---



Consolidated Financial Statements

December 31, 2007, 2006 and 2005



|Augusta
      Resource Corporation | 
|---------------------------------- | 

---

Directors Report to Our Shareholders

Fellow Shareholders,

We are proud to report significant progress at the Rosemont
Copper project this year, laying the groundwork for an even busier 2008 as we
move towards construction in the latter half of 2009. After completing a
positive bankable feasibility study and unveiling a significant piece of project
financing, the company is now focusing on three main initiatives: assembling the
permits required for construction; securing the remaining project financing
components; and building a skilled operations team as we look to complete our
detailed engineering and procurement milestones.

Delivering Results  Clearing the Path to ProductionIn the first quarter of 2007, we published an updated resource statement
based on the results of the 20,000-meter infill drill program completed in 2006.
The goal was to upgrade the sulfide copper-molybdenum resource while quantifying
a new silver resource. In addition, Augusta conducted a re-assay program of
historic drilling, which was combined with new drilling to quantify a surface
oxide copper resource. Using a 0.2% cutoff, measured and indicated resources
total 543 million tons at 0.50% copper, and inferred resources total 163 million
tons at 0.43% copper. At the 0.2% cut-off used in 2006, measured and indicated
resources increased 30% to 8.4 billion pounds of copper equivalent compared to
6.5 billion pounds, while inferred resources held at around 1.9 billion pounds
of copper equivalent.

After publishing the updated resource statement, the Company
was pleased to complete a positive bankable feasibility study in the third
quarter of 2007. The NI 43-101 technical report was published by M3 Engineering
& Technology Corporation of Tucson, Arizona, which forecast a net present
value of $996 million at a 5% after-tax discount note, with a 21% internal rate
of return and three-year payback period. Augusta has since commenced an
exploration program geared towards increasing reserves and resources at
Rosemont, specifically targeting a 50 to 100 million ton conversion of waste to
ore from the northern part of the existing Rosemont open-pit mineable reserve.
The program is also hoping to discover a potential 10 million tons of deeper
high-grade ore for underground operation and identify additional higher-grade
targets in a district-wide search for deeper mineralization.

Also in the third quarter, Augusta filed Rosemonts
comprehensive plan of operations with the United States Forest Service, marking
the completion of the first step in the permitting process. This detailed
document outlines the plan to construct, operate and reclaim the Rosemont Copper
mine, and delivers on our promise to build a mine that combines innovation,
conservation and economic opportunity. The Company is now working on completing
the public scoping process and supporting the development of the Environmental
Impact Statement (EIS) as part of the National Environmental Policy Act process.

Meeting Financing Needs - Minimizing Equity DilutionAugusta earned international recognition near the end of the second
quarter of 2007 by completing a non-brokered private placement with renowned
global conglomerate Sumitomo Corporation and US private investment firm
Harbinger Capital Partners. The placement raised a total of C$37,519,394 at
C$3.50 per share  a 35% premium to the trading price at the time. Upon
completion of the transaction, Sumitomo held an 8.7% interest while Harbinger
increased their existing position to 19.9% .

The Company was pleased to be able to deliver the first
component of our project financing strategy in December 2007, when it signed a
binding letter agreement and term sheet with Silver Wheaton. This translates
into an upfront cash payment ranging in value from US$135 million to US$320
million for the sale of 45% to 90% of the silver produced during Rosemonts mine
life. Augusta 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.

|Augusta
      Resource Corporation | 2
|---------------------------------- | -

---

Building a Team  Constructing a MineIn an effort
to meet our financing objectives, Augusta was pleased to appoint Raghunath Reddy
as Vice-President, Finance in November 2007. Mr. Reddy has more than 25 years of
experience in the development and financing of mining, power generation and
infrastructure projects both domestically and internationally. Prior to joining
Augusta, Mr. Reddy was Director of Finance with Washington Group International
and has held similar positions with Peabody Mining Company and Morrison Knudsen
Corporation. In addition to completing his Masters in Finance from the
University of Texas at San Antonio, Mr. Reddy holds a Masters in Structural
Engineering from the University of Florida and a Bachelor of Science in Civil
Engineering from the Birla Institute of Technology in India.

Early in the first quarter of 2008, the Company appointed Rod
Pace as Vice-President, Operations. Mr. Pace has more than 25 years experience
in mine development and operations, working in a broad range of executive and
management positions. He has successfully led the start up of six mining
operations between 1999 and 2005, resulting in substantial revenue and margin
increases in his role as Vice-President of North American Operations of
Washington Group International. As we move towards construction in the latter
half of 2009, the company will continue to acquire specialists with the
requisite skills and experience necessary to help build, commission and run the
Rosemont Copper mine.

This growing team will work together to meet the engineering
and procurement milestones outlined in our project timeline. This process was
initiated late in the year when Augusta signed an agreement valued at
approximately $29 million with Polysius Corp., for the purchase and delivery of
our long-lead SAG and ball mills. We successfully negotiated improved financing
and delivery terms from those estimated in the bankable feasibility study, and
completed a critical path milestone with an overall positive impact on our
project schedule. The company is now looking to secure orders for other long
lead equipment, and will soon award the Engineering Procurement Construction
Management (EPCM) contract before commencing design engineering.

Committed to SuccessThe Augusta management team is
committed to advancing Rosemont Copper as its cornerstone asset for growth in
becoming a mid-tier copper producer within the next three years. In line with
this strategy, the Company entered into a letter of intent with Ivana Ventures
Inc. (Ivana) in the second quarter of 2007. The agreement outlines the sale of
Augustas interest in the Mt. Hamilton, Shell and Monte Cristo properties, all
of which are located in White Pine County, Nevada. In November Augusta completed
the definitive sale agreement subject to regulatory approval. On February 29,
2008, with the final regulatory approval received, the transaction with Ivana
closed.

Also in the second quarter ASARCO LLC filed a complaint against
Augusta in the United States Bankruptcy Court for the Southern District of
Texas, Corpus Christi Division, with regard to the Rosemont property. Augusta
believes the complaint is without merit and that it will prevail in any
litigation.

Augusta is proud to share our compelling story, continuing to
participate in conferences and marketing tours that serve to increase our
exposure to the market. Later in the year, our management team was pleased to
host several institutional investors and research analysts at the Rosemont site.
The Company also actively targeted the US retail investor group this year
through radio, television and webcast forums. These marketing efforts resulted
in coverage from three additional institutional research analysts.

As stated earlier, Augusta is focusing on three main objectives
for 2008. For permitting, we look forward to finishing 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

|Augusta
      Resource Corporation | 3
|---------------------------------- | -

---

new exploration work on the Rosemont property to expand the
current open pit reserve and define new resources.

In closing, Id like to thank our team of skilled employees,
whose hard work and dedication is enabling us to fast-track this project. In
addition, Id like to acknowledge the tremendous support of our investors and
partners. We look forward to an exciting year ahead as we set out to meet our
2008 objectives in preparation for construction next year.

|On behalf of the Board,             |                  
|----------------------------------- | -----------------
|                                    |                  
|/S/ Gil Clausen                     |                  
|                                    |                  
|Gil Clausen                         |                  
|President & Chief Executive Officer | February 29, 2008





The consolidated financial statements of Augusta Resource
Corporation (the Company) for the twelve months ended December 31, 2007
(Financial Statements) have been prepared by management and have been audited
by the Companys auditor. The Financial Statements should be read in conjunction
with the Companys audited consolidated financial statements for the years ended
December 31, 2006 and December 31, 2005 which are available at the SEDAR website
atwww.sedar.com.

|Augusta
      Resource Corporation | 4
|---------------------------------- | -

---

Management Report

Managements Responsibility for Consolidated Financial
Statements

The accompanying Consolidated Financial Statements of Augusta
Resource Corporation (the Company) are the responsibility of Management. The
Consolidated Financial Statements have been prepared by Management in Canadian
dollars in accordance with Canadian generally accepted accounting principles and
include certain estimates that reflect Managements best judgments.

The Companys Board of Directors has approved the information
contained in the Consolidated Financial Statements. The Board of Directors
fulfills its responsibilities regarding the financial statements mainly through
its Audit Committee, which has a written mandate that complies with the current
requirements of Canadian securities legislation and the United States
Sarbanes-Oxley Act of 2002 and complies with the Audit Committee requirements of
the American Stock Exchange. The Audit Committee meets at least on a quarterly
basis.

Managements Assessment of Internal Control over
Financial Reporting

Management is also responsible for establishing and maintaining
adequate internal control over the Companys financial reporting. The internal
control system was designed to provide reasonable assurance to the Companys
Management regarding the preparation and presentation of the Consolidate
Financial Statements.

Internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

Management has assessed the effectiveness of the Companys
internal control over financial reporting as at December 31, 2007. In making its
assessment, Management has used the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) framework in Internal ControlIntegrated
Framework to evaluate the effectiveness of the Companys internal control
over financial reporting. Based on our evaluation, Management has concluded that
the Companys internal control over financial reporting was effective as at that
date.

Ernst & Young LLP, an independent firm of chartered
accountants, was appointed by a vote of shareholders at the Companys last
annual meeting to audit and provide independent opinions on both the
Consolidated Financial Statements and the Companys internal control over
financial reporting as at December 31, 2007, as stated in their Auditors
Report. Ernst & Young LLP has provided such opinions.

|Bruce Nicol           | Gil Clausen                      
|----------------------- | -----------------------------------
|                        |                                    
|Bruce Nicol             | Gil Clausen                        
|Chief Financial Officer | President & Chief Executive Officer

|Augusta
      Resource Corporation | 5
|---------------------------------- | -

---



Report of Independent Registered Chartered Accountants

To the Shareholders of Augusta Resource Corporation

We have audited the consolidated balance sheets of Augusta
Resource Corporation as at December 31, 2007 and 2006 and the consolidated
statements of shareholders equity, operations and deficit and cash flows for
the three years then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

With respect to the consolidated financial statements for the
year ended December 31, 2007 we conducted our audits in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States). With respect to the consolidated
financial statements for the years ended December 31, 2006 and 2005, we
conducted our audit in accordance with Canadian generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the Company as at
December 31, 2007 and 2006 and the results of its operations and its cash flows
in each of the threes years ended December 31, 2007 in accordance with Canadian
generally accepted accounting principles.

