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MANAGEMENT DISCUSSION AND ANALYSIS

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For the Year Ending

December 31, 2007

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Augusta Resource Corporation

General

The following Managements Discussion and Analysis (MD&A)
of Augusta Resource Corporation and its subsidiaries, (the Company, Augusta,
we, us, our) should be read in conjunction with the accompanying audited
Consolidated Financial Statements and Annual Information Form for the year ended
December 31, 2007 and with the audited Consolidated Financial Statements for the
year ended December 31, 2006, all of which are available at the SEDAR website at
www.sedar.com. This MD&A report is current as at February 29,
2008.

All financial information in this MD&A is prepared in
accordance with Canadian generally accepted accounting principles (GAAP) and
presented in Canadian dollars unless otherwise indicated. To expand the
shareholder base of Augusta, the Company on August 10, 2006, graduated to the
senior Canadian exchange, the Toronto Stock Exchange (TSX) under the symbol
AZC and on November 30, 2006, the Company listed on the American Stock Exchange
(AMEX) also under the symbol AZC. As a requirement of the AMEX listing the
Company must prepare a reconciliation between Canadian and United States (US)
GAAP which is included in the audited Consolidated Financial Statements (Note
17).

Forward-Looking Statements

Certain of the statements made and information contained herein
and in the documents incorporated by reference may contain forward-looking
statements or information within the meaning of the United States
Private Securities Litigation Reform Act of 1995 and forward looking
statements or information within the meaning of the Securities Act(Ontario). Forward- looking statements or information include statements
regarding the expectations and beliefs of management. Forward looking statements
or information include, but are not limited to, statements or information with
respect to known or unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements or information. Forward-looking statements or information are subject
to a variety of risks and uncertainties which could cause actual events or
results to differ from those reflected in the forward-looking statements or
information, including, without limitation, risks and uncertainties relating to
the Companys plans at its Rosemont Property and other mineral properties, the
interpretation of drill results and the estimation of mineral resources and
reserves, the geology, grade and continuity of mineral deposits, the possibility
that future exploration, development or mining results will not be consistent
with the Companys expectations, metal recoveries, accidents, equipment
breakdowns, title matters, labor disputes or other unanticipated difficulties
with or interruptions in production and operations, the potential for delays in
exploration or development activities or the completion of feasibility studies,
the inherent uncertainty of production and cost estimates and the potential for
unexpected costs and expenses, commodity price fluctuations, currency
fluctuations, failure to obtain adequate financing on a timely basis, the effect
of hedging activities, including margin limits and margin calls, regulatory
restrictions, including environmental regulatory restrictions and liability, the
speculative nature of mineral exploration, dilution, competition, loss of key
employees, and other risks and uncertainties. Should one or more of these risks
and uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in forward-looking
statements. Accordingly, readers are advised not to place undue reliance on
forward-looking statements or information. We do not expect to update
forward-looking statements or information continually as conditions change, and
you are referred to the full discussion of the Companys business contained in
the Companys reports filed with the securities regulatory authorities in Canada
and the US. Readers are also advised to consider such

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forward-looking statements, which speak only as of the date the
statements were made, while considering the risks set forth below under the
section Risks and uncertainties.

Description of Business

We are engaged in the exploration and development of mineral
properties located in Pima County, Arizona and White Pine County, Nevada. Our
properties are in the exploratory and development stages and are thus
non-producing and consequently do not generate any operating income or cash
flows from operations. The Company depends entirely on equity and debt capital
to finance its activities.

The Company has entered into a definitive agreement for the
sale of the common shares of DHI Minerals Ltd (DHI Minerals) whose wholly
owned subsidiary DHI Minerals (US) Ltd. (DHI Minerals US) holds the
ownership/option interests in the mining properties in White Pine County,
Nevada.

Overview of Performance

Property in Pima County, Arizona

On June 1, 2005, the Company announced that it had entered into
an Option Agreement to purchase 100% of the Rosemont Ranch in Pima County,
Arizona, subject to a 3% Net Smelter Royalty (NSR). The property (which
includes patented and unpatented claims, fee land and surface grazing rights
that in aggregate total approximately 14,880 acres (6,026 hectares) is
approximately 50 kilometers southeast of Tucson, situated near a number of large
porphyry type producing copper mines operated by Freeport-McMoRan Copper &
Gold Inc. and ASARCO LLC (ASARCO). The property contains three known
potentially open-pit mine-able copper/molybdenum/silver (Cu-Mo-Ag) skarn
deposits on patented mining claims.

The Option Agreement required the cash payment of US$20,800,000
payable over a three-year period. After making the initial payment of $8,439,226
(US$6,666,666) in June 2005, the Company completed the remaining payments, after
a reduction for early payment provisions of approximately $470,000, of
$16,114,985 (US$ 13,733,582) on March 31, 2006 and thereby acquired a 100%
working interest in the property subject to the 3% NSR.

In August 2006, the Company commenced the feasibility study on
Rosemont with M3 Engineering and Technology Corporation of Tucson, Arizona being
awarded the contract after a due bid and selection process. To lead the project
internally, the Company appointed Mr. Lance Newman as VP, Project Development
and Mr. Mark Stevens as Chief Project Geologist. Both Mr. Newman and Mr. Stevens
are seasoned members of the team with proven track records in project
development and operations.

The Company delivered the 2007 Rosemont Deposit Mineral
Resource Estimate during the first quarter of 2007. The updated resource
estimate reports 5.7 billion pounds (lbs) of copper and 157 million lbs of
molybdenum in measured and indicated resources, and 1.5 billion lbs of copper
and 23 million lbs of molybdenum in inferred resources. The estimate also
includes a new silver resource for the deposit, which quantifies approximately
66.5 million ounces (oz) of silver in measured and indicated resources and 9.3
million oz of silver in inferred resources.

The updated resource statement comes after completing a
20,000-meter infill drill program at Rosemont in 2006, which was focused on
upgrading the sulfide copper-molybdenum resource (543.1 M tons at 0.75% Cu
equivalent at a 0.2% Cu cutoff) and quantifying a new silver resource (543.1 M
tons at 0.12 Ag oz/ton at a 0.2% Cu cutoff). In addition the Company conducted a
re-

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assay program of historic drilling, which was combined with new
drilling to quantify a surface oxide copper resource (74.5 M tons at 0.20% Cu
equivalent at a 0.1% Cu cutoff).

Water conservation is one of the most important components of
the Companys plan to operate the Rosemont Copper project. By the end of 2007, a
total of 15,000 acre feet of water delivered by the Central Arizona Project
(CAP) has been stored in the Tucson active management area basin, bringing the
level stored for Rosemont Copper to a three-year operating supply.

On July 12, 2007 the Company formally filed the Mine Plan of
Operations (MPO) with the United States Forest Service. The detailed plan for
Augustas Rosemont Copper project includes progressive design, conservation and
sustainability initiatives. Once approved, the final Rosemont MPO becomes a
binding document that assures the MPOs commitments, including reclamation and
closure funding guarantees. Highlights of the plan include:

| | > | Significant Economic Benefits The Rosemont
      Copper project will produce more than 230 million pounds of copper per
      year, along with significant amounts of molybdenum and silver. Rosemont
      Copper alone will produce 10 percent of the entire U.S. copper production
      for 20 years. About 500 high-paying direct jobs, as well as at least 1,000
      indirect jobs will be created, adding over $500 million in local payroll
      over the mine life and $1.4 billion in goods and services, in addition to
      local, state, and federal tax revenue.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | > | Water Conservation The Rosemont design avoids
      impacts to the Davidson Canyon and Cienega Creek watershed. CAP water is
      already being purchased and stored in advance. Rosemont will add to the
      local aquifer more water than it will use, leaving a five-percent net
      water gain in the community. In addition, new water conservation and
      recycling techniques at Rosemont will save 50 to 60 percent of the total
      water used in traditional mining.                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | > | Concurrent Reclamation Reclamation will begin
      within the first year of mine operation and will feature state-of-the-art
      practices. They include greenhouse studies for optimum revegetation,
      cattle use to prepare the seedbed for replanting, and construction of
      perimeter buttresses to stabilize soil and shield visual impact from state
      highway SH 83. Only a small portion of the final pit configuration will be
      visible from the highway.                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | > | Community Conservation At the end of the
      estimated 20 years of production, Rosemont Copper will leave open space
      and conservation easements to the community in perpetuity. In addition,
      the project will endow funds to support local projects for generations to
      come.                                                                                                                                                                                                                                                                                  

Feasibility Study

On August 28, 2007, the Company announced the Board approved
results of the Bankable Feasibility Study (FS) as a low cost open pit mine
with a sulfide concentrator and SX/EW plant to treat sulfide and oxide mineral
reserves, respectively.

