
    
    22
    
    
    
    17
    
    
    
    199
    
    
    
    51
    
    
    
    Write-down of mineral properties and
deferred exploration expenditures
    
    
    81
    
    
    
    704
    
    
    
    21
    
    
    
    2,892
    
    
    
    6,670Interest expense
    
    
    40
    
    
    
    447
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange (gain) loss
    
    
    (2,169
    )
    
    
    (610
    )
    
    
    3
    
    
    
    1
    
    
    
    Net income (loss) for the year
    
    
    1,368
    
    
    
    (1,716
    )
    
    
    (1,320
    )
    
    
    (3,826
    )
    
    
    (7,599
    )Basic income (loss) per share
    
    
    0.02
    
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (0.14
    )
    
    
    (0.28
    )Diluted income (loss) per share
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (0.14
    )
    
    
    (0.28
    )Dividends per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average number of
shares outstanding
    
    
    82,405
    
    
    
    42,865

    
    
    
    31,295
    
    
    
    27,291
    
    
    
    27,016
 9




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The consolidated financial statements have been prepared in accordance with Canadian generally
accepted accounting principles (GAAP), which differ in certain respects from those principles
that the Company would have followed had its consolidated financial statements been prepared in
accordance with United States GAAP. For information about significant differences between Canadian
and United States GAAP as applicable to the Companys financial statements, see Note 13 to the
consolidated financial statements.  .
    Canadian GAAP allows for the deferral of exploration expenditures. For United States
GAAP, the Company expenses, as incurred, costs relating to unproven mineral properties.
When proven and probable reserves are determined for a property and a feasibility study
has been prepared, then subsequent exploration and development costs of the property would
be capitalized. The capitalized costs of such properties would then be measured
periodically for recoverability of carrying values under Statement of Financial Accounting
Standard (SFAS) 144..
    Canadian GAAP provides for investments in jointly controlled entities to be accounted
for using proportionate consolidation. Under United States GAAP, investments in
incorporated joint ventures are to be accounted for using the equity method. Under an
accommodation of the United States Securities and Exchange Commission, the accounting for
joint ventures need not be reconciled from Canadian to United States GAAP. The different
accounting treatment affects only the display and classification of financial statement
items and not net income or shareholders equity. MSX became a wholly owned subsidiary of
the Company on February 12, 2003..
    For United States GAAP purposes, the Company will adopt SFAS 123, Accounting for Stock
Based Compensation effective January 1, 2006. SFAS 123 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 7(c)). For United States GAAP, the Company has not
yet determined which acceptable method of adoption of SFAS 148, which amends SFAS 123,
that it will apply. 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)2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Mineral properties and deferred
exploration expenditures
    
    $
    37,768
    
    
    $
    18,028
    
    
    $
    3,689
    
    
    $
    3,476
    
    
    $
    4,589Shareholders equity
    
    $
    79,763
    
    
    
    78,020
    
    
    
    8,190
    
    
    
    5,849
    
    
    
    6,804Write-down of mineral
properties and deferred
exploration expenditures
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    927
    
    
    
    12,071Exploration expense
    
    
    763
    
    
    

    426
    
    
    
    848
    
    
    
    564
    
    
    
    335Net income (loss) for the year
    
    
    954
    
    
    
    (1,219
    )
    
    
    (1,908
    )
    
    
    (2,175
    )
    
    
    (13,121
    )Basic net income (loss) per share
    
    
    0.01
    
    (
    $
    0.03
    )
    (
    $

    0.06
    )
    (
    $
    0.08
    )
    (
    $
    0.49
    )Diluted net income (loss) per
share
    
    
    0.01
    
    (
    $
    0.03
    )
    (
    $
    0.06
    )
    (
    $
    0.08
    )
    (
    $
    0.49
    )
 10




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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
    
    
    September2005
    
    
    2005
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004High Rate
    
    
    .8134
    
    
    
    .8346
    
    
    
    .8435
    
    
    
    .8493
    
    
    
    .8201
    
    
    
    .7906Low Rate
    
    
    .7961
    
    
    
    .8050
    
    
    
    .8064
    
    
    
    .8155
    
    
    
    .7858
    
    
    
    .7651
 2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Average Rate During Period
    
    
    .7702
    
    
    
    .7452
    
    
    
    .6369
    
    
    
    .6462
    
    
    
    .6732
 On March 14, 2005 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$0.8273 =
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 Item. C) Reasons for the Offer and Use of Proceeds This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this Item. D) Risk Factors The discovery, development and acquisition of mineral properties are in many instances
unpredictable events and involve numerous risks. A summary of significant risks is presented
below: No Current Production of Mining Properties; Possible Inability to Obtain Additional Funding.
Exploration for minerals is a speculative business 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 ore body and to place it into commercial production.
There is no assurance that the Company will be successful in obtaining the required financing.
Failure to obtain such financing would result in the delay or indefinite postponement of
exploration and future development work on the Companys properties, as well as the possible loss
of the properties. The Company has no history of producing gold, silver or other metals. The development of the Cerro
San Pedro project in Mexico will require the construction and operation of a mine, processing plant
and related infrastructure. As a result, the Company is subject to all of the risks associated with
establishing a new mining operation and business enterprise. The Company commenced construction of
its Cerro San Pedro project 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
Item 4. Information on the Company  D, Property, Plant and Equipment  Cerro San Pedro Project.
There can be no assurance that the Company will successfully establish mining operations or
profitably produce gold and silver at the Cerro San Pedro project. 11




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Although the Company believes that it currently has sufficient cash balances to complete
construction of its Cerro San Pedro project and to cover projected cash flow deficiencies during
the initial months of project operations, the Company may incur construction and other cost
overruns during mine development. There can be no assurance that the Company will have enough
funds to cover these costs or that the Company would be able to obtain alternative sources of
financing to cover these costs. Mine Development.Feasibility studies are used to determine the economic viability of a deposit.
Many factors are involved in the determination of the economic viability of a deposit, including
the achievement of satisfactory mineral reserve estimates, the level of estimated metallurgical
recoveries, capital and operating cost estimates and the estimate of future gold prices. Capital
and operating cost estimates are based upon many factors, including anticipated tonnage and grades
of ore to be mined and processed, the configuration of the ore body, ground and mining conditions,
expected recovery rates of the gold from the ore and anticipated environmental and regulatory
compliance costs. Each of these factors involves uncertainties and as a result, the Company cannot
give any assurance that its development or exploration projects will become operating mines. If a
mine is developed, actual operating results may differ from those anticipated in a feasibility
study. Mineral Reserves and Resources Estimates.The definitions of proven and probable mineral reserves,
and measured, indicated and inferred mineral resources are set forth in National Instrument 43-101,
Standards of Disclosure for Mineral Projects of the Canadian securities regulators which contains
the parameters of disclosure for issuers engaged in significant mining operations. A reader in the
United States should be aware that the definition standards 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 writedowns in the Companys investment in the affected mining
properties and increased amortization, reclamation and closure charges. Regulation.Mining operations and exploration activities are subject to various federal, state,
provincial and local laws and regulations governing prospecting, development, mining, production,
importing and exporting of minerals; taxes; labor standards; occupational health; waste disposal;
protection of the environment; mine safety; toxic substances; and other matters. In many cases,
licenses and permits are required to conduct mining operations and are subject to periodic renewal.
There is no assurance that such permits will be granted or that they will be renewed in a timely
manner. Furthermore, once a permit is granted, compliance with the permit 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
and Chile. Environmental legislation is evolving in a manner which will require stricter standards
and enforcement, increased fines and penalties for non-compliance, more stringent environmental
assessments of proposed properties and a heightened degree of responsibility for companies and
their officers, directors and employees. Amendments to such legislation, as well as other laws and
regulations governing operations and activities of mining companies or more 12




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stringent implementation thereof could have a material adverse impact on the Companys operations.
The Company believes that it is substantially in compliance with all applicable laws and
regulations affecting its activities and operations. Under certain circumstances, the Company may
be required to close an operation until a particular problem is remedied or to undertake other
remedial actions. The 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 renewals of the blasting operations permit and annual renewals
thereafter, annual renewal of titles to water rights and receipt of an environmental license that
is issued at commencement of operations. Although the Company 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. Operational and Environmental Risks; Reclamation Obligations.Mining operations generally involve
a high degree of risk. Hazards such as environmental exposures, industrial accidents, labor
disruptions and unusual or unexpected geological formations and other conditions may be
encountered. Such risks could result in damage to or destruction of mineral properties or
producing facilities, personal injury, environmental damage, delays in mining, monetary losses and
possible legal liability. The Company may become subject to liability for environmental pollution,
cave-ins or hazards against which it cannot insure or against which it may elect not to insure
because of high premium costs or other reasons. The payment of such liabilities may have a
material adverse effect on the Companys financial position. The Company does not currently carry
any liability insurance relating to these types of risks. Reclamation requirements vary depending on the location and the managing regulatory agency, but
they are similar in that they aim to minimize long-term effects of exploration and mining
disturbance by requiring the operating company to control possible deleterious effluents and to
re-establish to some degree predisturbance landforms and vegetation. Legal proceedings.The Company is directly and indirectly involved in various lawsuits that relate
to its Cerro San Pedro project in Mexico. These include the Companys appeal of a judgment
nullifying its lease agreement for access to surface rights at the proposed mine site, and the
appeal of a judgment against a Mexican federal agency nullifying the project environmental permit. In the event of an adverse outcome from these lawsuits, the Companys ability to complete
construction and operate this mine could be impaired. The Company is a party to various other
litigation or other adversary proceedings in Mexico. The cost of defending such claims may take
away from management time and effort and if determined adversely to the Company, may have a
material and adverse effect on its cash flows, results of operations and financial condition. Refer
to Item 8. Consolidated Financial Statements and Other Financial Information  Legal Proceedings
and Item 4. D  Property, Plant and Equipment for details of current actions pending. Market Factors and Volatility.The marketability of mineralized material which may be acquired or
discovered by the Company will be affected by numerous factors beyond the control of the Company.
These factors include market fluctuations in the prices of minerals sought, which are highly
volatile, the proximity and capacity of natural resource markets and processing equipment, and
government regulations, including regulations relating to prices, taxes, royalties, land tenure,
land use, importing and exporting of minerals and environmental protection. The effect of these
factors cannot be accurately predicted, but may result in the Company not receiving an adequate
return on invested capital. Prices of certain minerals have fluctuated widely, particularly in
recent years, and are affected by numerous factors 13




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beyond the control of the Company. Future mineral prices cannot be accurately predicted. A severe
decline in the price of a mineral being produced or expected to be produced by the Company would
have a material adverse effect on the Company, and could result in the suspension of mining
operations by the Company. Title to Properties.While the Company has verified title to its properties, these procedures do
not guarantee the Companys title. Such properties may be subject to prior unregistered agreements
or transfers, and title may be affected by undetected defects which could be material and adverse
to the Company. An Agrarian Court in Mexico has nullified a lease agreement for surface rights at
its Cerro San Pedro project in Mexico. Refer to Item 8. Consolidated Statements and Other
Financial Information  Legal Proceedings for details of current actions pending. International Business Risks.The Companys current exploration activities are focused in Mexico
and Chile. As with all types of international business operations, currency fluctuations, exchange
controls, restrictions on foreign investment, changes to tax regimes, civil unrest or political
action could impair the value of the Companys investments. 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. The Cerro San Pedro project is located in Mexico and the Companys other property interests are
located in Chile. The Companys mineral exploration and development and mining activities may be
affected in varying degrees by political stability and governmental regulations relating to the
mining industry. Any changes in regulations or shifts in political attitudes in Mexico or the
other countries where the Companys properties are located are beyond the control of the Company
and may adversely affect its business. Operations may be affected in varying degrees by government
regulations with respect to, among other things, the restrictions on production, price controls,
export controls, income and withholding taxes, expropriation of property, environmental
legislation, land use, water use and mine safety. A deterioration in economic conditions or other
factors could result in a change in government policies. Moreover, if social unrest develops in
the future, this could have a material adverse effect on the Companys activities. Competition. Significant and increasing competition exists for the limited number of mineral
acquisition opportunities available in North and South America. As a result of this competition,
some of which is with large 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. 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 of 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 to
various companies in the mining industry. Oliver 14




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Lennox-King, a director of the Company, is Chairman of Fronteer Development Group., a minerals
exploration company, and is a director of various other companies in the mining industry. Such
associations may in the future give rise to conflicts of interest from time to time. The Company
has adopted a Code of Ethics that addresses potential conflicts of interest. 
 ITEM 4       Information on the Company A) History and Development of the Company Metallica Resources Inc. (Metallica or the Company) is a minerals exploration company with core
areas of activity in Mexico 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s-length 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 $36.4 million (Cerro San Pedro, Mexico -
$34.6 million; El Morro, Chile  $0.7 million; and other projects in Chile  $1.1 million). The
majority of capital expenditures made over the past three fiscal years on the Companys El Morro
project have been incurred by the Companys joint venture partner, Noranda Inc. (Noranda),
pursuant to earn-in requirements. In addition, the majority of capital expenditures made in 2002
on the Cerro San Pedro project were made by the Companys former joint venture partner, Glamis,
pursuant to earn-in requirements. The Company has funded 100% of project development costs on the
Cerro San Pedro project since its acquisition of Glamis 50% interest in the project on February
12, 2003. For further information about this acquisition, please see  D. Property, Plant and
Equipment  The Cerro San Pedro Project, Mexico. Current and Planned Capital Expenditures/Divestitures Pursuant to an exploration agreement, Noranda is obligated to fund all exploration costs on the El
Morro project through September 14, 2005 until it either makes a $10 million payment to the
Company, which is due on or before September 14, 2005, or terminates its option to earn a 70%
interest in the project. For further information about this exploration agreement, please see  
D. Property, Plant and Equipment  The El Morro Project, Chile. If and when Noranda makes the
$10 million payment to the Company, the Company will be required to fund its 30% share of future
exploration costs on the El Morro project. In the 15




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event that Noranda elects to terminate its option to earn a 70% interest in the El Morro project,
the Company will be required to fund all subsequent project exploration costs. The Company does
not anticipate that it will incur over $1 million in exploration expenditures on the El Morro
project in 2005. Noranda has informed the Company that it commenced work on a planned 8,000 meter
drilling program at the El Morro project in January 2005. On February 12, 2003, the Company acquired Glamis 50% interest in the Cerro San Pedro project. As
a result, the Company owns 100% of the Cerro San Pedro project and is responsible for 100% of
project development costs. The current project feasibility study estimates an initial capital
requirement of $28.2 million plus $3 million for working capital. Project construction began in
February 2004 and was suspended in June 2004 pending resolution of various permitting and other
issues involving the project. Expenditures on the project for 2005 are estimated to be between $3
million and $29 million, depending upon when, and if, construction recommences. The Company currently estimates that 2005 expenditures on its Rio Figueroa project in Chile and its
other exploration projects will be approximately $1.0 to $1.5 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. 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, 2004, the Company had working capital of $41.8 million and no long-term debt.
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 planned exploration and development activities also depends in part on its ability
to complete construction, commence operations and generate free cash flow from its Cerro San Pedro
mine. As of March 14, 2005, construction activities at the Cerro San Pedro project remain
suspended. 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, production sharing arrangements or other means. There can be no assurance that the
Company will be able to obtain necessary financing in a timely manner on acceptable terms, if at
all. In November 2003, the Company entered into an option agreement to sell its 100% interest in its
Mara Rosa project for $450,000. The Company received option payments totaling $150,000 in 2003 and
$300,000 in 2004. Public Takeover Offers During the current and previous fiscal year, the Company has not received any public takeover
offers from third parties nor has the Company made any such takeover offers. B) Business Overview The Company, through its subsidiaries, is presently engaged in the business of exploring for
precious and base metals in North and South America, principally Mexico and Chile. Through its
subsidiaries, the Company has held interests in mineral exploration projects in Mexico, Chile and
Brazil during the past three years. The Companys mineral development and exploration activities
are currently focused on the Cerro San Pedro gold/silver project in Mexico, the El Morro
copper/gold project in Chile, the Rio Figueroa copper/gold project in Chile and other preliminary stage
copper/gold projects in Chile. See   D. Property, Plant and Equipment for further information
about these projects. 16




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The Company is focused on acquiring quality projects that have generally undergone at least one
stage of exploration, and therefore would be able to be rapidly evaluated by the Company. If
acquired, these properties effectively would serve as anchor projects from which the Company
could expand into new mineral districts either through acquisition or early-stage project
generation. The Companys business strategy is to acquire, explore and evaluate mineral properties and either
develop these properties or dispose of them when the evaluation is completed. Potential prospects
are examined by the Company and/or by independent consultants. In most instances in which a
decision is made to acquire a property, preliminary exploration activities are conducted directly
by the Company and/or by persons specifically engaged for a particular activity. Subcontractors,
under the supervision of the Companys management, or the Companys joint venture partners, are
usually engaged to carry out the more specialized aspects of the Companys exploration program such
as drilling. The Company does not have any properties in production and has never generated any revenue from the
sale of metals. There is no assurance that any of the Companys projects will ever achieve the
production stage or generate any metal revenues. A discussion of government regulation in Mexico relating to the Companys most advanced stage
project, the Cerro San Pedro project, is presented below: Concessions in Mexico. In accordance with the Mexican constitution, the subsoil and minerals found
therein are the inalienable property of the nation. All mining activity requires a concession from
the federal government. A new mining law liberalizing the mining industry was enacted and became
effective on September 25, 1992. The most important changes in this law are 1) exploration
concessions will be granted for a nonextendable six-year period; 2) exploitation concessions have a
50-year term and are renewable for another 50-year term with 5 years prior notice; 3) concessions
will not be granted within areas that have been incorporated into the National Mining Reserves; and
4) regulations under the former law will remain in effect if they do not conflict with the
provisions of the new law and until new regulations are issued. Environmental Regulation in Mexico. The current environmental issues Mexico faces include the
scarcity of natural fresh water resources; water pollution; raw sewage and industrial effluents
polluting rivers in urban areas; deforestation; widespread erosion; desertification; and air
pollution. The protection of the environment is currently a priority for the government of Mexico. Although
several environmental protection laws and regulations had been issued since 1946, it was not until
enactment of the General Law on Ecological Equilibrium and Protection of the Environment in 1992
that important steps were taken in this regard. The Ministry of Social Development and the
Ministry of Agriculture and Water Resources are mainly responsible for the protection and
preservation of the environment in Mexico. A number of permits and authorizations with regard to
environmental protection are required for mining and exploration-related activities. The Ministry
of Social Developments authorization is required for all major exploration activities. Permits
required for mining and plant operation include the following: annual municipal construction and
operating license, annual blasting permit, road crossing permit, environmental license due at
commencement of operations, radio frequency permit, septic tank permit, water rights usage permit,
power line permit and a hazardous materials handling permit. In addition, there are regulations
concerning noise, gas and dust emission, dumps, oil and fuel storage, and electrical transformers.
Please see  D. Property, Plant and Equipment  The Cerro San Pedro Project, Mexico 
Environmental for information about environmental permitting in Mexico. The Companys El Morro copper/gold project, and Rio Figueroa copper/gold project and other
preliminary stage exploration projects are located in Chile. Information about governmental
regulation, including environmental regulation, in Chile is included in  D. Property, Plant and
Equipment  The El Morro Project, Chile  Mineral Property Summary and   Environmental
Permitting. 17




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C) Organizational Structure The following chart illustrates the inter-corporate relationships among the Company and its
subsidiaries. (ORGANISATION CHART) D) Property, Plant and Equipment Mineral Reserves and Resources The Company is federally incorporated in Canada. The mineral reserves and resources described in
this Form 20-F are estimates and have been prepared in compliance with National Instrument 43-101
of the Canadian Securities Administrators. The definitions of proven and probable reserves used in
National Instrument 43-101 differ from the definitions in SEC Industry Guide 7. In addition, the
terms mineral resource, measured mineral resource, indicated mineral resource and inferred
mineral resource are defined in and required to be disclosed by National Instrument 43-101;
however, these terms are not defined terms under SEC Industry Guide 7 and normally are not
permitted to be used in reports and registration statements filed with the SEC. Accordingly,
information contained in this Form 20-F containing descriptions of the Companys mineral deposits
may not be comparable to similar information made public by U.S. companies subject to the reporting
and disclosure requirements under the United States federal securities laws and the rules and
regulations thereunder. The Cerro San Pedro Project, Mexico Project Location The Companys most advanced stage project is the Cerro San Pedro gold and silver project, located
approximately 20 km (12 miles) east-northeast of the city of San Luis Potosi. The city of San Luis
Potosi is located within the state of San Luis Potosi, Mexico. The Cerro San Pedro project is
owned by the 18




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Companys indirect wholly owned subsidiary, Minera San Xavier, S.A. de C.V. (MSX). See Figure 1
for the project location map. (LOCATION MAP) 19




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




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The WLR technical report included a proven and probable reserve estimate of 61.1 million tonnes
grading 0.59 g/t gold and 24.0 g/t silver, with an overall waste to ore ratio of 1.21:1. The
reserve estimate was prepared by William L. Rose of WLR and was calculated using a gold price of
$325/ounce and a silver price of $4.62/ounce. Mr. Rose is a Qualified Person, as that term is
defined in Canada National Instrument 43-101. The WLR technical report is discussed in further
detail below. On February 12, 2003, the Company purchased Glamis 50% interest in the Cerro San Pedro project for
$18 million plus a sliding scale net smelter returns royalty when monthly average gold prices equal
or exceed $325/ounce. The payment terms are as follows:  $2.0 million paid at closing.  50% of MSX working capital deficit totaling $58,000 paid to the Company.  $5.0 million due on or before August 12, 2003 (paid on August 12, 2003).  $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 Royalties are due and payable based on the following monthly average gold prices:  Below $325/ounce
    
    
    0.0
    % $325 to $350/ounce
    
    
    0.5
    % $350 to $375/ounce
    
    
    1.0
    % $375 to $400/ounce
    
    
    1.5
    % Over $400/ounce
    
    
    2.0
    %
 On March 24, 2004, the Company acquired from Glamis the aforementioned sliding scale net
smelter returns royalty for $2.25 million, and agreed to prepay the remaining $5.0 million of
contingent production payments owed to Glamis pursuant to the February 12, 2003 purchase agreement.
The Company has completed all of its payment obligations to Glamis resulting from its acquisition
of Glamis 50% interest in MSX in February 2003. In September 2003, Washington Group International released a mine development plan for the Cerro
San Pedro project. The Washington Group mine development plan was reformatted to comply with
Canadian Securities Administrators National Instrument 43-101, Standards of Disclosure for Mineral
Projects, and released by Washington Group as a Technical Report in December 2003. Collectively,
the mine development plan and the Technical Report are referred to in this document as the
Development Plan. The engineering, procurement and construction management cost estimates for
the Development Plan were prepared by The Industrial Company (TIC) of Steamboat Springs,
Colorado, and represent an update to Glamis November 2000 ROM feasibility study. Washington Group
International of Boise, Idaho provided the Development Plan estimates for contract mining and
earthworks associated with construction of the mine. The Development Plan capital cost estimate to
develop the mine is $28.2 million, plus $3 million for working capital. The Development Plan is
discussed in further detail below. In December 2003, MSX entered into a contract with a subsidiary of Washington Group International
to provide site development and contract mining services for the Cerro San Pedro project. The
estimated value of the contract, over the pre-production period and estimated mine life of
approximately 10 years, is approximately $105 million. The contract provides that MSX may
terminate the contract at any time prior to the end of the ten-year term; however, MSX will be
obligated to pay the following early termination and demobilization fees to Washington Group as
follows: 21




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##### Table of Contents



DemobilizationandTerminationTermination Period
    
    FeesPre-production
    
    $
    11,560,000Year 1
    
    $
    10,160,000Year 2
    
    $
    7,460,000Year 3
    
    $
    4,760,000Year 4
    
    $
    2,960,000Year 5
    
    $
    2,360,000Year 6
    
    $
    2,060,000Year 7
    
    $
    1,660,000Year 8
    
    $
    1,360,000Year 9
    
    
    
 Project construction began in February 2004 and was expected to take approximately nine months to
complete at a total cost of approximately $28.2 million, plus $3.0 million for project working
capital. 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 in
October 2004, the Company received the annual project explosives permit. The project explosives
permit, as with all mine explosives permits in Mexico, expired on December 31, 2004. The Company
has applied for and is awaiting receipt of the explosives permit for 2005. There are no assurances
that the Company will be issued an explosives permit for 2005, or that future renewals will not be
delayed or denied. In April 2004, a San Luis Potosí, Mexico, 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.
The Company appealed the Agrarian Court decision and in November 2004, a Federal Court ruled that
the group opposing the Project did not have the legal right to contest the lease and ordered the
Agrarian Court to issue a new decision. In December 2004, 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, has appealed this latest decision. The
Company continues to have surface rights access pending resolution of the appeals; however, there
are no assurances that the Companys efforts to overturn the ruling will be successful, or that the
Company will be successful in its other efforts to secure surface rights access. In August 2004, the Company received notification that a Mexican Federal Court rendered a judgment
in favor of a group opposing the Project who were seeking nullification of the Companys
Manifestacion de Impacto Ambiental (MIA). The MIA is the Mexican equivalent of an Environmental
Impact Statement in the United States. The legal action brought by the contesting group claimed
that the federal agency that granted the MIA violated various environmental and other laws. The
federal agency that issued the environmental permit to the Company has appealed the decision.
Although the permit is presently valid pending resolution of the appeal, there are no assurances
that the federal agencys or the Companys efforts to overturn the ruling will be successful. In
the event that these efforts are unsuccessful, the Company can appeal the decision, attempt to
re-permit the project, or pursue other options that may be available to the Company. Mineral Property Summary The mineral rights at the Cerro San Pedro project consist of 47 mineral concessions, covering an
area of 2,965 hectares or 7,326 acres. The details of the mineral concessions and related
groupings comprising the Cerro San Pedro project are as follows in Table A: 22




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##### Table of Contents



TABLE A
CERRO SAN PEDRO MINERAL PROPERTY SUMMARY Cerro San Pedro Mineral ConcessionsConcession
    
    
    TitleGroup
    
    
    Concession Name
    
    
    Type
    
    
    Number
    
    
    
    HectaresLa Princesa: 100% Minera San Xavier1
    
    
    La Princesa
    
    
    Exploitation
    
    
    
    180298
    
    
    
    
    5.59162
    
    
    La Princesa Poniente
    
    
    Exploitation
    
    
    
    180366
    
    
    
    
    0.00763
    
    
    Begonia
    
    
    Exploitation
    
    
    
    181179
    
    
    
    
    10.00004
    
    
    Santa Ana
    
    
    Exploitation
    
    
    
    180598
    
    
    
    
    8.00005
    
    
    Santa Ana Sur
    
    
    Exploitation
    
    
    
    180597
    
    
    
    
    1.50766
    
    
    Los Blancos
    
    
    Exploitation
    
    
    
    181180
    
    
    
    
    9.03947
    
    
    Gogorron
    
    
    Exploitation
    
    
    
    180300
    
    
    
    
    9.62508
    
    
    San Nicolás
    
    
    Exploitation
    
    
    
    180608
    
    
    
    
    6.97889
    
    
    San Nicolás Sur
    
    
    Exploitation
    
    
    
    180610
    
    
    
    
    1.489610
    
    
    San Nicolás Suroeste
    
    
    Exploitation
    
    
    
    180609
    
    
    
    
    0.192311
    
    
    Los Riscos
    
    
    Exploitation
    
    
    
    182282
    
    
    
    
    4.347412
    
    
    La Concepción
    
    
    Exploitation
    
    
    
    182281
    
    
    
    
    4.000013
    
    
    Cristina 2
    
    
    Exploitation
    
    
    
    180938
    
    
    
    
    0.553714
    
    
    Cristina
    
    
    Exploitation
    
    
    
    186321
    
    
    
    
    93.622815
    
    
    Gama
    
    
    Exploitation
    
    
    
    179256
    
    
    
    
    41.639116
    
    
    La Canoa
    
    
    Exploitation
    
    
    
    186370
    
    
    
    
    3.479917
    
    
    La Canoa 2
    
    
    Exploitation
    
    
    
    180948
    
    
    
    
    0.664918
    
    
    La Canoa 3
    
    
    Exploitation
    
    
    
    184906
    
    
    
    
    0.0051La Princesa: 100% Minera San Xavier19
    
    
    Omega
    
    
    Exploitation
    
    
    
    193390
    
    
    
    
    2.057620
    
    
    Omega 2
    
    
    Exploitation
    
    
    
    180958
    
    
    
    
    0.168721
    
    
    San Salvador
    
    
    Exploitation
    
    
    
    186268
    
    
    
    
    12.939922
    
    
    Triblin
    
    
    Exploitation
    
    
    
    187088
    
    
    
    
    18.280823
    
    
    La Victoria
    
    
    Exploitation
    
    
    
    185387
    
    
    
    
    10.379724
    
    
    El Barreno
    
    
    Exploitation
    
    
    
    179603
    
    
    
    
    11.235925
    
    

La Lotería
    
    
    Exploitation
    
    
    