We have also audited in accordance with standards of Public Accounting
  Oversight Board (United States), the effectiveness of the Companys internal
  control over financial reporting as of December 31, 2007, based on criteria
  established in Internal Control-Integrated Framework issued by the Committee
  of Sponsoring Organizations of the Treadway Commission and our reported dated
  February 29, 2008 expressed an unqualified opinion thereon.

|February29, 2008 | Ernst & Young LLP     
|---------------- | ----------------------
|Vancouver, B.C.  | Independent Registered
|                 | Chartered Accountants 

|Augusta
      Resource Corporation | 6
|---------------------------------- | -

---



Report of Independent Registered Chartered Accountants

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF AUGUSTA
RESOURCE CORPORATION

We have audited the internal control over financial reporting
of Augusta Resource Corporation and subsidiaries (the Company) as of December
31, 2007, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). The Companys management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.

Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

|Augusta
      Resource Corporation | 7
|---------------------------------- | -

---

In our opinion, the Company maintained, in all material respects,
  effective internal control over financial reporting as of December 31, 2007,
  based on the COSO criteria.

We have also audited, in accordance with Canadian generally accepted
  auditing standards and the standards of the Public Company Accounting Oversight
  Board (United States), the consolidated financial statements as of and for the
  year ended December 31, 2007 of the Company and our report dated February 29,
  2008 expressed an unqualified opinion on those financial statements.

|February29, 2008 | Ernst & Young LLP     
|---------------- | ----------------------
|Vancouver, B.C.  | Independent Registered
|                 | Chartered Accountants 

|Augusta
      Resource Corporation | 8
|---------------------------------- | -

---

|AUGUSTA RESOURCE CORPORATION    
|--------------------------------
|CONSOLIDATED BALANCE SHEETS     
|As at December 31, 2007 and 2006

|                                               |  |       |   | December 31 |   |   | December 31 |  
|---------------------------------------------- |  | ----- | - | ----------- | - | - | ----------- | -
|                                               |  | Notes |   | 2007        |   |   | 2006        |  
|ASSETS                                         |  |       |   |             |   |   |             |  
|                                               |  |       |   |             |   |   |             |  
|CURRENT                                        |  |       |   |             |   |   |             |  
|Cash and cash equivalents                      |  |       | $ | 25,586,997  |   | $ | 9,650,980   |  
|Accounts receivable                            |  | (11 ) |   | 530,066     |   |   | 370,270     |  
|Prepaid expenses                               |  |       |   | 82,882      |   |   | 151,062     |  
|Assets of discontinued
      operations        |  | (3 )  |   | 6,884,516   |   |   | 7,709,754   |  
|                                               |  |       |   | 33,084,461  |   |   | 17,882,066  |  
|                                               |  |       |   |             |   |   |             |  
|CAPITAL ASSETS                                 |  | (4 )  |   | 4,566,078   |   |   | 167,357     |  
|                                               |  |       |   |             |   |   |             |  
|MINERAL PROPERTIES AND                         |  |       |   |             |   |   |             |  
|DEFERRED DEVELOPMENT                           |  | (5 )  |   |             |   |   |             |  
|Land and mineral properties                    |  |       |   | 28,798,566  |   |   | 25,017,429  |  
|Deferred development                           |  |       |   | 28,247,858  |   |   | 15,471,679  |  
|                                               |  |       |   | 57,046,424  |   |   | 40,489,108  |  
|                                               |  |       |   |             |   |   |             |  
|                                               |  |       | $ | 94,696,963  |   | $ | 58,538,531  |  
|                                               |  |       |   |             |   |   |             |  
|LIABILITIES                                    |  |       |   |             |   |   |             |  
|                                               |  |       |   |             |   |   |             |  
|CURRENT                                        |  |       |   |             |   |   |             |  
|Accounts payable and accrued
      liabilities |  | (11 ) | $ | 1,981,702   |   | $ | 1,449,413   |  
|Current portion of notes and advances          |  | (6 )  |   | 397,824     |   |   | 23,288      |  
|Liabilities of discontinued
      operations   |  | (3 )  |   | 1,801,788   |   |   | 4,227,465   |  
|                                               |  |       |   | 4,181,314   |   |   | 5,700,166   |  
|                                               |  |       |   |             |   |   |             |  
|LONG-TERM                                      |  |       |   |             |   |   |             |  
|Notes, advances and other                      |  | (6 )  |   | 1,831,921   |   |   | 9,200       |  
|                                               |  |       |   | 6,013,235   |   |   | 5,709,366   |  
|                                               |  |       |   |             |   |   |             |  
|SHAREHOLDERS' EQUITY                           |  |       |   |             |   |   |             |  
|                                               |  |       |   |             |   |   |             |  
|Share capital                                  |  | (8 )  |   | 103,581,579 |   |   | 60,332,348  |  
|Contributed surplus                            |  | (8 )  |   | 15,375,095  |   |   | 14,764,927  |  
|Deficit                                        |  |       |   | (30,272,946 | ) |   | (22,268,110 | )
|                                               |  |       |   | 88,683,728  |   |   | 52,829,165  |  
|TOTAL LIABILITIES AND                          |  |       |   |             |   |   |             |  
|SHAREHOLDERS' EQUITY                           |  |       | $ | 94,696,963  |   | $ | 58,538,531  |  

Commitments (Note 14)

On Behalf of the Board of Directors

|/S/ Richard W. Warke        |  | /S/ Gil Clausen       
|--------------------------- |  | ----------------------
|                            |  |                       
|Richard W. Warke  Director |  | Gil Clausen - Director

See accompanying Notes to the Consolidated Financial
Statements

|Augusta
      Resource Corporation | 9
|---------------------------------- | -

---

|AUGUSTA RESOURCE CORPORATION                              
|----------------------------------------------------------
|STATEMENT OF SHAREHOLDERS EQUITY                         
|For the Years Ended December 31, 2007, 2006 and
      2005

|                                                              |  |                   |  |   |               |  |   |             |   |   |             |   |   | Deficit           |   |   |            |  
|------------------------------------------------------------- |  | ----------------- |  | - | ------------- |  | - | ----------- | - | - | ----------- | - | - | ----------------- | - | - | ---------- | -
|                                                              |  | Common Shares     |  |   |               |  |   |             |   |   | Accumulated |   |   | Total             |  
|                                                              |  | Without Par Value |  |   | Subscriptions |  |   | Contributed |   |   | During      |   |   | Shareholders'     |  
|Statements of
      Shareholders' Equity                      |  | Shares            |  |   | Amount        |  |   | Received    |   |   | Surplus     |   |   | Exploration stage |   |   | Equity     |  
|Balance, December 31, 2004                                    |  | 19,764,555        |  | $ | 4,611,331     |  | $ | 1,050,000   |   | $ | 104,500     |   | $ | (4,991,105        | ) | $ | 774,726    |  
|Issued for convertible debenture issuer bonus                 |  | 363,363           |  |   | 1,019,233     |  |   | -           |   |   | -           |   |   | -                 |   |   | 1,019,233  |  
|Issued for property acquisition                               |  | 4,100,000         |  |   | 885,000       |  |   | -           |   |   | -           |   |   | -                 |   |   | 885,000    |  
|Issued for cash                                               |  | 8,998,500         |  |   | 8,370,551     |  |   | (1,050,000  | ) |   | -           |   |   | -                 |   |   | 7,320,551  |  
|Issued for fractional rounding                                |  | 9                 |  |   | -             |  |   | -           |   |   | -           |   |   | -                 |   |   | -          |  
|Exercise of options                                           |  | 445,833           |  |   | 75,873        |  |   | -           |   |   | (24,623     | ) |   | -                 |   |   | 51,250     |  
|Exercise of warrants                                          |  | 4,342,333         |  |   | 1,435,260     |  |   | -           |   |   | (309,344    | ) |   | -                 |   |   | 1,125,916  |  
|Issued for convertible debenture repayment                    |  | 1,500,000         |  |   | 2,040,000     |  |   | -           |   |   | -           |   |   | -                 |   |   | 2,040,000  |  
|Stock-based compensation expense                              |  | -                 |  |   | -             |  |   | -           |   |   | 1,039,794   |   |   | -                 |   |   | 1,039,794  |  
|Share issue costs                                             |  | -                 |  |   | -             |  |   | -           |   |   | -           |   |   | (1,373,691        | ) |   | (1,373,691 | )
|Fair value of warrants issued on private
      placements     |  | -                 |  |   | -             |  |   | -           |   |   | 2,722,199   |   |   | -                 |   |   | 2,722,199  |  
|Fair value of warrants issued on debt negotiations            |  | -                 |  |   | -             |  |   | -           |   |   | 288,938     |   |   | -                 |   |   | 288,938    |  
|Fair value of warrants issued on debt
      issuance          |  | -                 |  |   | -             |  |   | -           |   |   | 247,769     |   |   | -                 |   |   | 247,769    |  
|Fair value of warrants issued on share issuance               |  | -                 |  |   | -             |  |   | -           |   |   | 213,631     |   |   | -                 |   |   | 213,631    |  
|Fair value of equity component of
      convertible debenture |  | -                 |  |   | -             |  |   | -           |   |   | 1,478,083   |   |   | -                 |   |   | 1,478,083  |  
|Fair value of warrants issued on property acquisition         |  | -                 |  |   | -             |  |   | -           |   |   | 465,163     |   |   | -                 |   |   | 465,163    |  
|Net loss and comprehensive loss                               |  | -                 |  |   | -             |  |   | -           |   |   | -           |   |   | (5,337,837        | ) |   | (5,337,837 | )
|Balance, December 31, 2005                                    |  | 39,514,593        |  |   | 18,437,248    |  |   | -           |   |   | 6,226,110   |   |   | (11,702,633       | ) |   | 12,960,725 |  
|Exercise of options                                           |  | 195,667           |  |   | 53,020        |  |   | -           |   |   | (15,920     | ) |   | -                 |   |   | 37,100     |  
|Exercise of warrants                                          |  | 9,828,807         |  |   | 4,430,223     |  |   | -           |   |   | (842,464    | ) |   | -                 |   |   | 3,587,759  |  
|Stock-based compensation expense                              |  | -                 |  |   | -             |  |   | -           |   |   | 1,679,534   |   |   | -                 |   |   | 1,679,534  |  
|Share issue costs                                             |  | -                 |  |   | -             |  |   | -           |   |   | -           |   |   | (3,905,886        | ) |   | (3,905,886 | )
|Issued for special warrants                                   |  | 23,210,000        |  |   | 37,411,857    |  |   | -           |   |   | -           |   |   | -                 |   |   | 37,411,857 |  
|Fair value of warrants issued on private placements           |  | -                 |  |   | -             |  |   | -           |   |   | 6,687,143   |   |   | -                 |   |   | 6,687,143  |  
|Fair value of warrants issued on share
      issuance         |  | -                 |  |   | -             |  |   | -           |   |   | 1,030,524   |   |   | -                 |   |   | 1,030,524  |  
|Net loss and
      comprehensive loss                         |  | -                 |  |   | -             |  |   | -           |   |   | -           |   |   | (6,659,591        | ) |   | (6,659,591 | )
|Balance, December 31, 2006                                    |  | 72,749,067        |  |   | 60,332,348    |  |   | -           |   |   | 14,764,927  |   |   | (22,268,110       | ) |   | 52,829,165 |  
|Issued shares for cash                                        |  | 10,719,827        |  |   | 37,519,394    |  |   | -           |   |   | -           |   |   | -                 |   |   | 37,519,394 |  
|Exercise of options                                           |  | 74,167            |  |   | 37,205        |  |   | -           |   |   | (6,055      | ) |   |                   |   |   | 31,150     |  
|Exercise of warrants                                          |  | 5,045,000         |  |   | 5,692,632     |  |   | -           |   |   | (1,143,492  | ) |   |                   |   |   | 4,549,140  |  
|Stock-based compensation expense                              |  | -                 |  |   | -             |  |   | -           |   |   | 1,759,715   |   |   | -                 |   |   | 1,759,715  |  
|Share issue expense                                           |  | -                 |  |   | -             |  |   | -           |   |   |             |   |   | (25,000           | ) |   | (25,000    | )
|Net loss and comprehensive loss                               |  | -                 |  |   | -             |  |   | -           |   |   | -           |   |   | (7,979,836        | ) |   | (7,979,836 | )
|Balance, December
      31, 2007                              |  | 88,588,061        |  | $ | 103,581,579   |  | $ | -           |   | $ | 15,375,095  |   | $ | (30,272,946       | ) | $ | 88,683,728 |  