Highlights of the FS include:

Commodity PricingCase 1 ($ millions)
    Case 2 ($ millions)
    Case 3 ($ millions)NPV 0%
    5,116.6
    4,468.1
    2,100.6NPV 5%
    2,544.4
    2,182.9
    996.8NPV 10%
    1,312.2
    1,093.4
    459.2IRR
    30.2%
    27.4%
    20.9%Payback Years
    2.9
    3.2
    3.0


*Note NPV is quoted after taxes and royalties.

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Case 1  60/40 Weighted Average Pricing: M3 uses weighted
average metal prices for NI-43-101 reporting purposes, reflecting 60% on
three-year historical prices and 40% on two-year forward market prices. These
values are $2.61 per pound (lb)Cu, $31.06/lb Mo, $11.37 per ounce (oz) Ag, and
$600.20/oz gold (Au).

Case 2  36-Month Historical Pricing: For SEC reporting
requirements, 36-month trailing average pricing was used at $2.38/lb Cu,
$30.47/lb Mo, $9.85/oz Ag, and $536.66/oz Au.

Case 3  Long Term Metal Pricing: Long-term metal prices were
established using the 24-month forward prices for the first year trending down
to long term fixed prices of $1.50/lb Cu, $15.00/lb Mo, and $10.00/oz Ag and
$600.00/oz Au over the next four years.

Annual revenue is determined by applying estimated metal prices
to the annual payable metal estimated for each operating year. Sales prices have
been applied to all life of mine production without escalation or hedging. The
financial evaluation presents the determination of the net present value (NPV)
after tax, payback period (time in years after production commences to recapture
the initial capital investment), and the internal rate of return (IRR) for the
project. Annual cash flow projections were estimated over the life of the mine
based on the estimates of capital expenditures, production costs and sales
revenue. The sales revenue is based on the production of three commodities:
copper, molybdenum and silver. Gold is also present in the copper concentrates
in the form of a saleable by-product credit.

The total capital of new construction (includes all direct and
indirect costs), for a 75,000 ton per day (TPD) open pit mine and sulfide
copper concentrator plant with a heap leach SX-EW plant for the treatment of
oxide copper mineral reserve, is estimated to be $782.4 million, excluding $15.4
million for spare parts allocated to working capital. All capital costs are
estimated to an accuracy of +/- 15%.

Qualified PersonThe FS and NI 43-101 Technical
Report were prepared by an integrated engineering team led by M3 Engineering
& Technology Corporation of Tucson, Arizona as the primary author of the
Technical Report. The Technical Report was conducted under the overall review of
Dr. Conrad Huss, P.E., of M3 Engineering & Technology Corporation of Tucson,
Arizona, an independent Qualified Person under the standards set forth under NI
43-101. Augusta also retained WLR Consulting, Inc. (WLRC) of Lakewood, Colorado
to estimate the Rosemont mineral resources as a part of the NI 43-101 Technical
Report. The mineral resource estimation work was performed by or under the
direction of Mr. William L. Rose, P.E., WLRCs Principal Mining Engineer and an
independent Qualified Person under the standards set forth by Canadian National
Instrument 43-101.

PermittingUsing the MPO as a basis for permitting,
Augusta will now move through the National Environmental Policy Act (NEPA)
permitting process, whereby the US Forest Service initiates an Environmental
Impact Statement (EIS) and public review process. The company continues to
work with local interests to address relevant factual concerns and issues as
part of the NEPA process.

FinancingThe Company delivered on its corporate
objective to secure funding raising, in June 2007, $37,519,394 through a
non-brokered private placement (the Placement) for 10,719,827 common shares at
a price of $3.50 per share, representing an approximate $0.90 per share premium
over the then trading price per share. The Placement was 71% (7,600,000)
subscribed by Sumitomo Corporation and Sumitomo Corporation of America
(Sumitomo), and 29% (3,119,827) subscribed by two funds managed by US private
investment firm Harbinger Capital

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Partners (Harbinger). The closing of the placement resulted
in Sumitomo holding an 8.7% interest and Harbinger holding 19.9% (up from 18.6%)
in Augusta.

On December 20, 2007 the Company announced that it had entered
into a binding letter agreement and term sheet with Silver Wheaton Corp.
(Silver Wheaton) to sell between 45% and 90% of the silver production from the
Rosemont property. Subject to the finalization of the transaction, including tax
considerations, Silver Wheaton will pay an upfront cash payment ranging from
US$135 million to US$320 million. The Company is required to elect the
percentage of silver production sold on or before March 31, 2008, but in any
event will satisfy approximately 16% to 38% of total capital requirements for
the project by sacrificing only 2% to 5% of the total project revenue. In
addition to finalizing such a favourable agreement with a market leader in the
silver industry, this innovative transaction serves to greatly minimize any
further equity dilution for our shareholders in conjunction with subsequent
financing of the Rosemont Copper project.

To December 31, 2007 expenditures related to the Rosemont
mineral property and for the purchase of land to be used in the implementation
of Augustas water strategy, totalled $28,798,566 and deferred development
expenditures totalled $28,247,858, of which $2,817,629 was incurred in the
fourth quarter, $3,205,716 during the third quarter, $3,895,761 during the
second quarter and $2,857,073 during the first quarter.

Objectives for 2008Augusta is focusing on three
main objectives for 2008 for the Rosemont Copper project.. For permitting, we
are targeting the completion of the public scoping and submitting all state and
federal permit applications as we prepare a draft Environmental Impact
Statement. For financing, we plan to finalize the silver-backed financing
agreement with Silver Wheaton and identify the remaining financial components of
our strategy. For operations, we will award the EPCM contract in order to
commence design engineering, and also intend to secure more orders for long lead
equipment. In concert with these main objectives, we will continue new
exploration work on the Rosemont property to expand the current open pit reserve
and define new resources.

Properties in White Pine County, Nevada

In November 2007, the Company completed a definitive
agreement with Ivana Ventures Ltd. (Ivana) for the sale of its interest in DHI
Minerals, subject to regulatory approval. DHI Minerals wholly owned subsidiary
DHI Minerals US holds the ownership/option interests in the Mount Hamilton,
Shell and Monte Cristo properties. As a result of the pending sale, these assets
have been reclassified as discontinued operations.

Mount Hamilton Property

On December 2, 2004, the Company announced the signing of an
agreement to acquire a 100% interest in the Mount Hamilton gold property. Mount
Hamilton has multiple exploration targets including surface bulk mineralization
as well as high-grade vein style mineralization.

The Company purchased the Mount Hamilton property by
purchasing, effective May 6, 2005, 100% of the shares of DHI Minerals, which
owned 100% of DHI Minerals US, holder of the property. The terms of the
acquisition include the payment of US$3,000,000 payable in cash over two years
(net present value of $3,103,438, based on an annual discount rate of 15%),
3,750,000 common shares at US$0.16 ($0.19) per share, fair market value at the
date of the transaction of $720,000 and 3,750,000 warrants to purchase common
shares with an exercise price of US$0.16 per share for a period of two years,
fair market value at the date of the transaction of $465,163.

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The entire purchase consideration of $6,537,601, including a
deferred tax provision of $2,200,000 and finders fees valued at $49,000, was
allocated to the mining property acquired.

Under the terms of the acquisition the Company assumed the
underlying NSR and minimum advance royalty payments payable prior to commercial
production of US$100,000 per annum commencing on November 19, 2005 and
continuing until November 19, 2010 when the annual payment amount increases to
US$300,000 per annum. Upon commencement of commercial production, a base rate of
3% NSR is payable, subject to an increase whenever the price of gold is greater
than US$400 per ounce. The NSR shall increase by one half of one percent for
each US$50 increment to a maximum of 8% NSR.

As of the end of 2007, at the Mount Hamilton property, mineral
property expenditures totaled $6,900,058 and deferred development expenditures
on engineering and geological work programs were $413,697.

Shell and Monte Cristo Properties

On January 26, 2005, the Company announced the signing of
agreements to acquire the Shell property. Formal agreements were entered into
effective March 20, 2006. The Shell property, located near the Mount Hamilton
property, was subject to past exploration programs, with results indicating that
the property hosted molybdenum and gold mineralization. The property is subject
to an underlying NSR ranging from 0.5% - 4.5%, for cash payment of US$120,000,
and annual advanceroyalty payments commencing at US$80,000 on first
anniversary increasing by US$20,000 per year until production commences. Through
December 31, 2007 a total of $334,422 (US$300,000) has been capitalized.