    184377
    
    
    
    
    3.880926
    
    
    San Fausto
    
    
    Exploitation
    
    
    
    179722
    
    
    
    
    1.500027
    
    
    Maria del Pilar
    
    
    Exploitation
    
    
    
    179259
    
    
    
    
    0.004928
    
    
    El Campeón
    
    
    Exploitation
    
    
    
    179257
    
    
    
    
    0.207229
    
    
    Toro de Oro
    
    
    Exploitation
    
    
    
    206548
    
    
    
    
    99.518730
    
    
    Gumercinda
    
    
    Exploitation
    
    
    
    205211
    
    
    
    
    20.0000Subtotal
    
    
    
    
    380.9191La Princesa Optionor: Antonio Álvarez Ruiz31
    
    
    Porvenir I
    
    
    Exploitation
    
    
    
    183925
    
    
    
    
    12.000032
    
    
    Porvenir II
    
    
    Exploitation
    
    
    
    186269
    
    
    
    
    2.9981Subtotal
    
    
    
    
    14.9981Not Grouped Exploitation: 100% Minera San Xavier33
    
    
    Gabriel
    
    
    Exploitation
    
    
    
    211849
    
    
    
    
    18.000034
    
    
    Pedro
    
    
    Exploitation
    
    
    
    217859
    
    
    
    
    1,969.507035
    
    
    Pedro 2
    
    
    Exploitation
    
    
    
    219079
    
    
    
    
    421.833336
    
    
    Gitano
    
    
    Exploitation
    
    
    
    219000
    
    
    
    
    64.000037
    
    
    Porvenir IV Fracc.A
    
    
    Exploitation
    
    
    
    220628
    
    
    
    
    55.095738
    
    
    Porvenir IV Fracc.B
    
    
    Exploitation
    
    
    
    216926
    
    
    
    
    1.323739
    
    
    Mark 2005
    
    
    Exploration
    
    
    
    210667
    
    
    
    
    0.052940
    
    

Davide 2006
    
    
    Exploration
    
    
    
    211606
    
    
    
    
    0.078841
    
    
    Laura Maria 2008
    
    
    Exploration
    
    
    
    215499
    
    
    
    
    1.0976
 23




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##### Table of Contents



Cerro San Pedro Mineral ConcessionsConcession
    
    
    TitleGroup
    
    
    Concession Name
    
    
    Type
    
    
    Number
    
    
    
    Hectares42
    
    
    Tania 2008
    
    
    Exploration
    
    
    
    215896
    
    
    
    
    0.686043
    
    
    Maria Sofia 2008
    
    
    Exploration
    
    
    
    215378
    
    
    
    
    0.024744
    
    
    Porvenir V
    
    
    Exploitation
    
    
    
    218428
    
    
    
    
    11.7876Subtotal
    
    
    
    
    2543.4872Not Grouped Exploitation. Optionor: Antonio Álvarez Ruiz45
    
    
    Porvenir
    
    
    Exploitation
    
    
    
    214835
    
    
    
    
    4.424146
    
    
    Porvenir III
    
    
    Exploitation
    
    
    
    212189
    
    
    
    
    11.9902Subtotal
    
    
    
    
    16.4143Not Grouped Exploration. 100% Minera San Xavier47
    
    
    Aracely
    
    
    Exploration
    
    
    
    210668
    
    
    
    
    9.3396Subtotal
    
    
    
    
    9.3396Total
    
    
    
    
    2,965.1583
 All of the mining concessions have been acquired primarily through purchase agreements and to a
lesser extent through staking. Approximately $5.3 million has been spent to acquire the
aforementioned mining concessions and other concessions that have subsequently been dropped due to
their limited strategic value. The exploration concession #47 is valid through November 2005. MSX intends to submit an
application with the Mexican regulatory authority, the Director General of Mines (DGM), to
convert this exploration concession into an exploitation concession prior to its expiry. All of the aforementioned exploitation concessions begin to expire in December 2036 through
February 2053, subject to the timely filing periodic reports and the timely payment of taxes. The
exploitation concessions may be extended for an additional 50-year period upon five years notice.
The Company does not anticipate that the extensions to the exploitation concessions will be
required. All the exploitation and exploration concessions are held by MSX without any encumbrances
except for the following:  1)
    The exploitation concessions optioned from Antonio Alvarez Ruiz (#31 and #32)
are subject to a 2.5% royalty on the net smelting income, subject to maximum cumulative
payments totaling $1 million. Minimum annual royalties in the amount of $50,000 are due
and payable on April 1st of each year beginning in 2003. The Company made
minimum royalty payments of $50,000 on April 1st of 2003 and 2004.2)
    Concessions #13 to #20 were subject to an amended note agreement totaling
$200,100 dated February 18, 2003. The note was paid in full in January 2004. Although the Company has investigated title to its exploration and exploitation concessions at the
Cerro San Pedro project, there is no guarantee that title to such concessions will not be
challenged. In addition, certain environmental permitting requirements must be satisfied prior to
commencing mining operations on an exploitation concession. Environmental Environmental Permitting Requirements Mexican environmental regulations addressing permitting and operation of mines have been subject to
significant changes in recent years with new standards and policies continuing to be developed. The
General Law on Ecological Equilibrium and Protection of the Environment requires certain types of
projects, including mining operations, to complete a Manifestacion de Impacto Ambiental [Manifest
of Environmental Impact] (MIA), if the project has the potential to cause an ecological imbalance
or to exceed limits and conditions in applicable environmental regulations. Although not required
for any previously permitted mining project in Mexico, an expanded MIA level does exist and can, in
certain situations, be mandated. A major objective of the MIA process is to demonstrate that the project impacts will be in
compliance with 24




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principal environmental regulations for prevention of water and air pollution, noise limits,
hazardous waste use and transport, and in compliance with the Normas Oficiales Mexicanas [Official
Mexican Standards]. Environmental and Other Permit Status The MIA for the development of the Cerro San Pedro Project was submitted to the Mexican Federal
agency, Secretaria de Medio Ambiente y Recursos Naturales [Secretary of Environment and Natural
Resources] (SEMARNAT) in October of 1997. An MIA approval resolution was issued in March 1999 by
SEMARNAT. The MIA approval order from SEMARNAT lists 100 terms and conditions and 9 recommendations
which MSX is required to observe with respect to its operations at the Cerro San Pedro Project.
Many of these items are normal business activities associated with the running of a mine. The
conditions considered by the Company to be most important are: i) stabilization and monitoring of
the CSP Church; (ii) offer to relocate several families in the village of Cerro de San Pedro who
are located within the immediate vicinity of the mine; (iii) establishing reclamation
funding/bonding requirements for the project; and (iv) rescue and relocation of certain cactus
species located in the area of the planned mine and leach pad. These items are discussed below
under Environmental Permitting Compliance. The MIA is the primary federal permit required
for the approval of the proposed mine. The issuance of the MIA is a precondition for the issuance
of related state and local permits necessary for mine construction. In May 2000 MSX received the Land Use License for the Cerro San Pedro Project from the State of San
Luis Potosi, Mexico and in July 2000, MSX received the Municipal Construction License from the
Cerro de San Pedro municipality. In August 2000, MSX received the Change of Land Use License from
SEMARNAT and with this approval, MSX obtained the last significant milestone in the project
permitting process for the Cerro San Pedro Project. The Land Use License is valid over the life of
the mining operation and will not require any renewals or extensions. The municipal construction
license must be renewed annually on July 1st. In the event that the Construction
License is not renewed when it expires, MSX may be required to cease project construction or cease
mining operations. As a result of the change in planned mine development from a three-stage crushing circuit to the
ROM scenario as proposed in the Glamis Feasibility Study, amendments to the previously granted MIA
and the Construction License were required. After filing the modification request in early 2001,
MSX received approval for the Construction License modification in October 2001 and approval for
the MIA modification in April 2002. The MIA that was issued on February 26, 1999 is valid for a twelve-year period and includes eight
years for project exploitation and four years for reclamation. MSX will be required to apply for
an extension within 60 days of the February 26, 2011 MIA expiration date in order to extend the MIA
term to adequately cover the proposed mining and reclamation period of approximately 11 years. The
MIA is currently the subject of a legal challenge. In August 2004, the Company received
notification that a Mexican Federal Court rendered a judgment in favor of a group opposing the
Project who were seeking nullification of the Companys MIA. The legal action brought by the
contesting group claimed that the federal agency that granted the MIA violated various
environmental and other laws. The federal agency that issued the environmental permit to the
Company has appealed the decision. On December 7, 2004, SEMARNAT issued a letter to MSX stating
that SEMARNAT had appealed the decision, and due to a stay of execution filed by SEMARNAT, the MIA
continues to be valid until a final court resolution is reached. Although the permit is presently
valid pending resolution of the appeal, there are no assurances that the federal agencys or the
Companys efforts to overturn the ruling will be successful. In the event that these efforts are
unsuccessful, the Company can appeal the decision, attempt to re-permit the project, or pursue
other options that may be available to the Company. MSX is required to comply with existing permit conditions and obtain additional permits and
licenses from various regulatory and governmental authorities during mine construction and mine
operations at Cerro San Pedro. These permits and licenses include, but are not limited to, annual
renewals of a blasting operations permit, annual renewal of titles to water rights, a power line
permit, septic tank permits and receipt of an environmental license that is issued at commencement
of operations. Although MSX is 25




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currently in full compliance with its existing permits, and although its permits have been renewed
by governmental and regulatory authorities in the past, there are no assurances that the applicable
governmental and regulatory authorities will renew the permits as they expire, or that pending or
future permit applications will be granted. In the event that the required permits are not granted
or renewed in a timely manner, or in the event that governmental and regulatory authorities
determine that MSX is not in compliance with its existing permits, MSX may be forced to suspend
project construction or mine operations. The project explosives permit was issued to MSX in October 2004. Blasting required for
construction in the leach pad area was initiated on a limited basis in December 2004. The
explosives permit expired (as with all blasting permits in Mexico) on December 31, 2004. As of
March 14, 2005, the application for renewal of the explosives permit for 2005 is still in process.
MSX is working with various governmental and regulatory authorities to secure this permit; however,
there are no assurances that this permit will be granted in a timely manner, if at all. Environmental Permitting Compliance The MIA includes certain conditions that must be met and ongoing compliance that must be performed
in order to maintain the permit in good standing. The most significant conditions that must be met
during mine construction or prior to mine operations are: i) stabilization and monitoring of the
CSP Church; (ii) offer to relocate several families in the village of Cerro de San Pedro who are
located within the immediate vicinity of the mine; (iii) establishing reclamation funding/bonding
requirements for the project; and (iv) rescue and relocation of certain cactus species located in
the area of the planned mine and leach pad. In January 2005, PROFEPA (the Mexican environmental
enforcement agency) conducted a complete review of the Cerro San Pedro project and issued a report
that MSX is in full compliance with all terms of the MIA. The CSP Church is over 200 years old and is located approximately 50 meters from the proposed open
pit for the Cerro San Pedro mine. Numerous historical underground workings from prior mining
activity in the area have raised issues regarding the stability of the CSP Church, particularly
during blasting periods at the mine. MSX submitted a proposal in early 2003 to the Mexican
governmental agency responsible for historic structures and to the priest at the CSP Church, to
stabilize the CSP Church and install blast-monitoring equipment. In October 2003, the relevant
governmental agency and the Archdiocese of San Luis Potosi authorized the structural stabilization
and installation of blast monitoring equipment at the CSP Church. This authorization represented
the final compliance issue which required approval prior to commencing mine construction. The work
will be accomplished by a trust fund managed by an independent technical committee and other
interested parties, and will be funded by MSX. Various studies made by architectural and
engineering experts have estimated the cost of the work to be $230,000. In March 2004, MSX made a
$230,000 deposit to the trust fund to cover the estimated work commitment. MSX has applied for a
release of this permit condition with the relevant governmental agency. In January 2005, MSX
received a report prepared independently by the Mineral Resource Council (CRM) for the Archdioceses
of SLP and the state government of SLP to address the impact of mine operation on the CSP Church.
The conclusion of the report is that the foundations of the Church are poorly constructed, that the
studies commissioned by MSX are adequate, that the stabilization work should be performed in order
to safeguard the Church and that there will likely be no impact on the Church from mining
operations. The mining permits require that MSX offer to relocate all full-time residents living within a
defined buffer zone of the immediate mine area that wish to move; however, MSX has agreed to
relocate all full-time residents who feel that they may be impacted by the mine. Those residents
who choose to relocate will be given title to a new home located approximately 500 meters to the
east of the mine area, and will retain ownership of and access to their existing home in the town
of Cerro de San Pedro. During negotiations with SEDENA, MSX has changed the mining sequence with
certain time limits prior to moving within various radii of the village. SEDENA agrees that using
this time to understand the behavior of the rock adjacent to the village will guarantee the safety
of the people and buildings, and that relocation of the inhabitants will be for their own
convenience and at their own choice. For the residents who choose to relocate, the permits require
that the 26




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relocation be completed prior to commencement of mine operations. MSX has offered each of the 24
permanent families that live in the village of Cerro de San Pedro a choice of any one of the
following relocation and/or financial support options: a) A new house located a distance further
away from the mine area, or b) A cash payment for repairs and/or upgrades to their existing house,
along with a monthly cash payment for the inconvenience of the mining operations, or c) A larger
monthly cash payment for the inconvenience of the mining operations. In the event that the all of
the 24 families accept the offer, the maximum cost of the relocation/financial support payments is
estimated to be $850,000. MSX has executed an agreement with the state and municipal authorities
to use a joint effort to ensure that the proper safety precautions are taken to protect the public,
especially during blasting operations. MSX is not required, and does not intend, to obtain control
of all the property located within the safety buffer zone; however, MSX will continue to acquire
property within the safety buffer zone from owners that choose to engage in private negotiations. In January 2003, an archeological survey commenced in the area of the proposed leach pads. The
objective of the survey was to catalog any artifacts of historical significance in the area. The
survey was completed in late 2003 and resulted in certain areas in the proposed leach pad being
restricted from use. MSX has completed a re-design of the leach pad which avoids the restricted
areas. The closure and reclamation strategy for the Cerro San Pedro Project has been developed by the
Company with the assistance of independent consultants with the specific objective of leaving the
land in a useful, safe and stable configuration capable of supporting native plant life, wildlife
habitat, watershed functions, and limited livestock grazing. MSX submitted a Reclamation and
Closure Plan to SEMARNAT on April 28, 2000. In February 2004, SEMARNAT agreed to allow MSX to fund
its reclamation obligation in stages over the planned 8.3-year mine life. The details of how the
periodic funding amounts will be calculated and the timing of the payments have not yet been
determined. The schedule for completing the closure activities is controlled by the requirements
contained in the MIA, specifically that site reclamation is required to be completed within four
years of final processing. In the Development Plan, the total closure and reclamation costs are
estimated to be $4.3 million. In addition MSX has relocated certain cactus species which grow throughout the project area and are
considered endangered or rare, and are subject to special protection by SEMARNAT. A botanical
garden has been established to provide an area to transplant and protect vegetation that has been
removed from the areas that are impacted by the construction of the mine site facilities. A nursery
has been built to provide an environment where vegetation that will be used during reclamation can
be grown from seed. The cactus relocation program was completed in April 2004. MSX has committed to mitigating impacts associated with previous mining operations at Cerro San
Pedro. The mitigating measures include the removal of historical waste rock along the Cerro San
Pedro streambed and placement of such waste material within the planned waste dumps as well as the
removal of the cyanide leached material from the recent vat leach operation conducted by a previous
small operator at Cerro San Pedro. This material will be relocated to the lined leach pad. Surface and Water Rights Acquisition In order to commence construction of the Cerro San Pedro mine, surface rights agreements were
required to be in place for all land to be disturbed by, or immediately adjacent to, the proposed
mine operation. MSX began acquiring surface rights in 1996 from titled landowners, possessionary
rights holders, and from the three local Ejidos (Cuesta de Campa, Palma de la Cruz and Cerro 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, MSX has obtained surface occupation
lease agreements with all three Ejidos that own property in the Cerro San Pedro area. A total of
470 hectares are under lease agreements with annual aggregate lease payments of approximately
$47,000. The leases grant MSX temporary occupancy for a period of 15 years (through January 2011),
and may be extended by MSX for an additional 15 years at the Mexican peso-denominated lease rate,
adjusted for the percentage increase in the Mexican minimum wage from February 1997 through
February 2011. The increase is expected to 27




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approximate the rate of inflation in Mexico. The leases may be terminated by MSX at any time, but
with a penalty equal to one years lease payment. On 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 San Pedro communal farmland. The
contesting group claim stated that the Ejido Cerro San Pedro lease agreement with MSX for 290
hectares of surface rights, which was executed in February 1997, is not valid because the
individuals who executed the agreement were not the legal representatives of Ejido Cerro San Pedro. In December 2002, the Agrarian Court ruled in favor of the individuals who signed the lease
agreement with MSX, which allowed these individuals to prove that they were the legal
representatives of Ejido Cerro San Pedro. In 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. The Agrarian Court did not rule that MSX had to either cease construction
of the project or vacate the land, nor did it rule that the original ejido members were not the
legal representatives of Ejido Cerro San Pedro. The Company appealed the Agrarian Court decision
and in November 2004, a Federal Court ruled that the group opposing the Project did not have the
legal right to contest the lease and ordered the Agrarian Court to issue a new decision. In
December 2004, 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 appealed this latest decision. The Company continues to have surface rights access
pending resolution of the appeals; however, there are no assurances that the Companys efforts to
overturn the ruling will be successful, or that the Company will be successful in its other efforts
to secure surface rights access. In May 2001, MSX relocated 20 families from the village of La Zapatilla to a new village
approximately two kilometers to the southwest of Cerro San Pedro mine site. The cost to acquire
the surface rights at the old village of La Zapatilla and the cost to construct the new village of
La Zapatilla totaled approximately $1.6 million. Water rights are federally-owned in Mexico and administered by an agency of the federal government;
the Comision Nacional de Agua (CNA). CNA has granted water concessions to private parties
throughout the defined San Luis Potosi Hydrologic Basin (Basin). As no new water rights are
being issued in the Basin, new users of water must purchase rights from private parties. The Cerro
San Pedro project is forecast to use a maximum of approximately one million cubic meters of water
per year. MSX has acquired titles for pumping rights for 920,234 cubic meters per year. MSX has
also acquired an additional 90,000 cubic meters of water rights and is awaiting receipt of the
title from CNA. This brings the total to 1,010,234 cubic meters, or slightly in excess of the
estimated need. To the extent that MSX has not used its water rights within three years of being acquired, it must
apply for three-year extensions with CNA in order to retain the water rights. MSXs water rights
began to expire in October 2003. All of MSXs water rights that were scheduled to expire in 2003
and through March 2005 have been granted three-year extensions by CNA. MSX intends to continue to
apply for three-year extensions for all of its water rights as they approach expiration. In the
event that MSX begins mine operations within three years of the date of the extensions, MSX will
not be required to apply for any additional extensions through the end of the mine life. However,
upon commencement of mine operations, MSX must renew its water rights titles at various intervals
during the mine operations. In the event that the water rights title renewals are not granted, MSX
may be required to purchase or lease additional water rights from private parties. The 1.01 million cubic meters of water rights that are owned or leased by MSX have been acquired
from eleven wells throughout the Basin. All of these water rights have been, or will be,
transferred to a well at La Zapatilla. The La Zapatilla well was constructed in July 1999 and has
a total pumping capacity of approximately two million cubic meters of water per year. The La
Zapatilla well is located 1.5 kilometers west of the proposed leach pad, which is where most of the
Cerro San Pedro project water consumption will take place. Approximately $903,000 has been spent
to date on the acquisition of water rights. 28




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##### Table of Contents



Access; Infrastructure Access to the project area is by paved and improved gravel roads from the city of San Luis Potosi
(SLP), a distance of approximately 20 kilometers. The city of SLP has a population of
approximately one million and has an adequate airport with frequent flights to Mexico City,
Monterrey, Houston and other major cities. A 115 kv power line will need to be constructed to supply the project with electricity. The power
line will be 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. Approximately 98%
of the 25.35 hectares of required right-of-way has been acquired at a cost of $203,000. In 2002,
MSX was notified by Mexican authorities that it will not be required to purchase the remaining 2%
of the right-of-way. In the event that MSX elects to acquire the remaining 2% right-of-way, the
cost is not expected to be material. The cost to install the 115 kv power line and build the power
substation is estimated at $1.9 million. Glamis Feasibility Study (November 2001) In November 2000 Glamis issued a revision to the Cambior feasibility study entitled Cerro San
Pedro Project Feasibility Study (the Glamis Feasibility Study). The Glamis Feasibility Study
provides for the elimination of the crushing plant from the process flow sheet resulting in the use
of run-of-mine (ROM) leaching to extract gold and silver from the mined ore. Under ROM leaching,
the mined ore is transported and deposited on the heap leach pads without being processed through a
crushing circuit. Metal recoveries from ore processed under a ROM scenario are lower than if the
ore is crushed; however, a ROM scenario will also result in lower operating and capital costs. In September 2003, Washington Group International prepared a Development Plan for the Cerro San
Pedro project. The Development Plan updated the cost estimates used in the Glamis Feasibility
Study and re-examined the project economics using contract mining. The capital cost estimates for
the Development Plan were prepared by TIC and represent an update to Glamis Feasibility Study.
The Development Plan also incorporated the updated mineral reserve estimate from the February 2003
WLR Consulting Technical Report. Both the WLR Consulting Inc. Technical Report and the Development
Plan are discussed in more detail below: WLR Consulting Inc. Technical Report The following is a summary of information contained in the WLR Consulting Inc. dated February 4, 2003: It should be noted that the geological model and the metallurgical recoveries for the Glamis
Feasibility Study has not been revised or amended. The only revisions have been the metal prices,
the addition of certain rock types into the definition of ore, and the mine operating cost
estimates used to calculate the mineral reserves. The mineable reserves of the Glamis Feasibility
Study were based on a $275 per ounce gold price and a $5.25 per ounce silver price. The mineral
reserves have been recalculated in this technical report with revised prices of $325 per ounce gold
and $4.62 per ounce silver. Mineral Resources The mineral resource estimate uses the results of 36 reverse circulation holes from exploration
prior to MSX and 219 drill holes completed by MSX, 125 of which are reverse circulation and 94 are
core holes. The deposit has been drilled overall on a 50-meter by 50-meter grid with a closer
spacing in some areas. Assay intervals, typically of 2 meters in length, which had less than 30
percent recovery were not used for grade estimation. In addition, a total of 2,153 channel samples
representing about 4,600 meters were collected from numerous accessible underground workings. The geological block model for Cerro San Pedro was constructed with respect to both structural and
lithological (rock type) control. The assay results from drill holes and channel samples were
composited to 5-meter lengths by respecting these rock and structural domain boundaries. Cambior
used standard 29




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##### Table of Contents



industry practice to limit or cap the high-grade outliers and to develop indicators to reflect the
boundary between low-grade mineralization and unmineralized or barren materials. Validation of the
geological and assay database was done using software tools, plots on sections and plan view maps
to ensure information stored in the database occurs in the correct position and conforms with the
geological interpretation. Verification of assay results used in the database was also performed. The mineral resource was evaluated using various estimation methods. The RK method was determined
to be the best at characterizing the grade distribution and was therefore used to calculate the
mineral resource. The mineral resource is presented by resource classification and cut-off grades
in Table B. The mineral resource estimate was established by William L. Rose, the author of the
WLR Technical Report, which is dated February 4, 2003. The resource estimate is classified on the basis of these parameters:  
    Measured: All estimated blocks that had a minimum of two drill holes within one-half
of the variogram range from the block center.
    Indicated: All estimated blocks that had a minimum of two drill holes within the
variogram range from the block center.
    Inferred: All other estimated blocks. TABLE B
CERRO SAN PEDRO MINERAL RESOURCE ESTIMATE 0.20 g/t Au
    
    0.30 g/t Au
    
    0.40 g/t AuRock Type
    
    
    Ktonnes
    
    
    
    Au
    
    
    
    Ag
    
    
    
    Ktonnes
    
    
    
    Au
    
    
    
    Ag
    
    
    
    Ktonnes
    
    
    
    Au
    
    
    
    AgMeasured
    
    
    
    154,953
    
    
    
    
    0.50
    
    
    
    
    17.82
    
    
    
    
    114,173
    
    
    
    
    0.59
    
    
    
    
    20.18
    
    
    
    
    79,433
    
    
    
    
    0.69
    
    
    
    
    23.13Indicated
    
    
    
    61,849
    
    
    
    
    0.38
    
    
    
    
    10.12
    
    
    
    
    33,866
    
    
    
    
    0.49
    
    
    
    
    12.55
    
    
    
    
    18,546
    
    
    
    
    0.61
    
    
    
    
    14.84Total Measured and Indicated
    
    
    
    216,802
    
    
    
    
    0.47
    
    
    
    
    15.62
    
    
    
    
    148,039
    
    
    
    
    0.57
    
    
    
    
    18.43
    
    
    
    
    97,979
    
    
    
    
    0.67
    
    
    
    
    21.56Inferred
    
    
    
    21,584
    
    
    
    
    0.37
    
    
    
    
    8.20
    
    
    
    
    11,649
    
    
    
    
    0.48
    
    
    
    
    9.07
    
    
    
    
    6,917
    
    
    
    
    0.57
    
    
    
    
    10.18
 These resources do not reflect economic pit designs, but rather are limited to reporting a
geologic resource. Pit limit evaluations of the Cerro San Pedro deposit employed the Lerchs-Grossmann algorithm to
determine the extent of economic open pit mining based on run-of-mine ore. Process recoveries and
processing costs used in these pit limit evaluations are summarized in Table C. Other operating
costs, including mining costs and general and administrative costs, used in these pit limit
evaluations are summarized in Table C. TABLE C
PIT LIMIT INPUT PARAMETERS Able
    
    
    Gold
    
    
    Silver
    
    
    ProcessingRock Type
    
    
    Recovery (%)
    
    
    Recovery (%)
    
    
    Cost ($/t ore)Porphyry Oxide
    
    
    
    75
    
    
    
    
    40
    
    
    
    
    1.01Porphyry Mixed
    
    
    
    30
    
    
    
    
    40
    
    
    
    
    1.80Porphyry Sulfide
    
    
    
    20
    
    
    
    
    30
    
    
    
    
    1.80Begoñia Limestone
    
    
    
    55
    
    
    
    
    25
    
    
    
    
    1.01Hospital Limestone
    
    
    
    35
    
    
    
    
    10
    
    
    
    
    1.01Barrano Limestones & MnOx
    
    
    
    20
    
    
    
    
    5
    
    
    
    
    1.01All other rock types (waste)
    
    
    
    0
    
    
    
    
    0
    
    
    
    
    n/a
 Other economic and overall slope angle parameters are summarized in Table D. 30




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TABLE D
PIT LIMIT ECONOMIC INPUT PARAMETERS(1) Parameter
    
    
    ValueGold price
    
    
    $
    325 / ozSilver price
    
    
    $
    4.62 / ozRefining recovery for gold
    
    
    
    99.5
    %Refining recovery for silver
    
    
    
    98.0
    %Freight and refining cost for gold
    
    
    $
    3.00 / ozFreight and refining cost for silver
    
    
    $
    0.15 / ozGross receipts royalty
    
    
    
    1.95
    %Mining cost  ore
    
    
    $
    0.97 / tMining cost  waste
    
    
    $
    0.85 / tGeneral and administration cost
    
    
    $
    0.20 / t oreSlope angles on NW, N & NE walls (no ramps)
    
    
    55 degreesSlope angles on E, SE, SW and W walls
    
    
    45 degrees
   (1)
    
    The economic parameters presented above have been estimated by the Company and have
provisions for possible contract mining at Cerro San Pedro. Mineral Reserves Total mineral reserves at prices of $325/oz Au and $4.62/oz Ag are estimated at 61.1 million tonnes
grading 0.59 g/t Au and 24.0 g/t Ag. Waste stripping is estimated at 74 million tonnes, resulting
in a strip ratio of 1.21 tonnes of waste per tonne of ore. The total material tonnage for the
designed ultimate pit is 135 million tonnes. Table E shows the breakdown of the mineral reserves by classification. These reserve estimates
include both proven and probable material, which correspond to measured and indicated resources
within the designed economic (ultimate) pit limits. All inferred material was treated as waste. TABLE E Mineral Reserve Summary by Classification@ $325/ounce Gold and $4.62/ounce SilverOre
    
    
    
    Au
    
    
    
    Ag
    
    
    
    Waste
    
    
    
    TotalClassification
    
    
    ktonnes
    
    
    
    (g/t)
    
    
    
    (g/t)
    
    
    
    ktonnes
    
    
    
    ktonnesProven
    
    
    
    58,857
    
    
    
    
    0.59
    
    
    
    
    23.9
    
    
    
    
    46,154
    
    
    
    
    105,011Probable
    
    
    
    2,199
    
    
    
    
    0.61
    
    
    
    
    26.6
    
    
    
    
    14,763
    
    
    