See accompanying Notes to the Consolidated Financial
Statements

|Augusta
      Resource Corporation | 10
|---------------------------------- | --

---

|AUGUSTA RESOURCE CORPORATION                              
|----------------------------------------------------------
|CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT         
|For the Years Ended December 31, 2007, 2006 and
      2005

|                                                    |  |         |   | Year ending December 31 |  
|--------------------------------------------------- |  | ------- | - | ----------------------- | -
|                                                    |  | Notes   |   | 2007                    |  
|                                                    |  |         |   |                         |  
|EXPENSES                                            |  |         |   |                         |  
|Salaries,benefits and bonuses                       |  |         | $ | 1,910,154               |  
|Stock based compensation                            |  | (8[d] ) |   | 1,759,715               |  
|Legal fees                                          |  |         |   | 889,864                 |  
|Exploration expense                                 |  |         |   | 317,279                 |  
|Travel                                              |  |         |   | 306,579                 |  
|Investor relations                                  |  |         |   | 279,493                 |  
|Consulting and communication                        |  |         |   | 258,377                 |  
|Other expenses (net)                                |  |         |   | 239,085                 |  
|Filing and regulatory                               |  |         |   | 191,279                 |  
|Office and sundry                                   |  |         |   | 133,979                 |  
|Insurance                                           |  |         |   | 117,662                 |  
|Accounting and audit                                |  |         |   | 83,335                  |  
|Directors fees                                      |  |         |   | 61,519                  |  
|Rent                                                |  |         |   | 51,159                  |  
|Amortization                                        |  |         |   | 34,678                  |  
|Recruitment fees                                    |  |         |   | 33,477                  |  
|Fiscal and advisory services                        |  |         |   | 27,007                  |  
|Administration                                      |  | (11 )   |   | -                       |  
|Write-off of mining assets                          |  |         |   | -                       |  
|Loss from operations                                |  |         |   | (6,694,641              | )
|                                                    |  |         |   |                         |  
|Interest and other income                           |  |         |   | 793,464                 |  
|Debt issuance costs                                 |  | (7 )    |   | -                       |  
|Loss on repayment of debenture                      |  |         |   | -                       |  
|Foreign exchange (loss) gain                        |  |         |   | (231,176                | )
|Interest and finance charges                        |  |         |   | (176,822                | )
|                                                    |  |         |   |                         |  
|LOSS FROM CONTINUING OPERATIONS                     |  |         |   | (6,309,175              | )
|                                                    |  |         |   |                         |  
|Loss from discontinued
      operations, net of tax |  | (3 )    |   | (1,670,661              | )
|                                                    |  |         |   |                         |  
|NET LOSS AND COMPREHENSIVE LOSS                     |  |         |   | (7,979,836              | )
|Deficit, beginning of the period                    |  |         |   | (22,268,110             | )
|Share issue costs                                   |  |         |   | (25,000                 | )
|                                                    |  |         |   |                         |  
|DEFICIT, END OF PERIOD                              |  |         | $ | (30,272,946             | )
|                                                    |  |         |   |                         |  
|BASIC & DILUTED LOSS PER SHARE                      |  |         |   |                         |  
|Continuing operations                               |  |         | $ | (0.077                  | )
|Discontinued operations                             |  |         | $ | (0.020                  | )
|Net loss                                            |  |         | $ | (0.098                  | )
|                                                    |  |         |   |                         |  
|WEIGHTED AVERAGE NUMBER                             |  |         |   |                         |  
|OF SHARES OUTSTANDING                               |  |         |   | 81,795,564              |  

See accompanying Notes to the Consolidated Financial
Statements

|Augusta
      Resource Corporation | 11
|---------------------------------- | --

---

|AUGUSTA RESOURCE CORPORATION                              
|----------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS                     
|For the Years Ended December 31, 2007, 2006 and
      2005

|                                                                |  |         |   | Year ending December 31 |  
|--------------------------------------------------------------- |  | ------- | - | ----------------------- | -
|                                                                |  | Notes   |   | 2007                    |  
|                                                                |  |         |   |                         |  
|NET INFLOW (OUTFLOW) OF CASH RELATED
      TO                   |  |         |   |                         |  
|THE FOLLOWING:                                                  |  |         |   |                         |  
|OPERATING                                                       |  |         |   |                         |  
|Loss from continuing operations                                 |  |         | $ | (6,309,175              | )
|Items not affecting cash:                                       |  |         |   |                         |  
|Stock based compensation                                        |  | (8[d] ) |   | 1,759,715               |  
|Discount interest on debt                                       |  |         |   | -                       |  
|Amortization                                                    |  |         |   | 34,678                  |  
|Debt issuance costs                                             |  | (7 )    |   | -                       |  
|Foreign exchange loss (gain)                                    |  |         |   | 231,176                 |  
|Loss on repayment of debenture                                  |  |         |   | -                       |  
|Write-off of mining assets                                      |  |         |   | -                       |  
|Gain on settlement of debt                                      |  |         |   | -                       |  
|                                                                |  |         |   | (4,283,606              | )
|Net changes in non-cash
      working capital items:            |  | (9 )    |   | 557,901                 |  
|Net cash flows used in operating activities                     |  |         |   | (3,725,705              | )
|                                                                |  |         |   |                         |  
|FINANCING                                                       |  |         |   |                         |  
|Issuance of common shares                                       |  | (8[c] ) |   | 37,550,544              |  
|Issuance of common shares - warrants exercised                  |  |         |   | 4,549,140               |  
|Issuance of special warrants                                    |  | (8[c] ) |   | -                       |  
|Share issue costs                                               |  |         |   | (25,000                 | )
|Issuance of convertible debt
      security                     |  |         |   | -                       |  
|Repayment of convertible debt security                          |  |         |   | -                       |  
|Repayment of notes and
      advances                           |  |         |   | -                       |  
|Net cash flows from financing activities                        |  |         |   | 42,074,684              |  
|                                                                |  |         |   |                         |  
|INVESTING                                                       |  |         |   |                         |  
|Investment in mineral
      properties, net of related payables |  | (5 )    |   | (1,195,480              | )
|Deferred development , net of related payables                  |  | (5 )    |   | (13,026,037             | )
|Investment in capital assets                                    |  | (4 )    |   | (4,433,399              | )
|Net cash flows used in investing activities                     |  |         |   | (18,654,916             | )
|                                                                |  |         |   |                         |  
|Net cash flows used in discontinued operations                  |  | (3 )    |   | (3,271,100              | )
|                                                                |  |         |   |                         |  
|Effect of exchange rate change on cash and                      |  |         |   |                         |  
|cash equivalents in U.S.
      dollars                          |  |         |   | (486,946                | )
|                                                                |  |         |   |                         |  
|NET CASH INFLOW                                                 |  |         |   | 15,936,017              |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                  |  |         |   | 9,650,980               |  
|CASH AND CASH EQUIVALENTS, END OF
      PERIOD                  |  |         | $ | 25,586,997              |  
|                                                                |  |         |   |                         |  
|SUPPLEMENTAL INFORMATION                                        |  | (10 )   |   |                         |  
|Interest Paid                                                   |  |         | $ | 24,658                  |  
|Interest Received                                               |  |         | $ | 453,353                 |  