In January 2007, the Company entered into an option agreement
to acquire the Monte Cristo property, adjacent to the Mount Hamilton and Shell
properties. The agreement requires an annual payment of US$25,000, so long as
the option is unexercised, to acquire the property for US$240,000 (with any
annual payments credited against the purchase price) plus the granting of a 1.5%
NSR which royalty is subject to a buyout for US$450,000 at any time prior to
February 1, 2013. As at December 31, 2007, $29,535 (US$25,000) had been
capitalized.

Expenditures totaling $804,296, on engineering and geological
work programs at the Shell and Monte Cristo properties, have been capitalized to
December 31, 2007.

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As at December 31, 2007, the Companys capitalized costs on its
mining assets were as follows:

|                                                        |   | Mineral Properties Cost |  |   | Deferred Development Expenses |  
|------------------------------------------------------- | - | ----------------------- |  | - | ----------------------------- | -
|                                                        |   | December 31             |  |   | December 31                   |  
|Mineral Properties and Deferred Development             |   | 2007                    |  |   | 2006                          |  
|Rosemont,Sanrita and Dawson properties                  | $ | 28,798,566              |  | $ | 25,017,429                    |  
|                                                        |   |                         |  |   |                               |  
|                                                        |   |                         |  |   |                               |  
|Mineral properties:                                     |   | 2007                    |  |   | 2006                          |  
|Balance, beginning of period                            | $ | 25,017,429              |  | $ | 8,586,847                     |  
|Acquisition costs                                       |   | 3,781,137               |  |   | 16,701,817                    |  
|Lone Mountain cost
      adjustment                     |   | -                       |  |   | (24,993                       | )
|Write-offs                                              |   | -                       |  |   | (246,242                      | )
|Balance, December 31, 2007 and 2006                     |   | 28,798,566              |  |   | 25,017,429                    |  
|                                                        |   |                         |  |   |                               |  
|Deferred development:                                   |   |                         |  |   |                               |  
|Balance, beginning of period                            |   | 15,471,679              |  |   | 2,880,228                     |  
|Work program
      expenditures (1)                     |   | 12,776,179              |  |   | 12,654,759                    |  
|Write-offs                                              |   | -                       |  |   | (63,308                       | )
|Balance, December 31, 2007 and 2006                     |   | 28,247,858              |  |   | 15,471,679                    |  
|                                                        |   |                         |  |   |                               |  
|Total Mineral Properties and Deferred
      Development | $ | 57,046,424              |  | $ | 40,489,108                    |  

|(1) | Includes geological, engineering and environmental work
      programs designed to advance the development of the mineral
    properties.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

The Company regularly reviews the carrying values of its
mineral properties and deferred development expenditures with a view to
assessing whether there has been any impairment in value. As at December 31,
2007 for the Rosemont property this review concluded that no impairment in
carrying value was warranted.

For the mining assets in White Pine County, Nevada, which are
subject to the definitive sale agreement with Ivana, a net after tax write-down
of $1.2 million was recorded as the net book value of the net discontinued
assets exceeded the anticipated proceeds.

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Results of Operations

Comparison of the year ending December 31, 2007 and 2006

|                                                    |   | 2007       |   |   | 2006       |   |   | Change     |  
|--------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                    |   |            |   |   |            |   |   |            |  
|Expenses                                            |   |            |   |   |            |   |   |            |  
|Salaries,benefits and bonuses                       | $ | 1,910,154  |   | $ | 1,790,615  |   | $ | (119,539   | )
|Stock based compensation                            |   | 1,759,715  |   |   | 1,679,534  |   |   | (80,181    | )
|Legal fees                                          |   | 889,864    |   |   | 112,413    |   |   | (777,451   | )
|Exploration expense                                 |   | 317,279    |   |   | -          |   |   | (317,279   | )
|Travel                                              |   | 306,579    |   |   | 303,402    |   |   | (3,177     | )
|Investor relations                                  |   | 279,493    |   |   | 230,157    |   |   | (49,336    | )
|Consulting and communication                        |   | 258,377    |   |   | 118,252    |   |   | (140,125   | )
|Other expenses (net)                                |   | 239,085    |   |   | 215,268    |   |   | (23,817    | )
|Filing and regulatory                               |   | 191,279    |   |   | 234,730    |   |   | 43,451     |  
|Office and sundry                                   |   | 133,979    |   |   | 28,184     |   |   | (105,795   | )
|Insurance                                           |   | 117,662    |   |   | 80,254     |   |   | (37,408    | )
|Accounting and audit                                |   | 83,335     |   |   | 159,352    |   |   | 76,017     |  
|Directors fees                                      |   | 61,519     |   |   | 22,807     |   |   | (38,712    | )
|Rent                                                |   | 51,159     |   |   | 65,661     |   |   | 14,502     |  
|Amortization                                        |   | 34,678     |   |   | 8,053      |   |   | (26,625    | )
|Recruitment fees                                    |   | 33,477     |   |   | 37,275     |   |   | 3,798      |  
|Fiscal and advisory services                        |   | 27,007     |   |   | 31,402     |   |   | 4,395      |  
|Administration                                      |   | -          |   |   | 17,500     |   |   | 17,500     |  
|Write-off of mining assets                          |   | -          |   |   | 309,550    |   |   | 309,550    |  
|                                                    |   |            |   |   |            |   |   |            |  
|Loss from operations                                |   | (6,694,641 | ) |   | (5,444,409 | ) |   | (1,250,232 | )
|Interest and other income                           |   | 793,464    |   |   | 631,509    |   |   | 161,955    |  
|Debt issuance costs                                 |   | -          |   |   | (272,796   | ) |   | 272,796    |  
|Foreign exchange (loss) gain                        |   | (231,176   | ) |   | 63,795     |   |   | 294,971    |  
|Interest and finance charges                        |   | (176,822   | ) |   | (801,338   | ) |   | 624,516    |  
|                                                    |   |            |   |   |            |   |   |            |  
|Loss from continuing operations                     |   | (6,309,175 | ) |   | (5,823,239 | ) |   | (485,936   | )
|Loss from discontinued
      operations, net of tax |   | (1,670,661 | ) |   | (836,352   | ) |   | (834,309   | )
|                                                    |   |            |   |   |            |   |   |            |  
|Net Loss                                            | $ | (7,979,836 | ) | $ | (6,659,591 | ) | $ | (1,320,245 | )

Loss from operations for the year ending December 31, 2007 was
$6,694,641, an increase of $1,250,232 from 2006. The net loss for 2007 was
$7,979,836 an increase of $1,320,245 from the prior year. Both increased loss
amounts reflect a higher level of corporate and project development activity
that the Company has undertaken over the past couple years as well as legal
costs related to the ASARCO litigation defense. An additional loss of
$1,200,000, net of tax, was recorded in 2007 for the discontinued operations
following the assessment of an asset impairment based on the anticipated
proceeds from the sale to Ivana.

Salaries and benefits have increased $119,539 reflecting the
full staff complement for the year as compared to 2006 when senior employees
were hired in the later half of the year. The Vancouver employees also have
responsibilities with other publicly traded unrelated companies, which results
in a sharing of common costs including salaries based on time spent.

The stock based compensation expense increased by $80,181 due
to the number and fair value of options granted during the year and the vesting
pattern of the underlying stock options that gave rise to the compensation
expense resulting in fluctuations in this expense on an annual basis.

9

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The increase in legal expenses of $777,451 is attributable to
the litigation expense associated with the Company defending the Rosemont
property ownership challenged by the ASARCO creditors.

With the completion of the feasibility study, the Company
initiated an exploration program designed to identify additional resource near
the Rosemont deposit. During the six-months ended December 31, 2007, the Company
incurred $317,279 on exploration expense.

The Company actively targeted the US retail investor group this
year through radio, television and webcast forums increasing investor relations
expense by $49,336 over the prior year. The increased exposure to the market
resulted in additional coverage from three new institutional research analysts.

Consulting and communication increased $140,125 during the year
primarily from consulting expenses associated with the on-going SOX 404 process
review, outsourcing tax planning and compliance and professional services
obtained to review compensation levels specific to key groups within the
organization.

Other expenses (net) reflect the cost of operating and
maintaining working ranches acquired with the acquisition of the Rosemont
property. Operating costs include the full year salaries of the Ranch manager
and Ranch hand both staffed mid-year in 2006. The full year employment accounts
for the increase in other expenses of $23,817 during the current year.