    
    16,962Inferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,071
    
    
    
    
    13,071Total
    
    
    
    61,056
    
    
    
    
    0.59
    
    
    
    
    24.0
    
    
    
    
    73,988
    
    
    
    
    135,044
 Conclusion The results of this Technical Report illustrate that the use of a higher gold price will result in
an increase in mineral reserves for the Cerro San Pedro deposit. The Glamis Feasibility Study used
metal prices of $275 per ounce for gold and $5.25 per ounce of silver and reported a mineral
reserve of 49.2 million tonnes grading 0.57 g/t Au and 23.0 g/t Ag, with a strip ratio of 1.46
tonnes of waste per tonne of ore. At a gold price of $325 per ounce and a silver price of $4.62 per
ounce, the mineral reserves were increased to 61.1 million tonnes grading 0.59 g/t Au and 24.0 g/t
Ag with a strip ratio of 1.21 tonnes of waste per tonne of ore. 31




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##### Table of Contents



Washington Group International Development Plan The following is a summary of information contained in the Washington Group International
Development Plan dated September 2003: Background The Washington Group International Development Dlan (the Development Plan) for the Cerro San
Project updated the cost estimates of the Glamis Feasibility Study to 2003 and re-examined the
project economics using contract mining. The Development Plan was prepared to present the current
project design, operating philosophy, capital and operating costs, and economics for the Cerro San
Pedro gold/silver project located in the State of San Luis Potosi, Mexico. The project will be
developed as an open pit mine producing ROM ore that will be heap leached with precious metal
recovery using a Merrill-Crowe plant to produce gold/silver doré on site. Four feasibility studies have been prepared for the project to date. Welsh Engineering Science &
Technology, Inc. (Westec) produced the first feasibility study. Kilborn International, Inc.
(Kilborn) produced a feasibility study for Metallica in 1997; Cambior prepared a feasibility study
in December 1999; and the Glamis Feasibility Study was prepared in November 2000. The Development
Plan utilizes reports that were generated from the previous feasibility studies, as well as more
recent work, to support the current design and operating concepts. Areas of study and primary sources of geologic and mining information contained in the Development
Plan are summarized in Table F. TABLE F Sources of Information for Geology and Mining Sections of the Development PlanArea
    
    
    Services Provided
    
    
    Name of Company/ConsultantGeology
    
    
    Management
    
    
    Minera San XavierAssaying
    
    
    Bondar CleggModeling, Resource Estimation
    
    
    Minera San XavierDeposit Geology
    
    
    Mark Petersen, ConsultantMineralogy/Petrography
    
    
    Petrographic Consultants, Intl.Mining
    
    
    Ore Reserves/Mine Design
    
    
    Glamis / Mine Reserves AssociatesModel Verification
    
    
    Independent Mining Consultants, Inc.GeoSight, Inc.Glamis / Mine Reserves AssociatesWLR Consulting Inc.Previous Reserve Evaluations
    
    
    CambiorSlope Stability
    
    
    Brawner & Associates
 Geology and Mineralization The Cerro San Pedro district lies along the boundary between the Sierra Madre Oriental (Eastern
Sierra Madre) fold belt and the Mesa Central volcanic plateau physiographic provinces. Current
exploration in this historic district has resulted in the delineation of a large body of low-grade
gold-silver mineralization amenable to modern bulk mining and heap leach extraction methods. A complex deformation history, including of pre-mineral folding, thrusting, normal, reverse, and
wrench faulting, accompanied by porphyry dike intrusion are considered to be the primary factors
behind the localization of mineralization at Cerro San Pedro. District geology is characterized by
complexly folded 32




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##### Table of Contents



and faulted Cretaceous limestones that have been intruded by a large dike or plug
of diorite to quartz diorite porphyry of late Cretaceous to early Tertiary age. Gold-silver
mineralization occurs in association with disseminated iron oxides and sulfides hosted within the
porphyry intrusive (Porphyry Oxide, Mixed and Sulfide) and its surrounding limestone host rocks
(from oldest to youngest  the Begonia, Hospital, and Barreno Limestones). Porphyry Oxide-hosted
mineralization is distributed in a well-developed zone of stockwork fracturing and pervasive
hydrothermal alteration developed around the intersection between several systems of cross-cutting
north, east, northeast, and northwest trending shear zones. These structures extend into the
surrounding limestone country rocks as higher-grade veins, chimneys, and mantos. A large body of
Porphyry Mixed and Porphyry
Sulfide-hosted Au-Ag-Zn sulfide mineralization also underlies the main zone of Au-Ag Porphyry Oxide
mineralization. The bulk of the potentially economic mineralization is hosted within the porphyry
diorite rock type. Mineral Reserves The mineral reserves presented in the Development Plan were prepared by WLR Consulting, Inc. of
Lakewood, Colorado, and are presented above in the summary of the WLR Consulting Inc. Technical
Report. Mine Tonnage and Grades: The Development Plan assumes a total of 135.1 million tonnes of material will be mined and 61.1
million tonnes of ore will be processed at Cerro San Pedro over a mine life of 8.3 years, at an
average of approximately 7.4 million tonnes per year. A summary of the annual mine production
schedule is presented in Table G. TABLE G
MINE PRODUCTION SCHEDULE Ore
    
    
    
    Gold Grade g
    
    
    
    Silver Grade g
    
    
    
    Waste
    
    
    
    Total
    
    
    
    StripProject Period
    
    
    ktonnes
    
    
    
    Au/t
    
    
    
    Ag/ t
    
    
    
    ktonnes
    
    
    
    ktonnes
    
    
    
    RatioPre-production
    
    
    
    551
    
    
    
    
    0.94
    
    
    
    
    45.20
    
    
    
    
    6,701
    
    
    
    
    7,252
    
    
    
    
    12.16Year 1
    
    
    
    5,501
    
    
    
    
    0.66
    
    
    
    
    24.97
    
    
    
    
    14,700
    
    
    
    
    20,201
    
    
    
    
    2.67Year 2
    
    
    
    7,502
    
    
    
    
    0.60
    
    
    
    
    31.21
    
    
    
    
    12,700
    
    
    
    
    20,202
    
    
    
    
    1.69Year 3
    
    
    
    7,498
    
    
    
    
    0.56
    
    
    
    
    24.07
    
    
    
    
    12,700
    
    
    
    
    20,198
    
    
    
    
    1.69Year 4
    
    
    
    7,501
    
    
    
    
    0.57
    
    
    
    
    21.55
    
    
    
    
    12,700
    
    
    
    
    20,201
    
    
    
    
    1.69Year 5
    
    
    
    7,498
    
    
    
    
    0.50
    
    
    
    
    22.84
    
    
    
    
    10,400
    
    
    
    
    17,898
    
    
    
    
    1.39Year 6
    
    
    
    7,501
    
    
    
    
    0.59
    
    
    
    
    24.63
    
    
    
    
    2,250
    
    
    
    
    9,751
    
    
    
    
    0.30Year 7
    
    
    
    7,502
    
    
    
    
    0.74
    
    
    
    
    27.49
    
    
    
    
    800
    
    
    
    
    8,302
    
    
    
    
    0.11Year 8
    
    
    
    7,500
    
    
    
    
    0.54
    
    
    
    
    17.87
    
    
    
    
    925
    
    
    
    
    8,425
    
    
    
    
    0.12Year 9
    
    
    
    2,521
    
    
    
    
    0.33
    
    
    
    
    12.10
    
    
    
    
    198
    
    
    
    
    2,719
    
    
    
    
    0.08Total
    
    
    
    61,075
    
    
    
    
    0.59
    
    
    
    
    23.99
    
    
    
    
    74,074
    
    
    
    
    135,149
    
    
    
    
    1.21
 Gold and Silver Production: A summary of annual estimated gold and silver production from the Development Plan is presented in
Table H. Estimated life-of-mine recovered ounces total 721,946 ounces of gold and 16.9 million
ounces of silver. 33




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##### Table of Contents



TABLE H
SUMMARY OF ANNUAL PRECIOUS METAL PRODUCTION SilverGold
    
    
    
    OuncesOunces
    
    
    
    (thousands)Estimated Annual ProductionYear 1
    
    
    
    63,779
    
    
    
    
    1,580Year 2
    
    
    
    87,519
    
    
    
    
    2,091Year 3
    
    
    
    91,831
    
    
    
    
    2,076Year 4
    
    
    
    93,309
    
    
    
    
    1,938Year 5
    
    
    
    83,897
    
    
    
    
    2,008Year 6
    
    
    
    95,502
    
    
    
    
    2,167Year 7
    
    
    
    108,541
    
    
    
    
    2,466Year 8
    
    
    
    72,633
    
    
    
    
    1,833Year 9
    
    
    
    23,126
    
    
    
    
    645Year 10
    
    
    
    1,809
    
    
    
    
    78Total
    
    
    
    721,946
    
    
    
    
    16,882
 A general layout of the Cerro San Pedro mine facilities as proposed under the Development Plan
is presented in Figure 2. 34




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##### Table of Contents



(MAP) Figure 2. General Layout of the Mine and Facilities 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 I 35




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##### Table of Contents



TABLE I
SUMMARY OF PRODUCTION, AND COST PROJECTIONS Open Pit Mining /FLOWSHEET
    
    
    ROM LeachingORE RESERVES(1)Tonnes of Ore
    
    
    
    61,100,000Grade of Gold (g/t)
    
    
    
    0.59Grade of Silver (g/t)
    
    
    
    24.0 g/tWaste to Ore Ratio
    
    
    
    1.21Contained Gold (oz)
    
    
    
    1,150,295Contained Silver (oz)
    
    
    
    47,112,000PRODUCTION DATAMining Life (years)
    
    
    
    8.3Operating Life (years)
    
    
    
    10 to 11Total Recovered Au (oz)
    
    
    
    722,000Total Recovered Ag (oz)
    
    
    
    16,900,000Average Au Recovery (%)
    
    
    
    62.8Average Ag Recovery (%)
    
    
    
    35.8Average Annual Gold Production (oz)
    
    
    
    90,500Average Annual Silver Production (oz)
    
    
    
    2,082,000COST DATA (2)Initial Capital Cost (to production)
    
    
    $
    28,200,000Total Capital Cost (over project life)
    
    
    $
    32,200,000Mining Cost per tonne of ore
    
    
    $
    2.11Processing Cost per tonne of ore
    
    
    $
    0.98G & A Cost per tonne of ore
    
    
    $
    0.38Total Cost per tonne of ore
    
    
    $
    3.47G. I.(3) Total Cash Costs per oz. of gold
    
    
    $
    163G.I. Total Production Costs(4) per oz. of gold
    
    
    $
    215
   (1)
    
    at a $325 /oz gold price and a $4.62 / oz silver price(2)
    
    at a $350 /oz gold price and a $5.00 / oz silver price(3)
    
    G. I. Total Cash Costs means cash operating costs as defined by the Gold Institute. The cash
operating cost as defined by the Gold Institue is calculated by using all direct mining
expenses, transportation, refining, and all royalties as the cost basis. From the cost basis,
silver revenues are subtracted and the resultant cost is divided by the actual number of gold
ounces produced. Cash operating costs do not include depreciation, amortization or reclamation
costs.(4)
    
    G.I. Total Production Costs are calculated in a similar manner to cash operating costs but
depreciation, amortization and reclamation costs are included in the cost basis. The Washington Group Cerro San Pedro Project economic model at metal prices of US$350/oz gold
and US$5.00/oz silver indicates a Net Present Value of US$35.7 million at a 5 percent discount rate
with an 23.6 percent Internal Rate of Return. A fixed gold to silver ratio of 70:1 has been used. WLR Consulting Inc. Technical Report Update The following is a summary of information contained in the WLR Consulting Inc. Technical Report
dated March 30, 2005: It should be noted that the geological model and the metallurgical recoveries for the previous
technical report have not been revised or amended. The only revisions have been the metal prices,
and the mine operating cost estimates used to calculate the mineral reserves. Mineral Reserves A minor redesign of the pit was performed based on conditions of the surface rock mass of the pit.
Due 36




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##### Table of Contents



to the 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/oz Au. Total mineral reserves at prices of $375/oz Au and $5.77/oz Ag are estimated at 62.9 million tonnes
grading 0.58 g/t Au and 23.9 g/t Ag. Waste stripping is 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 J 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 J Mineral Reserve Summary by Classification@ $375/ounce Gold and $5.77/ounce SilverOre
    
    
    
    Au
    
    
    
    Ag
    
    
    
    Waste
    
    
    
    TotalClassification
    
    
    ktonnes
    
    
    
    (g/t)
    
    
    
    (g/t)
    
    
    
    ktonnes
    
    
    
    ktonnesProven
    
    
    
    60,796
    
    
    
    
    0.58
    
    
    
    
    23.8
    
    
    
    
    43,890
    
    
    
    
    104,686Probable
    
    
    
    2,155
    
    
    
    
    0.58
    
    
    
    
    26.8
    
    
    
    
    14,490
    
    
    
    
    16,645Inferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.950
    
    
    
    
    14,950Total
    
    
    
    62,951
    
    
    
    
    0.58
    
    
    
    
    23.9
    
    
    
    
    73,330
    
    
    
    
    136,281
 Conclusions The results of the mineral reserve analysis presented in this Technical Report indicate a slightly
higher mineral reserve, than previously reported, at gold and silver prices of $375/oz and
$5.77/oz, respectively. Mineral reserves are now estimated at 63.0 million tonnes of ore grading
0.58 g/t Au and 23.9 g/t Ag. 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 (tonnes 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, 2004 WLR Consulting Inc. Technical Report projected about 61.1
million tonnes of ore grading 0.59 g/t Au and 24.0 g/t Ag for respective gold and silver prices of
$325/oz and $4.62/oz. 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 time 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 Washington Group International 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. 2005 Work Program The Companys focus for 2004 was the construction of its Cerro San Pedro gold and silver project
and the resolution of various permitting and other issues involving the project. Construction
began in February 2004 and was expected to take approximately nine months to complete at a total
cost of approximately $28.2 million, plus $3.0 million for project working capital. 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 in October 2004, the Company
received the annual 37




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##### Table of Contents



project explosives permit. The project explosives permit, as with all mine
explosives permits in Mexico, expires on December 31st of each year. The Company has
applied for and is awaiting receipt of the explosives permit for 2005. In 2005, the Company
intends to focus its efforts towards resolving the two issues discussed below and recommencing
construction of the Project; however, there are no assurances that the Companys efforts to resolve
these and other issues will be successful, or that it will recommence construction. Expenditures
relating to the Project for 2005 are estimated to be between $3 million and $29 million, depending
upon when, and if, construction recommences. In April 2004, a San Luis Potosí, Mexico, 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.
The Company appealed the Agrarian Court decision and in November 2004, a Federal Court ruled that
the group opposing the Project did not have the legal right to contest the lease and ordered the
Agrarian Court to issue a new decision. In December 2004, 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, has appealed this latest decision. The
Company continues to have surface rights access pending resolution of the appeals; however, there
are no assurances that the Companys efforts to overturn the ruling will be successful, or that the
Company will be successful in its other efforts to secure surface rights access. In August 2004, the Company received notification that a Mexican Federal Court rendered a judgment
in favor of a group opposing the Project who were seeking nullification of the Companys
Manifestacion de Impacto Ambiental (MIA). The MIA is the Mexican equivalent of an Environmental
Impact Statement in the United States. The legal action brought by the contesting group claimed
that the federal agency that granted the MIA violated various environmental and other laws. The
federal agency that issued the environmental permit to the Company has appealed the decision.
Although the permit is presently valid pending resolution of the appeal, there are no assurances
that the federal agencys or the Companys efforts to overturn the ruling will be successful. In
the event that these efforts are unsuccessful, the Company can appeal the decision, attempt to
re-permit the project, or pursue other options that may be available to the Company. The El Morro Project, Chile Project Location The El Morro Project comprises approximately 23,599 ha and is located in the Municipality of Alto
del Carmen, Huasco Province, Third Region of Atacama in northern Chile (see Figure 3 below). The
project is about 650 Km north of Santiago and some 80 Km east of the city of Vallenar. 38




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##### Table of Contents



FIGURE 3: EL MORRO PROJECT LOCATION MAP (MAP) Mineral Property Summary In Chile, mineral rights are granted by ordinary courts of justice in the form of mining
concessions. Any person, whether a Chilean national or a foreigner, may apply for the granting of
mining concessions subject to compliance with the requirements provided for under Chilean law. The
holder of a mining concession is protected by the ownership right on such concession. The right
over the concession, which is independent from the ownership right on the surface land, is
transferable and may be subject to mortgage. The mining concession entitles its holder to dispose
of all mineral resources contained within its boundaries. Mining concessions are of two types: (i) An Exploration Concession, whereby the holder is legally entitled to explore for mineral
substances in a certain area for a period of two years, at the expiration of which the concession
may be extended for an additional two year period if the area covered by the concession is reduced
by half and provided the applicable annual tax is paid. (ii)  An Exploitation
Concession, whereby the holder is legally entitled to exploit mineral
substances contained therein for an indefinite period of time subject to
payment of the annual tax. The holder of an Exploration Concession has the exclusive right to initiate the procedure to obtain
an Exploitation Concession within the boundaries and during the time period of the Exploration
Concession. 39




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##### Table of Contents



The holder of each type of mining concession is entitled by law to impose easements on
the surface land in order to facilitate mining exploration or exploitation activities. Any
compensation to be paid to the owner of the surface land for the easement is to be determined by
mutual agreement or, failing such agreement, by the court. The acquisition of mineral interests in
Chile is normally initiated either through the filing of an application to the courts to obtain the
granting of new mining concessions or by acquiring existing mining concessions through option to
purchase agreements or other means. The legal procedure to obtain the granting of a new mining concession is regulated in detail in the
Chilean Mining Code. A special characteristic of this judicial procedure is that the applicant is
required to be active and to expedite the proceeding in order to comply with deadlines established
in the Chilean Mining Code for the performance of certain tasks to be fulfilled in order to obtain
the grant of the concession. The judge has an active role, and the proceeding may become
contentious in some cases (i.e., in the event of third party opposition to the survey petition). Of the total El Morro project area of 23,599 hectares, mining concessions cover 20,099 hectares at
the following stage of the permit granting process: 
    
    Mining Exploitation Concessions  Metallica:
    
    17,160 hectares
    
    Mining Exploitation Concessions  Purchase options:
    
    2,215.98 hectares
    
    Exploration Concessions  Metallica:
    
    1,200 hectares
    
    Mining Exploitation Concessions in process:
    
    22,164 hectares
    
    Mining Exploration Concessions  Noranda:
    
    3,400 hectares
 Some of these groups of concessions form various protection layers that overlap. Surface rights at the El Morro project are held by the Los Huasco Altinos, a grazing and livestock
cooperative. Los Huasco Altinos granted Noranda an easement and right-of-way to conduct
exploration work at the El Morro project that expired in 2004. Noranda 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 a provisional easement to Noranda to conduct additional
exploration work on the project. Concurrent with Norandas efforts to obtain a long-term easement
on the property pursuant to the Chilean Mining Code, Noranda is also negotiating a lease with the
owners of the surface rights for long-term access to the joint ventures mineral rights. 2,216 Hectares at the El Morro project are controlled through five option to purchase agreements,
two of which were executed by the Company and three of which were executed by Noranda. Since
September 1999, all payments pursuant to the option to purchase agreements have been made by
Noranda pursuant to its earn-in requirement under the Exploration Agreement. The option to
purchase agreements are summarized as follows: 1) Minera Metallica Limitada and Rene Martin Jure Option to Purchase Agreement Parties Minera Metallica Limitada, a wholly-owned subsidiary of the Company, and Rene Martin Jure on behalf
of Legal Mining Companies Cantarito Uno de la Sierra Juntas de Cantarito de la Estancia Huasco Alto
and Tronquito uno de la Sierra Portezuelo de Cantarito de la Estancia Huasco Alto (Martin) Properties The concessions comprising the Cantarito and Tronquito mining properties have a combined area of
approximately 305 hectares. Term On June 4, 1998, Metallica and Martin executed an option to purchase contract whereby Martin agreed
irrevocably, to sell, assign or transfer the mining properties to Metallica. Price The total purchase price amounted to $1,500,000, and was paid in five installments. The final
installment was paid on December 28, 2001. Of the total purchase price of $1,500,000, $1,450,000
was paid by 40




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##### Table of Contents



Noranda pursuant to its earn-in requirement under the Exploration Agreement and $50,000
was paid by Metallica. Rene Martin Jure has retained a 2% NSR royalty on any mining that occurs on the Cantarito and
Tronquito mining concessions 2) Minera Metallica Limitada and BHP Chile Inc. Option to Purchase Agreement Parties Minera Metallica Limitada and BHP Chile Inc. Properties The concessions comprising the BHP Chile Inc. (BHP) properties have a combined area of
approximately 1,849 hectares. Term On September 2, 1999, Metallica and BHP executed an option to purchase contract whereby BHP agreed
irrevocably, to sell, assign or transfer the mining properties to Metallica. The option was
exercised when Noranda made the final $500,000 purchase price payment to BHP in July 2003. Price The total purchase price amounted to $1,690,000, and was paid in five installments. The final
installment was paid on July 31, 2003. Of the total purchase price of $1,690,000, $1,650,000 was
paid by Noranda pursuant to its earn-in requirement under the Exploration Agreement and $40,000 was
paid by Metallica. BHP Chile Inc. retained a 2% NSR royalty on any mining that occurs on the BHP Chile mining
concessions. In December 2004, the Company and Noranda acquired the 2% NSR royalty from BHP Chile for $2.0
million. The Company acquired a 30% interest in the royalty for $0.6 million, whereas Noranda
acquired a 70% interest in the royalty for $1.4 million. 3) Noranda Chile S.A. and Santiago del Carmen Cayo Salinas Option to Purchase Agreement Parties Noranda Chile S.A. and Santiago del Carmen Cayo Properties Mr. Santiago del Carmen Cayo Salinas (Santiago Cayo) currently owns eleven shares (representing a
33 1/3% ownership interest) of Legal Mining Company, Santa Julia Uno de la Sierra Fortuna, which is
the owner of the exploitation concession Santa Julia 13 that has a combined area of approximately
61 hectares. Term On October 20, 2000, Santiago Cayo and Noranda executed an option to purchase contract whereby
Santiago Cayo agreed irrevocably, to sell, assign or transfer one hundred percent of the eleven
shares Santiago Cayo currently holds and those it might acquire in the future in Legal Mining
Company, Santa Julia Uno de la Sierra Fortuna. Price The total purchase price was $30,000 for the shares, payable in three installments. The option was
exercised by Noranda when it made the final option payment of $20,000 on October 19, 2001. Santiago Cayo will receive a production bonus equal to $133,333 within two years of commencement
of mining on the Santa Julia concessions 1-3. 4) Noranda Chile S.A. and Luis Alberto Cayo Salinas Option to Purchase Agreement Parties Noranda Chile S.A. and Luis Alberto Cayo Salinas 41




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##### Table of Contents



Properties Mr. Luis Alberto Cayo Salinas (Luis Cayo) currently owns eleven shares (representing a 33 1/3%
ownership interest) in Legal Mining Company, Santa Julia Uno de la Sierra Fortuna, which is the
owner of the exploitation concession Santa Julia 1-3 that has a combined area of approximately 61
hectares. Term On October 20, 2000, Luis Cayo and Noranda executed an option to purchase contract whereby Luis
Cayo agreed irrevocably, to sell, assign or transfer the one hundred percent of the eleven shares
Luis Cayo currently holds and those it might acquire in the future in Legal Mining Company, Santa
Julia Uno de la Sierra Fortuna. Price The total purchase price was $30,000 for the shares, payable in three installments. The option was
exercised by Noranda when it made the final option payment of $20,000 on October 19, 2001. Luis Cayo will receive a production bonus equal to $133,333 within two years of commencement of
mining on the Santa Julia concessions 1-3. 5) Noranda Chile S.A. and Johnny Cayo Salinas and Others Option to Purchase Agreement Parties Noranda Chile S.A. and Johnny Cayo Salinas and Others Properties Mr. Johnny Cayo Salinas and others (Cayo Villalba Brothers) currently own eleven shares
(representing a 33 1/3% ownership interest) in Legal Mining Company, Santa Julia Uno de la Sierra
Fortuna, which is the owner of the exploitation concession Santa Julia 1-3 that has a combined area
of approximately 61 hectares. Term On February 5, 2001, Johnny Cayo Salinas and Noranda executed an option to purchase contract
whereby Johnny Cayo Salinas agreed irrevocably, to sell, assign or transfer the one hundred percent
of the eleven shares Cayo Villalba Brothers currently hold and those it might acquire in the future
in Legal Mining Company, Santa Julia Uno de la Sierra Fortuna. Price The total purchase price was $25,000 for the shares, payable in three installments. The option was
exercised by Noranda when it made the final option payment of $18,000 in 2002. Cayo Villalba Brothers will receive a production bonus equal to $133,333 within two years of
commencement of mining on the Santa Julia concessions 1-3. Mineral Property Legal Issues Ownership of nine concessions within the El Morro land package were in dispute with Compañía Minera
Hornitos (Hornitos). The Company filed five separate lawsuits in August 2000 covering five
concessions alleging that Hornitos furnished false survey records in its court filings, and
landmarks or boundary stones were never constructed. All five lawsuits were ultimately resolved in
favor of the Company with Hornitos alleged rights to the concessions being revoked in November
2001. The Company filed four lawsuits in 2001 to annul Hornitos alleged ownership claims to the four
disputed concessions that were not covered in the original lawsuits. During May and June 2002, the
1st Court of First Instance of Vallenar disallowed the Companys four petitions for
annulment. These judgments were appealed by the Company, and in March 2003, the Court of Appeals
of Copiapó ruled in favor of the annulment lawsuits filed by the Company. Hornitos subsequently
filed an appeal to the Supreme Court in Santiago. In October 2003, one of the appeals filed by
Hornitos was rejected by the Supreme Court. The remaining three appeals were rejected by the
Supreme Court in August 2004. The area of conflict did not affect any of the known mineralized
zones at the El Morro project. On April 2002, a number of non-authorized independent miners (pirquineros) commenced small-scale
mining operations in the project area. Norandas representatives submitted a claim before the
Public Ministry 42




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##### Table of Contents



to remove the pirquineros from the area. In August 2002, the police visited the
area, gathering information, and subsequently detained 19 pick-up trucks and minerals at a
treatment plant in Copiapó. Noranda and the attorney of the miners held several meetings with the
local authorities in order to obtain a solution granting Norandas rights. In October, an agreement
between Noranda and 64 miners was executed before the local authorities, setting the following
conditions:  
    Noranda would suspend the criminal process against miners who subscribed to the agreement.
    Noranda would allow the restitution of the minerals and equipment retained by the Court
    The miners would not go back to the project area.
    The new access road for the pirquineros would be closed.
    Court cases would continue against any of the miners that carry on with the illegal activities. Claims before the Court of Vallenar were pursued against the miners who did not sign the agreement
mentioned above and who were still working at the El Morro project. In February 2004, Noranda reached an agreement with the remaining pirquineros whereby Noranda
agreed to drop its criminal lawsuits against the pirquineros, in exchange for the pirquineros
agreeing to leave the project area. The pirquineros were also allowed to retain any mineralized
material that had been mined and was in their possession. Environmental Permitting The National Environmental Committee (CONAMA) and Regional Environmental Committees (COREMAs) are
the agencies responsible for environmental management in Chile. For a project or activity to be
environmentally evaluated, it must be submitted into the Environmental Impact Evaluation System
(SEIA), and the CONAMA is responsible for administrating the environmental impact evaluation
procedures. Both exploration and mine development projects are included. The type of assessment
required for each project can be either of the following:  
    an Environmental Impact Assessment (EIA)
    an Environmental Impact Declaration (DIA) In broad terms, an EIA in Chile is comparable with international guidelines for an EIA and is
required if there is sufficient reason for speculating that the project may produce certain
specified environmental impacts. A DIA, on the other hand, is a document that establishes, via a
description of the project and its surrounding environment, that the project will comply with
current norms and environmental standards. A DIA for the El Morro project was filed in Copiapo
before the CONAMA  III Region on October 5, 2001. The scope of the permit was an advanced
exploration and evaluation stage by the use of drilling for a period of the next three years. A
favorable Environmental Qualification Resolution (RCA) was received on December 28, 2001. Geology The El Morro district is located within a 16-kilometer wide north-south trending graben structure
that was uplifted by major reverse faults. The western graben-fault could correspond to the south
extension of the Domeyko fault system, the main controlling feature for the northern Chile copper
porphyry belt, represented by the Collahuasi, Quebrada Blanca, El Abra, Chuquicamata, La Escondida,
El Salvador and Potrerillo mines. The El Morro-La Fortuna copper-gold-molybdenum mineralization may
represent the southernmost extension of the classic Chilean Oligocene porphyry copper belt, more
than 300 kilometers south of the Potrerillos district. 43