See accompanying Notes to the Consolidated Financial
Statements

|Augusta
      Resource Corporation | 12
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|1. | NATURE OF BUSINESS AND BASIS OF
      PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Augusta Resource Corporation (the Company) was
      continued under the Canadian Business Corporations Act. The Company has
      interests in various mining assets at the exploration and development
      stage. The realization of the Companys investment in mineral properties
      is dependent upon various factors, including the ability to obtain the
      necessary financing to complete the exploration and development of the
      properties, future profitable operations, or, alternatively, upon disposal
      of the investment at amounts sufficient to recover capitalized
      expenditures. The Company is considered to be a development stage
      enterprise as it has yet to generate revenue from operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles (GAAP). The Company incurred a loss of $7,979,836 for the
      year ended at December 31, 2007 (2006 - $6,659,591; 2005 - $5,337,837) and
      has an accumulated deficit of $30,272,946 as at December 31, 2007. The
      losses have been funded primarily by the issuance of equity. Management
      plans to raise additional capital to finance expected mine development
      however its ability to do so is uncertain and the timing of any additional
      financing cannot be predicted at this time.                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | As the Company is listed on the American Stock Exchange
      (AMEX) reconciliation from Canadian to United States (US) GAAP is
      required (Note 17).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|2. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|Augusta
      Resource Corporation | 13
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|2. | SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | ------------------------------------------
|   |                                           
|   | (c)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (d)                                       
|   |                                           
|   |                                           

Buildings
    10 yearsComputer Software
    3 yearsComputer Hardware
    5 yearsFurniture & Equipment
    5 years


| | (e) | Mineral properties and deferred development
      costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Mineral properties and deferred development costs are
      comprised of undivided interests in properties and option agreements to
      acquire properties and deferred exploration and development expenses on
      properties in the exploration and development stages. They are recorded at
      acquisition cost or at a reduced carrying value amount if effected by a
      permanent impairment of value. Mining properties, related deferred
      exploration and development expenses and options to acquire undivided
      interests in mining properties are amortized only as these properties are
      put into production or written off if they are abandoned.                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | During the normal course of its business, the Company
      enters into agreements or option agreements to acquire undivided interests
      in mining properties, which are normally acquired in exchange for
      exploration and development expenses to be incurred according to different
      schedules, issuance of shares and payments subject to feasibility studies.
      In addition, royalties will be paid on commercial operations of certain
      mining properties. In the event the agreement to acquire property is an
      option agreement, failure to make all payments in accordance with the
      agreement will result in forfeiture of the property.                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The Company is in the process of exploring and developing
      its various properties. The Company reviews the carrying values of
      deferred mineral property acquisition and exploration and development
      expenditures regularly with a view to assessing whether there has been any
      impairment in value, and whenever events or changes in circumstances
      indicate that the carrying value may not be recoverable. In the event that
      the estimated undiscounted cash flows expected from its use or eventual
      disposition is determined to be insufficient to recover the carrying value
      of any property, the carrying value will be written down to the estimated
      fair value.

|Augusta
      Resource Corporation | 14
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|2. | SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | ------------------------------------------
|   |                                           
|   | (f)                                       
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | (g)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (h)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (i)                                       
|   |                                           
|   |                                           

|Augusta
      Resource Corporation | 15
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007,2006 AND 2005                     

|2. | SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | ------------------------------------------
|   |                                           
|   | (i)                                       
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   | (j)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (k)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (l)                                       
|   |                                           
|   |                                           

|Augusta Resource
      Corporation | 16
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007,2006 AND 2005                     

|2. | SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | ------------------------------------------
|   |                                           
|   | (m)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (n)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (o)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (p)                                       
|   |                                           
|   |                                           
|   |                                           
|   | (q)                                       
|   |                                           
|   |                                           

|Augusta
      Resource Corporation | 17
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|2. | SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | ------------------------------------------
|   |                                           
|   | (q)                                       
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           
|   |                                           

|Augusta
      Resource Corporation | 18
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|2. | SIGNIFICANT ACCOUNTING POLICIES(continued)
|-- | ------------------------------------------
|   |                                           
|   | (q)                                       
|   |                                           
|   |                                           
|   |                                           
|   |                                           

|3. | DISCONTINUED OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | On May 1, 2007, the Company entered into a Letter of
      Intent (LOI) with Ivana Ventures Inc. (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 Company reclassified the consolidated results of DHI
      Minerals to discontinued operations. As at December 31, 2007, included in
      current assets (net of the impairment recorded at year end), is $6,884,516
      (2006 - $7,709,754) related to discontinued operations and included in
      current liabilities is $1,801,788 (2006 - $4,227,465) related to
      discontinued operations. For the period ending December 31, 2007 the
      contribution from discontinued operations was a loss of $1,670,661 (2006 -
      $836,352; 2005 - $135,779). On February 29, 2008, with final regulatory
      approvals received, the transaction with Ivana closed.      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | In accordance with the definitive agreement the
      consideration for the sale is US $6,625,000 in cash, and warrants
      exercisable to purchase up to 3,000,000 shares of Ivana for eighteen
      months after closing at the price of $0.50 per share. The cash portion of
      the purchase price will be payable in installments over five years, with
      US$1,625,000 payable on closing and an additional US$1,000,000 payable
      each 12 months thereafter. The fair value of the compensation received was
      calculated to be approximately $5.1 million comprised of the cash
      payments, discounted at an annual interest rate of 15%, totaling $4.3
      million, plus the fair value of the warrants calculated to be $0.8
      million. The warrant value was determined using the Black-Scholes option
      pricing model using the following assumptions: expected life 1.5 years;
      annualized volatility 113%; a risk free rate of 3.25% and no
    dividends.

|Augusta
      Resource Corporation | 19
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|3. | DISCONTINUED OPERATIONS(continued)                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The shares of the subsidiaries will be pledged to the
      Company as its sole recourse for non- payment of any portion of the
      purchase price. As the fair value of the compensation noted above 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 totaling
      $1,200,000.

| | Cash flow from discontinued operations:              |   |            |   |   |            |   |   |          |  
| | ---------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | -------- | -
| |                                                      |   | 2007       |   |   | 2006       |   |   | 2005     |  
| |                                                      |   |            |   |   |            |   |   |          |  
| | Operating activities                                 | $ | (740,190   | ) | $ | (359,600   | ) | $ | (46,274  | )
| | Financing activities                                 |   | (1,601,851 | ) |   | (1,165,421 | ) |   | 11,049   |  
| | Investing activities                                 |   | (926,262   | ) |   | (836,010   | ) |   | (774,087 | )
| | Effect of exchange rate changes on cash              |   | (2,797     | ) |   | (762       | ) |   | 196      |  
| | Net cash flows used in discontinued
      operations | $ | (3,271,100 | ) | $ | (2,361,793 | ) | $ | (809,116 | )

|4. | CAPITAL ASSETS
|-- | --------------

| |                         |   | December 31, 2007 |  |   | December 31, 2006 | 
| | ----------------------- | - | ----------------- |  | - | ----------------- | 
| |                         |   |                   |  |   | Accumulated       | 
| |                         |   | Cost              |  |   | Amortization      | 
| |                         |   |                   |  |   |                   | 
| | Land                    | $ | 2,749,506         |  | $ | -                 | 
| | Water rights (1)        |   | 1,566,400         |  |   | -                 | 
| | Buildings               |   | 127,326           |  |   | 9,549             | 
| | Furniture and Equipment |   | 87,522            |  |   | 12,411            | 
| | Computer Software       |   | 46,442            |  |   | 18,475            | 
| | Computer Hardware       |   | 44,717            |  |   | 15,400            | 
| |                         |   |                   |  |   |                   | 
| |                         | $ | 4,621,913         |  | $ | 55,835            | 

(1) Water rights payments
relate primarily to the purchase of water from Central Arizona Project (CAP),
water delivered from CAP is pumped into the local aquifer providing access to
the resource at a later date. The Company has received tradable water storage
certificates for this water inventory.

|Augusta
      Resource Corporation | 20
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|5. | MINERAL PROPERTIES AND DEFERRED
      DEVELOPMENT
|-- | -------------------------------------------------

| |                                                   |   | 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.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------

Rosemont Property, Arizona

On June 1, 2005, the Company announced
that it had entered into an option agreement to purchase 100% of the Rosemont
Ranch property in Pima County, Arizona. The property is approximately 50km
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 agreement provided the Company with
the right to purchase a 100% working interest in 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)), subject to a 3%
Net Smelter Royalty (NSR). The agreement required cash payments of US$20.8
million payable over a three-year period. After making the first payment of $8.3
million (US$6.7 million) in 2006, on March 31, 2007 the Company exercised its
option to purchase all of the Rosemont property with a payment of $16.1 million
(US$13.7 million). Augusta now owns a 100% interest in the Rosemont property
subject to the 3% NSR noted above. The purchase price of $24.4 million has been
determined based on the fair value of the consideration provided and has been
allocated to the Rosemont property and mineral rights acquired.

|Augusta Resource
      Corporation | 21
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|5. | MINERAL PROPERTIES AND DEFERRED
      DEVELOPMENT(continued)
|-- | ------------------------------------------------------------

In addition to the Rosemont purchase
price of $24.4 million, legal and other costs associated with the purchase
totaled approximately $50,000. Also, in 2006 and 2007 additional land was
acquired totaling approximately $550,000 and $3,780,000 respectively. To
December 31, 2007 total expenditures capitalized to mineral properties were
$28.8 million (2006 - $25.0 million).