Filing and regulatory expenses in 2006 were $43,451 higher than
the current year due to the additional expenses associated with the initial
listing on the Toronto and American Stock Exchanges.

Increased operating expenses for telecommunications, automobile
expenses and professional memberships associated with the increase in the number
of employees and corporate activity contributed to the increase of $105,795 in
office and sundry expense over the prior year.

Increased insurance coverage for Directors and Officers
accounts for the $37,408 increase during the year.

Accounting and audit decreased by $76,017 due to the timing of
services provided.

The Vancouver office shares space with other publicly traded
unrelated companies resulting in a decrease in the rent expense of $14,502.

Amortization expense increased $26,625 reflecting the increased
investment made in capital assets during the year.

During 2006 the Company determined, after completion of a
geological assessment, that it would not complete the option agreement to
purchase the Lone Mountain property in New Mexico. As a result capitalized costs
totaling $309,550 were written-off in the second quarter of 2006.

The increase in interest income to $161,955 during the period
resulted from increased bank balances from equity funds raised during the period
and the investment of these funds in short term investments.

Debt issue costs of $272,796 recorded in 2006 relate to costs
incurred on the issuance of the convertible debenture in June 2005, one-half of
which was repaid on December 1, 2005 ($3,000,000) and the remainder on June 1,
2006.

10

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The foreign exchange loss of $231,176 reflects the exchange
loss realized on the US dollar marketable investment acquired in September 2007
partially offset by gains recognized on US dollar denominated liabilities,
primarily the promissory note issued on the acquisition of the land purchased in
February 2007.

Interest and finance charges to December 31, 2007 are $176,822
compared with $801,338 in the prior year. In 2007 the Company entered into an
agreement for the purchase of land for a water-well field and pump station. The
purchase agreement included the assumption of a promissory note bearing 8%
interest. At December 31, 2007 the Company recorded $161,642 interest expense on
the promissory note and $15,080 of bank charges and interest. The 2006 amount is
comprised of $795,968 of accretion interest on the convertible debenture, which
was repaid on June 1, 2006, and $5,370 of bank charges and interest.

On May 1, 2007, the Company entered into a Letter of Intent
(LOI) with Ivana respecting the sale of the Companys interest in the Mount
Hamilton, Shell and Monte Cristo properties. Following the completion of a
definitive sale agreement in November 2007, the transaction is subject to
regulatory approvals; the Company reclassified the consolidated results of DHI
Minerals to discontinued operations. As the fair value of the compensation
recorded is less than the net book value of the assets being sold, at the
2007-year end, the Company recorded, net of tax of $400,000, an asset impairment
totalling $1,200,000.

11

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Comparison of the year ending December 31, 2006 and 2005

|                                                    |   | 2006       |   |   | 2005       |   |   | Change     |  
|--------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|                                                    |   |            |   |   |            |   |   |            |  
|Expenses                                            |   |            |   |   |            |   |   |            |  
|Salaries,benefits and bonuses                       | $ | 1,790,615  |   | $ | 585,418    |   | $ | (1,205,197 | )
|Stock based compensation                            |   | 1,679,534  |   |   | 1,039,794  |   |   | (639,740   | )
|Write-off of mining assets                          |   | 309,550    |   |   | 251,501    |   |   | (58,049    | )
|Travel                                              |   | 303,402    |   |   | 74,672     |   |   | (228,730   | )
|Filing and regulatory                               |   | 234,730    |   |   | 109,561    |   |   | (125,169   | )
|Investor relations                                  |   | 230,157    |   |   | 69,308     |   |   | (160,849   | )
|Other expenses (net)                                |   | 215,268    |   |   | (8,847     | ) |   | (224,115   | )
|Accounting and audit                                |   | 159,352    |   |   | 20,000     |   |   | (139,352   | )
|Consulting and communication                        |   | 118,252    |   |   | 53,379     |   |   | (64,873    | )
|Legal fees                                          |   | 112,413    |   |   | 16,883     |   |   | (95,530    | )
|Insurance                                           |   | 80,254     |   |   | -          |   |   | (80,254    | )
|Rent                                                |   | 65,661     |   |   | 53,670     |   |   | (11,991    | )
|Recruitment fees                                    |   | 37,275     |   |   | 45,174     |   |   | 7,899      |  
|Fiscal and advisory services                        |   | 31,402     |   |   | 33,497     |   |   | 2,095      |  
|Office and sundry                                   |   | 28,184     |   |   | 197,081    |   |   | 168,897    |  
|Directors fees                                      |   | 22,807     |   |   | -          |   |   | (22,807    | )
|Administration                                      |   | 17,500     |   |   | 30,000     |   |   | 12,500     |  
|Amortization                                        |   | 8,053      |   |   | -          |   |   | (8,053     | )
|Loss from operations                                |   | (5,444,409 | ) |   | (2,571,091 | ) |   | (2,873,318 | )
|Interest and other income                           |   | 631,509    |   |   | 57,433     |   |   | 574,076    |  
|Debt issuance costs                                 |   | (272,796   | ) |   | (325,628   | ) |   | 52,832     |  
|Loss on repayment of debenture                      |   | -          |   |   | (390,000   | ) |   | 390,000    |  
|Foreign exchange (loss) gain                        |   | 63,795     |   |   | 23,643     |   |   | (40,152    | )
|Interest and finance charges                        |   | (801,338   | ) |   | (1,996,415 | ) |   | 1,195,077  |  
|Loss from continuing operations                     |   | (5,823,239 | ) |   | (5,202,058 | ) |   | (621,181   | )
|Loss from discontinued
      operations, net of tax |   | (836,352   | ) |   | (135,779   | ) |   | (700,573   | )
|                                                    |   |            |   |   |            |   |   |            |  
|Net Loss                                            | $ | (6,659,591 | ) | $ | (5,337,837 | ) | $ | (1,321,754 | )

Loss from operations for the year ending December 31, 2006 was
$5,444,409, an increase of $2,873,318 from 2005. The net loss for 2006 was
$6,659,591, an increase of $1,321,754 from the prior year. Both increased loss
amounts reflect the increased corporate and project development activity that
the Company has undertaken over the past couple years.

Specifically the increase in salaries and benefits reflects the
hiring of three senior employees in 2005 and the hiring of seven employees in
2006 five of which were senior, these personnel increases effectively quadrupled
the employee base of the Company over the two-year period. The 2006 amounts also
include bonuses. The 2005 hires were for a new President & CEO, VP
Exploration and VP Projects and Environment. These positions are all based in
Colorado. Gil Clausen, the President & CEO and Mike Clarke, VP Exploration
commenced their engagements in April 2005. In September 2005 James Sturgess, VP
Projects and Environment was hired. An administrative/secretarial person has
also been engaged for this office. In August 2006, both Marlo Hamer-Jackson,
Manager Investor Relations and Corporate Communications and Tracey Brix-Nielsen,
Controller were added to the management team in Vancouver with Bruce Nicol,
Senior VP and Chief Financial Officer, joining in September. Lance Newman VP,
Project Development and Mr. Mark Stevens, Chief Project Geologist also joined
the Denver office in August 2006. The Vancouver employees also have
responsibilities with other publicly traded companies, which results in a
sharing of common costs including salaries.

12

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The stock based compensation expense at $1,679,534 reflects the
pro-rata expense for the issue of 1,885,000 stock options to corporate
directors, officers and employees in 2006 as well as the pro-rata expense for
the issue of stock options in 2005 and 2004. The fair value determination was
effected by the share price volatility and overall increase in the share price
over the two-year period.

During 2006 the Company determined, after completion of a
geological assessment, that it would not complete the option agreement to
purchase the Lone Mountain property in New Mexico. As a result capitalized costs
totalling $309,550 were written-off in the second quarter. In 2005 the Company
wrote-off the capitalized costs related to the Coronation Diamond District
properties in Nunavut, Canada resulting in $251,501 being charged to the
statement of operations for the year.

Reflecting the increase in the number of employees as well as
corporate and operational activity in general, a number of the expense
categories increased. These include travel as well as, filing and regulatory,
accounting and audit, consulting and communications, legal fees and fiscal and
advisory services in support of the TSX and AMEX listings, increased disclosure
and accounting and reporting complexities (as a result of the listings and
increased corporate activity) and for investor relations a concerted effort to
actively market the Company to institutional and other shareholders and
potential shareholders.

Other expenses capture operational net expenditures pertaining
to the working ranch acquired with the acquisition of the Rosemont property.