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##### Table of Contents



The basement rocks within the graben are made up of Paleozoic to Permo-Triassic crystalline and
volcanic rocks. The Permo-Triassic basement rocks are strongly folded to the west, along the fault
contact that thrusts these volcanic rocks on top of Jurassic red beds. To the east the
Permo-Triassic rocks are covered in erosional unconformity by Triassic-Jurassic rocks. The
Triassic-Jurassic sediments as well as the overlying volcanic-pyroclastic Paleocene-Eocene sequence
have been intensely folded, forming overturned anticlines and synclines. In the central part of
the district, all the Permian to Eocene sequences are intruded by a series of granodioritic to
dioritic porphyrtic stocks and dikes, possibly Oligocene in age. Miocene, dacitic ignimbrite flows
cover all the rock types described above. The ignimbrites are covered by a thick sequence of
Atacama Gravels, assigned to Miocene-Pliocene age. El Morro Area The El Morro project presently consists of two principal target areas: the El Morro area and the
La Fortuna area. Based on field observations, the stratigraphy is grouped into three broad units:
a Permo-Triassic basement, Jurassic (possibly Cretaceous) and Tertiary rocks. The Permo-Triassic
basement rocks are composed mainly of rhyolitic crystal to lapilli tuffs and ignimbrites, with
minor interstratified dacite flows. The younger Jurassic (or Cretaceous) rocks consist of a
volcano-sedimentary package of interbedded dacite tuffs, sandstones, conglomerates, and
volcaniclastic rocks. To the west of the project area, these units are covered with Tertiary
dacitic ignimbrites and andesitic tuffs, agglomerates and flows. At least two major, northeast trending faults are visible along the contact zone between the
Jurassic and the Tertiary units. Andesitic dikes, sills and small stocks intrude the Jurassic and Tertiary units with frequent
porphyritic texture, but of pre-mineral origin. Independently from the andesites, a granodioritic
porphyry of limited surface distribution was identified in outcrop and in diamond drill core. This
porphyry has been described as a biotite  amphibole granodiorite. Besides the granodiorite
porphyry, petrographic studies on surface and core samples have also recognized another intrusive
unit in this area, a dacite porphyry (feldspar, biotite) of difficult macroscopic identification
because of the fine-grained texture and high level of hydrothermal alteration of the rock. Within the Triassic basement, local graben structures are filled with and have preserved younger
stratified rocks, going from marine sequences to continental volcano sedimentary units. The El
Morro area lies in one of these graben basins, at the intersection of the main NS  NE system. A
sheeted vein pattern visible at the El Morro mineralized zone trends to the NW. Other intrusive
bodies like andesite and porphyry dykes, follow the same pattern, with NW and NE directions. La Fortuna Area La Fortuna is a classic copper/gold porphyry-type deposit found in the Eocene-Oligocene Porphyry
Copper Belt of northern Chile. Mineralization is related to cylindrical, multistage subvolcanic
intrusions of granodioritic to dioritic composition, emplaced in a gently east dipping sequence of
andesitic conglomerate, tuffs and sediments. Multistage intrusions are present at La Fortuna, related to Oligocene sub-volcanic igneous
activity, which is at the origin of all the mineralized porphyries in the district. Exploration BHP Minerals, Metallica and Noranda have conducted drilling programs on the El Morro project. A
total of 43,796 meters consisting of 151 reverse circulation and core holes have been drilled on
the project through December 2004. In January 2005, Noranda commenced work on an estimated 8,000
meter drilling program focused on the La Fortuna area of the El Morro project. As of March 14,
2005, the company had not received any drilling results from this drilling program. 44




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##### Table of Contents



Since September 1999, all exploration drilling on the El Morro project has been conducted by
Noranda pursuant to its earn-in requirement under the Exploration Agreement. As of December 31,
2004 Noranda had informed the Company that it had spent approximately $12 million on exploration
activities at the El Morro project. A summary of drilling programs conducted on the El Morro
project is presented below in Table J: TABLE J SUMMARY OF DRILLING PROGRAMS  EL MORRO PROJECTEXPLORATION TARGET AREACompany
    
    

    La Fortuna
    

    
    

    Cantarito
    

    
    

    Camp
    

    
    

    El Negro
    

    
    

    El Morro
    

    
    

    Other
    

    
    

    TotalDDH
    
    
    
    RDH
    
    
    
    DDH
    
    
    
    RDH
    
    
    
    DDH
    
    
    
    RDH
    
    
    
    DDH
    
    
    
    RDH
    
    
    
    DDH
    
    
    
    RDH
    
    
    
    RDH
    
    
    
    DDH
    
    
    
    RDH400.30
    
    
    
    
    (6
    )
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400.30
    
    
    
    
    (16
    )BHP1993
    
    
    
    (1
    )
    
    
    
    1327.90
    
    
    
    
    
    
    
    
    
    997.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    2324.901071.15
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1071.15
    
    
    
    
    (12
    )BHP1994
    
    
    
    (7
    )
    
    
    
    768.00
    
    
    
    
    
    
    
    
    
    379.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    1247.00Metallica
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    500.10
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    500.10
    
    
    
    
    (17
    )1999
    
    
    
    
    
    
    
    
    908.00
    
    
    
    
    
    
    
    
    
    340.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    418.00
    
    
    
    
    (1
    )
    
    
    
    1547.00
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    3213.001159.91
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199.16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2949.32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4308.39Noranda 2000
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Noranda
    
    
    
    9384.93
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    904.40
    
    
    
    
    
    
    
    
    
    4971.65
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15260.982001
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )8247.65
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    748.55
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    (10
    )
    
    
    
    8996.20
    
    
    
    
    (22
    )Noranda 2002
    
    
    
    (16
    )
    
    
    
    1538
    
    
    
    
    
    
    
    
    
    394
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    912
    
    
    
    
    
    
    
    
    
    1094
    
    
    
    
    2536
    
    
    
    
    (19
    )
    
    
    
    6474.00Total (m)
    
    
    
    20263.94
    
    
    
    
    4541.90
    
    
    
    
    
    
    
    
    
    2110.00
    
    
    
    
    1103.56
    
    
    
    
    
    
    
    
    
    5720.20
    
    
    
    
    1430.00
    
    
    
    
    3449.42
    
    
    
    
    2641.00
    
    
    
    
    2536.00
    
    
    
    
    30537.12
    
    
    
    
    13258.90
    DDH  Diamond core drill hole RDH  Reverse circulation drill hole (*)- Represents number of holes drilled Cantarito, El Negro, Camp and Other Target Areas From 1993 through 2002 approximately 58 holes totaling 12,900 meters had been drilled to test
target areas identified as Cantarito, El Negro, Camp and Other. Although some of these holes
encountered intercepts of encouraging mineralization, additional drilling at these areas has failed
confirm the continuity of significant metal values. El Morro Area The El Morro area is located approximately five kilometers west of the La Fortuna area. During the first quarter of 1999, Metallica drilled seven wide-spaced reverse circulation holes to
test the El Morro property. One hole, RDM-2, encountered mineralization averaging 0.64% copper,
0.22 grams per tonne gold and 148 ppm Mo over a 192-meter interval from 76 meters to 268 meters.
During April 1999, a 500-meter deep core hole was drilled to twin reverse circulation hole RDM-2.
The copper and gold assays of the twin core hole were approximately 20% higher when compared to the
reverse circulation hole. In early 2000, Noranda completed a 4,300-meter, 16-hole drilling program on the El Morro project.
On the El Morro property, Noranda drilled 11 core holes totaling 2,949 meters. Although Norandas
drilling did not intercept the grades or widths of the Companys discovery hole RDM-2, the drilling
results did show persistent secondary copper mineralization grading in the 0.2% to 0.5% range over
widths ranging from 75 to 200 meters. Noranda reported that the drilling intersected no intrusive
porphyritic units, only rocks considered to be wall rocks to the porphyry system. In November
2000, Noranda began a second phase of drilling on the El Morro project, none of which took place at
the El Morro area. The objective of Norandas 2002 drilling program at the El Morro area was to test known
mineralization and geophysical targets. In 2002 three new holes had been drilled at the El Morro
area. One of these holes, RDM-9, was drilled within the northeast portion of a projected
mineralized area approximately 1,000 meters in length by 400 meters in width. RDM-9 intersected a
50 meters of secondary 45




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##### Table of Contents



mineralization grading 0.91% copper and 0.58 g/t gold, and 170 meters of
primary mineralization grading 0.45% copper and 0.27 g/t gold. In January 2004, Noranda presented the Company with an inferred resource estimate for the El Morro
area of the El Morro project. The inferred resource estimate was drill tested on approximately
200-meter centers on an area approximately 1.2 kilometers by 1.2 kilometers, consisting of 22
diamond and RC drill holes totaling 6,090 meters. Surface elevations vary from 3,850 to 4,250
meters with the deepest hole tested to an elevation of 3,415 meters. The deposit is not fully
delineated and remains open to the west, northwest and the east. The Qualified Person who
supervised the design and conduct of work performed on the El Morro property is Stanley Clemmer,
Senior International Geologist for Noranda Chile Ltda. Noranda El Morro Area Inferred Mineral Resource Estimate  20040.2% Copper Cutoff Grade
    
    
    
    0.3% Copper Cutoff Grade
    
    
    
    0.4% Copper Cutoff GradeTonnes
    
    
    
    Copper
    
    
    
    Gold
    
    
    
    Tonnes
    
    
    
    Copper
    
    
    
    Gold
    
    
    
    Tonnes
    
    
    
    Copper
    
    
    
    Gold(000s)
    
    
    

    (%)
    
    
    

    (g/t)
    
    
    


(000s)
    
    
    

    (%)
    
    
    

    (g/t)
    
    
    


(000s)
    
    
    

    (%)
    
    
    

    (g/t)Supergene
    
    
    
    80,000
    
    
    
    
    0.39
    
    
    
    
    0.15
    
    
    
    
    50,000
    
    
    
    
    0.47
    
    
    
    
    0.18
    
    
    
    
    35,000
    
    
    
    
    0.52
    
    
    
    
    0.20Primary
    
    
    
    110,000
    
    
    
    
    0.30
    
    
    
    
    0.10
    
    
    
    
    50,000
    
    
    
    
    0.36
    
    
    
    
    0.10
    
    
    
    
    10,000
    
    
    
    
    0.44
    
    
    
    
    0.12Total
    
    
    
    190,000
    
    
    
    
    0.34
    
    
    
    
    0.12
    
    
    
    
    100,000
    
    
    
    
    0.41
    
    
    
    
    0.14
    
    
    
    
    45,000
    
    
    
    
    0.50
    
    
    
    
    0.18
 Norandas 2004 Inferred Mineral Resource estimate for the El Morro area has been determined in
accordance with CIM Definitions on Mineral Resources and Mineral Reserves. La Fortuna Area At the La Fortuna area, consistent but sub-economic copper and gold mineralization was encountered
by BHP. During the spring of 1999, Metallica initiated a drilling program at La Fortuna proper
that consisted of four holes totaling 594 meters and resulted in only anomalous metal values. In
early 2000 Noranda drilled a total of five core holes on the La Fortuna area totaling 1,350 meters.
One hole (DDHF-04) intersected a 70-meter chalcocite enriched zone grading 1.15% copper and 0.35
g/t gold. The remaining holes encountered lesser amounts of mineralization and were mineralized at
depth. In November 2000 Noranda began a second round of drilling in the La Fortuna area that
included 23 holes at La Fortuna totaling 10,197 meters that encountered significant continuity of
metal values. Based on the results from the 2000 and 2001 drilling programs, Noranda calculated an inferred
mineral resource estimate in accordance with CIM Definitions on Mineral Resources and Mineral
Reserves for the La Fortuna area of 410,000 million tonnes of grading 0.61% copper and 0.56 grams
of gold per tonne, at a 0.4% copper cut-off grade. The inferred resource estimate was diamond drill tested on approximately 200-meter centers by
Noranda and was based on 10,545 meters of drilling in 25 holes. The resource, as currently
defined, includes an area of approximately 600 meters by 800 meters of higher-grade mineralization
that extends to a vertical depth of more than 600 meters. The resource remains open to the north,
northwest and at depth. The resource estimate study was conducted using Gemcom software under the supervision of qualified
Noranda professionals. The estimate is based on a block model with a block size of 20 meters on a
side. The copper and gold values were interpolated using an inverse distance algorithm. The
supergene zone, also modeled in three dimensions, was interpolated separately from the primary
zone. All drill core samples were assayed by Bondar Clegg, an independent laboratory with an office
located in Coquimbo, Chile. Gannet certified standards were used to ensure assay quality. The
analytical method was assay analysis for the copper and fire assay with an atomic absorption finish
for the gold values. Norandas Drill Core Sampling and Analysis Protocols, developed through
Norandas Six Sigma process, are employed to ensure quality assurance and quality control. ALS
Chemex in Vancouver, Canada analyzed selected bulk rejects and pulps as part of the quality
assurance program. The Qualified Person who supervised the design 46




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##### Table of Contents



conduct of work performed on
the El Morro property is Stanley Clemmer, Senior International Geologist for Noranda Chile Ltda.,
and John Sullivan, former Director of the El Morro project for Noranda Chile Ltda. The objective of Norandas 2002 drilling program at La Fortuna was to expand the previously
identified mineralized area, which remained open to the north, northwest and at depth. Noranda
drilled 21 holes totaling 9,786 meters in 2002. One hole, DDHF-39, encountered mineralization
averaging 0.65% copper and 0.53 grams of gold per tonne over its entire 970-meter length. Based on
the encouraging results from the 2002 drilling program at La Fortuna, Noranda Inc. completed an
update to its 2001 inferred mineral resource estimate for the La Fortuna area as follows: TABLE K Noranda La Fortuna Area Inferred Mineral Resource Estimate  20020.3% Copper Cutoff
    
    
    
    0.4% Copper Cutoff
    
    
    
    0.5% Copper CutoffTonnes
    
    
    
    Copper
    
    
    
    Gold
    
    
    
    Tonnes
    
    
    
    Copper
    
    
    
    Gold
    
    
    
    Tonnes
    
    
    
    Copper
    
    
    
    Gold(000s)
    
    
    
    (%)
    
    
    
    (g/t)
    
    
    
    (000s)
    
    
    
    (%)
    
    
    
    (g/t)
    
    
    
    (000s)
    
    
    
    (%)
    
    
    
    (g/t)Supergene
    
    
    
    122,000
    
    
    
    
    0.66
    
    
    
    
    0.32
    
    
    
    
    103,000
    
    
    
    
    0.71
    
    
    
    
    0.35
    
    
    
    
    85,000
    
    
    
    
    0.77
    
    
    
    
    0.37Primary
    
    
    
    468,000
    
    
    
    
    0.53
    
    
    
    
    0.50
    
    
    
    
    362,000
    
    
    
    
    0.58
    
    
    
    
    0.54
    
    
    
    
    255,000
    
    
    
    
    0.64
    
    
    
    
    0.56Total
    
    
    
    590,000
    
    
    
    
    0.56
    
    
    
    
    0.46
    
    
    
    
    465,000
    
    
    
    
    0.61
    
    
    
    
    0.50
    
    
    
    
    340,000
    
    
    
    
    0.67
    
    
    
    
    0.51
 The 2002 inferred mineral resource estimate is calculated down to an elevation of 3,400 meters, or
100 meters deeper than Norandas 2001 inferred resource estimate. One diamond drill hole, DDHF-39,
continues in strong mineralization to an elevation of 3,073 meters or over 325 meters below the
2002 inferred resource estimate. Norandas 2002 Inferred Mineral Resource estimate for the La Fortuna area has been determined in
accordance with CIM Definitions on Mineral Resources and Mineral Reserves. The resource estimate study was conducted using Gemcom software under the supervision of qualified
Noranda professionals. The estimate is based on a block model with a block size of 20 meters on a
side and a 15 meters vertical bench height. The copper and gold values were interpolated using an
ordinary kriging algorithm. The primary and supergene zones were interpolated separately for
copper and in combination for gold. All drill core samples were assayed by ALS Chemex (Chile) S.A., an independent laboratory located
in Coquimbo, Chile. Gannet certified standards were used to ensure assay quality. The analytical
method was assay analysis for the copper and fire assay with an atomic absorption finish for the
gold values. Norandas Drill Core Sampling and Analysis Protocols, developed through Norandas Six Sigma
process, were employed to ensure quality assurance and quality control. Geoanalitica, another
independent laboratory located in Coquimbo, Chile analyzed selected bulk rejects and pulps as part
of the quality assurance program. 2005 Work Program Although Noranda has spent the required $10 million on exploration and development at the El Morro
project as required under the Exploration Agreement, Noranda is still required to maintain the
project in good standing and fund all project related costs until it either pays Metallica $10
million, which is due on or before September 14, 2005, or forfeits its option to acquire a 70%
interest in the project. Noranda has informed the Company that it began work on an estimated 8,000
meter drilling program at the La Fortuna area of the El Morro project in January 2005. 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 47




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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 82 square
kilometers and includes 63 km2 of exploration concessions and 19 km2 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. Option Payments
    
    
    Exploration CommitmentsDue Date
    
    Amount
    
    
    Due Date
    
    Amount
    
    
    TotalSeptember 2004
    
    $
    100,000
    
    
    September 2005
    
    $
    375,000
    
    
    $
    475,000September 2005
    
    $
    200,000
    
    
    September 2006
    
    $
    500,000
    
    
    $
    700,000September 2006
    
    $
    200,000
    
    
    September 2007
    
    $
    625,000
    
    
    $
    825,000September 2007
    
    $
    400,000
    
    
    
    
    
    
    
    
    $
    400,000September 2008
    
    $
    750,000
    
    
    
    
    
    
    
    
    $
    750,000September 2009
    
    $
    1,850,000
    
    
    
    
    
    
    
    
    $
    1,850,000Total
    
    $
    3,500,000
    
    
    
    
    $
    1,500,000
    
    
    $
    5,000,000
 At December 31, 2004, the Company had made the initial option payment of $100,000 and had
incurred additional exploration and mineral property costs totaling $391,038 on the project. In February 2005, the Company completed first pass reconnaissance drilling totaling 2,837 meters in
18 holes at four target areas. Although some of these holes encountered intercepts of encouraging
mineralization, continuity of mineralization was not established. A decision to perform follow-up
drilling at the four target areas will be weighed against new targets being developed in other
areas of the project. 2005 Work Program The 2005 work program includes the aforementioned first pass reconnaissance drilling. In addition,
field mapping and sampling, and a geophysical survey are expected to result in the identification
of new target areas. Approximately 4,200 meters of additional reconnaissance drilling is planned
for June 2005 to test these newly identified targets and/or follow-up to the reconnaissance
drilling program conducted in February 2005. The Company has budgeted $800,000 in 2005 for the Rio
Figueroa project, excluding the $200,000 option payment that is due in September 2005. The
decision to make the $200,000 option payment is contingent upon favorable results from the
anticipated June 2005 reconnaissance drilling program. The MIMK and Other Projects, Chile Project History and Exploration In 2000 the Company initiated the MIMK project in Chile. The purpose of the program was to identify
and acquire projects similar to the El Morro project by expanding the satellite spectra information
that had been gathered over the El Morro project. Thirty-four anomalous zones were identified in
an area approximately 90 kilometers by 100 kilometers and located south and west of the El Morro
project. These anomalies were then prioritized based on size, location, geological features and
availability. Fifteen of these anomalies were ultimately acquired by staking. Further evaluation
and prioritization reduced the number of properties to six. During 2002, mapping and sampling continued on the six El Morro type anomalies. As a result of
this work, three of the properties were abandoned resulting in a write-off of $21,000 and two
properties were recommended for further work. Encouraging results from detailed mapping, sampling
and an induced polarization (IP) geophysical survey at the Los Colorados MIMK property resulted in
a decision to drill the property in 2002. The Company conducted a 1,550 meter drilling program
consisting of six widely spaced 48




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##### Table of Contents



holes. Although the drilling did not intersect economic copper or
gold mineralization, the data collected from the drill holes was used by the Company to assist it
in developing a better geological understanding of the region. In 2003, the Company elected not to pursue additional work on the Los Colorados property and wrote
off its $674,364 investment in the property. Two other MIMK properties with a carrying value of
approximately $29,172 were also written off in 2003. In 2004, the MIMK project was terminated resulting in a write-off of the remaining project carrying
value of $81,469. Other projects consist of a three early stage copper-gold exploration projects in Chile that were
initially staked by Noranda and included as part of the El Morro project. Noranda dropped these
properties in 2003, with the Company subsequently acquiring these properties by staking. 2005 Work Program The Company has not budgeted any significant funds for exploration work in 2005 on the three early
stage copper-gold exploration projects in Chile. The Mara Rosa Project, Brazil The Mara Rosa gold project was acquired from a subsidiary of Western Mining Corporation in 1997 for
$1.5 million. At December 31, 2001, the Company wrote-off its $2.9 million investment in the
project. In November 2003, the Company entered into an option agreement to sell its 100% interest
in the Mara Rosa project for $450,000. The Company received $150,000 in 2003 and $300,000 in 2004,
resulting in the option agreement being exercised in 2004. 
 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 18, 2005. It provides a detailed analysis
of the Companys business and compares its 2004 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 a natural resources company focused on the exploration and development of both
precious and base metal properties throughout the Americas. The Company has two principal mineral
properties: the Cerro San Pedro gold and silver project in Mexico and the El Morro copper-gold
project in Chile. The Cerro San Pedro project is 100%-owned by the Company and contains estimated mineral
reserves1 of 61.1 million tonnes grading 0.59 grams of gold and 24.0 grams of silver per
tonne at a waste-to-ore ratio of 1.2 to 1. This equates to 1.2 million ounces of gold and 47
million ounces of silver. The mineral reserves have been estimated using a gold price of $325 per
ounce and a silver price of $4.62 per ounce, and were estimated 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.   1 

    Mineral reserves have been calculated in accordance with National Instrument 43-101, as required by Canadian Securities
regulatory authorities. For United States reporting purposes, Industry Guide 7 (under the Securities Act of 1933 as interpreted by
the Staff of the Securities and Exchange Commission), applies different standards in order to classify mineralization as a reserve.
The Cerro San Pedro project mineral reserves are classified as such under both Canadian and U.S. regulatory authorities. 49




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The El Morro project is subject to an exploration agreement which allows Noranda Inc. to earn a 70%
interest in the project by making a $10 million payment to the Company by September 14, 2005.
Using a 0.4% copper cut-off grade, Noranda has estimated that the La Fortuna area of the El Morro
project contains an inferred mineral resource2 of 465 million tonnes grading 0.61%
copper and 0.50 grams per tonne of gold, which equates to approximately 6.2 billion pounds of
copper and 7.4 million ounces of gold. The inferred mineral resource estimate was prepared by
Noranda Inc. under the supervision of John Sullivan, former director of the El Morro project, and
Stanley Clemmer, Senior International Geologist, both of Noranda Chile Ltda, the Qualified Persons,
in accordance with Canadian Securities Administrators National Instrument 43-101. 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 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. An impairment assessment was performed using estimated long-term future gold and silver prices of
$375 per ounce and $5.75 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 share options used to calculate compensation expense has been estimated using   2

Cautionary note to U.S. investors concerning estimates of
inferred mineral resources: The Company advises U.S. investors that while this
term is recognized and required by National Instrument 43-101 under Canadian
regulations, the U.S. Securities and Exchange Commission does not recognize it.
Inferred mineral 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 mineral resource exists or is economically or legally
mineable.Under Canadian rules, an inferred resource estimate is that part of a
mineral resource for which the 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. 50




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##### Table of Contents



the Black-Scholes Option Pricing Model with the following assumptions: 2004
    
    
    2003
    
    
    2002Risk free interest rate (Canada)
    
    3.3% to 3.5%
    
    3.6% to 4.4%
    
    
    4.5
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected volatility of the Companys common shares
    
    70% to 71%
    
    75% to 87%
    
    
    110
    %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
share options. Asset Retirement Obligation: The Companys reclamation and closure cost obligation is calculated using highly subjective
assumptions that include the Companys long-term risk 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 and base metal deposits. All costs relating to the Companys exploration
activities, other than grass-roots exploration, which is expensed as incurred, are capitalized
until such time as a decision is made to proceed with the development phase of each project. In the
event that the Company elects to proceed with the development of a project, the capitalized
exploration expenditures and subsequent development costs will be depleted on the
unit-of-production basis as the estimated total reserves are mined. Management of the Company
regularly reviews the carrying value of each mineral property. Where information is available and
conditions suggest impairment, estimated future net cash flows from each property are calculated
using estimated future prices, proven and probable reserves, and operating, capital and reclamation
costs on an undiscounted basis. 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. As a result of these potential
write-offs and write-downs from exploration activities,
net income or loss of the Company may be volatile. Financial Results of Operations The Company has incurred losses in two of the last three years due to the lack of an operating
property or other revenue generating activity. The exception was the current year during which the
Company had net income as a result of foreign exchange gains. Management anticipates that net
losses of the Company will continue for at least the next year as a result of ongoing corporate
general and administrative, exploration and reclamation expenses, write-downs of mineral properties
and deferred costs, and other costs and expenses. With the acquisition of Glamis Gold Ltd.s
(Glamis) 50% interest in the Cerro San Pedro project in February 2003, the Company anticipates
that this trend of losses may reverse if, and when, gold and silver are produced from its
100%-owned Cerro San Pedro project in Mexico. However, there are no assurances that commercial
production from the Cerro San Pedro project will be achieved or that such mining activities would
be profitable. Construction of the Cerro San Pedro mine began in February 2004 and was suspended in
June 2004 pending resolution of various permitting and other issues involving the project. As of
February 18, 2005, project construction has not recommenced as discussed in the Corporate Outlook,
Contingencies and Other section of MD&A. 51




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Selected Annual Information 2004
    
    
    2003
    
    
    2002Total revenues
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
    
    $
    1,368,462
    
    
    $
    (1,715,547
    )
    
    $
    (1,320,321
    )Total assets
    
    $
    90,293,100
    
    
    $
    93,353,848
    
    
    $
    17,491,038Long-term liabilities
    
    $
    203,818
    
    
    $
    
    
    
    $
    Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.04
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.04
    )
 The increase in total assets of $75.86 million at December 31, 2003, as compared to December
31, 2002, primarily results from net proceeds from two equity financings in 2003 totaling $70.78
million. 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. 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. 2004 Compared with 2003 The Company reported net income of $1.37 million for the year ended December 31, 2004 as compared
to a net loss of $1.72 million for the year ended December 31, 2003. Significant changes between
the 2004 and 2003 income and expense amounts that comprise net income (loss) 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 source of operating income is from interest earned on
cash and cash equivalents, and income from option payments. Interest income for the year ended December 31, 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
option payments from the sale of its Mara Rosa project totaling $0.30 million, as compared to $0.15
million in 2003. The Company entered into an agreement in November 2003 to sell its Mara Rosa
project for $0.45 million, as described in Note 3(e) to the consolidated financial statements. General and administrative expenses for the year ended December 31, 2004 totaled $1.47 million and
were $0.22 million higher than the 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 Canadian Institute of Chartered Accountants (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. In addition, the Company deferred stock-based compensation
expense totaling $552,400 in 2004 that was attributable to stock options granted to employees at
its Cerro San Pedro project. The Company terminated its MIMK exploration program in 2004 and abandoned its remaining MIMK
properties 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. 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. 52




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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 the current period
results 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. 2003 Compared with
2002

The Company reported a net loss of $1.72 million for the year ended December 31, 2003 as compared
to a net loss of $1.32 million for the year ended December 31, 2002. Significant changes between
the 2003 and 2002 income and expense amounts that comprise net income (loss) are discussed below. Interest income for the year ended December 31, 2003 increased to $0.16 million from $0.06 million
in the preceding year. The $0.10 million increase resulted from higher average invested cash
balances in 2003 due to a $9.47 million private placement for shares and warrants that closed in
March 2003, and a $61.31 million public equity offering for shares and warrants that closed in
December 2003. The Companys only other source of income was from option payments received in 2003
totaling $0.15 million for the sale of its Mara Rosa project. General and administrative expenses for the year ended December 31, 2003 totaled $1.25 million and
were $0.33 million higher than the 2002 expenditures of $0.92 million. The increase was primarily
attributable to a direct mail marketing program undertaken in 2003 at a cost of $0.25 million. Exploration expenses for the year ended December 31, 2003 were $0.22 million as compared to $0.25
million for 2002. The $0.03 million decrease resulted from managements focus on project
development and financing activities at its Cerro San Pedro project in 2003 versus exploration
activities. The Company incurred reclamation and property closure costs relating to its Mara Rosa project in
Brazil of $0.02 million for the year ended December 31, 2003, as compared to $0.20 million for
2002. The Company conducted a significant level of reclamation and closure related activities at
the Mara Rosa project in 2002, whereas the Companys efforts in 2003 were focused on selling the
project. The project was sold in November 2003. The Company abandoned its Los Colorados MIMK exploration project in 2003, which resulted in a
write-down of mineral properties and deferred costs totaling $0.70 million. The Company also
abandoned three MIMK exploration properties in 2002 resulting in a write-down of mineral properties
and deferred costs totaling $0.02 million in 2002. Interest expense of $0.45 million for the year ended December 31, 2003 included $0.44 million of
interest accretion on acquisition debt relating to the Companys purchase of Glamis 50% interest
in the Cerro San Pedro project in February 2003. There was no interest expense in the preceding
year. Foreign exchange gain of $0.61 million in 2003 was primarily attributable to unrealized gains
associated with holding the net proceeds from the December 11, 2003 public equity offering in
Canadian dollars (Cdn$80.75 million), and the subsequent strengthening of the Canadian dollar
relative to the U.S. dollar at year end. The Cdn$/US$ exchange rate at December 11, 2003 was
1.3082 as compared to 1.2946 on December 31, 2003. The majority of the Companys assets,
liabilities and operations in 2002 were denominated in U.S. dollars, resulting in an insignificant
foreign exchange loss for 2002. Summary of Quarterly
Results