During 2007, $12.8 million (2006 -
$12.7 million) was incurred on engineering, geological and environmental
programs designed to advance the development of the Rosemont property. To
December 31, 2007, expenditures related to deferred development totaled $28.2
million (2006  15.5 million).

Properties in White Pine County,
Nevada

In November 2007, the Company completed
a definitive agreement for the sale of its interest in DHI Minerals, subject to
regulatory approval. DHI Minerals wholly owned subsidiary DHI Minerals U.S.
holds the ownership/option interests in these properties. As a result of the
pending sale, these assets have been reclassified as discontinued operations
(Note 3).

Mount Hamilton property

On December 2, 2004, the Company
announced the signing of an agreement to acquire a 100% interest in the Mount
Hamilton property. The Company purchased the Mount Hamilton property by
purchasing 100% of the shares of DHI Minerals, which owns 100% of DHI Minerals
U.S., holder of the property. The terms of the acquisition included 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 (with a 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 ($0.19) per share for a period of two years. The fair value of
the warrants calculated using the Black-Scholes option-pricing model at the date
of the transaction was $465,163.

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, 2006 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.

Effective May 6, 2005, the Company
acquired 100% of the outstanding common shares of DHI Minerals. The entire
purchase consideration was allocated to the mineral property acquired, including
a deferred taxation provision of $2,200,000.

|Augusta
      Resource Corporation | 22
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|5. | MINERAL PROPERTIES AND DEFERRED
      DEVELOPMENT(continued)
|-- | ------------------------------------------------------------

Properties in White Pine County,
Nevada

Mount Hamilton (continued)

| | Purchase price:                                         |   |           | 
| | ------------------------------------------------------- | - | --------- | 
| | $3,000,000 USD (cash)                                   | $ | 3,103,438 | 
| | 3,750,000 common shares at $0.16 USD ($0.19 CDN)        |   | 720,000   | 
| | 3,750,000 warrants for common shares at
      $0.16 USD |   | 465,163   | 
| | 300,000 common shares issued for a finder's fee         |   | 49,000    | 
| | Future income tax liability                             |   | 2,200,000 | 
| |                                                         | $ | 6,537,601 | 

Additional amounts capitalized in 2005,
2006 and 2007 include the advance royalty payments of approximately US$100,000
per annum ($325,301) plus during 2006 an additional $37,156 of professional
fees. As at the end of 2007, mineral property expenditures totaled $6,900,058.

To December 31, 2007 cumulative
exploration and development costs totaling $413,697 were capitalized and include
expenditures on geological and engineering studies designed to advance the
development of the property.

Shell property

In January 2005, the Company announced
the signing of agreements to acquire the Shell property. Formal agreements were
entered into effective March 20, 2006. The Shell Deposit, located near the Mount
Hamilton property, was subject to past exploration programs, with results
indicating that the property hosted molybdenum and gold mineralization. The
Company is acquiring a 100% working interest, subject to an underlying NSR
ranging from 0.5% - 4.5%, for a cash payment of US$120,000, and annual advance
royalty 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.

Monte Cristo property

In January 2007, the Company entered
into an option agreement to acquire the Monte Cristo property in White Pine
County, Nevada, 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.

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

|Augusta
      Resource Corporation | 23
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|5. | MINERAL PROPERTIES AND DEFERRED
      DEVELOPMENT(continued)
|-- | ------------------------------------------------------------

Lone Mountain property, New Mexico

On March 1, 2005, the Company announced
the signing of an agreement to acquire the Lone Mountain property in New Mexico.
The agreement provided for the acquisition of a 100% working interest, subject
to an underlying NSR ranging from 2.0% - 3.0%, minimum exploration commitments
of US $4,850,000, US $500,000 to be completed in a reasonable time frame when
the surface access is agreed, and payments of US $1,000,000 cash and 325,000
common shares over a 3 year period. The agreement took effect on May 11, 2006.
The Company paid US$100,000 and issued 50,000 common shares (FMV - $120,000) to
date. The shares were valued at $2.40 per share, which was the fair value at the
time the agreement was entered into. The total amount capitalized to mining
properties at December 31, 2005 was $271,236.

On May 15, 2006 the Company announced
that after completing a detailed geological assessment that it had elected not
to pursue its option to purchase the Lone Mountain property. In the second
quarter of 2006 net capitalized amounts totaling $309,550 were written off.

Properties in the Coronation Diamond
District, Nunavut, Canada

In 2003, the Company entered into
property option agreements to acquire working interests of 10% and 20% in 4
properties located in the Coronation Diamond District in Nunavut, Canada which
required the Company to pay cash amounts totaling $231,573 and the issuance of
116,670 common shares. Subsequent to the initial transactions further amounts
were paid to acquire additional working interests.

As at December 31, 2005, the Company
had paid $469,705 acquiring working interests in six properties, incurred
$215,949 in relation to deferred exploration expenditures related to these
properties, issued 33,334 shares at fair market value at the date of the
transaction of $0.11 per share and 58,335 shares at $0.28 per share, and accrued
an amount of $55,000 included in accounts payable, which was agreed to be
settled by the issuance of shares of the Company subject to regulatory approval.
An assessment of the carrying value in 2004 resulted in the write-down of
$296,799 in mining properties and $212,355 in deferred development expenses. At
December 31, 2005, the Company wrote off the remaining costs, $247,907 in
mineral properties and $3,594 in deferred development expenses.

|Augusta
      Resource Corporation | 24
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|6. | LONG TERM NOTES AND ADVANCES
|-- | ----------------------------

| |                                    |   | December 31 |   |   | December 31 |  
| | ---------------------------------- | - | ----------- | - | - | ----------- | -
| |                                    |   | 2007        |   |   | 2006        |  
| |                                    |   |             |   |   |             |  
| | Notes and advances                 | $ | 32,488      |   | $ | 32,488      |  
| | Long term notes                    |   | 2,197,257   |   |   | -           |  
| |                                    |   | 2,229,745   |   |   | 32,488      |  
| | Less: Current portion              |   | (397,824    | ) |   | (23,288     | )
| | Total long term notes and advances | $ | 1,831,921   |   | $ | 9,200       |  

On February 20, 2007 the Company
entered into an agreement for the purchase of a 53 acre parcel of land located
15 kilometers south of Tucson. The property will be used for a water well field,
pump station, and as a possible water recharge location. The purchase agreement
required an immediate cash payment of US$988,031 ($1,149,969) as well as the
assumption of a promissory note, bearing interest at 8%, for US$2,223,720
($2,601,308). The promissory note, which is secured by a trust deed on the
property, requires 5 equal payments for principal and interest of US$556,945 on
the February 20 anniversary date. At December 31, 2007 the Canadian equivalent
obligation was $2,197,257 of which $374,537 is current.

Other notes and advances do not provide
for specific terms of repayment and are unsecured.

|7. | CONVERTIBLE DEBENTURE
|-- | ---------------------

On June 1, 2005, in connection with the
Rosemont acquisition, the Company issued a convertible debenture for $6,000,000.
The debenture had a one-year term, with half due within six-months, and was
convertible at the option of the borrower into 2,181,818 common shares of the
Company at a price of $2.75 per share. The convertible debenture carried an
interest rate of 9% annually and the Company had the option to repay the
convertible debenture on the specified repayment dates in cash or stock. The
convertible debenture was issued with 363,363 common shares of the Company to
the lender at a fair market value at the date of the transaction of $2.805 per
common share (after a discount of 15% to reflect a hold period expiring on
October 2, 2005).

In accordance with CICA Handbook
Section 3860, and following the fair value approach, the Company allocated the
proceeds as follows:

| | Common shares         | $ | 1,019,233 | 
| | --------------------- | - | --------- | 
| | Convertible debenture |   |           | 
| | Equity component      |   | 1,478,083 | 
| | Debt component        |   | 3,502,684 | 
| |                       | $ | 6,000,000 | 

The difference between the debt
allocation of $3,502,684 and the repayment amount of $6,000,000 is interest
expense, which is accrued over the term of the debenture. Through June 1, 2006,
all of the interest expense amounting to $2,497,316 had been accrued and paid.

|Augusta
      Resource Corporation | 25
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|7. | CONVERTIBLE DEBENTURE(continued)
|-- | --------------------------------

On November 17, 2005 the Company
renegotiated the terms of its convertible debenture to allow for repayment in
the form of cash and stock, as opposed to cash or stock. As consideration, the
Company agreed to issue 750,000 warrants with an exercise price of $1.44
expiring in one year, for which regulatory approval was received on March 15,
2006. The fair value of the warrants issued was $288,938, which was allocated to
debt ($203,193) and equity ($85,745).

On December 1, 2005, the Company
retired $3,000,000 of the convertible debenture plus interest of $270,000
through payment of $1,620,000 in cash and the issuance of 1,500,000 common
shares at a price of $1.10 per share. As the shares were issued at a discount of
15% to the market value in accordance with the terms of the convertible
debenture agreement, a loss on repayment of the convertible debenture of
$390,000 occurred which was recorded in the statement of operations.

In connection with the issuance of the
convertible debenture and common shares, the Company also paid a fee in the
amount of 6% cash and 218,181 warrants. The fair value of the warrants of
$247,769 was allocated to debt ($144,643) and equity ($103,126). Each warrant is
exercisable to acquire one common share at $2.75 per warrant for a period of one
year, which expired on June 14, 2006. The warrants had a hold period expiring on
October 15, 2005.