During 2006 the Company incurred $80,254 for insurance expense
for Directors and Officers insurance coverage along with liability coverage
for the Rosemont Ranch.

Recruitment fees for the year ended December 31, 2006 were
incurred for the search for 2 positions in the Denver office and in 2005 for the
search for a candidate for the President and CEOs position. In 2006 the Company
hired Mr. Mark Stevens as Chief Project Geologist as well as an executive
assistant for the Denver office using the services of a recruitment agency. In
2005 the Company hired Mr. Gil Clausen as President and CEO using such
services.

A decrease in office and sundry of $168,897 in 2006 reflects
the absence of certain one time charges incurred in 2005.

The increase in interest income to $631,509 during the period
resulted from the substantial increase in bank balances and short-term
investments resulting from the equity funds raised in March 2006.

Debt issue costs of $272,796 relate to costs incurred on the
issuance of the convertible debenture in June 2005, one-half of which was repaid
on December 1, 2005 ($3,000,000) and the remainder on June 1, 2006. In 2005, the
December repayment included the issuance of shares at a discount, which resulted
in the recognition of a loss of $390,000.

Interest and finance charges to December 31, 2006 are $801,338
compared with $1,996,415 in the prior year. The 2006 amount is comprised of
$795,968 of accretion interest and $5,370 of bank charges and interest. The 2005
amount is comprised of the accretion of $1,701,348 of interest expense as well
as the accrual of $292,500 at 9% interest due on the convertible debenture.

13

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Select Annual Information

|                                                    |   | 2007       |   |   | 2006       |   |   | 2005       |  
|--------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
|Total revenue                                       | $ | nil        |   | $ | nil        |   | $ | nil        |  
|Total net loss                                      |   | (7,979,836 | ) |   | (6,659,591 | ) |   | (5,337,837 | )
|Total net loss and diluted net loss per
      share |   | (0.10      | ) |   | (0.11      | ) |   | (0.17      | )
|Total assets                                        |   | 94,696,963 |   |   | 58,538,531 |   |   | 20,807,850 |  
|Total long-term financial liabilities               |   | 1,831,921  |   |   | 9,200      |   |   | 9,200      |  
|Cash dividends declared per share                   |   | nil        |   |   | nil        |   |   | nil        |  

Summary of Quarterly Results

Selected financial information for each of the eight most
recently completed quarters of fiscal 2007 and 2006 are as follows:

Net loss pershare basicRevenue
    Net
      loss
    & dilutedDec 2007
    Nil
    $ (3,134,030)
    $ (0.04)Sep 2007
    Nil
    $ (2,237,598)
    $ (0.03)Jun 2007
    Nil
    $ (1,067,324)
    $ (0.01)Mar 2007
    Nil
    $ (1,540,884)
    $ (0.02)Dec 2006
    Nil
    $ (1,242,765)
    $ (0.02)Sep 2006
    Nil
    $ (1,453,462)
    $ (0.02)Jun 2006
    Nil
    $ (2,436,883)
    $ (0.04)Mar 2006
    Nil
    $ (1,526,481)
    $ (0.04)


Liquidity

The Companys mineral exploration and development activities
have provided the Company with no sources of income and a history of losses,
working capital deficiencies and deficit positions. However, given the nature of
its business, the results of operations as reflected in the net losses and
losses per share do not provide meaningful interpretation of the Companys
valuation and non-financial performance.

The Companys working capital as at December 31, 2007 was
$28,903,147 compared with working capital of $12,181,900 as at December 31,
2006, an improvement of $16,721,247. On June 19, 2007 the Company closed a
non-brokered private placement of 10,719,827 common shares at $3.50 per share
for gross proceeds of $37,519,934. During the second quarter 5,045,000 warrants
were exercised for gross proceeds of $4,549,140.

These funds were used to acquire land for water pumping
purposes ($2,749,506) and additional land parcels adjacent to the Rosemont
property ($1,195,480). In addition to land and mineral property acquisitions,
$13,026,037 was incurred on deferred development expenditures during the year
and $1,566,400 on water rights payments for water delivered into the local
aquifer to be accessed at a later date during operations. Cash used in
operations totaled $3,725,705. The Companys cash position as at December 31,
2007 was $25,586,997 compared with $9,650,980 as of December 31, 2006, an
increase of $15,936,017.

The Company has $4,181,314 of current liabilities, a decrease
of $1,518,852 from the prior year. The decrease relates primarily to the
repayment of the note payable of US$1,500,000 ($1,601,850) included in
liabilities of discontinued operations. The note was initially due on April 20,
2007 and was extended for two months at an interest rate of 10% ($24,658).

14

---

The Company has $1,831,921 due in long-term liabilities as of
December 31, 2007 compared with $9,200 on December 31, 2006, the increase of
$1,822,721 represents the long-term portion of a promissory note, bearing
interest at 8%, for the purchase of a 53 acre parcel of land in Tucson for use
as a water-well field, pump station, and a possible water recharge location. At
December 31, 2007 $374,537 of the note is current.

The current obligations of the Company are expected to be
funded through existing cash.

The following table lists as of December 31, 2007 information
with respect to the Companys known contractual obligations.

|                                                   |   | Payments due by period | 
|-------------------------------------------------- | - | ---------------------- | 
|                                                   |   |                        | 
|Contractual
      Obligations                      |   | Total                  | 
|Accounts payable and accrued liabilities
      (1) | $ | 1,981,702              | 
|Notes, advances and other (2)                      |   | 2,229,745              | 
|Long-lead equipment (3)                            |   | 28,947,000             | 
|Operating lease
      obligations (4)              |   | 143,660                | 
|Total                                              | $ | 33,302,107             | 

|(1) | Represents accounts payable and accrued liabilities due
      within the next 12 months.                                                                                                                                                                                                                                                                                                                                                                                           
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Represents amounts owed to various unrelated parties
      totaling $32,488. These amounts do not bear interest. Represents
      US$2,223,720 promissory note for the purchase of a 53 acre parcel of land
      south of Tucson for a well field, pump station, and as a possible water
      recharge location. The promissory note bears interest at 8% and requires 5
      equal payments for principal and interest of US$556,945 on the February 20
      anniversary date.
|(3) | The Company has signed an agreement valued at
      approximately US$29 million with Polysius Corp. for the purchase and
      delivery of a SAG and two ball mills needed for the construction of the
      Rosemont Copper mine. The payments are spread out over a two and a half
      year period starting in January 2008.                                                                                                                                                   
|(4) | Represents Glendale office rent of US $6,900 per month,
      under a 36 month lease agreement expiring on June, 2009 and US $2,215 per
      month for lodging premises in Tucson, under a 12 month lease agreement
      expiring between July 31, 2008 and September 30,
2008.                                                                                                                                                                                                  

Capital Resources

The Companys primary capital assets are mineral properties,
which are discussed in detail in the section, Overview of Performance. The
Company has entered into several option agreements, which provide for further
acquisitions and exploration expenses to be incurred, however, these are option
agreements and the Company is not committed to completing these expenditures.

We will require additional capital to fund our business plan.
We have no revenue from operations and do not expect to generate any revenue
from operations in the foreseeable future.

During the next year the Company anticipates that it will
require capital for the following:

- Engineering and geological expenditures to advance the Rosemont project
  -$16 million.
- The purchase of land to be used for water pumping purposes including the
  ability to pump water into the Pima Mine Storage and Retrieval Facility to be
  accessed at a later time during production, including the purchase of water -
  $3,400,000.
- Ongoing direct administrative support of Rosemont Copper project for the
  year - $3,300,000.
- Ongoing administrative expenses for the Company - $3,300,000.
- Amounts will be required as deposits for long-lead time equipment. To date
  only one such contract has been entered into which will require 2008 payments
  of $10 million. As additional contracts are completed, depending on the terms
  and conditions negotiated, funds needed for equipment deposits could increase
  in 2008.

15

---

- Consulting and other fees to advance the EIS and for other permitting
  activities - $4,200,000.
- Exploration expenditures related to a program to expand the mineralized
  material resource near the Rosemont deposit - $2,100,000.

Current cash reserves are expected to last into the second
quarter of 2008, based on the known expenditures detailed above we anticipate
that we will require additional capital of approximately $17 million to fund
these payments during the year. To the extent other contracts are negotiated for
long lead time equipment that require deposits in 2008 additional funding would
be required. The Company has commenced a process of discussions with various
financial intermediaries with the objective to secure sufficient initial funding
to cover expenditures through to the expected completion of the permitting
process.