The summary of quarterly results has been prepared in accordance with Canadian GAAP. 53




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20044thQuarter
    
    

3rdQuarter
    
    

2ndQuarter
    
    

1stQuarterTotal revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
    
    $
    1,582,433
    
    
    $
    1,649,917
    
    
    $
    (1,174,302
    )
    
    $
    (689,586
    )Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 20034thQuarter
    
    
    3rdQuarter
    
    
    2ndQuarter
    
    
    1stQuarterTotal revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Net income (loss)
    
    $
    363,253
    
    
    $
    (1,326,066
    )
    
    $
    (388,595
    )
    
    $
    (364,139
    )Basic net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.03
    )
    
    $
    (0.01
    )
    
    $
    (0.01
    )
 The high quarterly net income (loss) volatility for 2004 primarily results from holding
significant cash balances in Canadian dollars and high fluctuations in US$/Cdn$ exchange rates.
Net foreign exchange gains (losses) totaled ($587,903), ($895,249), $1,851,729 and $1,800,680 for
the 1st, 2nd, 3rd and 4th quarters of 2004, respectively. The US$/Cdn$ exchange rate was 1.2946 at
December 31, 2003, and 1.3081, 1.3453, 1.2699 and 1.2048 as of March 31, June 30, September 30 and
December 31, 2004, respectively. The increase in loss for the 3rd quarter of 2003 as compared to the preceding two quarters is
attributable to a $0.68 million write-off of the Los Colorados MIMK property and a $0.25 million
direct mail marketing program. Net income in the 4th quarter of 2003 of $0.36 million results from
a foreign exchange gain of $0.60 million due to holding net proceeds of Cdn$80.75 million from the
Companys December 11, 2003 public equity offering in Canadian dollars and the subsequent
strengthening of the Canadian dollar relative to the U.S. dollar at year end. Liquidity and Capital
Resources

The Company relies primarily on the sale of common shares, the exercise of share options and common
share purchase warrants, and joint venture arrangements to fund its exploration and project
development activities. The extent to which such financing options are pursued in the future will
depend upon various factors, including the successful acquisition of new properties or projects,
commodity prices, results from exploration and development activities, and managements assessment
of the capital markets. Any cessation of joint venture funding or significant increase in
exploration or project development activities may require the Company to seek additional funding.
There is no assurance that such financing will be available when needed or that it can be secured
on favorable terms. Furthermore, there is no assurance that the Company will be able to obtain new
properties or projects, or that they can be secured on favorable terms. For the years ended December 31, 2004, 2003 and 2002, the Company received net proceeds of $0.76
million, $71.17 million and $4.08 million, respectively, from the sale of equity securities, and
the exercise of warrants and stock options. Approximately $70.78 million of the 2003 net proceeds
is due to a private placement financing for $9.47 million that closed in March 2003, and a public
equity offering for $61.31 million that closed in December 2003. A portion of the proceeds from
the December 2003 equity financing was used in 2004 to complete the Companys acquisition of its
former joint venture partners 50% interest in the Cerro San Pedro project ($11 million), and to
fund construction and other project related activities at the Cerro San Pedro project totaling
$14.89 million. The Company does not anticipate that it will need to obtain additional equity
financing for at least the next year. The March 11, 2003 private placement financing resulted in the issuance of 10.1 million units at a
price of Cdn$1.50 per unit for gross proceeds of Cdn$15.2 million (US$9.47 million, net of issue
costs). Each unit consisted of one common share and one-half of one common share purchase warrant.
Each whole common share purchase warrant entitles the holder to purchase one common share at an
exercise price of Cdn$2.00 for a period of two years to March 11, 2005. The Company also granted
the underwriters 505,000 compensation warrants. Each compensation warrant entitled the holder to
purchase one common share at an exercise price of Cdn$1.50 per share for a period of one year to
March 11, 2004. Compensation warrants 54




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##### Table of Contents



totaling 151,500 were exercised in 2003, while the remaining
353,500 compensation warrants were exercised in 2004. The December 11, 2003 public equity offering resulted in the issuance of 38.7 million units at a
price of Cdn$2.20 per unit for gross proceeds of Cdn$85.1 million (US$61.3 million, net of issue
costs). Each unit consisted of one common share and one-half of one common share purchase warrant.
Each whole common share purchase warrant entitles the holder to purchase one common share at an
exercise price of Cdn$3.10 for a period of five years to December 11, 2008. The fair value attributable to the warrants and compensation warrants that were issued in the March
2003 financing was $1,484,758 and $136,440, respectively. The fair value attributable to the
warrants that were issued in the December 2003 financing was $5,889,285. The fair value
attributable to the warrants and compensation warrants was estimated using the Black-Scholes Option
Pricing Model with the following assumptions: Risk free interest rate (Canada)
    
    4.0% to 4.1%Expected dividend yield
    
    
    0.0
    %Expected volatility of the Companys common shares
    
    73% to 87%Expected life of warrant
    
    
    1 to 5 years
 Option pricing models require the input of highly subjective assumptions including the
expected price volatility of the Companys shares. Changes in the subjective input assumptions can
materially affect the fair value estimate, and therefore, the existing models do not necessarily
provide a reliable measure of the fair value of the Companys warrants. At December 31, 2004, the Company had working capital of $41.75 million as compared to $59.74
million at December 31, 2003. The decrease in working capital of $17.99 million primarily results
from the following expenditures relating to the Cerro San Pedro project that were incurred during
the year ended December 31, 2004: Payments to Glamis totaling $5 million for contingent purchase
price payments and $2.25 million for a royalty, and $12.50 million for project development,
construction and mineral property costs. The Company has completed all of its payment obligations
relating to its purchase of Glamis 50% interest in the Cerro San Pedro project. The Companys cash and cash equivalents decreased by $24.26 million for the year ended December 31,
2004 as compared to an increase in cash and cash equivalents of $61.59 million for the year ended
December 31, 2003. The $85.85 million increase in 2004 cash outflows is primarily attributable to
the following: an increase of $6.33 million in payments in the current year to Glamis to acquire
its 50% equity interest in the Cerro San Pedro project and a related royalty, an increase in
expenditures on mineral
properties and deferred costs totaling $10.59 million principally due to commencement of
construction at the Cerro San Pedro project in February 2004, and a $70.40 million decrease in
proceeds from the issuance of common shares, and the exercise of warrants and stock options in the
current year. As of December 31, 2004, the Company had capitalized mineral properties and deferred expenditures
totaling $47.36 million. This amount includes $45.22 million relating to the Cerro San Pedro
project, of which $19.75 million and $14.48 million was capitalized in 2004 and 2003, respectively,
for acquisition and other project related costs. In February 2003, the Company acquired Glamis 50% equity interest in Minera San Xavier, S.A. de
C.V. (MSX) for $18 million, less 50% of MSXs working capital deficit at closing of $58,328. As
a result of the purchase, MSX became a wholly owned subsidiary of the Company. The acquisition of
Glamis 50% equity interest in MSX was a business combination accounted for as a purchase
transaction. The purchase price included a contingent payment for $2.5 million payable upon
commencement of commercial production and an additional contingent payment for $2.5 million due one
year from commencement of commercial production. In addition, Glamis retained a sliding scale net
returns royalty on the gross proceeds, less costs and expenses, of all ores, metals and mineral
concentrates mined at the Cerro San Pedro project when gold prices equal or exceed $325 per ounce. 55




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The fair value of the consideration paid to Glamis of $12.5 million ($2.0 million paid at closing
less 50% of MSXs working capital deficit of $58,328, plus $10.5 million representing the estimated
present value of future cash payments of $11.0 million) was allocated to the fair value of the net
assets acquired as follows: Fair value of net assets acquired:Cash
    
    $
    19,739Other current assets
    
    
    72,376Fixed assets
    
    
    75,708Mineral properties
    
    
    12,461,97112,629,794Less: Current liabilities and other
    
    
    (71,265
    )Note payable
    
    
    (100,050
    )$
    12,458,479Consideration:Cash at closing, less working capital deficit
    
    $
    1,941,672Present value of future cash payments,
Discounted at 6%
    
    
    10,516,807$
    12,458,479
 In August 2003 and in February 2004, the Company made acquisition debt payments to Glamis
totaling $5.0 million and $6.0 million, respectively. In March 2004, the Company acquired the
sliding scale net returns royalty from Glamis for $2.25 million and paid the remaining $5.0 million
of contingent payments owed to Glamis. The Company has completed all of its payment obligations to
Glamis resulting from its acquisition of Glamis 50% interest in MSX. Capitalized expenditures relating to the El Morro copper-gold project in Chile totaled $1.64
million at December 31, 2004 and included $0.60 million and $0.01 million for deferred costs that
were capitalized during the years ended December 31, 2004 and 2003, respectively. In December
2004, the Company and Noranda agreed to acquire a 2% NSR royalty on the project held by a former
landowner for $2.0 million. Metallica acquired a 30% interest in the royalty for $0.6 million,
while Noranda acquired a 70% interest in the royalty for $1.4 million. Additional expenditures were made on the Companys El Morro project by Noranda pursuant to earn-in
requirements. Noranda informed the Company that it has incurred approximately $12 million for
exploration and property acquisition expenditures on the El Morro project through December 31,
2004, of which approximately $1 million was incurred in 2004. The Companys exploration agreement
with Noranda provides that Noranda fund all project exploration activities until such time as it
completes the requirements necessary for it to earn a 70% interest in the project. One requirement
of the exploration agreement is that Noranda must make a $10 million payment to the Company by
September 2005. If, and when, the $10 million payment is made, the Company will be required to fund
its 30% share of future exploration expenditures at the El Morro project. See Note 3(b) to the
consolidated financial statements for details relating to the terms of the El Morro exploration
agreement. 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 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. As of December 31, 2004,
the Company had capitalized $0.49 million of costs on the Rio Figueroa project. 56




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##### Table of Contents



The Companys contractual obligations for future payments are summarized as follows: Payments Due by PeriodLess than
    
    
    1  3
    
    
    4  5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    After 5 YearsLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    446,080
    
    
    
    80,023
    
    
    
    130,442
    
    
    
    94,246
    
    
    
    141,369Purchase obligations (1)
    
    
    110,541,000
    
    
    
    7,687,000
    
    
    
    28,645,000
    
    
    
    29,748,000
    
    
    
    44,461,000Other long-term obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    110,987,080
    
    
    $
    7,767,023
    
    
    $
    28,775,442
    
    
    $
    29,842,246
    
    
    $
    44,602,369
   (1)     
Purchase obligations include estimated amounts to be incurred by Washington Group
International totaling $104.7 million, exclusive of fuel costs, pursuant to a ten-year contract
mining and construction services agreement for the Cerro San Pedro project that was entered
into on December 30, 2003. Although project construction is currently suspended, the remaining
contract value has been allocated to future years assuming that construction will re-commence
in mid-2005. The contract provides that the Company may terminate it at any time prior to the
end of the ten-year term, but must pay early termination and demobilization fees to Washington
Group International as follows: TerminationandDemobilizationTermination Period
    
    FeesPre-production
    
    $
    11,560,000Year 1
    
    $
    10,160,000Year 2
    
    $
    7,460,000Year 3
    
    $
    4,760,000Year 4
    
    $
    2,960,000Year 5
    
    $
    2,360,000Year 6
    
    $
    2,060,000Year 7
    
    $
    1,660,000Year 8
    
    $
    1,360,000Year 9
    
    
    
 It is estimated that approximately $4 to $5 million of annual expenditures to be
incurred pursuant to the Washington Group contract will be incurred in Mexican pesos. The
US$/peso exchange rate used in the Washington Group contract was approximately 10.75. As of
February 18, 2005, the US$/peso exchange rate was 11.09. In addition to the Washington
Group contract, the Company will incur peso denominated costs for fuel, explosives, power,
water, salaries and other supplies totaling approximately $7 million per year. The Company
does not currently intend to enter into currency hedging arrangements for its estimated
Mexican peso expenditures. Purchase obligations also include option payments and exploration work commitments relating
to the Rio Figueroa project totaling $4.5 million. In addition, $0.4 million is 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 $0.9
million that is owed to a former owner of certain mining concessions at the Cerro San Pedro
project. 57




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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 the 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 $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
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. Outstanding Share Data As of February 18, 2005, the Company has issued one class of common shares and has a total of
82,691,434 shares outstanding. The Company 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. The Company has an additional 5,049,000 common share purchase warrants
outstanding, each of which is exercisable for one common share at an exercise price of Cdn$2.00 per
share through March 11, 2005. Stock options outstanding as of February 18, 2005 total 2,535,500
and are exercisable for common shares at prices ranging from Cdn$0.45 per share to Cdn$2.87 per
share. Corporate Outlook, Contingencies and Other The Companys focus for 2004 was the construction of its Cerro San Pedro gold and silver project in
central Mexico (the Project) and the resolution of various permitting and other issues involving
the project. Construction began in February 2004 and was expected to take approximately nine
months to complete at a total cost of approximately $28.2 million, plus $3.0 million for project
working capital. 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 in October 2004, the Company received the annual project explosives permit. The
project explosives permit, as with all mine explosives permits in Mexico, expired on December 31,
2004. The Company has applied for and is awaiting receipt of the explosives permit for 2005. In
2005, the Company intends to focus its efforts towards resolving the two issues discussed below and
recommencing construction of the Project; however, there are no assurances that the Companys
efforts to resolve these and other issues will be successful, or that it will recommence
construction. Expenditures relating to the Project for 2005 are estimated to be between $3 million
and $29 million, depending upon when, and if, construction recommences. In August 2004, the Company received notification that a Mexican Federal Court rendered a judgment
in favor of a group opposing the Project who were seeking nullification of the Companys
Manifestacion de Impacto Ambiental (MIA). The MIA is the Mexican equivalent of an Environmental
Impact Statement in
the United States. The legal action brought by the contesting group claimed that the federal
agency that granted the MIA violated various environmental and other laws. The federal agency that
issued the environmental permit to the Company has appealed the decision. Although the permit is
presently valid pending resolution of the appeal, there are no assurances that the federal agencys
or the Companys efforts to overturn the ruling will be successful. In the event that these
efforts are unsuccessful, the Company can appeal the decision, attempt to re-permit the project, or
pursue other options that may be available to the Company. In April 2004, a San Luis Potosí, Mexico, 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.
The Company appealed the Agrarian Court decision and in November 2004, a Federal Court ruled that
the group opposing the Project did not have the legal right to contest the lease and ordered the
Agrarian Court to issue a new decision. In December 2004, 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 58




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##### Table of Contents



lease agreement with the Company, has appealed this latest decision. The
Company continues to have surface rights access pending resolution of the appeals; however, there
are no assurances that the Companys efforts to overturn the ruling will be successful, or that the
Company will be successful in its other efforts to secure surface rights access. The Companys exploration and project development activities are subject to various governmental
laws and regulations relating to the protection of the environment. These environmental
regulations are continually changing and are generally becoming more restrictive. The Company also
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 the 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 Noranda Inc. is required to fund all exploration costs at the El Morro project until such time as
it makes a $10 million earn-in payment to the Company, which is due no later than September 14,
2005. Once this payment is made, the Company will be required to fund its 30% share of ongoing
exploration costs, if any, associated with the project. The Company does not anticipate that it
will incur over $1 million in exploration costs on the El Morro project in 2005. The Company currently estimates that 2005 expenditures on the Rio Figueroa and other exploration
projects will be approximately $1.0 to $1.5 million. This estimate could materially change
depending on the Companys ability to acquire satisfactory exploration projects, progress of work
programs on its projects and market conditions. The Company has historically managed its foreign currency risk by maintaining maximum cash balances
in the currency in which most of the Companys expenditures are made, the U.S. dollar. Based on
US$/Cdn$ currency trends, interest rate differentials and market conditions, management and the
Companys directors elected to maintain the Canadian dollar proceeds from the December 11, 2003
public equity offering of Cdn$80.75 million in Canadian dollars. The US$/Cdn$ exchange rate was
1.3082 on December 11, 2003, 1.2946 on December 31, 2003, 1.2048 at December 31, 2004 and 1.2279 at
February 18, 2005. As of February 18, 2005, the Company
holds approximately Cdn$42 million. 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. The CICA has issued Accounting Guideline 15, Consolidation of Variable Interest Entities, which
will be effective for annual and interim periods beginning on or after January 1, 2005. This
Guideline addresses the application of consolidation principles to entities that are subject to
control on a basis other than ownership of voting interests. The Company does not expect the
adoption of this Guideline to have a material impact on its financial position or results of
operations. 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, 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 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- 59




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##### Table of Contents



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; risks of
liability for environmental damage; and risks associated with international business operations. As
well, the Company is directly and indirectly involved in various lawsuits that relate to its Cerro
San Pedro project in Mexico. In the event of an adverse outcome from certain of these lawsuits, the
Companys ability to complete construction and operate this mine could be impaired. The Company
also has 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 and operating licenses, annual renewal of the
explosives permit, annual renewal of titles to water rights and receipt of an environmental license
that is issued at commencement of operations. Although the Company and its advisors believe that
the Company is currently in compliance with all material conditions of the permits that have been
issued to the Company to date, 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 project construction or operations in the future. 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. 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 four of the last five fiscal years due to the lack of an
operating property or other revenue generating activity. The exception being the 2004 fiscal year
when the Company had net income of $1.4 million as a result of foreign exchange gains totaling $2.2
million. Management anticipates that net losses of the Company will continue for at least the next
year as a result of ongoing corporate general and administrative expenses, write-downs of mineral
properties and deferred costs, and exploration and other expenses. With the acquisition of Glamis
50% interest in the Cerro San Pedro
project in February 2003, the Company anticipates that this trend of losses may reverse if, and
when, gold and silver are produced from its 100%-owned Cerro San Pedro project in Mexico. 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 of March 14, 2005, construction of
the mine has not recommenced. There is no assurance that commercial production from the Cerro San
Pedro project will be achieved or that such mining activities will be profitable. A number of
significant events must occur before commercial production at the Cerro San Pedro project can
begin. These include, but are not limited to, receipt and compliance with certain permits
necessary to continue construction of the mine and commence operations. E) Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements required to be disclosed in this Annual Report on 60




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Form 20-F. F) Tabular Disclosure of Contractual Obligations The information required by this section is included under B. Liquidity and Capital Resources. 
 ITEM 6
    
    Directors, Senior Management and Employees
 A) Directors and Senior Management The following table sets forth the name, 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 ofResidence
    
    
    Age
    
    
    Office Held
    
    
    Director SinceCraig J. Nelsen (2)(4)
Centennial, Colorado
    
    
    
    53
    
    
    
    Chairman, Director
    
    
    
    1994Richard J. Hall (6)
Centennial, Colorado
    
    
    
    55
    
    
    

    President, Chief
Executive Officer
and Director
    
    
    
    1999Denis M. Marsh
Toronto, Ontario (7)
    
    
    
    63
    
    
    
    Former Director
    
    
    
    1994J. Alan Spence(1)(2)
Toronto, Ontario
    
    
    
    67
    
    
    
    Director
    
    
    
    1994Ian A. Shaw (1)(3)
Toronto, Ontario
    
    
    
    64
    
    
    
    Director
    
    
    
    1994Oliver Lennox-King (1)(3)
Toronto, Ontario
    
    
    
    55
    
    
    
    Director
    
    
    
    1998Fred H. Lightner (5)
Centennial, Colorado
    
    
    
    58
    
    
    
    Director
    
    
    
    1999Brad Blacketor
Lone Tree, Colorado
    
    
    
    46
    
    
    
    Vice President,
Chief Financial
Officer & Secretary
    
    
    
    ___
   (1)
    
    Member of the audit committee.(2)
    
    Member of the compensation committee.(3)
    
    Member of the nominating committee.(4)
    
    Mr. Nelsen resigned as Chief Executive Officer on April 9, 1999.(5)
    
    Mr. Lightner was appointed Chief Executive Officer and Director of the Company on March 26,
1999. Mr. Lightner resigned as Chief Executive Officer and was appointed Senior
Vice-President and Chief Operating Officer on November 8, 1999. Mr. Lightner retired as
Senior Vice-President and Chief Operating Officer of the Company on November 30, 2004. Mr. Lightner continues to
be a Director of the Company and serves as a consultant to the Company.(6)
    
    Mr. Hall was appointed President, Chief Executive Officer and Director on November 8, 1999.(7)
    
    Mr. Marsh did not stand for re-election to the Board of Directors at the Companys annual
shareholder meeting on June 10, 2004. The following is a brief biographical description, including principal occupations of each of the
officers and directors of the Company. Craig J. Nelsenholds a Master of Science degree in Geology from the University of New Mexico and a
Bachelor of Arts degree in Geology and has been involved in exploration and mining for over 29
years. From January 1991 to January 1994, Mr. Nelsen was Senior Vice-President of Exploration with
Lac Minerals Ltd. Mr. Nelsen was the Chairman, Chief Executive Officer and a director of the
Company from January 1994 through March 1999. In April 1999, Mr. Nelsen resigned as Chief
Executive Officer of the Company but continues to serve as Chairman and a director of the Company.
Mr. Nelsen is currently the 61




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Executive Vice-President of Exploration and Development of Gold Fields
Ltd., an international gold mining company. Richard J. Hallholds Bachelors and Masters degrees in Geology, and a Masters Degree in Business
Administration, all from Eastern Washington University. Mr. Hall has over 31 years of experience
in the mining industry and has previously held senior management positions with Dayton Mining
Corporation and Pegasus Gold Corporation. Mr. Hall was appointed President and Chief Executive
Officer and director of the Company on November 8, 1999. Ian A. Shawholds a Bachelor of Commerce degree from the University of Toronto and is a Chartered
Accountant. He has over 30 years of experience in the mining industry. Mr. Shaw worked with
Sherritt Inc. (1975-1986), Curragh Inc. (1986-1993, most recently as Vice-President and Treasurer),
and from October 1993 to present has provided financial management services as a consultant to a
number of mineral resource exploration companies. Executive positions he holds or has held since
October 1993 include Secretary and Treasurer of CaribGold Resources Inc. (October 1993 to present),
Treasurer of Pelangio-Larder Mines, Limited and Vice-President, Finance of Pangea Goldfields Inc.
and Tiomin Resources Inc. (January 1994 to December 1994) and Vice-President, Finance of Black Hawk
Mining Inc. from 1997 to 1998. Mr. Shaw was formerly the Secretary and Treasurer of the Company,
and is currently a director of the Company, which position he has held since January 1994. Mr.
Shaw is also the Vice President of Finance and Chief Financial Officer for Weda Bay Minerals Inc.
and Pelangio Mines, Inc., Secretary for Hornby Bay Exploration Limited and a director of Mexgold
Resources Inc. Denis M. Marshis a Chartered Financial Analyst and has worked in the Canadian investment industry
over the past 33 years. Most of his experience has been as an investment analyst for both
investment dealers and investment counselors. His analytical experience encompasses a wide range
of disciplines, including the mining industry. Mr. Marsh has been a Senior Vice-President and
Director of Beutel, Goodman & Company Ltd., a Canadian investment dealer, since 1983 and a director
of the Company from January 1994 through June 2004. Mr. Marsh did not stand for re-election to the
Board of Directors at the Companys annual shareholder meeting on June 10, 2004. J. Alan Spenceholds a Master of Science degree in Geology from McGill University and an Executive
Master of Business Administration degree from Columbia University. He has been involved in mineral
exploration and development for over 35 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. Oliver Lennox-Kingwas 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 21 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). Fred H. Lightnerholds 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 62




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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. Mr. Lightner continues to serve as a
director of the Company and has done so since since March 1999. Bradley J. Blacketorholds a Bachelor of Science degree in Business Administration from Indiana
University and an MBA from Colorado State University. He is also a Certified Public Accountant.
He has over 22 years of experience in domestic and foreign accounting, taxation and finance. He
was Chief Financial Officer and Secretary for Mincorp Ltd. of Denver, Colorado (July 1991 to April
1997), Vice President and Controller of Pincock, Allen & Holt, Inc. of Lakewood, Colorado (July
1988 to July 1991) and an Audit Manager at Touche Ross & Co. in Denver, Colorado (November 1983 to
July 1988). He was appointed Chief Financial Officer and Secretary for the Company in April 1997,
and Vice President of the Company in June 2003. B) Compensation Summary Compensation Table Long-TermCompensationAnnual Compensation
    
    
    AwardsRetirement
    
    
    SecuritiesName and Principal
    
    
    
    
    
    
    
    Salary
    
    
    Plan
    
    
    Under Options
    

    Other CompensationPosition
    
    
    Year
    

    (US$)
    
    
    (US$)
    
    
    Granted (#)
    
    
    (US$)Richard J. Hall
President and CEO
    
    
    
    2004
    
    
    
    $
    130,500
    
    

    $
    6,500
    
    
    
    
    
    

    $
    978Fred H. Lightner
Senior VP and COO (1)
    
    
    
    2004
    
    
    
    $
    113,498
    
    

    $
    5,669
    
    
    
    
    
    

    $
    2,222Bradley J. Blacketor
VP, CFO & Secretary
    
    
    
    2004
    
    
    
    $
    112,250

    
    

    $
    5,613
    
    
    
    
    
    

    $
    470
    There were no options granted during the year ended December 31, 2004. Director Compensation Effective June 10, 2004, the Directors agreed to pay following annual retainer fees to the
nonexecutive Directors of the Company: $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 $40,000 were paid to the
nonexective Directors in 2004. 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 provides 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 provides that any consulting
services provided in excess of three days per month will be charged at the rate of $125 per hour.
For the month of December 2004, Mr. Lightner rendered services to the Company pursuant to the
consulting agreement totaling $2,500. This amount was paid to Mr. Lightner in January 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. For the period
from June 63




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##### Table of Contents



11, 2004 through December 31, 2004, Mr. Lennox King rendered services to the Company
totaling $12,000, none of which has been paid as of March 14, 2005. Nonexecutive 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 $14,000 for 2005 ($13,000 for 2004), 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 $4,000 for 2005 ($3,000 for
2004). 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 14, 2005, 118,674 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 $150,000
and $130,000, 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: 64




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##### Table of Contents



Audit Committee The Company has an Audit Committee which has the functions defined in applicable regulatory and
stock exchange requirements. The Audit Committee is comprised of three non-management directors
who are appointed by the Board. The committee reviews the 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.
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, Oliver Lennox-King and J. Alan Spence. Oliver Lennox-King was
nominated and accepted the appointment to the Audit Committee on June 10, 2004. Prior to June 10,
2004, Mr. Denis M. Marsh was a member of the Audit Committee. Mr. Marsh did not stand for
re-election to the Board of Directors at the Companys annual shareholder meeting on June 10, 2004. Compensation Committee The Compensation Committee consists of three non-management directors. The Committee reviews and
recommends to the Board the remuneration of senior officers. It is also charged with reviewing
senior officer hiring, management development and management succession. The Compensation
Committee is composed of Craig J. Nelsen and J. Alan Spence. Prior to June 10, 2004, Mr. Denis M.
Marsh was a member of the Compensation Committee. Mr. Marsh did not stand for re-election to the
Board of Directors at the Companys annual shareholder meeting on June 10, 2004. Nominating Committee The Nominating Committee consists of two non-management directors. The Committee is responsible
for proposing new nominees to the board and for assessing directors on an ongoing basis. The
Committee is also responsible for assessing the effectiveness of the board as a whole, the
committees of the board and the contribution of individual directors. The Nominating Committee is
composed of Oliver Lennox-King and Ian A. Shaw. D) Employees Number of Employees at the End of Each of the Past Three Years  2004
    
    
    
    2003
    
    
    
    2002United States:Management
    
    
    
    4
    
    
    
    
    4
    
    
    
    
    3Professional
    
    
    
    0
    
    
    
    
    0
    
    
    
    
    0Administrative/support
    
    
    
    1
    
    
    
    
    1
    
    
    
    
    1Mexico:Management
    
    
    
    7
    
    
    
    
    6
    
    
    
    
    0Professional
    
    
    
    6
    
    
    
    
    0
    
    
    
    
    0Administrative/support
    
    
    
    27
    
    
    
    
    29
    
    
    