The remaining debenture was retired on
June 1, 2006 with the payment of $3 million cash.

|8. | SHARE CAPITAL
|-- | -------------
|   |              
|   | (a)          
|   |              
|   | (b)          

| |                                                                 |  | Number
      of |  |   |             | 
| | --------------------------------------------------------------- |  | --------------- |  | - | ----------- | 
| |                                                                 |  | Shares          |  |   | Amount      | 
| | Common shares, Balance at December 31, 2004                     |  | 19,764,555      |  | $ | 4,611,331   | 
| | Issued to convertible debenture holder                          |  | 363,363         |  |   | 1,019,233   | 
| | Issued to convertible debenture
      repayment                 |  | 1,500,000       |  |   | 2,040,000   | 
| | Issued for property acquisitions                                |  | 4,100,000       |  |   | 885,000     | 
| | Issued for cash                                                 |  | 8,998,500       |  |   | 8,370,551   | 
| | Issued for fractional rounding due to share
      consolidation |  | 9               |  |   | -           | 
| | Issued for options exercised                                    |  | 445,833         |  |   | 75,873      | 
| | Issued for
      warrants exercised                             |  | 4,342,333       |  |   | 1,435,260   | 
| | Common shares, Balance at December 31, 2005                     |  | 39,514,593      |  | $ | 18,437,248  | 
| | Issued for warrants exercised                                   |  | 9,828,807       |  |   | 4,430,223   | 
| | Issued for options exercised                                    |  | 195,667         |  |   | 53,020      | 
| | Issued for
      special warrants exercised                     |  | 23,210,000      |  |   | 37,411,857  | 
| | Common shares, Balance at December 31, 2006                     |  | 72,749,067      |  | $ | 60,332,348  | 
| | Issued for cash                                                 |  | 10,719,827      |  |   | 37,519,394  | 
| | Issued for warrants exercised                                   |  | 5,045,000       |  |   | 5,692,632   | 
| | Issued for
      options exercised                              |  | 74,167          |  |   | 37,205      | 
| | Common shares, Balance at December 31, 2007                     |  | 88,588,061      |  | $ | 103,581,579 | 

|Augusta
      Resource Corporation | 26
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|8. | SHARE CAPITAL(continued)
|-- | ------------------------
|   |                         
|   | (c)                     
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   |                         
|   | (d)                     
|   |                         
|   |                         

|Augusta
      Resource Corporation | 27
|---------------------------------- | --

---

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2007, 2006 AND 2005

|8. | SHARE CAPITAL(continued)
|-- | ------------------------
|   |                         
|   | (d)                     
|   |                         
|   |                         

| |                                          |  | 2007             |  
| | ---------------------------------------- |  | ---------------- | -
| |                                          |  |                  |  
| |                                          |  | Number of Shares |  
| | Outstanding at beginning of year         |  | 4,801,167        |  
| | Granted                                  |  | 1,185,000        |  
| | Exercised                                |  | (74,167          | )
| | Forfeited                                |  | (25,000          | )
| | Outstanding at end of period             |  | 5,887,000        |  
| |                                          |  |                  |  
| | Options exercisable at December 31, 2007 |  | 2,779,498        |  

The fair value of stock compensation
was determined using the Black-Scholes option- pricing model. Under this method
the expected term assumption takes into consideration assumed rates of employee
turnover as well as expectations of when options would be exercised and
represents the estimated average length of time stock options remain outstanding
before they are exercised or forfeited. The expected volatility assumptions have
been developed taking the historical Canadian dollar share price. The risk-free
rate is based on the Bank of Canada rate for zero interest bonds in effect at
the time of the grant that corresponds to the expected term of the option.

| |                                       |  | 2007         |  |  | 2006         |  |  | 2005         | 
| | ------------------------------------- |  | ------------ |  |  | ------------ |  |  | ------------ | 
| | Valuation assumptions                 |  |              |  |  |              |  |  |              | 
| | Expected term (years)                 |  | 3            |  |  | 3            |  |  | 3 - 4        | 
| | Expected
      volatility             |  | 67 - 69%     |  |  | 99 - 108%    |  |  | 49 - 82%     | 
| | Weighted average volatility           |  | 69%          |  |  | 103%         |  |  | 72%          | 
| | Expected
      dividend yield         |  | -            |  |  | -            |  |  | -            | 
| | Risk-free interest rate               |  | 3.58 - 3.93% |  |  | 4.09 - 4.14% |  |  | 3.17 - 4.21% | 
| | Weighted average
      risk-free rate |  | 3.86%        |  |  | 4.12%        |  |  | 4.07%        | 

|Augusta
      Resource Corporation | 28
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|8. | SHARE CAPITAL(continued) (d) Options
      (continued)
|-- | ------------------------------------------------------

The following table summarizes stock
options outstanding at December 31, 2007:

| |   |          |  |  | Options Outstanding and Exercisable | 
| | - | -------- |  |  | ----------------------------------- | 
| |   |          |  |  |                                     | 
| |   |          |  |  |                                     | 
| |   |          |  |  | Number                              | 
| |   |          |  |  | Outstanding at                      | 
| |   | Exercise |  |  | December 31,                        | 
| |   | Prices   |  |  | 2007                                | 
| | $ | 0.10     |  |  | 102,000                             | 
| | $ | 2.05     |  |  | 450,000                             | 
| | $ | 1.96     |  |  | 125,000                             | 
| | $ | 2.30     |  |  | 100,000                             | 
| | $ | 1.56     |  |  | 2,035,000                           | 
| | $ | 1.55     |  |  | 150,000                             | 
| | $ | 2.07     |  |  | 816,000                             | 
| | $ | 2.20     |  |  | 539,000                             | 
| | $ | 1.78     |  |  | 335,000                             | 
| | $ | 1.90     |  |  | 50,000                              | 
| | $ | 2.12     |  |  | 1,035,000                           | 
| | $ | 3.61     |  |  | 150,000                             | 
| |   |          |  |  | 5,887,000                           | 

|(e) | Warrants                                                                                                                                                  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                           
|    | The following table summarizes information about warrants
      outstanding at December 31, 2007. Each warrant is exercisable into one
      common share.

| |          |   |                |  |  |                |  |  | Outstanding at |  |  |        |  |  |           |  |  |         |  |  | Outstanding at | 
| | -------- | - | -------------- |  |  | -------------- |  |  | -------------- |  |  | ------ |  |  | --------- |  |  | ------- |  |  | -------------- | 
| |          |   |                |  |  |                |  |  | December 31,   |  |  |        |  |  |           |  |  |         |  |  | December 31,   | 
| | Currency |   | Exercise Price |  |  | Expiry Dates   |  |  | 2006           |  |  | Issued |  |  | Exercised |  |  | Expired |  |  | 2007           | 
| | USD      | $ | 0.16           |  |  | May 6, 2007    |  |  | 3,750,000      |  |  | -      |  |  | 3,750,000 |  |  | -       |  |  | -              | 
| | CDN      | $ | 3.00           |  |  | June 29, 2007  |  |  | 2,200,000      |  |  | -      |  |  | 1,295,000 |  |  | 905,000 |  |  | -              | 
| | CDN      | $ | 4.10           |  |  | March 17, 2008 |  |  | 12,997,600     |  |  | -      |  |  | -         |  |  | -       |  |  | 12,997,600     | 
| |          |   |                |  |  |                |  |  | 18,947,600     |  |  | -      |  |  | 5,045,000 |  |  | 905,000 |  |  | 12,997,600     | 

|Augusta
      Resource Corporation | 29
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|9. | CHANGES IN NON-CASH WORKING CAPITAL
      ITEMS                                    
|-- | -----------------------------------------------------------------------------------
|   |                                                                                    
|   | The following table summarizes the changes in non-cash
      working capital items:

| |                                                      |   | 2007     |   |   | 2006     |   |   | 2005     |  
| | ---------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
| |                                                      |   |          |   |   |          |   |   |          |  
| | Net changes in non-cash working capital
      items: |   |          |   |   |          |   |   |          |  
| | Accounts receivable                                  | $ | (158,762 | ) | $ | (341,800 | ) | $ | 4,509    |  
| | Prepaid items                                        |   | 85,301   |   |   | (120,645 | ) |   | 3,855    |  
| | Accounts payable & accrued liabilities               |   | 631,362  |   |   | 180,535  |   |   | (128,259 | )
| |                                                      | $ | 557,901  |   | $ | (281,910 | ) | $ | (119,895 | )

|10. | SUPPLEMENTAL CASH FLOW INFORMATION
      ON NON-CASH TRANSACTIONS
|--- | -----------------------------------------------------------------

| |                                                    |   | 2007      |  |   | 2006       |  |   | 2005      | 
| | -------------------------------------------------- | - | --------- |  | - | ---------- |  | - | --------- | 
| |                                                    |   |           |  |   |            |  |   |           | 
| | Purchase of property for promissory note           | $ | 2,601,308 |  | $ | -          |  | $ | -         | 
| | Special warrants converted into common shares      | $ | -         |  | $ | 37,411,857 |  | $ | -         | 
| | Warrants issued as share issue expenses            | $ | -         |  | $ | 1,030,524  |  | $ | 213,631   | 
| | Repayment of convertible debt security with shares | $ | -         |  | $ | -          |  | $ | 1,650,000 | 
| | Acquistion of mining property                      | $ | -         |  | $ | -          |  | $ | 120,000   | 

|11. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | All related party transactions are recorded at the
      exchange value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|12. | FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The carrying values of cash and cash equivalents,
      accounts receivable, accounts payable and accrued liabilities and notes,
      advances and other as reflected in the balance sheet approximate their
      fair values. The Company has no significant concentrations of credit
      risk.                                                                                                                                                                                                                                                           

|Augusta
      Resource Corporation | 30
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|13. | INCOME TAXES                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                  
|    | The provision for income taxes reported differs from the
      amount computed by applying the cumulative Canadian Federal and Provincial
      Income tax rates to the loss before the tax provision due to the
      following:

| |                                                                      |   | 2007       |   |   | 2006       |   |   | 2005       |  
| | -------------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| | Net loss from continuing operations                                  | $ | 6,309,175  |   | $ | 5,823,239  |   | $ | 5,202,058  |  
| | Statutory tax rate                                                   |   | 34.12%     |   |   | 34.12%     |   |   | 34.87%     |  
| |                                                                      |   |            |   |   |            |   |   |            |  
| | Recovery of income taxes computed at Standard rates                  |   | (2,152,691 | ) |   | (1,986,889 | ) |   | (1,813,958 | )
| | Permanent differences                                                |   | 761,490    |   |   | 758,873    |   |   | 502,016    |  
| | Tax losses not recognized in the period that the benefit
      arose |   | 1,391,201  |   |   | 1,228,016  |   |   | 1,311,942  |  
| |                                                                      | $ | -          |   | $ | -          |   | $ | -          |  

As of December 31, 2007, the Company
has loss carry forwards of approximately $8,958,000 and US loss carry forwards
of approximately $2,865,000 available to reduce future years income for tax
purposes. The tax loss carry forwards expire at various times between 2008 and
2027.