The Company historically has relied upon equity subscriptions
to satisfy its capital requirements. The Company will continue to depend upon
equity capital to finance its activities. There are no assurances that capital
requirements will be met by this means of financing as inherent risks are
attached therein including commodity prices, financial market conditions, and
general economic factors. Management continues with its efforts to secure
additional financing arrangements and further support by its creditors.

Off Balance-Sheet Arrangements

The Company does not utilize off-balance sheet arrangements.

Transactions with Related Parties

During the year ending December 31, 2007, the Company incurred
expenses of $Nil (2006 - $17,500; 2005 - $30,000) for administrative services
provided by a company in which a director of the Company has a 25% interest.

At December 31, 2007, $195,674 (2006 - $26,888) of accounts
receivable was due from related companies, which share office space,
administrative services and certain common directors with the Company. Also,
included in accounts receivable at December 31, 2007 is an amount of $70,686
(2006 - $42,043) due from a company in which a director of the Company has a 25%
interest. At December 31, 2007, $64,000 (2006 - $76,250) is due to the Vice
President Administration of the Company for accrued salaries.

Change of Auditors

Ernst and Young LLP have been auditors since the 2005 year
end.

Proposed Transactions

There are no undisclosed proposed transactions that will
materially affect the performance of the Company .

Changes in Accounting Policies including Initial
Adoption

With the signing of the definitive sales agreement for DHI
Minerals, subject to regulatory approvals, the Company reclassified the results
of DHI Minerals and DHI Minerals US as discontinued.

16

---

Financial Instruments and Other Instruments

The carrying values of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities, notes and advances and
convertible debenture as reflected in the balance sheet approximate their fair
values. The Company has no significant concentrations of credit risk.

Share Capital information

As at the date of this report the Company had an unlimited
number of common shares authorized for issuance, with 88,590,061 issued and
outstanding. The Company had 6,235,000 outstanding stock options with 2,779,498
vested and available for exercise. The Company also had 12,997,600 in
outstanding warrants available to be exercised. From December 31, 2007 to the
date of this report 350,000 options were granted to new employees of the
Company, no options or warrants were exercised.

Risks and uncertainties

An investment in the Company's common shares is highly
speculative and subject to a number of risks and uncertainties. Only those
persons who can bear the risk of the entire loss of their investment should
participate. An investor should carefully consider the risks described below and
the other information filed with the Canadian securities regulators before
investing in the Company's common shares. The risks described below are not the
only ones faced. Additional risks that the Company currently believe are
immaterial may become important factors that affect the Company's business. If
any of the following risks occur, or if others occur, the Company's business,
operating results and financial condition could be seriously harmed and
investors may lose all of their investment.

We have a history of losses
and anticipate that we will continue to incur losses for the foreseeable future.

We have historically incurred losses as evidenced by the
consolidated statements of operations contained in the Consolidated Financial
Statements. We incurred losses of $7,979,836, $6,659,591 and $5,337,837 for the
years ended December 31, 2007, 2006 and 2005, respectively and have accumulated
losses of $30,272,946.

Our efforts to date are focused on acquiring, exploring and
advancing mineral properties to a development decision. We do not anticipate
that we will earn any revenue from our operations until our properties are
placed into production, which is not expected to be for several years, if at
all.

We will require additional
capital to fund our business plans.

As of December 31, 2007, we had a working capital of
$28,903,147. We have no revenues from operations and do not expect to generate
any revenues from operations in the foreseeable future. Although we anticipate
the current cash balance will provide us with sufficient funding to advance the
project into the second quarter of 2008, our planned activities for the year
anticipate expenditures significantly in excess of our current cash reserves. We
will require additional capital to fund our business activities, including
exploration and development expenditures, land purchases and deposits on long
lead time mining equipment. Managements current plan, will require a minimum of
approximately $17 million additional funding in 2008. We may raise additional
capital through debt or equity financing, and possibly through joint ventures,
production sharing arrangements or other means. Such funding may not be
available on commercially acceptable terms or at all. Our failure to meet our
ongoing obligations on a timely basis or raise additional funds that may be
required could result in delay or indefinite

17

---

postponement of further exploration and development of our
property or the loss or substantial dilution of our property interests (as
existing or as proposed to be acquired).

We have historically
depended on distributions of our securities to fund our working capital and
funding requirements

Historically, the principal source of funds available to us has
been through the sale of common shares. During the years ended December 31,
2007, 2006 and 2005, we raised approximately $42,100,000, $47,724,000 and
$11,220,000, respectively, by issuing equity securities. Additional equity
financing would cause dilution to our existing shareholders.

In addition, as at December 31, 2007, we had outstanding
5,887,000 common share purchase options at an average exercise price of $1.89
and 12,997,600 purchase warrants at an average outstanding exercise price of
$4.10. As a consequence of the passage of time since the date of their original
sale and issuance, none of the Company's shares remain subject to any hold
period restrictions in Canada as of December 31, 2007. The unrestricted resale
of outstanding shares from the exercise of dilutive securities may have a
depressing effect on the market for our common shares.

We have no history of
production and may never place any of our properties into production.

None of our properties are in commercial production, and we
have never recorded any revenues from mining operations. We expect to incur
losses unless and until such time as our properties enter into commercial
production and generate sufficient revenues to fund our continuing operations.
The development of mining operations on any of our properties will require the
commitment of substantial resources for operating expenses and capital
expenditures, which may increase in subsequent years as needed consultants,
personnel and equipment associated with advancing exploration, development and
commercial production of our properties are added. The amounts and timing of
expenditures will depend on the progress of ongoing exploration and development,
the results of consultants analysis and recommendations, the rate at which
operating losses are incurred, the execution of any joint venture agreements
with strategic partners, our acquisition of additional properties, and other
factors, many of which are beyond our control. We may not generate any revenues
or achieve profitability.

Our exploration activities may
not be commercially successful.

Mineral exploration is highly speculative in nature, involves
many risks and is frequently nonproductive. Unusual or unexpected geologic
formations, and the inability to obtain suitable or adequate machinery,
equipment or labor are risks involved in the conduct of exploration programs. We
are currently conducting exploration and deposit definition drilling on the
Rosemont property. The success of mineral exploration is determined in part by
the following factors:

- the identification of potential mineralization based on superficial
  analysis;
- availability of exploration permits;
- the quality of our management and our geological and technical expertise;
  and
- the capital available for exploration.

18

---

Substantial expenditures are required to establish or to add to
existing proven and probable reserves through drilling and analysis, to develop
metallurgical processes to extract metal, and to develop the mining and
processing facilities and infrastructure at any site chosen for mining. Whether
a mineral deposit will be commercially viable depends on a number of factors,
which include, without limitation, the particular attributes of the deposit,
such as size, grade and proximity to infrastructure; metal prices, which
fluctuate widely; and government regulations, including, without limitation,
regulations relating to prices, taxes, royalties, land tenure, land use,
importing and exporting of minerals and environmental protection.

Exploration, development and
mining involve a high degree of risk.

Our operations will be subject to all the hazards and risks
normally encountered in the exploration, development and production of copper
and other base or precious metals, including, without limitation, seismic
activity, rock bursts, pit-wall failures, cave-ins, flooding and other
conditions involved in the drilling and removal of material, any of which could
result in damage to, or destruction of, mines and other producing facilities,
damage to life or property, environmental damage and legal liability.

We may be adversely
affected by fluctuations in copper, molybdenum, silver, gold and other metal
prices.

The value and price of our common shares, our financial
results, and our exploration, development and mining, if any, activities may be
significantly adversely affected by declines in the price of copper, molybdenum,
silver, gold and other metals. Mineral prices fluctuate widely and are affected
by numerous factors beyond our control such as interest rates, exchange rates,
inflation or deflation, fluctuation in the value of the United States dollar and
foreign currencies, global and regional supply and demand, and the political and
economic conditions of mineral producing countries throughout the world. The
price for metals fluctuate in response to many factors beyond anyones ability
to predict. The prices used in making the resource estimates are disclosed and
differ from daily prices quoted in the news media. The percentage change in the
price of a metal cannot be directly related to the estimated resource
quantities, which are affected by a number of additional factors. For example, a
10 percent change in price may have little impact on the estimated resource
quantities and affect only the resultant cash flow, or it may result in a
significant change in the amount of resources. Because mining occurs over a
number of years, it may be prudent to continue mining for some periods during
which cash flows are temporarily negative for a variety of reasons including a
belief that the low price is temporary and/or the greater expense incurred in
closing a property permanently.