    
    0
 Glamis Gold Ltd. was the operator of the Cerro San Pedro project in Mexico at December 31, 2002 and
and employed all personnel for the Cerro San Pedro project through a wholly-owned subsidiary. As a
result of the Companys acquisition of Glamis 50% interest in the Cerro San Pedro project in
February 2003, the Company became the operator of the project, and the personnel working at the
project became employees of the Company. The Company utilizes independent contractors in Chile to
carry out its exploration activities. E) Share Ownership The following table sets forth certain information as of March 14, 2005 regarding share ownership
and all outstanding options to purchase the Companys common shares. 65




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##### Table of Contents



ExerciseBeneficial
    
    
    
    
    
    
    
    
    
    
    
    
    
    Beneficial
    
    
    
    Price of the
    
    
    
    ExpirationShare
    
    
    
    Number of
    
    
    
    Number of
    
    
    
    Ownership
    
    
    
    Options/
    
    
    
    Date of theIdentity of Person
    
    
    Ownership
    
    
    
    Options
    
    
    
    Warrants
    
    
    
    Percentage
    
    
    
    Warrants
    
    
    
    Options/or Group
    
    
    (2)
    
    
    
    (1)
    
    
    
    (2)
    
    
    
    (2)
    
    
    
    (Cdn$)
    
    
    
    WarrantsCraig J. Nelsen
    
    
    
    575,000
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    1.0
    %
    
    
    
    0.85
    
    
    
    
    04/20/05207,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.83
    
    
    
    
    06/07/0621,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.45
    
    
    
    
    05/18/0525,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    
    09/21/0525,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/10J. Alan Spence
    
    
    
    30,000
    
    
    
    
    28,750
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    0.83
    
    
    
    
    06/07/0621,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.45
    
    
    
    
    05/18/0525,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    
    09/21/0525,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/10Ian A. Shaw
    
    
    
    20,000
    
    
    
    
    28,750
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    0.83
    
    
    
    
    06/07/0625,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.87
    
    
    
    
    09/21/0525,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/10Oliver Lennox-King
    
    
    
    50,000
    
    
    
    
    21,000
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    0.45
    
    
    
    
    05/18/0520,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.83
    
    
    
    
    06/07/0625,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/0837,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.20
    
    
    
    
    06/03/0825,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/10Bradley J. Blacketor
    
    
    
    12,227
    
    
    
    
    30,000
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    0.45
    
    
    
    
    05/18/0587,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.39
    
    
    
    
    01/10/07125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/08100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/10Fred H. Lightner
    
    
    
    150,161
    
    
    
    
    297,500
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    0.83
    
    
    
    
    06/07/06150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/0825,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/10Richard J. Hall
    
    
    
    412,448
    
    
    
    
    75,000
    
    
    
    
    
    
    
    
    
    *
    
    
    
    
    0.83
    
    
    
    
    06/07/06200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.32
    
    
    
    
    03/12/08150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.64
    
    
    
    
    03/10/105,000
    
    
    
    
    
    
    
    
    
    3.10
    
    
    
    
    12/11/08
   (1)
    
    Includes vested and non-vested options.(2)
    
    Beneficial ownership is determined in accordance with the rules of the Securities and Exchange
Commission. In computing the number of shares or warrants owned by a person and the percentage
ownership of that person, Common Shares subject to options and warrants held by that person that
are currently exercisable or exercisable within 60 days of March 14, 2005, are deemed outstanding.
Such shares, however, are not deemed outstanding for the purposes of computing the percentage
ownership of any other person. This table has been prepared based on 82,701,434 Common Shares
outstanding as of March 14, 2005.*
    
    Less than 1%. The Company had two stock option plans that were designed to give each option holder an
interest in preserving and maximizing shareholder value in the longer term and to reward employees
and service providers for both past and future performance. Individual grants are determined by an
assessment of an individuals current and expected future performance, level of responsibilities
and the importance of his/her position with, and contribution to, the Company. At the Companys
annual meeting of shareholders on June 3, 2003, the shareholders approved an increase in the size
of the Companys stock option plans such that the aggregate number of common shares that could be
issued under the plans after April 29, 2003 would be 5,000,000. In addition, the two stock option
plans were consolidated under one stock option plan, the 1996 Stock Option Plan. Options issued
and outstanding under the 1996 66




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##### Table of Contents



Stock Option Plan as of March 14, 2005 total 3,175,500. A total of 909,333 options have been
exercised subsequent to April 29, 2003, leaving 915,167 options available for issuance under the
1996 Stock Option 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.  Beneficial Shareholders (5% or greater)
    
    
    As of 12/31/04
    
    
    
    As of 12/31/03
    
    
    
    As of 12/31/02Sun Valley Gold LLC
620 Sun Valley Rd.
P.O. Box 2759
Sun Valley, ID 83353 (1)
    
    
    
    5,041,500
    
    
    
    
    5.95
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sun Valley Gold Master Fund Ltd. 
c/o Goldman Sachs (Cayman) Trust,
Limited
2nd Floor, Harbour Centre, N. Church St.
P.O. Box 896
George Town, Grand Caymen
Cayman Islands, B.W.I (2)
    
    
    
    3,892,899
    
    
    
    
    4.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noranda Inc. 
BCE Place
181 Bay Street, Suit 200
Toronto, Ontario M5J 2T3
Canada
    
    
    
    6,003,863
    
    
    
    
    7.26
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Newmont Mining Corporation 
1700 Lincoln Street
Denver, Colorado 80203
    
    
    
    <5
    %
    
    
    
    <5
    %
    
    
    
    <5
    %
    
    
    
    <5
    %
    
    
    
    3,749,932
    
    
    
    
    11.6
    %Passport Management, LLC 
402 Jackson Street
San Francisco, CA 94111 (3)
    
    
    
    <5
    %
    
    
    
    <5
    %
    
    
    
    6,928,860
    
    
    
    
    8.5
    %
    
    
    
    
    
    
    
    
    Royce & Associates, LLC 
1414 Avenue of the Americas
New York, NY 10019 (4)
    
    
    
    6,683,800
    
    
    
    
    8.08
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Royal Precious Metals Fund
c/o The Royal Trust Company
The Royal Trust Tower
P.O. Box 7500, Station A
77 King Street West, 6th Floor
Toronto, Ontario M5W 1P9
Canada
    
    
    
    <5
    %
    
    
    
    <5
    %
    
    
    
    <5
    %
    
    
    
    <5%
    
    
    
    
    3,150,000
    
    
    
    
    9.7
    %
   (1)
    
    Based on Schedule 13G filed February 14, 2005. Includes warrants exercisable into common
shares.(2)
    
    Based on Schedule 13G filed February 28, 2005. Includes warrants exercisable into common
shares. 67




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##### Table of Contents



(3)
    
    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.(4)
    
    Based on Schedule 13G filed on February 11, 2005. 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, 2004 14,532,777 common shares were held by
579 registered record holders in the U.S. The number of outstanding shares of the Companys Common
Stock at March 14, 2005 was 82,701,434. 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 December 1, 2004, the Company entered into a six-month consulting agreement with Fred H.
Lightner, a Director of the Company. The agreement provides 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. 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 Item. 
 ITEM 8
    
    Financial Information
 A) Consolidated Statements and Other Financial Information This Annual Report contains the audited consolidated financial statements of the Company for the
years ended December 31, 2004, 2003, and 2002, including an Audit Report dated February 4, 2005,
except as to Note 14, which is as of February 28, 2005. The following financial statements are
included: Consolidated Balance Sheets as at December 31, 2004 and 2003; Consolidated Statements of
Operations and Deficit for the Years Ended December 31, 2004, 2003, and 2002; and Consolidated
Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002. Also included are
Notes to the Consolidated Financial Statements for the Years Ended December 31, 2004, 2003 and
2002. The Companys consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. Except as
described in Note 13 to the
consolidated financial statements, there are no material measurement differences, for the purposes
of these financial statements, between accounting principles generally accepted in Canada and the
United States. Legal Proceedings The Company is directly and indirectly involved in various lawsuits that relate to its Cerro San
Pedro project in Mexico. These include a lawsuit relating to the validity of its lease agreement
for access to surface rights at the proposed site. Please see Item 4. Information on the Company
 D. Property, Plant and Equipment  The Cerro San Pedro Project, Mexico  Surface and Water Rights
Acquisition. In the event of an adverse outcome from certain of these lawsuits, the Companys
ability to complete construction and operate this mine could be impaired. 68




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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
4, 2005, except as to Note 14, which is as of February 28, 2005. 
 ITEM 9
    
    The Offer and Listing
 A) Offer and Listing Details The Common Shares of the Company are listed and posted for trading on The Toronto Stock Exchange
(the TSX), under the symbol MR. The Common Shares were also traded on the NASD
Over-the-Counter Bulletin Board under the symbol METLF until October 29, 2003. Effective October
30, 2003, the Common Shares were listed and began to trade on the American Stock Exchange (AMEX)
under the symbol MRB. On December 11, 2003, certain warrants to purchase Common Shares of the
Company began trading on the TSX under the symbol MR.WT. The warrants were issued in connection
with a Canadian public offering that closed on December 11, 2003. Each warrant is exercisable into
one Common Share at any time through December 11, 2008 at a price of Cdn$3.10 per share. The following table sets out the annual high and low closing market prices of the Common Shares on
the TSX and the AMEX during the last five fiscal years: TSX
    
    
    
    TSX
    
    
    
    AMEX
    
    
    
    AMEXHIGH (Cdn $)
    
    
    
    LOW (Cdn $)
    
    
    
    HIGH (US $)
    
    
    
    LOW (US $)2000
    
    
    
    0.60
    
    
    
    
    0.20
    
    
    
    
    n/a
    
    
    
    
    n/a2001
    
    
    
    1.45
    
    
    
    
    0.19
    
    
    
    
    n/a
    
    
    
    
    n/a2002
    
    
    
    2.02
    
    
    
    
    1.00
    
    
    
    
    n/a
    
    
    
    
    n/a2003
    
    
    
    2.55
    
    
    
    
    1.12
    
    
    
    
    (1) 1.96
    
    
    
    
    (1) 1.552004
    
    
    
    2.87
    
    
    
    
    1.15
    
    
    
    
    2.15
    
    
    
    
    0.85
    The following table sets out the closing market price range of the Common Shares on the TSX and the
AMEX for the last two years by fiscal quarter: TSX
    
    
    TSX
    
    
    AMEX
    
    
    AMEXHIGH (Cdn $)
    
    
    LOW (Cdn $)
    
    
    HIGH (US $)
    
    
    LOW (US $)Fiscal 2003First Quarter
    
    
    1.70
    
    
    
    1.12
    
    
    
    n/a
    
    
    
    n/aSecond Quarter
    
    
    1.50
    
    
    
    1.20
    
    
    
    n/a
    
    
    
    n/aThird Quarter
    
    
    2.45
    
    
    
    1.18
    
    
    
    n/a
    
    
    
    n/aFourth Quarter
    
    
    2.55
    
    
    
    2.05
    
    
    
    1.96
    
    
    
    1.55Fiscal 2004First Quarter
    
    
    2.76
    
    
    
    2.04
    
    
    
    2.11
    
    
    
    1.53Second Quarter
    
    
    2.87
    
    
    
    1.15
    
    
    
    2.15
    
    
    
    0.85Third Quarter
    
    
    1.72
    
    
    
    1.15
    
    
    
    1.35
    
    
    
    0.86Fourth Quarter
    
    
    1.90
    
    
    
    1.33
    
    
    
    1.57
    
    
    
    1.12
 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: 69




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##### Table of Contents



TSX
    
    
    TSX
    
    
    AMEX
    
    
    AMEXHIGH (Cdn $)
    
    
    LOW (Cdn $)
    
    
    HIGH (US $)
    
    
    LOW (US $)September 2004
    
    
    1.72
    
    
    1.39
    
    
    1.35
    
    
    1.08October 2004
    
    
    1.77
    
    
    1.46
    
    
    1.40
    
    
    1.18November 2004
    
    
    1.90
    
    
    1.50
    
    
    1.57
    
    
    1.20December 2004
    
    
    1.83
    
    
    1.33
    
    
    1.52
    
    
    1.12January 2005
    
    
    1.71
    
    
    1.34
    
    
    1.37
    
    
    1.10February 2005
    
    
    1.90
    
    
    1.59
    
    
    1.52
    
    
    1.29
 On March 14, 2005, the closing price of the Common Shares on the TSX was Cdn$1.64 and US$1.37 on
the AMEX. B) Plan of Distribution This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this section. C) Markets The Companys Common Shares are listed for trading on The Toronto Stock Exchange and the American
Stock Exchange. D) Selling Shareholders This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this section. E) Dilution This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this section. F) Expenses of the Issue This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this section. 
 ITEM 10
    
    Additional Information
 A) Share Capital This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this Item. B) Articles of Incorporation and By-laws On July 16, 2002 the Company was continued from the Business Corporations Act (Ontario) to the
Canada Business Corporations Act (the CBCA). The effect of the continuance is that the Company
is a corporation to which the CBCA applies as if it had been incorporated under the CBCA. The
Companys corporation number under the CBCA is 600473-3. 70




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##### Table of Contents



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. There was no compensation paid or accrued to any director during the year 2003 and
through May 5, 2004. Directors are also entitled to reimbursement of out-of-pocket costs incurred
in connection with their capacity as a director of the Company. The directors cannot conduct any
business without a quorum of directors. The board of directors has unlimited authority to borrow, issue, reissue, pledge, guarantee or
otherwise, funds on behalf of the Company without the approval of the shareholders. 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 share of the common stock is entitled to share equally with each other share of common stock
in dividends from sources legally available therefore, when, as, and if declared by the board of
directors and, upon liquidation or dissolution of the Company, whether voluntary or involuntary, to
share equally in the assets of the Company that are available for distribution to the holders of
the common stock. Each holder of common stock of the Company is entitled to one vote per share.
Cumulative voting shall not be allowed in the election of directors or for any other purpose, and
the holders of common stock have no preemptive rights, redemption rights or rights of conversion
with respect to the common stock. All outstanding shares of common stock and all shares underlying
any warrants when issued will be fully paid and nonassessable by the Company. The board of
directors is authorized to issue an unlimited number of common stock within the limits of the
Canada Business Corporations Act and without stockholder action. All shares of common stock have equal voting rights and voting rights are not cumulative. The
holders of more than 50 percent of the shares of common stock of the Company could, therefore, if
they chose to do so and unless subject to a voting agreement to the contrary, elect all the
directors of the Company. The Companys 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 Preferred Shares On June 18, 1998 the shareholders approved an amendment to the Companys articles of incorporation
to creation of a new class of preference shares issuable in series (Preference Shares). Such
amendment was subsequently incorporated in the Companys Articles of Continuance. The rights,
privileges, restrictions and conditions attaching to the Preference Shares as a class are as
follows:  1.
    Preference Shares may at any time or from time to time be issued in one or more series.
Prior to the issue of the shares of any such series, the directors shall, subject to the
limitations set out below, fix the number of shares in, and determine the designation,
rights, privileges, restrictions and conditions attaching to the shares of such series
including, without limitation: 71




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##### Table of Contents




    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 of 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.  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. A discussion of the
background and objectives of the Rights Plan, and the general impact of the Rights Plan are
discussed below: Background and Objectives of the Rights Plan The Board of Directors considered various strategies, including implementation of a shareholder
rights plan, to ensure that, in the context of a bid for control of the Company through an
acquisition of the Companys Common Shares, shareholders will be positioned to receive full and
fair value for their shares. Of particular concern to the Board of Directors is the widely held
view that existing Canadian securities legislation provides too short a response time to a company
that is the subject of an unsolicited bid for control. An inadequate response time has been
identified as an impediment to ensuring that shareholders are offered full and fair value for their
shares. Also of concern to the Board of Directors is the possibility that, under existing
securities laws, the Companys shareholders could be treated unequally in the context of a bid for
control. These concerns are described in more detail below. 72




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The Rights Plan was not adopted in response to, or in anticipation of, any pending or threatened
take-over bid, nor to deter take-over bids generally. Rather, the objectives of the Rights Plan
are to give adequate time for shareholders to properly assess a bid without undue pressure, for the
Board of Directors to consider value-enhancing alternatives and to allow competing bids to emerge.
In addition, the Rights Plan has been designed to provide shareholders of the Company with equal
treatment in a bid for control of the Company. In adopting the Rights Plan, the Board of Directors considered the following concerns inherent in
the existing legislative framework governing take-over bids in Canada: (a) Time.Current Canadian legislation permits a take-over bid to expire in
35 days. The Board of Directors is of the view that this is not sufficient time to
permit shareholders to consider a take-over bid and to make a reasoned and unhurried
decision. The Rights Plan provides a mechanism whereby the minimum expiry period
for a Take-over Bid must be 45 days after the date of the bid and the bid must
remain open for a further period of 10 Business Days after the Offerer publicly
announces that the shares deposited or tendered and not withdrawn constitute more
than 50% of the Voting Shares outstanding held by Independent Shareholders
(generally, shareholders other than the Offerer or Acquiring Person, their
Associates and Affiliates, and Persons acting jointly or in concert with the Offerer
or Acquiring Person). The Rights Plan is intended to provide shareholders with
adequate time to properly evaluate the offer and to provide the Board of Directors
with sufficient time to explore and develop alternatives for maximizing shareholder
value. Those alternatives could include, if deemed appropriate by the Board of
Directors, the identification of other potential bidders, the conducting of an
orderly auction or the development of a corporate restructuring alternative which
could enhance shareholder value. (b) Pressure to Tender.A shareholder may feel compelled to tender to a bid
which the shareholder considers to be inadequate out of a concern that failing to
tender may result in the shareholder being left with illiquid or minority discounted
shares in the Company. This is particularly so in the case of a partial bid for
less than all shares of a class where the bidder wishes to obtain a control position
but does not wish to acquire all of the Voting Shares. The Rights Plan provides a
shareholder approval mechanism in the Permitted Bid provision which is intended to
ensure that a shareholder can separate the tender decision from the approval or
disapproval of a particular take-over bid. By requiring that a bid remain open for
acceptance for a further 10 Business Days following public announcement that more
than 50% of the Voting Shares held by Independent Shareholders have been deposited,
a shareholders decision to accept a bid is separated from the decision to tender,
lessening the undue pressure to tender typically encountered by a shareholder of a
company that is the subject of a take-over bid. (c) Unequal Treatment.While existing securities legislation has
substantially addressed many concerns of unequal treatment, there remains the
possibility that control of a company may be acquired pursuant to a private
agreement in which a small group of shareholders disposes of shares at a premium to
market price which premium is not shared with the other shareholders. In addition,
a person may slowly accumulate shares through stock exchange acquisitions which may
result, over time, in an acquisition of control without payment of fair value for
control or a fair sharing of a control premium among all shareholders. The Rights
Plan addresses these concerns by applying to all acquisitions of greater than 20% of
the Voting Shares, to better ensure that shareholders receive equal treatment. 73




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##### Table of Contents



General Impact of the Rights Plan It was not the intention of the Board of Directors in adopting the Rights Plan to secure the
continuance of existing directors or management in office, nor to avoid a bid for control of the
Company. For example, through the Permitted Bid mechanism, described in more detail below,
shareholders may tender to a bid which meets the Permitted Bid criteria without triggering the
Rights Plan, regardless of the acceptability of the bid to the Board of Directors. Furthermore,
even in the context of a bid that does not meet the Permitted Bid criteria, the Board of Directors
will continue to be bound to consider fully and fairly any bid for the Companys Common Shares in
any exercise of its discretion to waive application of the Rights Plan or redeem the Rights. In
discharging that responsibility, the Board of Directors must act honestly and in good faith with a
view to the best interests of the Company and its shareholders. The Rights Plan does not preclude any shareholder from utilizing the proxy mechanism of the Canada
Business Corporations Act to promote a change in the management or direction of the Company, and
has no effect on the rights of holders of outstanding voting shares of the Company to requisition a
meeting of shareholders, in accordance with the provisions of applicable corporate and securities
legislation, or to enter into agreements with respect to voting their Common Shares. The
definitions of Acquiring Person and Beneficial Ownership were developed to minimize concerns
that the Rights Plan may be inadvertently triggered or triggered as a result of an overly-broad
aggregating of holdings of institutional shareholders and their clients. The Board of Directors believes that the dominant effect of the Rights Plan will be to enhance
shareholder value, and ensure equal treatment of all shareholders in the context of an acquisition
of control. The Rights Plan does not interfere with the day-to-day operations of the Company. The issuance of
the Rights has not in any way altered the financial condition of the Company, impeded its business
plans or altered its financial statements. In addition, the Rights Plan was initially not dilutive
and is not expected to have any effect on the trading of Common Shares. However, if a Flip-in
Event occurs and the Rights separate from the Common Shares, as described in the summary below,
reported earnings per share and reported cash flow per share on a fully-diluted or non-diluted
basis may be affected. In addition, holders of Rights not exercising their Rights after a Flip-in
Event may suffer substantial dilution. At or prior to the first annual meeting of shareholders of the Company following the third
anniversary of the date of the Rights Plan Agreement, the Board of Directors must submit to the
shareholders a resolution ratifying the continued existence of the Rights Plan. If holders of a
majority of Common Shares held by Independent Shareholders who vote in respect of such resolution
are voted against the continued existence of the Rights Plan, the Board of Directors shall, without
further formality, be deemed to have elected to redeem the Rights at the then current Redemption
Price. Otherwise, the Rights Plan, if ratified after its third anniversary, will remain in force
for a period of six years. On June 6, 2002, the shareholders of the Company ratified the continued
existence of the Rights Plan through March 19, 2005. 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 common stock of the Company
may only be changed by Articles of Amendment, which must be authorized by a special resolution of
shareholders (being a resolution passed by more than two-thirds of the votes cast on the matter at
a meeting of shareholders). In certain circumstances specified in the CBCA, including an amendment
to the Articles of the Company to create a class of shares have rights superior to those of the
common shares, holders of common shares would have a right to dissent in respect of the proposed
amendment. Dissenting shareholders who follow the procedure set out in the CBCA are entitled to
require the Company to pay them the fair value of their shares. Conditions Governing Manner in Which Shareholder Meetings are Convoked The CBCA provides that the directors of the Company may at any time call a special meeting of
shareholders, and shall call an annual meeting of shareholders not later than fifteen months after
holding the last preceding annual meeting (but no later than six months after the end of the
Companys preceding 74




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financial year).Meetings of shareholders may be held at any place within Canada that the
directors determine.The holders of not less than 5% of the issued shares of the Company that
carry the right to vote at a meeting sought to be held may requisition the directors to call a
meeting of shareholders for the purposes stated in the requisition. Notice of each shareholders meeting must be sent to each of the shareholder, directors and auditor
of the Company not less than 21 days and not more than 60 days before the meeting. The Company is
required to prepare an alphabetical list of shareholders entitled to receive notice of a meeting,
showing the number of shares held by each shareholder, not less than ten days after the record date
for determining shareholders entitled to receive such notice (or, if no such record date is fixed,
as of the close of business on the day immediately preceding the day on which the notice is given).
A shareholder whose name appears on the list is entitled to vote the shares shown opposite their
name at the meeting to which the list relates. Each shareholder whose name appears on such list
may attend the meeting in person, or may by a written proxy appoint a proxyholder, who need not be
a shareholder, to attend and act at the meeting in the manner and to the extent authorized by the
proxy. 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 75




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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. A non-Canadian shall not implement an investment reviewable under the Act unless the investment has
been reviewed and the Minister responsible for Investment Canada is satisfied or is deemed to be
satisfied that the investment is likely to be of net benefit to Canada. If the Minister is not
satisfied that the investment is likely to be a net benefit to Canada, the non-Canadian shall not
implement the investment or, if the investment has been implemented, shall divest himself of
control of the business that is the subject of the investment. A non-Canadian or American making the following investments must notify Investment Canada, within
prescribed time limits, of such investments: (i) an investment to establish a new Canadian business; and (ii) an investment to acquire control of a Canadian business which investment is not subject
to review under the Act. Provisions governing the ownership threshold above which shareholder ownership must be disclosed The Ontario Securities Actprovides that a person that has direct or indirect beneficial ownership
of, control or direction over, or a combination of direct or indirect beneficial ownership of, and
of control or direction over, securities of the issuer carrying more than 10% of the voting rights
attached to all the issuers outstanding voting securities must, within 10 days of becoming an
insider, file an insider report in the required form effective the date on which the person
became an insider, disclosing any direct or indirect beneficial ownership of, or control or
direction over, securities of the reporting issuer. The Ontario Securities Actalso provides for
the filing of a report by an insider of a reporting issuer who acquires or transfers securities
of the issuer. This insider report must be filed within 10 days after the end of the month in
which the change takes place. The U.S. rules governing the ownership threshold above which shareholder ownership must be
disclosed are more stringent than those under the Ontario Securities Act. Section 13 of the
Exchange Act imposes reporting requirements on persons who acquire beneficial ownership (as such
term is defined in Rule 13d-3 under the Exchange Act) of more than 5 per cent of a class of an
equity security registered under Section 12 of the Exchange Act. In general, such persons must
file, within 10 days after such acquisition, a report of beneficial ownership with the Securities
and Exchange Commission containing the information prescribed by the regulations under Section 13
of the Exchange Act. This information is also required to be sent to the issuer of the securities
and to each exchange where the securities are traded. Significant differences between law applicable to the Company and law of the United States See preceding two paragraphs. 76




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C) Material Contracts The Company has entered into the following material contracts for the two years preceding the date
of publication of this document:  
    Purchase of Glamis Gold Ltd.s 50% interest in Minera San Xavier, S.A. de C.V., the
owner of the Cerro San Pedro gold and silver project in Mexico, for $18 million plus a
sliding scale royalty when average monthly gold prices exceed $325 per ounce. Please refer
to Item 4  Information on the Company  D. Property, Plant and Equipment  The Cerro San
Pedro Project, Mexico for information about the Companys purchase of Glamis 50% interest
in Minera San Xavier, S.A. de C.V. Please see Exhibit 4.11.
    Mining Contract dated December 30, 2003 between Minera San Xavier, S.A. de C.V.,
Metallica Resources Inc. and Washington Group Latin America, Inc. for contract mining and
related construction services for the Cerro San Pedro project.
    Contract for Constructon dated March 3, 2004 between Minera San Xavier, S.A. de C.V. and
Mextica de Mexico S. de R.L., de C.V. for procurement, supply, installation and
construction of certain facilities at the Cerro San Pedro project.
    Agreement dated March 24, 2004 to acquire Glamis royalty interest in the Cerro San
Pedro project.
    Mining Option to Parchase Contract between Sociedad Contractual Minera Los Potrillos and
Metallica Resources Inc. dated September 2, 2005.
    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. 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. 77




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Certain Canadian Federal Income Tax Consequences The Company believes that the following is a summary of the principal Canadian federal income tax
considerations generally applicable to holders of Common Shares who, for purposes of the Income
Tax Act (Canada) (the Canadian Tax Act): (i) will hold Common Shares as capital property; (ii)
deal at arms length with the Company; (iii) do not and will not have a fixed base or permanent
establishment in Canada; (iv) are not and will not be resident or deemed to be resident in Canada
at any time while they hold Common Shares; (v) do not use or hold, and are not deemed to use or
hold Common Shares in connection with carrying on a business in Canada; and (vi) in the case of a
nonresident of Canada who carries on an insurance business in Canada and elsewhere, the Common
Shares are not designated insurance property pursuant to the amendments to the Canadian Tax Act
and Regulations publicly announced by the Minister of Finance prior to the date hereof (the
Proposed Amendments) and are not effectively connected with an insurance business carried on in
Canada at any time (a non-resident holder). This summary 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 Amendments will be enacted in their present form. However, no assurance can be given
that the Proposed Amendments will be enacted in the form proposed, or at all. Except for the foregoing, this summary does not take into account or anticipate any changes in
law, whether by legislative, administrative or judicial decision or action, nor does it take into
account provincial, territorial or foreign income tax legislation or considerations, which may
differ from the Canadian federal income tax considerations described herein. Dividends Dividends paid or credited to a non-resident holder on the Common Shares will be subject to a
non-resident withholding tax under the Canadian Tax Act at the rate of 25% although such rate may
be reduced under the provisions of an applicable income tax treaty. Disposition of Company Common Shares A non-resident holder will not be subject to tax under the Canadian Tax Act on any capital gain
realized on a disposition or deemed disposition of Common Shares provided such shares are not
taxable Canadian property to such holder at the time of disposition. Generally, the Common
Shares will not be taxable Canadian property to a non-resident holder described above, provided
that such shares are listed on a prescribed stock exchange (which currently includes the TSX and
the NYSE), and the holder, persons with whom such holder does not deal at arms length, or the
holder and such persons, has not owned (or had under option) 25% or more of the issued shares of
any class or series of the capital stock of the Company at any time within five years preceding
the date in question. Even if the Common Shares are taxable Canadian property to a non-resident holder, the Tax Treaty
may generally exempt such a holder who is resident in the United States for purposes of the Tax
Treaty from tax in respect of the disposition provided the value of the Common Shares is not
derived principally from real property situated in Canada. The Company is of the view that the
value of the Common Shares is not currently derived principally from real property situated in
Canada. Certain United States Federal Income Tax Consequences The Company believes that the following is a summary of the principal United States Federal
income tax consequences under current law which are generally applicable to a U.S. Holder (as
defined below) of Common Shares. This discussion does not address all potentially relevant
United States Federal 78