Future income taxes result primarily
from temporary differences in the recognition of certain revenue and expense
items from financial and income tax reporting purposes. Significant components
of the Companys future tax assets and liabilities as at December 31, 2007, 2006
and 2005 are as follows:

| | Future income tax assets:                                        |   | 2007       |   |   | 2006       |   |   | 2005       |  
| | ---------------------------------------------------------------- | - | ---------- | - | - | ---------- | - | - | ---------- | -
| |                                                                  |   |            |   |   |            |   |   |            |  
| | Non-capital losses and other
      future tax deductions         | $ | 5,043,000  |   | $ | 4,577,000  |   | $ | 910,000    |  
| | Mineral properties,deferred development and
      capital assets |   | 79,000     |   |   | -          |   |   | 827,000    |  
| |                                                                  |   | 5,122,000  |   |   | 4,577,000  |   |   | 1,737,000  |  
| | Valuation allowance for future income tax assets                 |   | (5,122,000 | ) |   | (4,577,000 | ) |   | (1,737,000 | )
| |                                                                  |   |            |   |   |            |   |   |            |  
| | Net future income tax assets (liabilities)                       | $ | -          |   | $ | -          |   | $ | -          |  

As the criteria for recognizing future
income tax assets have not been met due to uncertainty of realization, a
valuation allowance of 100% has been recorded for prior years.

|Augusta
      Resource Corporation | 31
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|14. | COMMITMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On December 19, 2007 the Company announced that it had
      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 two and a half year period starting in January 2008. Payments
      required in 2008 total US$10.1 million, 2009 US$11.6 million and 2010
      US$7.2 million. This mill order helps ensure that mine development occurs
      on a timely basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | 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
      upfront payment will be used to fund construction of the mine as
      milestones are achieved. Augusta will provide a completion guarantee with
      certain minimum production criteria by a certain date. The Company must
      decide on the amount of silver to be included in the sale agreement by
      March 31, 2008. The transaction is subject to (a) the Company receiving
      all necessary permits to construct and operate a mine in accordance with
      the 2007 Rosemont Feasibility Study, (b) the Company having entered into
      committed arrangements for sufficient additional financing to construct
      and operate the mine, and (c) execution by the parties of definitive
      agreements on or before June 30, 2008 as well as receipt of any required
      regulatory approvals and third-party consents.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Other Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company leases building premises recorded as
      operating leases. The terms of the leases extend through to June 30, 2009.
      The future minimum lease payments are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Year2008
    $
    100,8602009
    
    42,800Total
    $
    143,660


|15. | CONTINGENT LIABILITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | On August 24, 2007 the Company announced that it was
      served a complaint by ASARCO in the United States Bankruptcy Court for the
      Southern District of Texas, Corpus Christi Division, with regard to the
      Rosemont property. Augusta believes the complaint is without
  merit.                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Augusta acquired the Rosemont property from a group of
      real estate developers from Tucson in good faith after arms-length
      negotiations. The local real estate developers previously had purchased
      the property from ASARCO Incorporated.                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | This complaint was one of hundreds that ASARCO filed
      against numerous companies in an attempt to overturn various transactions
      it had entered into prior to declaring bankruptcy. In this complaint,
      ASARCO primarily alleges that the initial purchasers failed to pay
      reasonably equivalent value for the Rosemont property in 2004, at a time
      when ASARCO alleges it was hopelessly insolvent, and that Augusta later
      bought the property with knowledge of the voidability of the prior
      sale.

|Augusta
      Resource Corporation | 32
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|15. | CONTINGENT LIABILITIES(continued)                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                        
|    | ASARCO filed for bankruptcy in August 2005.                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                        
|    | Augusta believes that it has solid grounds to defeat any
      ASARCO challenge to its ownership, and it is defending the matter
      vigorously. The suit should have no impact on current plans for operations
      at the Rosemont Copper project. The permitting process, mine site work,
      and design initiatives will continue on schedule.
|    |                                                                                                                                                                                                                                                                                                                                                        
|16. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                        
|    | The Company operates in one industry. As at December 31,
      2007, the Companys long-lived assets were in Canada, $19,000 (2006 -
      $24,800) and in the United States, $61,593,500 (2006 -
  $40,631,600).                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                        
|17. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                        
|    | These consolidated financial statements are prepared in
      accordance with Canadian GAAP, which differ in certain material respects
      from US GAAP. Material differences between Canadian GAAP and US GAAP and
      their effect on the Companys consolidated financial statements are
      summarized in the tables below.                  

| |                                       |   | December 31, 2007 |  
| | ------------------------------------- | - | ----------------- | -
| |                                       |   |                   |  
| | Balance Sheets                        |   | Total Assets      |  
| | Reported under Canadian GAAP          | $ | 94,696,963        |  
| | Mineral property expenditures (a)     |   | (24,970,097       | )
| | Assets of discontinued operations (a) |   | (1,214,176        | )
| | Capitalized interest (e)              |   | 59,000            |  
| | Warrants (b)                          |   | -                 |  
| | Reported under US
      GAAP          | $ | 68,571,690        |  

| |                                       |   | December 31, 2006 |  
| | ------------------------------------- | - | ----------------- | -
| |                                       |   |                   |  
| | Balance Sheets                        |   | Total Assets      |  
| | Reported under Canadian GAAP          | $ | 58,538,531        |  
| | Mineral property expenditures (a)     |   | (15,471,679       | )
| | Assets of discontinued operations (a) |   | (567,104          | )
| | Warrants (b)                          |   | -                 |  
| | Reported under US GAAP                | $ | 42,499,748        |  

|Augusta
      Resource Corporation | 33
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|17. | DIFFERENCES BETWEEN UNITED STATES AND
      CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
|--- | --------------------------------------------------------------------------------------------------------

| |                                                                         |   | Cumulative from    |   |   |             |   |   |             |   |   |             |  
| | ----------------------------------------------------------------------- | - | ------------------ | - | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                                                         |   | dormancy (1985) to |   |   |             |   |   |             |   |   |             |  
| | Statements of
      Operations                                          |   | December 31, 2007  |   |   | 2007        |   |   | 2006        |   |   | 2005        |  
| | Net loss reported under Canadian GAAP                                   | $ | (24,762,551        | ) | $ | (7,979,836  | ) | $ | (6,659,591  | ) | $ | (5,337,837  | )
| |                                                                         |   |                    |   |   |             |   |   |             |   |   |             |  
| | Operating loss from discontinued operations                             |   | (1,442,792         | ) |   | (470,661    | ) |   | (836,352    | ) |   | (135,779    | )
| | Loss on
      disposition of discontinued operations, net of tax        |   | (1,200,000         | ) |   | (1,200,000  | ) |   | -           |   |   | -           |  
| | Net Loss from discontinued operations under
      Canadian GAAP         |   | (2,642,792         | ) |   | (1,670,661  | ) |   | (836,352    | ) |   | (135,779    | )
| |                                                                         |   |                    |   |   |             |   |   |             |   |   |             |  
| | Net loss from continuting operations
      reported under Canadian GAAP |   | (22,119,759        | ) |   | (6,309,175  | ) |   | (5,823,239  | ) |   | (5,202,058  | )
| | Mineral property expenditures (a)                                       |   | (24,970,097        | ) |   | (9,498,418  | ) |   | (12,436,119 | ) |   | (3,015,775  | )
| | Warrants (b)                                                            |   | (8,320,697         | ) |   | (114,131    | ) |   | (4,096,284  | ) |   | (4,110,282  | )
| | Capitalized interest (e)                                                |   | 59,000             |   |   | 59,000      |   |   | -           |   |   | -           |  
| | Accretion expense on debenture (c)                                      |   | 299,125            |   |   | -           |   |   | -           |   |   | -           |  
| | Debt issue costs (c)                                                    |   | (252,147           | ) |   | -           |   |   | (134,835    | ) |   | (117,312    | )
| | Interest and finance charges (c)                                        |   | 1,477,790          |   |   | -           |   |   | 497,035     |   |   | 980,755     |  
| | Net loss from continuing operations reported under US GAAP              |   | (53,826,785        | ) |   | (15,862,724 | ) |   | (21,993,442 | ) |   | (11,464,672 | )
| |                                                                         |   |                    |   |   |             |   |   |             |   |   |             |  
| | Net Loss from discontinued operations under Canadian GAAP               |   | (2,642,792         | ) |   | (1,670,661  | ) |   | (836,352    | ) |   | (135,779    | )
| | Assets discontinued operations (a)                                      |   | (1,214,176         | ) |   | (647,072    | ) |   | (567,104    | ) |   | -           |  
| | Net loss from
      discontinued operations reported under US GAAP      |   | (3,856,968         | ) |   | (2,317,733  | ) |   | (1,403,456  | ) |   | (135,779    | )
| |                                                                         |   |                    |   |   |             |   |   |             |   |   |             |  
| | Net loss reported
      under US GAAP                                   | $ | (57,683,753        | ) | $ | (18,180,457 | ) | $ | (23,396,898 | ) | $ | (11,600,451 | )
| |                                                                         |   |                    |   |   |             |   |   |             |   |   |             |  
| | Basic and fully diluted loss from continuing operations                 |   |                    |   |   |             |   |   |             |   |   |             |  
| | per share under US GAAP                                                 |   |                    |   | $ | (0.19       | ) | $ | (0.37       | ) | $ | (0.36       | )
| | Basic and fully diluted loss from discontinued operations               |   |                    |   |   |             |   |   |             |   |   |             |  
| | per share under US GAAP                                                 |   |                    |   | $ | (0.03       | ) | $ | (0.02       | ) | $ | (0.00       | )
| | Basic and fully diluted loss per share under US GAAP                    |   |                    |   | $ | (0.22       | ) | $ | (0.40       | ) | $ | (0.36       | )
| | Weighted average number of common shares
      outstanding              |   |                    |   |   |             |   |   |             |   |   |             |  
| | under both Canadian GAAP and US GAAP                                    |   |                    |   |   | 81,795,564  |   |   | 59,219,428  |   |   | 32,282,246  |  
| | Comprehensive loss                                                      |   |                    |   |   |             |   |   |             |   |   |             |  
| | Net loss under US GAAP                                                  |   | (57,683,753        | ) | $ | (18,180,457 | ) | $ | (23,396,898 | ) | $ | (11,600,451 | )
| | Other comprehensive income (e)                                          |   | -                  |   |   | -           |   |   | -           |   |   | -           |  
| | Comprehensive
      loss                                                | $ | (57,683,753        | ) | $ | (18,180,457 | ) | $ | (23,396,898 | ) | $ | (11,600,451 | )