Mineralized material calculations and life-of-mine plans using
significantly lower metal prices could result in material write-downs of our
investments in mining properties and increased amortization, reclamation and
closure charges.

In addition to adversely affecting our mineralized material
estimates and financial condition, declining metal prices can impact operations
by requiring a reassessment of the commercial feasibility of a particular
project. Such a reassessment may be the result of a management decision related
to a particular project. Even if the project is ultimately determined to be
economically viable, the need to conduct such a reassessment may cause
substantial delays in development or may interrupt operations, if any, until the
reassessment can be completed.

Production and cost estimates
may be worse than anticipated

The decision by the Company to proceed with the development of
the Rosemont mine was based on economic projections determined as part of the FS
process. Included in these projections were estimates for metal production and
capital and operating costs. No assurance can be given that

19

---

such estimates will be achieved. Failure to achieve these
production and capital and operating cost estimates or material increases in
costs could have an adverse impact on Augustas future cash flows,
profitability, results of operations and financial condition.

Augustas actual production and capital and operating costs may
vary from estimates for a variety of reasons, including: actual ore mined
varying from estimates of grade, tonnage, dilution and metallurgical and other
characteristics; short-term operating factors relating to the ore reserves, such
as the need for sequential development of ore bodies and the processing of new
or different ore grades; revisions to mine plans; risks and hazards associated
with mining; natural phenomena, such as inclement weather conditions, water
availability, floods, and earthquakes; and unexpected labour shortages or
strikes. Costs of production may also be affected by a variety of factors,
including; changing waste-to-ore ratios, ore grade metallurgy, labour costs, the
cost of commodities, general inflationary pressures and currency rates.

Litigation may adversely affect
the Companys assets

Augusta is currently subject to litigation and may be involved
in disputes with other parties in the future which may result in litigation. The
current litigation involves a suit filed by ASARCO in the US Bankrupcy Court for
the Southern District of Texas, Corpus Christi Division with regard to the
Rosemont property. Augusta believes that it has solid grounds to defeat any
ASARCO challenge to its ownership, and it is defending the matter vigorously.
The results of litigation cannot be predicted with certainty. If Augusta is
unable to resolve these disputes favorably, it may have a material adverse
impact on Augustas financial performance, cash flow and results of operations.

Title to our properties may be
subject to other claims.

Although we believe we have exercised the commercially
reasonable due diligence with respect to determining title to properties we own,
control or have the right to acquire by option, there is no guarantee that title
to such properties will not be challenged or impugned. Our mineral property
interests may be subject to prior unrecorded agreements or transfers or native
land claims and title may be affected by undetected defects. There may be valid
challenges to the title of our properties which, if successful, could impair
development and/or operations. This may be exacerbated due to the large number
of title transfers historically involved with some of the properties.

Estimates of mineralized
materials are subject to geologic uncertainty and inherent sample variability.

Although the estimated resources at our properties have been
delineated with appropriately spaced drilling, there is inherent variability
between duplicate samples taken adjacent to each other and between sampling
points that cannot be reasonably eliminated. There also may be unknown geologic
details that have not been identified or correctly appreciated at the current
level of delineation. This results in uncertainties that cannot be reasonably
eliminated from the estimation process. Some of the resulting variances can have
a positive effect and others can have a negative effect on mining and processing
operations. Acceptance of these uncertainties is part of any mining operation.

Mineral resources and proven and
probable reserves are estimates.

Although the mineralized material and proven and probable
reserve figures included in this document have been carefully prepared by
independent engineers, these amounts are estimates only, and we cannot be
certain that specific quantities of copper, molybdenum, silver, gold or other
mineral will in fact be realized. Any material change in the quantity of
mineralization, grade

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or stripping ratio, or mineral prices may affect the economic
viability of our properties. In addition, we cannot be certain that metal
recoveries in small-scale laboratory tests will be duplicated in larger scale
tests under on-site conditions or during production. Until an unmined deposit is
actually mined and processed the quantity of mineral resources and reserves and
grades must be considered as estimates only.

Government regulation may
adversely affect our business and planned operations.

We believe our exploration projects currently comply with
existing environmental and mining laws and regulations affecting its operations.
Our mining, processing, development and mineral exploration activities, if any,
are subject to various laws governing prospecting, mining, development,
production, taxes, labor standards and occupational health, mine safety, toxic
substances, land use, water use, land claims of local people and other matters.
We cannot assure you that new rules and regulations will not be enacted or that
existing rules and regulations will not be applied in a manner which could limit
or curtail production or development.

A portion of the present Rosemont land position is located on
unpatented mine and millsite claims located on U.S. federal public lands. The
right to use such claims are granted under the General Mining Law of 1872.
Unpatented mining claims are unique property interests in the United States, and
are generally considered to be subject to greater title risk than other real
property interests because the validity of unpatented mining claims is often
uncertain. This uncertainty arises, in part, out of the complex federal and
state laws and regulations under the General Mining Law and the interaction of
the General Mining Law and other federal and state laws, such as those enacted
for the protection of the environment. Unpatented mining claims are subject to
possible challenges of third parties or contests by the federal government. The
validity of an unpatented mining claim, in terms of both its location and
maintenance, is dependent on strict compliance with a complex body of federal
and state statutory or decisional law. In addition, there are few public records
that definitively control the issues of validity and ownership of unpatentable
mining claims. In recent years, the U.S. Congress has considered a number of
proposed amendments to the General Mining Law. If adopted, such legislation
could, among other things:

- impose a royalty on the production of metals or minerals from unpatented
  mining claims;
- reduce or prohibit the ability of a mining company to expand its
  operations; and
- require a material change in the method of exploiting the reserves located
  on unpatented mining claims.

All of the foregoing could adversely affect the economic and
financial viability of mining operations at the Rosemont property.

Amendments to current laws, regulations and permits governing
operations and activities of mining and exploration companies, or more stringent
implementation thereof, could have a material adverse impact on our business and
cause increases in exploration expenses, capital expenditures or production
costs or reduction in levels of production at producing properties or require
abandonment or delays in development of new mining properties.

Our operations are subject to
environmental risks.

All phases of our operations, if any, will be subject to
federal, state and local environmental regulation in the various jurisdictions
in which we operate. These regulations mandate, among other things, the
maintenance of air and water quality standards and land reclamation. They also
set forth limitations on the generation, transportation, storage and disposal of
solid and hazardous

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waste. 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
projects and a heightened degree of responsibility for companies and their
officers, directors and employees. We cannot be certain that future changes in
environmental regulation, if any, will not adversely affect our operations, if
any. Environmental hazards may exist on the properties on which we hold and will
hold interests which are unknown to us at present and which have been caused by
previous or existing owners or operators of the properties.

Failure to comply with applicable laws, regulations and
permitting requirements may result in enforcement actions thereunder, including
orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed, and may include corrective measures requiring capital
expenditures, installation of additional equipment, or remedial actions. Parties
engaged in mining operations or in the exploration or development of mineral
properties may be required to compensate those suffering loss or damage by
reason of the mining activities and may have civil or criminal fines or
penalties imposed for violations of applicable laws or regulations.

Production, if any, at our mines will involve the use of
hazardous materials. Should these materials leak or otherwise be discharged from
their containment systems then we may become subject to liability for hazards
that it may not be insured against or for clean up work that may not be
insured.

Our stock price is subject to
volatility

During the year ended December 31, 2007, our share price ranged
from $1.86 to $4.39 per share on the TSX and from US$1.65 to US$4.64 on AMEX.
The market price of a publicly traded stock, especially a junior resource
issuer, is affected by many variables not directly related to our exploration
success, including the market for junior resource stocks, the strength of the
economy generally, commodity prices, the availability and attractiveness of
alternative investments, and the breadth of the public market for the stock. The
effect of these and other factors on the market price of the common shares on
the stock exchanges on which the Company trades, suggest the Company's shares
will continue to be volatile.

We do not insure against all
risks.

Our insurance will not cover all the potential risks associated
with a mining companys operations. We may also be unable to maintain insurance
to cover these risks at economically feasible premiums. Insurance coverage may
not continue to be available or may not be adequate to cover any resulting
liability. Moreover, insurance against risks such as environmental pollution or
other hazards as a result of exploration and production is not generally
available to us or to other companies in the mining industry on acceptable
terms. We might also become subject to liability for pollution or other hazards
which may not be insured against or which we may elect not to insure against
because of premium costs or other reasons. Losses from these events may cause us
to incur significant costs that could have a material adverse effect upon our
financial condition and results of operations.

We compete with larger, better
capitalized competitors in the mining industry.