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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. 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 79




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Common Shares are a capital asset in the hands of the U.S. Holder, and will be either a
short-term or long-term capital gain or loss depending upon the holding period of the U.S.
Holder. Gains and losses are netted and combined according to special rules in arriving at the
overall capital gain or loss for a particular tax year. Deductions for net capital losses are
subject to significant limitations. Other Considerations In the following circumstances, the above sections of this discussion may not describe the United
States Federal income tax consequences resulting from the holding and disposition of Common
Shares. Passive Foreign Investment Company The Company may potentially be treated as a passive foreign investment company (PFIC), as
defined in Section 1297 of the Internal Revenue Code of 1986, as amended, depending upon whether
(i) 75% or more of its gross income is passive income; or (ii) 50% or more of the average amount
of its assets produce (or are held for the production of) passive income. For the years ended December 31, 2004, 2003 and 2002, the Company does believe that it is a PFIC
as defined in Section 1297 of the Internal Revenue Code of 1986. The Companys determination in
this respect has been made after reviewing the PFIC provisions and applying such provisions to
its past and present situations. Although it is considered unlikely, there can be no assurance
that the Companys determination concerning its PFIC status may not be challenged by the IRS, or
that the Company will be able to satisfy record keeping requirements which are imposed on certain
PFICs. The Company intends to make annual information available to each U.S. Holder as to its
potential PFIC status and income to be reported. If a U.S. Holder does not make an election with respect to a PFIC, such U.S. Holder may be
subject to additional tax and to an interest charge upon receiving certain dividends from a PFIC,
or upon the disposition of shares of a PFIC. The tax and interest charge are determined by
allocating the distribution or gain over the U.S. Holders holding period of the stock, imposing
tax at the highest rate in effect for each tax year to which the excess distribution is
allocated, and calculating interest on that unpaid tax. If the U.S. Holder makes a timely election either to treat a PFIC as a qualified electing fund
(QEF) or to mark-to-market any publicly traded PFIC stock, the above-described rules generally
will not apply. If a QEF election is made, a U.S. Holder would include annually in gross income
his or her pro rata share of the PFICs ordinary earnings and net capital gain, regardless of
whether such income or gain was actually distributed. The mark-to-market election would cause a PFIC shareholder to include in income each year an
amount equal to the excess, if any, of the fair value of the PFIC stock as of the close of the
taxable year over the shareholders adjusted basis in such stock; or allow the shareholder a
deduction for the excess, if any, of the adjusted basis of the PFIC stock over its fair market
value as of the close of the taxable year. The shareholders adjusted basis in the PFIC stock is
increased by the amount included in income and decreased by any deductions allowed. The PFIC rules are exceedingly complex and, therefore, each U.S. Holder is encouraged and
expected to consult his or her own tax advisor regarding the effect of the Companys potential
PFIC status on such U.S. Holder. The foregoing summary is a general discussion of the United States Federal income tax
considerations to U.S. Holders of Common Shares under current law. It does not discuss all the
tax consequences that may be relevant to particular holders in light of their circumstances or to
holders subject to special rules, such as tax-exempt organizations, qualified retirement plans,
financial institutions, insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers, nonresident alien individuals or foreign corporations whose ownership
of Common Shares is not effectively connected with the conduct of a trade or business in the
United States, shareholders who acquired their stock through 80




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the exercise of employee stock options or otherwise as compensation, and any other non U.S.
Holders. In addition, U.S. Holders may be subject to state, local or foreign tax consequences.
This discussion is not intended to be, nor should it be construed to be, legal or tax advice to
any holder or prospective holder of Common Shares and no opinion or representation with respect
to the United States Federal income tax consequences to any such holder or prospective holder is
made. Holders and prospective holders should therefore consult their own tax advisors with
respect to their particular circumstances. This discussion is limited to U.S. Holders who hold
their Common Shares as capital assets. F) Dividends and Paying Agents This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this Item. G) Statement by Experts This Form 20-F is being filed as an Annual Report under the Exchange Act and, as such, there is no
requirement to provide any information under this Item. H) Documents on Display The documents and exhibits referred to in this document are available for inspection at the offices
of Metallica Management Inc., 12200 East Briarwood Avenue, Suite 165, Centennial, Colorado USA
80112. I) Subsidiary Information The information referred to in this section is not required for reports filed in the United States. 
 ITEM 11
    
    Quantitative and Qualitative Disclosures About Market Risk
 The Company is 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; however, 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. 81




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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. 
 ITEM 14
    
    Material Modifications to the Rights of Security Holders and Use of
Proceeds
 Neither the Company nor any other person has (i) modified materially any instrument defining the
rights of holders of any class of registered securities, (ii) modified materially or qualified the
rights evidenced by any class of registered securities by issuing or modifying any other class of
securities, or (iii) withdrawn or substituted a material amount of the assets securing any class of
registered securities. There has been no change in the trustees or paying agents for any of the
Companys securities during the previous fiscal year. 
 ITEM 15
    
    Controls and Procedures
 Disclosure Controls and Procedures. As of December 31, 2004, 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, 2004, 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 Oliver Lennox-King, 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 82




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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, 2004 and 2003 for audit fees, audit-related
fees, tax fees and all other fees are set forth below: Year Ended
    
    
    Year EndedDec. 31, 2004
    
    
    Dec. 31, 2003(Cdn$)
    
    
    (Cdn$)Audit ServicesAudit of the consolidated financial statements of
Metallica Resources Inc.
    
    $
    37,000
    
    
    $
    35,000Audit of the financial statements of Minera San Xavier,
S.A. de C.V. and Servicios del Plata y Oro, S.A.de
C.V.3
    
    
    42,700
    
    
    
    37,800Review of quarterly consolidated financial statements
    
    
    23,600
    
    
    
    Total Audit Fees
    
    $
    103,300
    
    
    $
    72,800Audit-related ServicesConsultation concerning accounting and financial
reporting standards
    
    
    2,500
    
    
    
    2,600Other
    
    
    4,500
    
    
    
    4,950Prospectus
    
    
    
    
    
    
    60,000Visit Mexico site
    
    
    
    
    
    
    20,000Total Audit-related Fees
    
    $
    7,000
    
    
    $
    87,550
 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 2004 and 2003 were approved by the
Audit Committee. The Audit Committee reviews with PWC whether the non-audit services to be
provided are compatible with maintaining the 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.   3
    Corresponds to US$35,000 (2003 US$31,000) 83




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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, 2004. 84




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PART III 
 ITEM 17
    
    Financial Statements
 The following financial statements are attached and incorporated herein: Description of Document
    
    PageIndependent Auditors Report dated February 4, 2005 (except as to
Note 14, which is as of February 28, 2005)
    
    F-2Consolidated Balance Sheets as at December 31, 2004 and 2003
    
    F-3Consolidated Statements of Operations and Deficit for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December
31, 2004, 2003 and 2002
    
    F-5Notes to Consolidated Financial Statements for the Years Ended
December 31, 2004, 2003 and 2002
    
    F-6
 
 ITEM 18
    
    Financial Statements
 See Item 17. 
 ITEM 19
    
    Exhibits
 The following exhibits are attached and incorporated herein: Description of Document1.1
    
    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
    
    Employment Agreements between the Company and Fred H.
Lightner dated May 16, 1997, April 1, 1999 and November 8,
1999
    
    *4.2
    
    Shareholder Rights Plan Agreement dated March 19, 1999
    
    *4.3
    
    Loan Agreement between Metallica Barbados Inc. and Richard
J. Hall dated June 26, 2000
    
    *4.4
    
    Noranda Exploration Agreement dated September 14, 1999
    
    *4.5
    
    Noranda Exploration Agreement dated February 10, 2000
    
    *
 85




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Description of Document4.6
    
    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
    
    *4.7
    
    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
    
    *4.8
    
    Contract for Constructon dated March 3, 2004 between Minera
San Xavier, S.A. de C.V. and Mextica de Mexico S. de R.L.,
de C.V., for procurement, supply, installation and
construction of certain facilities at the Cerro San Pedro
project
    
    *4.9
    
    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
    
    *4.10
    
    Lease between Ejido Cerro de San Pedro and Minera San
Xavier, S.A. de C.V.
    
    *4.11
    
    Mining Option to Parchase Contract between Sociedad
Contractual Minera Los Potrillos and Metallica Resources
Inc. dated September 2, 20044.12
    
    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, 20044.13
    
    Employment Agreement between Richard J. Hall and Metallica
Resources Inc and Metallica Management Inc. dated March 1,
20054.14
    
    Employment Agreement between Bradley J. Blacketor and
Metallica Resources Inc and Metallica Management Inc. dated
March 1, 20054.15
    
    Consulting Agreement between Fred H. Lightner and Metallica
Resources Inc. dated December 1, 20044.16
    
    Services Agreement between Oliver Lennox-King and Metallica
Resources Inc. dated June 11, 20048
    
    Subsidiaries of the Company12.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended12.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended13.1
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 86




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##### Table of Contents



Description of Document13.2
    
    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
    87




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Metallica Resources Inc.
(A Development Stage Company) Consolidated Financial Statements
as at December 31, 2004 and 2003 and for the
years ended December 31, 2004, 2003 and 2002 F-1




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##### Table of Contents



Managements Report To the Board of Directors and Shareholders of Metallica Resources Inc.: Management is responsible for the preparation of the information contained in this annual report
and for the consistency between the consolidated financial statements and other financial operating
data contained elsewhere in the report. The accompanying consolidated financial statements have
been prepared by management in accordance with accounting principles generally accepted in Canada
and necessarily include amounts based on estimates and judgments. Management has established and maintains a system of internal control, designed to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use and that financial
information is reliable and accurate. The Audit Committee of the Board of Directors, comprised of
non-management directors, has reviewed the consolidated financial statements with management and
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), and their report
follows. Richard J. Hall
Richard J. Hall
President and Chief Executive Officer Bradley J. Blacketor
Bradley J. Blacketor
Vice President, Chief Financial Officer and Secretary February 28, 2005 F-2




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Auditors Report To the Shareholders of Metallica Resources Inc.: We have audited the accompanying consolidated balance sheets of Metallica Resources Inc. and its
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations and deficit and cash flows for each of the three years in the period ended December 31,
2004. 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, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Metallica Resources Inc. and its subsidiaries at
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2004, in conformity with accounting principles
generally accepted in Canada. PricewaterhouseCoopers LLP
PricewaterhouseCoopers
Vancouver, Canada
February 4, 2005, except for Note 14, which is as February 28, 2005 Comments by Auditors for
United States Readers on Canada-United States Reporting
Differences
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 4, 2005, except for Note 14, which is as of February 28, 2005 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. F-3




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Consolidated Balance Sheets
December 31, 2004 and 2003U.S. dollars  2004
    
    
    2003AssetsCurrent assets:Cash and cash equivalents (Note 11)
    
    $
    41,848,986
    
    
    $
    66,110,056Value-added tax receivable and other current assets
    
    
    640,244
    
    
    
    415,87842,489,230
    
    
    
    66,525,934Mineral properties and deferred expenditures (Note 3)
    
    
    47,355,378
    
    
    
    26,574,390Property, plant and equipment (Note 4)
    
    
    416,464
    
    
    
    234,863Other assets
    
    
    32,028
    
    
    
    18,661Total assets
    
    $
    90,293,100
    
    
    $
    93,353,848Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    738,384
    
    
    $
    597,771Reclamation and closure cost obligation
    
    
    
    
    
    
    29,796Note payable (Note 5)
    
    
    
    
    
    
    200,100Acquisition debt (Note 3(a))
    
    
    
    
    
    
    5,959,740738,384
    
    
    
    6,787,407Asset retirement obligation (Note 6)
    
    
    203,818
    
    
    
    Shareholders equity:Share capital (Note 7(b)) 82,687,043 common shares (2003: 81,763,885)
    
    
    107,661,917
    
    
    
    106,786,049Warrants (Note 7(d))
    
    
    7,373,839
    
    
    
    7,469,578Stock options (Note 7(c))
    
    
    1,043,156
    
    
    
    6,675Deficit
    
    
    (26,728,014
    )
    
    
    (27,695,861
    )89,350,898
    
    
    
    86,566,441Total liabilities and shareholders equity
    
    $
    90,293,100
    
    
    $
    93,353,848
 Nature of operations (Note 1) Contingencies and commitments (Notes 3 and 10) Subsequent event (Note 14) Approved by the Board: Craig J. Nelsen
Craig J. Nelsen Ian A.
Shaw

Ian A. Shaw The accompanying notes are an integral part of these consolidated financial statements. F-4




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Consolidated Statements of Operations and Deficit
For the years ended December 31, 2004, 2003 and 2002U.S. dollars, except share data  2004
    
    
    2003
    
    
    2002Interest income
    
    $
    925,180
    
    
    $
    158,087
    
    
    $
    64,918Income from option payments (Note 3(e))
    
    
    300,000
    
    
    
    150,000
    
    
    
    1,225,180
    
    
    
    308,087
    
    
    
    64,918General and administrative expense
    
    
    1,469,246
    
    
    
    1,252,077
    
    
    
    920,604Exploration expense
    
    
    192,627
    
    
    
    212,366
    
    
    
    246,828Reclamation and property closure costs
    
    
    22,368
    
    
    
    17,421
    
    
    
    198,749Stock-based compensation expense
    
    
    83,466
    
    
    
    6,675
    
    
    
    Write-down of mineral properties and deferred expenditures
    
    
    81,469
    
    
    
    703,536
    
    
    
    21,000Interest expense (Note 3(a))
    
    
    40,260
    
    
    
    446,851
    
    
    
    Foreign exchange (gain) loss, net
    
    
    (2,169,257
    )
    
    
    (609,547
    )
    
    
    3,281Income (loss) before income taxes
    
    
    1,505,001
    
    
    
    (1,721,292
    )
    
    
    (1,325,544
    )Income tax provision (recovery) (Note 8)
    
    
    136,539
    
    
    
    (5,745
    )
    
    
    (5,223
    )Net income (loss)
    
    
    1,368,462
    
    
    
    (1,715,547
    )
    
    
    (1,320,321
    )Deficit at beginning of year as previously reported
    
    
    (27,695,861
    )
    
    
    (25,980,314
    )
    
    
    (24,659,993
    )Stock-based compensation expense (Note 7(c))
    
    
    (400,615
    )
    
    
    
    
    
    
    Deficit at beginning of year as restated
    
    
    (28,096,476
    )
    
    
    (25,980,314
    )
    
    
    (24,659,993
    )Deficit at end of year
    
    $
    (26,728,014
    )
    
    $
    (27,695,861
    )
    
    $
    (25,980,314
    )Basic net income (loss) per share
    
    $
    0.02
    
    
    $
    (0.04
    )
    
    $
    (0.04
    )Diluted net income (loss) per share
    
    $
    0.01
    
    
    $
    (0.04
    )
    
    $
    (0.04
    )Weighted average number of common shares outstanding
    
    
    82,405,035
    
    
    
    42,865,141
    
    
    
    31,295,063
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the years ended December 31, 2004, 2003 and 2002U.S. dollars  2004
    
    
    2003
    
    
    2002Cash Flows Provided From (Used for) Operating ActivitiesNet income (loss)
    
    $
    1,368,462
    
    
    $
    (1,715,547
    )
    
    $
    (1,320,321
    )Non-cash items:Depreciation and amortization
    
    
    12,865
    
    
    
    10,564
    
    
    
    8,638Stock-based compensation expense
    
    
    83,466
    
    
    
    6,675
    
    
    
    Interest expense
    
    
    40,260
    
    
    
    442,933
    
    
    
    Common share contribution to retirement plan
    
    
    23,060
    
    
    
    21,735
    
    
    
    17,163Reclamation and property closure costs
    
    
    
    
    
    
    17,421
    
    
    
    24,000Write-down of mineral properties and deferred
expenditures
    
    
    81,469
    
    
    
    703,536
    
    
    
    21,000Foreign exchange (gain) on foreign cash held
    
    
    (2,169,257
    )
    
    
    (609,547
    )
    
    
    Changes in non-cash working capital:Value-added tax and other current assets
    
    
    (224,366
    )
    
    
    (158,022
    )
    
    
    34,584Accounts payable and accrued liabilities
    
    
    (21,884
    )
    
    
    217,940
    
    
    
    (16,159
    )Reclamation and closure cost obligation
    
    
    (29,796
    )
    
    
    (137,625
    )
    
    
    Other assets
    
    
    (13,550
    )
    
    
    (13,664
    )
    
    
    1,238(849,271
    )
    
    
    (1,213,601
    )
    
    
    (1,229,857
    )Cash Flows (Used for) Investing ActivitiesAcquisition of subsidiary, net of cash acquired
    
    
    (5,000,000
    )
    
    
    (1,921,933
    )
    
    
    Mineral properties and deferred expenditures
    
    
    (14,889,399
    )
    
    
    (2,044,946
    )
    
    
    (886,771
    )Payments to acquire property, plant and equipment
    
    
    (254,405
    )
    
    
    (105,504
    )
    
    
    (18,348
    )(20,143,804
    )
    
    
    (4,072,383
    )
    
    
    (905,119
    )Cash Flows Provided From (Used for) Financing ActivitiesContributions to joint venture by joint venture partner
    
    
    
    
    
    
    
    
    
    
    61,968Common shares and units issued for cash, net of issue costs
    
    
    
    
    
    
    70,774,607
    
    
    
    4,054,994Proceeds from exercise of warrants
    
    
    400,230
    
    
    
    168,454
    
    
    
    Proceeds from exercise of options
    
    
    362,618
    
    
    
    222,546
    
    
    
    26,799Repayment of acquisition debt
    
    
    (6,000,000
    )
    
    
    (5,000,000
    )
    
    
    Repayment of note payable
    
    
    (200,100
    )
    
    
    
    
    
    
    (50,000
    )Proceeds from repayment of loan to director
    
    
    
    
    
    
    100,000
    
    
    
    (5,437,252
    )
    
    
    66,265,607
    
    
    
    4,093,761Foreign Exchange Gain on Foreign Cash Held
    
    
    2,169,257
    
    
    
    609,547
    
    
    
    (Decrease) increase in cash and cash equivalents
    
    
    (24,261,070
    )
    
    
    61,589,170
    
    
    
    1,958,785Cash and cash equivalents, beginning of year
    
    
    66,110,056
    
    
    
    4,520,886
    
    
    
    2,562,101Cash and cash equivalents, end of year
    
    $
    41,848,986
    
    
    $
    66,110,056
    
    
    $
    4,520,886
 Supplementary Cash Flow Information (Note 11) The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars  1.
    Nature of OperationsMetallica Resources Inc. (the Company) is engaged in the exploration, development and
acquisition of mineral deposits principally in Mexico and South America.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 10.The Company is also advancing a copper-gold exploration project in Chile with Noranda Inc. (Note
3(b)) and is pursuing various other exploration projects in North and South America.2.
    Summary of Significant Accounting PoliciesThese consolidated financial statements are prepared in accordance with generally accepted
accounting principles (GAAP) in Canada. The significant measurement differences between these
principles and those that would be applied to the Company under United States GAAP are described
in Note 13.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.
    De Re Holdings Inc.
    Desarrollos Metallica C.A.
    MMM Exploraciones, S.A. de C.V.
    Metallica (Barbados) Inc.
    Metallica Management Inc.
    Minera Metallica Limitada
    Minera San Xavier, S.A. de C.V.
    Raleigh Mining International Limited
    Servicios del Plata y Oro, S.A. de C.V. On February 12, 2003, the Company acquired Glamis Gold Ltd.s 50% interest in Minera San Xavier,
S.A. de C.V. (MSX), which resulted in the Company owning a 100% interest in MSX. Prior to
February 12, 2003, the Companys 50% joint venture investment in MSX is included in these
consolidated financial statements using the proportionate consolidation method. Subsequent to
February 12, 2003, MSX is reflected as a wholly owned subsidiary. Use of Estimates
The preparation of consolidated financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent liabilities at the date
of the consolidated financial statements and the reported amount of expenses during the
reporting period. 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 and its assessment of its mineral
property values. Actual results could differ from those reported. 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. F-7




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Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars 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, are capitalized until commercial production is established, the property is disposed of
through sale or otherwise, or the current amount is impaired. Expenditures related to
grassroots exploration are expensed as incurred. If a project is put into commercial production,
capitalized costs would be depleted on the unit-of-production basis. Proceeds received from the partial sale or sale of any interest in a property are credited
against the carrying cost of such property until the payments are in excess of the costs
incurred, at which time they are then credited to income. The costs deferred at any time do not necessarily reflect present or future values. The
ultimate recovery of such amounts depends on the discovery of economically recoverable reserves,
successful commercial development of the related properties, availability of financing, future
profitable production, or proceeds from the disposition of the properties. Management of the Company regularly reviews the carrying value of each mineral property. Where
information is available and conditions suggest impairment, estimated future net cash flows from
each property are calculated using estimated future prices, proven and probable reserves and
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. 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 rates are being used: Equipment
    
    3 to 17 yearsVehicles
    
    4 yearsBuildings and leasehold improvements
    
    3 to 20 yearsFurniture
    
    3 to 10 years
 Asset Retirement Obligations
On January 1, 2004, the Company adopted the new accounting standard for asset retirement
obligations, Canadian Institute of Chartered Accountants (CICA) Section 3110. The standard
requires that the fair value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The adoption of this standard did not have any impact on the Companys
financial position or results of operations in 2003 as the Company did not commence construction
at its Cerro San Pedro project until February 2004. F-8




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Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars Financial
Instruments

At December 31, 2004, the carrying values of cash and cash equivalents, value-added tax and
other current assets, and accounts payable and accrued liabilities approximate their fair value
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. Stock-based
Compensation Plan

The Companys stock-based compensation plan is described in Note 7. Effective January 1, 2004,
the Company retroactively adopted the 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. 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 has 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 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.  3.
    Mineral Properties and Deferred Expenditures Mineral property costs and deferred expenditures are summarized as follows: December 31, 2004MineralProperty
    
    
    DeferredCosts
    
    
    Expenditures
    
    
    TotalCerro San Pedro, Mexico (a):Balance at January 1, 2004
    
    $
    16,115,223
    
    
    $
    9,353,297
    
    
    $
    25,468,520Acquisition of subsidiary
    
    
    5,000,000
    
    
    
    
    
    
    
    5,000,000Additions
    
    
    2,754,364
    
    
    
    11,992,341
    
    
    
    14,746,705
 F-9




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars December 31, 2004MineralProperty
    
    
    DeferredCosts
    
    
    Expenditures
    
    
    TotalBalance at December 31, 2004
    
    
    23,869,587
    
    
    
    21,345,638
    
    
    
    45,215,225El Morro, Chile (b):Balance at January 1, 2004
    
    
    90,000
    
    
    
    949,589
    
    
    
    1,039,589Acquisition of royalty
    
    
    600,000
    
    
    
    
    
    
    
    600,000Balance at December 31, 2004
    
    
    690,000
    
    
    
    949,589
    
    
    
    1,639,589Rio Figueroa, Chile (c):Balance at January 1, 2004
    
    
    
    
    
    
    
    
    
    
    Additions
    
    
    115,856
    
    
    
    375,182
    
    
    
    491,038Balance at December 31, 2004
    
    
    115,856
    
    
    
    375,182
    
    
    
    491,038Other projects, Chile (d):Balance at January 1, 2004
    
    
    15,570
    
    
    
    50,711
    
    
    
    66,281Additions
    
    
    8,971
    
    
    
    15,743
    
    
    
    24,714Write-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
 December 31, 2003MineralProperty
    
    
    DeferredCosts
    
    
    Expenditures
    
    
    TotalCerro San Pedro, Mexico (a):Balance at January 1, 2003
    
    $
    3,609,686
    
    
    $
    7,374,956
    
    
    $
    10,984,642Acquisition of subsidiary
    
    
    12,461,971
    
    
    
    
    
    
    
    12,461,971Additions
    
    
    43,566
    
    
    
    1,978,341
    
    
    
    2,021,907Balance at December 31, 2003
    
    
    16,115,223
    
    
    
    9,353,297
    
    
    
    25,468,520El Morro, Chile (b):Balance at January 1, 2003
    
    
    90,000
    
    
    
    946,004
    
    
    
    1,036,004Additions
    
    
    
    
    
    
    3,585
    
    
    
    3,585Balance at December 31, 2003
    
    
    90,000
    
    
    
    949,589
    
    
    
    1,039,589MIMK and other projects, Chile (d):Balance at January 1, 2003
    
    
    9,762
    
    
    
    556,785
    
    
    
    566,547Additions
    
    
    12,095
    
    
    
    191,175
    
    
    
    203,270Write-offs
    
    
    (6,287
    )
    
    
    (697,249
    )
    
    
    (703,536
    )Balance at December 31, 2003
    
    
    15,570
    
    
    
    50,711
    
    
    
    66,281$
    16,220,793
    
    
    $
    10,353,597
    
    
    $
    26,574,390
  a)
    Mexico Cerro San Pedro ProjectThe Cerro San Pedro gold and silver project (the Project) is located in the State of San
Luis Potosí, Mexico and is owned by Minera San Xavier, S.A. de C.V. (MSX). The
feasibility study for the Project is based on an open-pit mining operation with heap-leach
processing of ores.On February 12, 2003, the Company acquired Glamis Gold Ltd.s (Glamis) 50% equity interest
in MSX for $18 million, less 50% of MSXs working capital deficit at closing of $58,328. As
a result of the purchase, the Company owns 100% of the issued and outstanding shares of MSX.
The purchase price was paid as follows:  i)
    $2 million paid at closing. F-10




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars  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). At December 31, 2003, these amounts represented
contingent consideration and were therefore not recognized as acquisition costs. The purchase agreement also provided for Glamis to retain a sliding scale net returns
royalty on the gross proceeds, less costs and expenses, of all ores, metals and mineral
concentrates mined at the Project when gold prices equal or exceed $325 per ounce. 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, has been allocated to the fair value of the net assets
acquired as follows: Fair Value of Net Assets Acquired:Cash
    
    $
    19,739Other current assets
    
    
    72,376Property, plant and equipment
    
    
    75,708Mineral properties
    
    
    12,461,97112,629,794Less: Current liabilities and other
    
    
    (71,265
    )Note payable
    
    
    (100,050
    )$
    12,458,479Consideration:Cash at closing, less working capital deficit
    
    $
    1,941,672Present value of future cash payments,
discounted at 6%
    
    
    10,516,807$
    12,458,479
 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 the sliding scale net returns royalty that Glamis
had retained as part of the sale of its 50% equity interest in the Project 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 has been allocated to mineral
properties. On December 30, 2003, the Company awarded a contract to Washington Group International to
provide MSX with contract mining and related construction services over the pre-production
period and estimated mine life totaling approximately ten years. The contract has an
estimated gross value, exclusive of fuel costs, of approximately $105 million. The contract
also provides that MSX, and in certain circumstances Washington Group, may terminate the
contract at any time prior to the end of the F-11




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars ten-year term, but MSX is required to pay early termination fees and demobilization costs to
Washington Group as follows: DemobilizationandTermination 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
    
    
    
 Project construction was suspended in June 2004 pending resolution of various
permitting and other issues (Note 10). The Company has entered into a Standby Agreement and
extensions thereto with Washington Group in order to maintain the construction equipment at
the project site. The current agreement provides for the Company to make monthly payments
to Washington Group of $110,910 through the end of February 2005. The Project is subject to a 1.95% royalty on the gross value of metals and minerals
contained in production in all mineral concessions presently owned or optioned by MSX. In
addition, MSX has entered into an agreement with a former owner of certain mining
concessions that provides for the greater of a 2.5% net smelter returns (NSR) royalty on
any production that occurs on the properties or $50,000 per year beginning April 2003,
subject to a maximum of $1.0 million. MSX has made minimum royalty payments totaling
$100,000 under the agreement. Prior to the Companys acquisition of Glamis interest in MSX on February 12, 2003, the
Company accounted for its investment in MSX using the proportionate consolidation method.
Under this method, the Companys 50% share of MSXs assets, liabilities and cash flows was
combined with the financial results of the Company and its subsidiaries. The Companys 50%
share of the cash flows of MSX for the year ended December 31, 2002 was as follows: Year EndedDecember 31,2002Cash inflow (outflow) from:Operating activities
    
    $
    131,546Investing activities
    
    
    (382,896
    )Financing activities
    
    
    11,968Decrease in cash
    
    $
    (239,382
    )
  b)
    Chile El Morro ProjectThe Companys activities in Chile are concentrated on gold and copper exploration targets.
The El Morro copper-gold project consists of the La Fortuna and El Morro areas. The
Companys 100% interest in the El Morro area, which is approximately four kilometers from
the La Fortuna area, was acquired by staking in 1998.In July 2003, the Company exercised an option agreement to acquire a 100% interest in the La
Fortuna mining concessions owned by BHP Billiton (BHP) upon making cumulative payments to
BHP totaling $1.7 million. The option agreement provided that BHP would retain a 2% NSR
royalty on any production from the mining concessions it sold to the Company. In December
2004, the Company and F-12