| |                                          |   | Cumulative from    |   |   | December 31 |  
| | ---------------------------------------- | - | ------------------ | - | - | ----------- | -
| |                                          |   | dormancy (1985) to |   |   |             |  
| | Statements of Cash
      Flows           |   | December 31, 2007  |   |   | 2007        |  
| | Operating activities                     |   |                    |   |   |             |  
| | Operating activities under Canadian GAAP | $ | (9,578,858         | ) | $ | (3,725,705  | )
| | Mineral property expenditures (a)        |   | (26,316,597        | ) |   | (10,419,555 | )
| | Operating
      activities under US GAAP | $ | (35,895,455        | ) | $ | (14,145,260 | )
| |                                          |   |                    |   |   |             |  
| | Investing activities                     |   |                    |   |   |             |  
| | Investing activities under Canadian GAAP | $ | (62,370,046        | ) | $ | (18,654,916 | )
| | Mineral property
      expenditures (a)  |   | 26,316,597         |   |   | 10,419,555  |  
| | Investing activities under US GAAP       | $ | (36,053,449        | ) | $ | (8,235,361  | )

|Augusta
      Resource Corporation | 34
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|17. | DIFFERENCES BETWEEN UNITED STATES AND
      CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
|--- | --------------------------------------------------------------------------------------------------------

| |                                          |   | December 31, 2007 |  
| | ---------------------------------------- | - | ----------------- | -
| |                                          |   |                   |  
| |                                          |   |                   |  
| |                                          |   | Common            |  
| | Statements of
      Shareholders' Equity |   | Shares            |  
| | Reported under Canadian GAAP             | $ | 103,581,579       |  
| | Mineral property expenditures (a)        |   | -                 |  
| | Assets of discontinued operations (a)    |   | -                 |  
| | Warrants (b)                             |   | 8,785,860         |  
| | Convertible debenture (c)                |   | -                 |  
| | Share issue costs (d)                    |   | (5,130,207        | )
| | Capitalized interest (e)                 |   | -                 |  
| | Accretion expense
      on debenture (c) |   | (299,125          | )
| | Reported under US GAAP                   | $ | 106,938,107       |  

| |                                          |   | December 31, 2006 |  
| | ---------------------------------------- | - | ----------------- | -
| |                                          |   |                   |  
| |                                          |   |                   |  
| |                                          |   | Common            |  
| | Statements of
      Shareholders' Equity |   | Shares            |  
| | Reported under Canadian GAAP             | $ | 60,332,348        |  
| | Mineral property expenditures (a)        |   | -                 |  
| | Assets of discontinued operations (a)    |   |                   |  
| | Warrants (b)                             |   | -                 |  
| | Convertible debenture (c)                |   | -                 |  
| | Share issue costs (d)                    |   | (5,105,207        | )
| | Accretion expense on debenture (c)       |   | (299,125          | )
| | Reported under US
      GAAP             | $ | 54,928,016        |  

| |                                          |   | December 31, 2005 |  
| | ---------------------------------------- | - | ----------------- | -
| |                                          |   |                   |  
| |                                          |   |                   |  
| |                                          |   | Common            |  
| | Statements of
      Shareholders' Equity |   | Shares            |  
| | Reported under Canadian GAAP             | $ | 18,437,248        |  
| | Mineral property expenditures (a)        |   | -                 |  
| | Warrants (b)                             |   | -                 |  
| | Convertible debenture (c)                |   | -                 |  
| | Share issue costs (d)                    |   | (1,199,321        | )
| | Accretion expense
      on debenture (c) |   | (299,125          | )
| | Reported under US GAAP                   | $ | 16,938,802        |  

|Augusta
      Resource Corporation | 35
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|17. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
|--- | --------------------------------------------------------------------------------------------------------
|    |                                                                                                         
|    | a)                                                                                                      
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    | b)                                                                                                      
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         

|Augusta
      Resource Corporation | 36
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|17. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
|--- | --------------------------------------------------------------------------------------------------------
|    |                                                                                                         
|    | b)                                                                                                      
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    | c)                                                                                                      
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    | d)                                                                                                      
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    | e)                                                                                                      
|    |                                                                                                         
|    |                                                                                                         

|Augusta
      Resource Corporation | 37
|---------------------------------- | --

---

|NOTES TO THE CONSOLIDATED FINANCIAL
      STATEMENTS
|----------------------------------------------------
|DECEMBER 31, 2007, 2006 AND 2005                    

|17. | DIFFERENCES BETWEEN UNITED STATES AND CANADIAN
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES(continued)
|--- | --------------------------------------------------------------------------------------------------------
|    |                                                                                                         
|    | (f)                                                                                                     
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    | (g)                                                                                                     
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         
|    |                                                                                                         

|Augusta
      Resource Corporation | 38
|---------------------------------- | --

---

|CORPORATE INFORMATION |                                                                       |               
|--------------------- | --------------------------------------------------------------------- | --------------
|                      |                                                                       |               
|HEAD OFFICE           | #400  837 West Hastings Street                                      
|                      | Vancouver, BC, Canada V6C 3N6                                        
|                      |                                                                       |               
|                      | Telephone:                                                            | (604) 687-1717
|                      | Facsimile:                                                            | (604) 687-1715
|                      |                                                                       |               
|                      | Website: www.augustaresource.com                                     
|                      | E-mail: info@augustaresource.com                                     
|                      |                                                                       |               
|                      |                                                                       |               
|DIRECTORS             | Donald B. Clark                                                      
|                      | Gil Clausen                                                           |               
|                      | W. Durand Eppler                                                     
|                      | Christopher M.H. Jennings                                            
|                      | Michael A. Steeves                                                   
|                      | Robert P. Wares                                                      
|                      | Richard W. Warke (Chairman)                                          
|                      |                                                                       |               
|                      |                                                                       |               
|OFFICERS              | Donald B. Clark ~ Vice President
      Administration                
|                      | Mike Clarke ~ Vice President
      Exploration                       
|                      | Gil Clausen ~ President and Chief
      Executive Officer            
|                      | Lance Newman ~ Vice President Project
      Development              
|                      | Bruce Nicol ~ Senior Vice President
      and Chief Financial Officer
|                      | Rod Pace ~ Vice President Operations                                 
|                      | Purni Parikh ~ Corporate Secretary                                   
|                      | Raghunath Reddy ~ Vice President
      Finance                       
|                      | James Sturgess ~ Vice President
      Projects and Environment       
|                      | Richard Warke ~ Vice President
      Corporate Development           
|                      |                                                                       |               
|                      |                                                                       |               
|REGISTRAR AND         | Computershare Trust Company of Canada                                
|TRANSFER AGENT        | #401 - 510 Burrard Street                                            
|                      | Vancouver, BC                                                         | V6C 3B9       
|                      |                                                                       |               
|                      |                                                                       |               
|AUDITORS              | Ernst & Young, LLP                                                   
|                      | 700  West Georgia Street                                            
|                      | Vancouver, BC V7Y 1C7                                                
|                      |                                                                      
|                      |                                                                      
|SOLICITORS            | Fasken Martineau                                                     
|                      | 2900  550 Burrard Street                                            
|                      | Vancouver, BC V6C 0A5                                                
|                      |                                                                       |               
|                      |                                                                       |               
|SHARES LISTED         | Toronto Stock Exchange                                               
|                      | American Stock Exchange                                              
|                      | Trading
      Symbol ~ AZC                                           
|                      | Frankfurt Stock Exchange                                             
|                      | Trading
      Symbol  A5R                                           

|Augusta
      Resource Corporation | 39
|---------------------------------- | --

---