The mining industry is competitive in all of its phases. We
face strong competition from other mining companies in connection with the
acquisition of properties producing, or capable of producing, base and precious
metals. Many of these companies have greater financial resources, operational
experience and technical capabilities than us. As a result of this competition,
we may be unable to maintain or acquire attractive mining properties on terms it
considers acceptable or at all. Consequently, our revenues, operations and
financial condition could be materially adversely affected.

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We are dependent on our key
personnel.

Our success depends on our key executives. The loss of the
services of one or more of such key management personnel could have a material
adverse effect on the Company. Our ability to manage exploration and development
activities, and hence our success, will depend in large part on the efforts of
these individuals. We face intense competition for qualified personnel, and we
cannot be certain that we will be able to attract and retain such personnel.

Our officers and directors may
have potential conflicts of interest

Our directors and officers may serve as directors and/or
officers of other public and private companies and devote a portion of their
time to manage other business interests. This may result in certain conflicts of
interest. To the extent that such other companies may participate in ventures in
which we are also participating, such directors and officers may have a conflict
of interest in negotiating and reaching an agreement with respect to the extent
of each companys participation. The laws of Canada require the directors and
officers to act honestly, in good faith, and in the best interests of the
Company and its shareholders. However, in conflict of interest situations, our
directors and officers may owe the same duty to another company and will need to
balance the competing obligations and liabilities of their actions. There is no
assurance that our needs will receive priority in all cases. From time to time,
several companies may participate together in the acquisition, exploration and
development of natural resource properties, thereby allowing these companies to:
(i) participate in larger programs; (ii) acquire an interest in a greater number
of programs; and (iii) reduce their financial exposure with respect to any one
program. A particular company may assign, at its cost, all or a portion of its
interests in a particular program to another affiliated company due to the
financial position of the company making the assignment. In determining whether
or not we will participate in a particular program and the interest therein to
be acquired by it, it is expected that our directors will primarily consider the
degree of risk to which the Company may be exposed and its financial position at
the time.

We provide indemnity and
protection to our directors and officers

Section 7 of our By-Law No.1 states in part that:

The Company shall indemnify a director
or officer, a former director or officer, or a person who acts or acted at the
Companys request as a director or officer of a body corporate of which the
Company is or was a shareholder or creditor... against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment . .
..

Thus, we may be required to pay amounts to settle any such
claims that may arise. The impact of any such possible future indemnity
protection cannot be determined at this time.

In the event that your
investment in our shares is for the purpose of deriving dividend income or in
expectation of an increase in market price of our shares from the declaration
and payment of dividends, your investment will be compromised because we do not
intend to pay dividends.

We have never paid a dividend to our shareholders, and we
intend to retain our cash for the continued development of our business. We do
not intend to pay cash dividends on our common stock in the foreseeable future.
As a result, your return on investment will be solely determined by your ability
to sell your shares in a secondary market.

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Increased Costs and Compliance
Risks as a Result of Being a Public Company

Legal, accounting and other expenses associated with public
company reporting requirements have increased significantly in the past few
years. The Company anticipates that general and administrative costs associated
with regulatory compliance will continue to increase with recently adopted
corporate governance requirements, including requirements under the
Sarbanes-Oxley Act of 2002,as well as new rules implemented by the
United States Securities and Exchange Commission, Canadian Securities
Administrators, the AMEX and the TSX. The Company expects these rules and
regulations to significantly increase its legal and financial compliance costs
and to make some activities more time-consuming and costly. There can be no
assurance that the Company will continue to effectively meet all of the
requirements of these new regulations, including Sarbanes-Oxley Section 404
andMultilateral Instrument 52-109.Any failure to effectively
implement new or improved internal controls, or to resolve difficulties
encountered in their implementation, could harm the Companys operating results,
cause the Company to fail to meet reporting obligations or result in management
being required to give a qualified assessment of the Companys internal controls
over financial reporting or the Companys independent auditors providing an
adverse opinion regarding managements assessment. Any such result could cause
investors to lose confidence in the Companys reported financial information,
which could have a material adverse effect on the Companys stock price. The
Company also expects these new rules and regulations may make it more difficult
and more expensive for it to obtain director and officer liability insurance,
and it may be required to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar coverage. As a result,
it may be more difficult for the Company to attract and retain qualified
individuals to serve on its board of directors or as executive officers. If the
Company fails to maintain the adequacy of its internal controls, the Company's
ability to provide accurate financial statements and comply with the
requirements of the Sarbanes-Oxley Act of 2002and/or Multilateral
Instrument 52-109could be impaired, which could cause the Company's stock
price to decrease.

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Critical Accounting Policies

The Companys Consolidated Financial Statements have been
prepared assuming the Company will continue on a going-concern basis. The
Company has incurred losses since inception, and the ability of the Company to
continue as a going concern depends upon its ability to develop profitable
operations and to continue to raise adequate financing. The Company has financed
its capital requirements by issuing common stock, notes payable and other equity
securities. There is no certainty that the Company will be able to raise the
funds sufficient to support its business plan.

The preparation of financial statements in conformity with
Canadian GAAP requires management to make additional estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates and measurement
uncertainty include the assessment of valuation impairment of the mineral
properties and deferred development expenditures, the determination of the fair
value allocation between debt and equity for the convertible debenture issued in
June 2005 and the determination of the fair value of the stock based
compensation charged to operations.

The Company follows the practice of capitalizing all costs
directly related to acquisition, and development of mineral properties and
mineral property projects until such time as mineral properties are put into
commercial production, sold or abandoned. If commercial production commences,
these capitalized costs will be amortized on a unit-of-production basis. If the
mineral properties or projects are abandoned, the related capitalized costs are
written-off. On an ongoing basis, the Company evaluates each property and
project on results to date to determine the nature of exploration, other
assessment and development work that is warranted in the future. If there is
little prospect of future work on a property or project being carried out within
a three year period from completion of previous activities, the deferred costs
related to that property or project are written down to the estimated amount
recoverable unless there is persuasive evidence that an impairment allowance is
not required. The amounts shown for mineral properties and for deferred
development expenditures represent costs incurred to date less write-downs, and
are not intended to reflect present or future values.

The Company followed the fair value approach in determining the
allocation between the debt and equity components of the convertible debenture.
With the final repayment of the obligation on June 1, 2006 the only remaining
impact on the balance sheet is that the equity valuation component totalling
$1,478,083 remains credited to contributed surplus. For stock based compensation
(including stock options) and for the valuation of warrants issued by the
Company, the Black-Scholes option pricing model is used to determine the fair
value of the particular instrument. This model is subject to various assumptions
including the expected life of the option and the volatility of the Companys
share price. The Company relies on historical information as the basis for these
assumptions.

The Companys functional and reporting currency is the Canadian
dollar. Translations undertaken in foreign currencies are translated into
Canadian dollars at exchange rates prevailing at the time the transaction
occurred. Monetary assets and liabilities denominated in foreign currencies are
translated into equivalent Canadian dollars at the exchange rates in effect at
the balance sheet date with any resulting gain or loss being recognized in the
consolidated statement of operation and deficit. The effect of fluctuations in
exchange rates between the dates of transactions and of settlements are
reflected in the statement of operation and deficit.

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Disclosure Controls and Procedures

Management has designed disclosure controls and procedures, or
has caused them to be designed under its supervision, to provide reasonable
assurance that material information related to the Company is gathered and
reported to senior management, including the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), as appropriate to permit timely decisions
regarding public disclosure.

Management, including the CEO and CFO, has evaluated the
effectiveness of the Companys disclosure controls and procedures, as defined in
the rules of the U.S. Securities and Exchange Commission and Canadian Securities
Administration, as at December 31, 2007. Based on this evaluation, the CEO and
CFO have concluded that the Companys disclosure controls and procedures were
effective to a reasonable assurance standard to ensure that information required
to be disclosed in reports filed or submitted by the Company under U.S. and
Canadian securities legislation is recorded, processed, summarized and reported
within the time periods specified in those rules.

Managements Report on Internal Control over Financial
Reporting

Management has designed internal control over financial
reporting, or caused it to be designed under its supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements. Any system of internal control over
financial reporting, regardless of how well designed, has inherent limitations.
As such, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.

Management has used the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) framework to evaluate the effectiveness of
the Companys internal control over financial reporting. Based on this
assessment, management has concluded that as at December 31, 2007, the Companys
internal control over financial reporting was effective.

Changes in Internal Control over Financial Reporting

There have been no changes in the Companys internal control
over financial reporting during the year ended December 31, 2007 that have
materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.

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