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars Noranda Chile Ltda. (Noranda) agreed to acquire the 2% BHP NSR royalty for $2.0 million.
Metallica acquired a 30% interest in the royalty for $0.6 million, while Noranda acquired
a 70% interest in the royalty for $1.4 million. The allocation of the purchase price was
made by Metallica and Noranda in accordance with the terms of the exploration agreement
discussed below. In 2001, the Company exercised an option to acquire a 100% interest in other La Fortuna
mining concessions owned by S.L.M. Cantarito and S.L.M. Tronquito (collectively Martin)
upon making cumulative payments to Martin totaling $1.5 million. Martin retained a 2% NSR
royalty on the concessions it sold to the Company. In 2002, Noranda exercised an option to acquire a 100% interest in the La Fortuna mining
concessions, referred to as Santa Julia, pursuant to the exploration agreement discussed
below. The Company is also required to make additional payments totaling $400,000 to the
former owners of the Santa Julia concessions within two years of commencement of mining on
the Santa Julia concessions. The Company entered into an exploration agreement with Noranda for the El Morro project in
September 1999. In February 2000, the exploration agreement was amended and provides for
Noranda to earn up to a 70% interest in the project by making aggregate exploration and
property acquisition expenditures of $10.0 million over a five-year period beginning
September 1999, and a payment to the Company of $10.0 million by September 14, 2005.
Noranda has advised the Company that as of December 31, 2004, it had incurred approximately
$12 million of exploration and property acquisition expenditures on the El Morro project.
Noranda is required to continue to fund all exploration activities at the El Morro project
until it either makes the $10.0 million payment to the Company that is due on or before
September 14, 2005, or forfeits its interest in the project. As of December 31, 2004, the Company had incurred mineral property costs and deferred
expenditures totaling $1,639,589 on the El Morro project. 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. 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. At December 31,
2004, the Company had made the initial option payment of $100,000 and had incurred
additional exploration and mineral property costs totaling $391,038 on the Rio Figueroa
project. d)    Chile MIMK and Other Projects The MIMK project was established in 2000 to identify copper-gold projects in close
proximity and similar to the El Morro project. The MIMK project was terminated in 2004.
For the year ended December 31, 2003, various MIMK properties, with carrying values
totaling $703,536, were abandoned and written off. For the year ended December 31, 2004,
the remaining MIMK properties were abandoned resulting in a write-off of $81,469. The other projects, also in Chile, are early stage copper-gold exploration projects and
reflect deferred expenditures and property acquisition costs totaling $9,526 as of December
31, 2004. e)
   Brazil Mara Rosa Project At December 31, 2001, the Company elected not to proceed with further exploration on the
Mara Rosa gold project and wrote off its investment in the project. In November 2003, the
Company entered into an option agreement to sell its 100% interest in the Mara Rosa gold
project for $450,000. The Company received $150,000 pursuant to the agreement in 2003 with
the remaining $300,000 being received in 2004. These amounts have been recognized as
income from option payments in the year in which the F - 13




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars payments were received. 4. Property, Plant and Equipment Property, plant and equipment consist of the following at December 31, 2004 and 2003: AccumulatedDepreciation andCost
    
    
    Amortization
    
    
    Net Book Value2004
    
    
    2004
    
    
    2004Equipment
    
    $
    310,579
    
    
    $
    126,821
    
    
    $
    183,758Vehicles
    
    
    119,996
    
    
    
    73,087
    
    
    
    46,909Building and leasehold improvements
    
    
    196,057
    
    
    
    27,850
    
    
    
    168,207Furniture
    
    
    43,690
    
    
    
    26,100
    
    
    
    17,590Total
    
    $
    670,322
    
    
    $
    253,858
    
    
    $
    416,464
 AccumulatedDepreciation andCost
    
    
    Amortization
    
    
    Net Book Value2003
    
    
    2003
    
    
    2003Equipment
    
    $
    161,395
    
    
    $
    82,175
    
    
    $
    79,220Vehicles
    
    
    107,377
    
    
    
    67,814
    
    
    
    39,563Building and leasehold improvements
    
    
    123,067
    
    
    
    19,991
    
    
    
    103,076Furniture
    
    
    36,755
    
    
    
    23,751
    
    
    
    13,004Total
    
    $
    428,594
    
    
    $
    193,731
    
    
    $
    234,863
 5. Note Payable The note payable at December 31, 2003 was collateralized by mineral properties held by MSX
(Note 3(a)) and consists of the following: 2003MSX debt, interest at 1% per month effectiveMarch 1, 2002, payable monthly
    
    $
    200,100Less current portion
    
    
    200,100Long-term debt
    
    $
    
 The current portion of the note payable was paid in January 2004. 6. Asset Retirement Obligations The Company commenced construction of its Cerro San Pedro project in Mexico in February 2004.
Construction was suspended in June 2004 pending resolution of various permitting and other
issues involving the project. The Companys environmental permit requires that it reclaim any
land that it disturbs F - 14




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars during mine construction and mine operations. The Company has estimated the present value
of its future reclamation obligation to be $203,818 at December 31, 2004, of which $11,463
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 2015. The total reclamation obligation for the Cerro San Pedro project per the
Companys September 2003 feasibility study is approximately $4.3 million. The Company has
agreed to fund this obligation during the mine operations; however, negotiations with the
relevant Mexican governmental agency to determine the interim funding requirements have not yet
been finalized. 7. Share Capital a)
   Authorized Unlimited number of common and preferred shares without par value. b)
   Common Shares Issued and Outstanding Year Ended December 31,2004
    
    
    2003
    
    
    2002Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountOutstanding, beginning
of year
    
    
    81,763,885
    
    
    $
    106,786,049
    
    
    
    32,449,167
    
    
    $
    43,068,285
    
    
    
    28,472,978
    
    
    $
    38,964,222Shares 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
    
    
    
    3,900,000
    
    
    
    4,054,994Exercise 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))
    
    
    555,000
    
    
    
    362,619
    
    
    
    344,333
    
    
    
    222,546
    
    
    
    50,000
    
    
    
    26,799Shares issued for
retirement plan (Note
8)
    
    
    13,658
    
    
    
    17,281
    
    
    
    18,885
    
    
    
    21,735
    
    
    
    26,189
    
    
    
    22,270Outstanding, end of year
    
    
    82,687,043
    
    
    $
    107,661,917
    
    
    
    81,763,885
    
    
    $
    106,786,049
    
    
    
    32,449,167
    
    
    $
    43,068,285
 On March 19, 1999, the Company adopted a Shareholder Rights Plan whereby each shareholder
of record was effectively issued one right for each common share held. In the event that a
bidder acquires 20% or more of the outstanding voting shares of the Company, other than by
a permitted bid or with the approval of the Board of Directors of the Company, the rights
would become exercisable to purchase common shares of the Company at a 50% discount to the
then current market price. In June 2002, the shareholders ratified the continued existence
of the Shareholder Rights Plan to March 19, 2005. c)
   Options The Companys stock-based compensation plan provides that the exercise price per share is
equal to the closing market price the day prior to granting as quoted on the Toronto Stock
Exchange. Each option allows for the purchase of one share and expires not later than ten
years from the date it was granted. Options 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,
2004, 899,333 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 F - 15




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars 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 years ended December 31, 2003 and 2002,
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
    
    
    2002Loss for the year
    
    $
    1,715,547
    
    
    $
    1,320,321Compensation expense
    
    
    339,367
    
    
    
    61,248Pro forma loss for the year
    
    $
    2,054,914
    
    
    $
    1,381,569Basic and diluted loss per share:As reported
    
    $
    (0.04
    )
    
    $
    (0.04
    )Pro forma
    
    $
    (0.05
    )
    
    $
    (0.04
    )
 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: 2004
    
    
    2003
    
    
    2002Risk free interest rate (Canada)
    
    3.6% to 3.5%
    
    3.6% to 4.4%
    
    
    4.5
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected price volatility of
the Companys common shares
    
    70% to 71%
    
    75% to 87%
    
    
    110
    %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: Weighted Average Exercise Price(Canadian Dollars)Year Ended December 31,
    
    
    Year Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Outstanding, beginning of year
    
    
    2,800,250
    
    
    
    2,107,083
    
    
    
    2,244,583
    
    
    $
    1.02
    
    
    $
    0.99
    

    
    $
    1.10Granted
    
    
    400,000
    
    
    
    1,112,500
    
    
    
    87,500
    
    
    
    2.39
    
    
    
    1.35
    
    
    
    1.39Exercised
    
    
    (555,000
    )
    
    
    (344,333
    )
    
    
    (50,000
    )
    
    
    0.86
    
    
    
    0.88
    
    
    
    0.85Forfeited
    
    
    (109,750
    )
    
    
    
    
    
    
    
    
    
    
    1.48
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    (75,000
    )
    
    
    (175,000
    )
    
    
    
    
    
    
    2.24
    
    
    
    2.55Outstanding, end of year
    
    
    2,535,500
    
    
    
    2,800,250
    
    
    
    2,107,083
    
    
    $
    1.36
    
    
    $
    1.12
    
    
    $
    0.99Exercisable, end of year
    
    
    1,914,666
    
    
    
    1,957,750
    
    
    
    1,778,333
    
    
    $
    1.22
    
    
    $
    1.02
    
    
    $
    1.01
 The aggregate fair value of options granted in 2004, 2003 and 2002 was $435,624, $714,447
and $61,248, respectively. The following table summarizes certain information about stock options outstanding at
December 31, 2004: F - 16




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars Range of
    
    
    
    
    
    Weighted Average
    
    
    Weighted AverageExercise Prices
    
    
    
    
    
    Remaining
    
    
    Exercise Price(Canadian Dollars)
    
    Number Outstanding
    
    
    Contractual Life
    
    
    (Canadian Dollars)$0.45
    
    
    93,000
    
    
    0.4 years
    
    $
    0.45$0.83 to $0.85
    
    
    807,500
    
    
    1.2 years
    
    
    0.83$1.20 to $1.39
    
    
    1,140,000
    
    
    3.1 years
    
    
    1.33$2.11 to $2.44
    
    
    420,000
    
    
    4.0 years
    
    
    2.37$2.87
    
    
    75,000
    
    
    0.7 years
    
    
    2.87$0.45 to $2.87
    
    
    2,535,500
    
    
    2.4 years
    
    $
    1.36
 d)
   Warrants Year Ended December 31,2004
    
    
    2003
    
    
    2002Warrants
    
    
    Amount
    
    
    Warrants
    
    
    Amount
    
    
    Warrants
    
    
    AmountOutstanding, beginning
of year
    
    
    24,753,500
    
    
    $
    7,469,578
    
    
    
    1,950,000
    
    
    $
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    (1,950,000
    )
    
    
    
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    24,399,000
    
    
    $
    7,373,839
    
    
    
    24,753,500
    
    
    $
    7,469,578
    
    
    
    1,950,000
    
    
    $
    
 As of December 31, 2004, the outstanding warrants to purchase 24,399,000 common shares had
the following expiration dates and exercise prices: OutstandingExercise
    
    
    at DecemberExpiration Date
    
    Price (Cdn$)
    
    
    31, 2004March 11, 2005
    
    $
    2.00
    
    
    
    5,049,000December 11, 2008
    
    $
    3.10
    
    
    
    19,350,00024,399,000
 On April 16, 2002, the Company sold 3.9 million units pursuant to a private placement at a
price of Cdn$1.80 per share for gross proceeds of Cdn$7.0 million (US$4.1 million, net of
share issuance costs). Each unit included one-half of one common share purchase warrant.
Each whole common share purchase warrant was exercisable at a price of Cdn$2.00 per share
for a period of one year. The warrants expired unexercised on April 16, 2003. On March 11, 2003, the Company closed a private placement for 10.1 million units at a price
of Cdn$1.50 per unit for gross proceeds of Cdn$15.2 million (US$9.5 million, net of issue
costs). Each unit consisted of one common share and one-half of one common share purchase
warrant. Each whole common share 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 Company also granted the underwriters 505,000
compensation warrants. Each compensation warrant is exercisable at a price of Cdn$1.50 per
share for a period of one year to March 11, 2004. Compensation warrants totaling 151,500
were exercised in 2003, and the remaining 353,500 compensation warrants were exercised in
2004. 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 F - 17




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars of Cdn$3.10 for a period of five years to December 11, 2008. 8. Income Taxes The difference between the amount of reported consolidated income tax provision and the amount
computed by multiplying the loss before income taxes by the Companys combined applicable
Canadian federal and
provincial tax rate of 36.12% (36.62% in 2003 and 38.62% in 2002) is reconciled as follows: Year Ended December 31,2004
    
    
    2003
    
    
    2002Income tax provision (benefit) computed
using the applicable tax rate
    
    $
    534,564
    
    
    $
    (630,337
    )
    
    $
    (511,925
    )Expenses not deductible for tax purposes
    
    
    105,583
    
    
    
    419,837
    
    
    
    8,110Tax deductions not expensed
    
    
    (600,387
    )
    
    
    
    
    
    
    Net foreign earnings taxed at more (less)
than applicable rate
    
    
    14,229
    
    
    
    58,210
    
    
    
    108,603Unrealized foreign exchange gain
    
    
    (783,536
    )
    
    
    (223,130
    )
    
    
    Foreign withholding tax on interest income
    
    
    85,585
    
    
    
    
    
    
    
    Benefit of current tax loss not recognized
    
    
    780,500
    
    
    
    369,675
    
    
    
    389,989Income tax provision (benefit)
    
    $
    136,539
    
    
    $
    (5,745
    )
    
    $
    (5,223
    )
 The tax effects of temporary differences that give rise to significant portions of the future
income tax assets and liabilities at December 31, 2004 and 2003 are as follows: 2004
    
    
    2003Future income tax assets:Canada:Net operating loss carryforwards
    
    $
    3,651,000
    
    
    $
    3,177,000Deferred financing costs
    
    
    1,169,000
    
    
    
    1,704,000Other
    
    
    200,000
    
    
    
    Mexico:Net operating loss carryforwards
    
    
    10,789,000
    
    
    
    9,909,000Other
    
    
    126,000
    
    
    
    Other countries:Net operating loss carryforwards
    
    
    220,000
    
    
    
    389,000Other
    
    
    10,000
    
    
    
    30,000Total future income tax assets
    
    
    16,165,000
    
    
    
    15,209,000Less valuation allowance
    
    
    (9,212,000
    )
    
    
    (9,321,000
    )Future income tax assets, net of valuation allowance
    
    
    6,953,000
    
    
    
    5,888,000Future income tax liabilities:Mexico:Mineral properties and deferred exploration
expenditures
    
    
    6,948,000
    
    
    
    5,847,000Other
    
    
    5,000
    
    
    
    41,000Total future income tax liabilities
    
    
    6,953,000
    
    
    
    5,888,000Net future income tax assets
    
    $
    
    
    
    $
    
 F - 18




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars At December 31, 2004, the Company and its subsidiaries have available Canadian tax loss
carryforwards of approximately $10.1 million that expire between the years 2005 and 2014;
Mexican tax loss carryforwards of approximately $38.5 million that expire between the years
2005 and 2014; Chilean tax loss carryforwards of approximately $2.0 million that can be carried
forward indefinitely; Barbados tax loss carryforwards of approximately $2.0 million that expire
between the years 2006 and 2013; and United States tax loss carryforwards of approximately $0.5
million that expire in 2018 and 2019. 9. 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 $25,627, $26,773, and $18,038 for the years
ended December 31, 2004, 2003 and 2002, respectively. 10. Contingencies and Commitments  a)
    The Companys activities are subject to various governmental laws and regulations
relating to the protection of the environment. These environmental regulations are
continually changing and are generally becoming more restrictive. The Company also has
certain operating and other permits at its Cerro San Pedro project (the Project) 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 the 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.b)
    In August 2004, the Company received notification that a Mexican Federal Court
rendered a judgment in favor of a group opposing the Project who are seeking nullification
of the Companys Manifestacion de Impacto Ambiental (MIA). The MIA is the Mexican
equivalent of an environmental impact statement in the United States. The legal action
brought by the contesting group claimed that the federal agency that granted the MIA
violated various environmental and other laws. The federal agency that issued the
environmental permit to the Company has appealed the decision. Although the permit is
presently valid pending resolution of the appeal, there are no assurances that the federal
agencys or the Companys efforts to overturn the ruling will be successful. In the event
that these efforts are unsuccessful, the Company can appeal the decision, attempt to
re-permit the project, or pursue other options that may be available.c)
    In April 2004, an Agrarian Court in San Luis Potosí, Mexico, rendered a judgment in
favor of a group opposing the Project and nullified the Companys lease agreement for
surface rights at the Project. The Company appealed the Agrarian Court decision and in
November 2004, a Federal Court ruled that the group opposing the Project did not have the
legal right to contest the lease and ordered the Agrarian Court to issue a new decision.
In December 2004, 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 appealed this latest decision. The Company continues to
have surface rights access pending resolution of the appeals; however, there are no
assurances that the Companys efforts to overturn the ruling will be successful, or that
the Company will be successful in its other efforts to secure surface rights access. F - 19




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars  d)
    The Company leases certain surface rights, facilities and equipment under long-term
operating lease agreements. As of December 31, 2004, lease commitments for the next five
years and thereafter are as follows: 2005
    
    $
    80,0232006
    
    $
    78,1482007
    
    $
    52,2942008
    
    $
    47,1232009
    
    $
    47,123Thereafter
    
    $
    141,369
  e)
    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.  f)
    Other commitments are discussed in Note 3(a). 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: 2004
    
    
    2003
    
    
    2002Cash on hand and balances with bank
    
    $
    639,841
    
    
    $
    642,637
    
    
    $
    120,886Short-term investments
    
    
    41,209,145
    
    
    
    65,467,419
    
    
    
    4,400,000$
    41,848,986
    
    
    $
    66,110,056
    
    
    $
    4,520,886
 The Company paid interest and income taxes for the three years ended December 31, as follows: 2004
    
    
    2003
    
    
    2002Income taxes
    
    $
    171,591
    
    
    $
    
    
    
    $
    13,000Interest
    
    $
    
    
    
    $
    25,929
    
    
    $
    10,005
 Other than 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: 2004
    
    
    2003
    
    
    2002Non-cash investing activities:Stock-based compensation expense allocated
to deferred
expenditures
    
    $
    552,400
    
    
    $
    
    
    
    $
    
 F-20




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars 12. Segment Information The Companys operations are limited to a single industry segment being the exploration and
development of mineral properties for economically recoverable reserves. Segment assets by
geographic location are as follows: December 31, 2004UnitedMexico
    
    
    Chile
    
    
    States
    
    
    TotalMineral properties and deferred
expenditures
    
    $
    45,215,225
    
    
    $
    2,140,153
    
    
    $
    
    
    
    $
    47,355,378Property, plant and equipment, net
    
    
    398,473
    
    
    
    
    
    
    
    17,991
    
    
    
    416,464$
    45,613,698
    
    
    $
    2,140,153
    
    
    $
    17,991
    
    
    $
    47,771,842
 December 31, 2003UnitedMexico
    
    
    Chile
    
    
    States
    
    
    TotalMineral properties and deferred
expenditures
    
    $
    25,468,520
    
    
    $
    1,105,870
    
    
    $
    
    
    
    $
    26,574,390Property, plant and equipment, net
    
    
    219,801
    
    
    
    
    
    
    
    15,062
    
    
    
    234,863$
    25,688,321
    
    
    $
    1,105,870
    
    
    $
    15,062
    
    
    $
    26,809,253
 13. Reconciliation to United States Generally Accepted Accounting Principles (GAAP) 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..
    Canadian GAAP provides for investments in jointly controlled entities to be accounted
for using proportionate consolidation. Under United States GAAP, investments in
incorporated joint ventures are to be accounted for using the equity method. Under an
accommodation of the United States Securities and Exchange Commission, the accounting for
joint ventures need not be reconciled from Canadian to United States GAAP. The different
accounting treatment affects only the display and classification of financial statement
items and not net income or shareholders equity. Details of the Companys share of the
cash flows of the MSX joint venture for the year ended December 31, 2002 are set out in
Note 3(a). MSX became a wholly owned subsidiary of the Company on February 12, 2003..
    For United States GAAP purposes, the Company will adopt SFAS 123, Accounting for Stock
Based Compensation effective January 1, 2006. SFAS 123 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 7(c)). For United States GAAP, the Company has not
yet determined which acceptable method of adoption of SFAS 148, which amends SFAS 123,
that it will apply. F-21




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars Had the Company followed United States GAAP, certain items in the statements of operations and
deficit and balance sheets would have been reported as follows: Statements of Operations and Deficit Year Ended December 31,2004
    
    
    2003
    
    
    2002Net income (loss) under Canadian GAAP
    
    $
    1,368,462
    
    
    $
    (1,715,547
    )
    
    $
    (1,320,321
    )Exploration expenditures expensed
    
    
    (570,327
    )
    
    
    (206,855
    )
    
    
    (600,831
    )Net effect of write-down of mineral properties and
deferred expenditures
    
    
    81,469
    
    
    
    703,536
    
    
    
    13,300Stock based compensation expense
    
    
    74,834
    
    
    
    
    
    
    
    Net income (loss) under U.S. GAAP
    
    $
    954,438
    
    
    $
    (1,218,866
    )
    
    $
    (1,907,852
    )Basic net income (loss) per share under U.S. GAAP
    
    $
    0.01
    
    
    $
    (0.03
    )
    
    $
    (0.06
    )Diluted net income (loss) per share under U.S.
GAAP
    
    $
    0.01
    
    
    $
    (0.03
    )
    
    $
    (0.06
    )
 Balance Sheets At December 31,2004
    
    
    2003Canadian
    
    
    U.S.
    
    
    Canadian
    
    
    U.S.GAAP
    
    
    GAAP
    
    
    GAAP
    
    
    GAAPMineral properties and deferred
expenditures
    
    $
    47,355,378
    
    
    $
    37,768,037
    
    
    $
    26,574,390
    
    
    $
    18,028,307Shareholders equity
    
    $
    89,350,898
    
    
    $
    79,763,557
    
    
    $
    86,566,441
    
    
    $
    78,020,358
 Statements of Cash Flows Year Ended December 31,2004
    
    
    2003
    
    
    2002Cash flows used in operating activities, Canadian
GAAP
    
    $
    (849,271
    )
    
    $
    (1,213,601
    )
    
    $
    (1,229,857
    )Mineral properties and deferred expenditures
    
    
    (570,327
    )
    
    
    (206,855
    )
    
    
    (499,153
    )Cash flows used in operating activities, U.S. GAAP
    
    $
    (1,419,598
    )
    
    $
    (1,420,456
    )
    
    $
    (1,729,010
    )Cash flows used in investing activities, Canadian
GAAP
    
    $
    (20,143,804
    )
    
    $
    (4,072,383
    )
    
    $
    (905,119
    )Mineral properties and deferred expenditures
    
    
    570,327
    
    
    
    206,855
    
    
    
    499,153Cash flows used in investing activities, U.S. GAAP
    
    $
    (19,573,477
    )
    
    $
    (3,865,528
    )
    
    $
    (405,966
    )
 Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB), issued Interpretation No.
46, Consolidation of Variable Interest Entities, and an Interpretation of Accounting Research
Bulletin No. 51 (FIN 46). FIN 46 establishes accounting guidance for consolidation of
variable interest entities by the primary beneficiary. FIN 46 applies to any business
enterprise, public or private, that has a controlling
interest, contractual relationship or other business relationship with a variable interest
entity. In December 2003, the FASB issued interpretation No. 46R (FIN 46R) which supersedes
FIN 46. FIN 46R is effective for all Variable Interest Entities (VIEs) created after
February 1, 2003 at the end of the first interim or F-22




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##### Table of Contents



Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars annual reporting period ending after
December 15, 2003. FIN 46R is applicable to all VIEs created prior to February 1, 2003 by
public entities at the end of the first interim or annual reporting period ending after March
15, 2004. In December 2004, the FASB issued SFAS 153, Exchanges of Non-Monetary Assets, an amendment of
Accounting Principles Board (APB 29). This statement amends APB 29, which is based on the
principle that exchanges of non-monetary assets should be measured at the fair value of the
assets exchanged with certain exceptions. SFAS 153 eliminates the exception for non-monetary
exchanges of similar productive assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to change significantly
as a result of the exchange. This statement is effective for non-monetary asset exchanges
occurring in fiscal periods beginning on or after June 15, 2005. In December 2004, the FASB issued SFAS 123R, Accounting for Stock-based Compensation. This
statement supersedes APB 25 and eliminates the option to use the intrinsic value method for
valuing stock-based compensation. The Emerging Issues Task Force (EITF) formed a committee (Committee) to evaluate certain
mining industry accounting issues, including issues arising from the application of SFAS No.
141, Business Combinations (SFAS No. 141 ) and SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS No.142) to business combinations within the mining industry, accounting for
goodwill and other intangibles and the capitalization of costs after the commencement of
production, including deferred stripping. The issues discussed also included whether mineral
interests conveyed by leases represent tangible or intangible assets and the amortization of
such assets. The EITF reached a consensus, subject to ratification by the FASB, that mineral interests
conveyed by leases should be considered tangible assets. The EITF also reached a consensus,
subject to ratification by the FASB, on other mining related issues involving impairment and
business combinations. The FASB ratified the consensus of the EITF on other mining related issues involving impairment
and business combinations. The FASB also ratified the consensus of the EITF that mineral
interests conveyed by leases should be considered tangible assets subject to the finalization of
a FASB Staff Position (FSP) in this regard. These issues did not have an impact on the
Companys financial statements since it did not change its accounting. The FASB also issued a FSP amending SFAS No. 141 and SFAS No. 142 to provide that certain
mineral use rights are considered tangible assets and that mineral use rights should be
accounted for based on their substance. The FSP is effective for the first reporting period
beginning after April 29, 2004, with early adoption permitted. This FSP did not have an impact
on the Companys financial statements. The CICA issued Accounting Guideline AcG-15, Consolidation of Variable Interest Entities, to
provide guidance for applying the principles in CICA Section 1590, Subsidiaries, to certain
entities. Although the CICA is contemplating amendments to the guideline, it is expected to be
effective for the Companys 2005 fiscal year. The FASB amended Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46R). FIN 46R requires that VIEs be
consolidated by a company if that company is subject to a majority of the risk of loss from the
VIEs activities and/or is entitled to receive a majority of the VIEs residual returns. The
Company does not expect the adoption of these guidelines to have a material impact on its
financial statements. 14. Subsequent Event The Company and Washington Group have agreed in principle to extend the Standby Agreement that
expired on February 28, 2005 to May 31, 2005, in order to retain Washington Groups construction F-23




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Metallica Resources Inc.
(A Development Stage Company)
Notes to Consolidated Financial StatementsU.S. dollars equipment at the
Cerro San Pedro project site. The extension agreement requires the Company to make monthly
payments to Washington Group of $138,000. F-24




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##### Table of Contents



SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf. METALLICA RESOURCES INC.(Registrant)Date: March 30, 2005
    
    By: /s/ Richard J. HallName: Richard J. HallTitle: President and Chief Executive Officer
 88




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##### Table of Contents



Table of Exhibits Description of Document1.1
    
    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
    
    Employment Agreements between the Company and Fred H.
Lightner dated May 16, 1997, April 1, 1999 and November 8,
1999
    
    *4.2
    
    Shareholder Rights Plan Agreement dated March 19, 1999
    
    *4.3
    
    Loan Agreement between Metallica Barbados Inc. and Richard
J. Hall dated June 26, 2000
    
    *4.4
    
    Noranda Exploration Agreement dated September 14, 1999
    
    *4.5
    
    Noranda Exploration Agreement dated February 10, 2000
    
    *4.6
    
    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
    
    *4.7
    
    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
    
    *4.8
    
    Contract for Constructon dated March 3, 2004 between Minera
San Xavier, S.A. de C.V. and Mextica de Mexico S. de R.L.,
de C.V., for procurement, supply, installation and
construction of certain facilities at the Cerro San Pedro
project
    
    *4.9
    
    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
    
    *4.10
    
    Lease between Ejido Cerro de San Pedro and Minera San
Xavier, S.A. de C.V.
    
    *4.11
    
    Mining Option to Parchase Contract between Sociedad
Contractual Minera Los Potrillos and Metallica Resources
Inc. dated September 2, 20044.12
    
    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
 89




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##### Table of Contents



Description of Document4.13
    
    Employment Agreement between Richard J. Hall and Metallica
Resources Inc and Metallica Management Inc. dated March 1,
20054.14
    
    Employment Agreement between Bradley J. Blacketor and
Metallica Resources Inc and Metallica Management Inc. dated
March 1, 20054.15
    
    Consulting Agreement between Fred H. Lightner and Metallica
Resources Inc. dated December 1, 2004.4.16
    
    Services Agreement between Oliver Lennox-King and Metallica
Resources Inc. dated June 11, 20048
    
    Subsidiaries of the Company12.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended12.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as
amended13.1
    
    Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 200213.2
    
    Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
    90